SHERRY FISCHER еt al., Plaintiffs and Appellants, v. TIME WARNER CABLE INC. et al., Defendants and Respondents.
No. B254863
Second Dist., Div. Eight
Feb. 23, 2015
A petition for a rehearing was denied March 16, 2015
234 Cal.App.4th 784
Appellants’ petition for review by the Supreme Court was denied June 10, 2015, S225395.
COUNSEL
Gibson, Dunn & Crutcher, Daniel G. Swanson, Jay P. Srinivasan and Brandon J. Stoker for Defendant and Respondent Time Warner Cable Inc.
Winston & Strawn, David B. Enzminger, Dan K. Webb, Derek J. Sarafa and William C. O‘Neil for Defendants and Respondents Los Angeles Dodgers Holding Company and America Media Productions.
OPINION
RUBIN, Acting P. J.—Four subscribers to Time Warner Cable Inc. appeal from the order sustaining without leave to amend the demurrers of Time Warner, the Los Angeles Lakers and the Los Angeles Dodgers to the subscribers’ class action unfair competition complaint based on rate hikes for carrying channels that broadcast Dodgers and Lakers games. We affirm because federal regulations implementing federal communications statutes have expressly preempted this action.
FACTS AND PROCEDURAL HISTORY1
Time Warner Cable is a significant, if not the primary, provider of cable television throughout several Southern California counties. Typically, Time Warner buys content from programmers (think Fox, Disney, Viacom, and HBO), who require Time Warner to offer each programmer‘s channels in a single bundle as part of Time Warner‘s enhanced basic cable programming tier.
In 2011, Time Warner paid the Lakers $3 billion for the licensing rights to televise Lakers games for 20 years over two channels: TWC SportsNet and TWC Deportes. Time Warner‘s subscription rates rose by $5 a month as a result of bundling those channels into the enhanced basic cable tier. In 2013, Time Warner paid the Dodgers $8 billion for the licensing rights to televise Dodgers games for 25 years. The new SportsNet LA channel was also added to the enhanced basic cable tier, raising subscribers’ monthly rates by another $4. The rate hikes will cost Time Warner subscribers at least $11 billion over the life of the contracts.
Sherry Fischer, Stewart R. Graham, Todd Crow, and Gavin McKiernan filed a class action lawsuit against Time Warner, the Dodgers, and the Lakers, alleging that this new arrangement violated the state‘s unfair competition law
Time Warner demurred to the complaint on the ground that federal law expressly permitted bundling of channels, thereby providing a “safe harbor” against unfair competition claims. The Dodgers and Lakers filed separate concurrent demurrers, with both contending they could not be liable because they had not committed unfair acts, while the Lakers also joined in Time Warner‘s demurrer.4 The trial court sustained without leave to amend Time Warner‘s demurrer on the safe harbor ground, adding to its analysis a legal issue that had not previously been raised: the express preemption of state unfair competition laws by a federal regulation implementing federal statutes that govern the cable television industry. (
In reviewing a judgment of dismissal after a demurrer is sustained without leave to amend, we assume the truth of all properly pleaded facts. We examine the complaint‘s factual allegations to determine whether they state a cause of action on any available legal theory regardless of the label attached to a cause of action. (Doe v. Doe 1 (2012) 208 Cal.App.4th 1185, 1188 [146 Cal.Rptr.3d 215].) We do not assume thе truth of contentions, deductions, or conclusions of fact or law, and may disregard allegations that are contrary to the law or to a fact that may be judicially noticed. A demurrer is proper when a ground for objection to the complaint appears on its face or from matters of which the court may or must take judicial notice. (Id. at pp. 1188–1189.) To the extent statutory construction issues are raised we apply the rules of statutory construction and exercise our independent judgment as to whether the complaint states a cause of action. (Id. at p. 1189.)
We will affirm an order sustaining a demurrer on any proper legal ground whether or not the trial cоurt relied on that theory or it was raised by the defendant. (Rossberg v. Bank of America, N.A. (2013) 219 Cal.App.4th 1481, 1490-1491 [162 Cal.Rptr.3d 525]; Henry v. Associated Indemnity Corp. (1990) 217 Cal.App.3d 1405, 1413, fn. 8 [266 Cal.Rptr. 578].)5
Finally, whether leave to amend should have been granted is reviewed under the abuse of discretion standard, although error is shown if there is any reasonable probability an amendment that cures the defect can be made. Appellants bear the burden on appeal of showing a reasonable possibility exists that the complaint can be successfully amended. (Rosen v. St. Joseph Hospital of Orange County (2011) 193 Cal.App.4th 453, 458 [122 Cal.Rptr.3d 87].)
DISCUSSION
1. Regulations of a Federal Agency May Preempt State Law
Under the supremacy clause of the United States Constitution (
253 P.3d 522] (Brown).) Therefore Congress may preempt state laws to the extent it believes such action is necessary to achieve its purposes. (City of New York v. FCC (1988) 486 U.S. 57, 63 [100 L.Ed.2d 48, 108 S.Ct. 1637] (City of New York).)
Congress may exercise that power expressly, or the courts may infer preemption under one of three implied preemption doctrines: conflict, obstacle, or field preemption. (Brown, supra, 51 Cal.4th at p. 1059.) Express preemption occurs when Congress defines the extent to which a statute preempts state law. (Viva! Internat. Voice for Animals v. Adidas Promotional Retail Operations, Inc. (2007) 41 Cal.4th 929, 935 [63 Cal.Rptr.3d 50, 162 P.3d 569].) Conflict preemption exists when it is impossible to simultaneously comply with both state and federаl law. (Ibid.) Obstacle preemption occurs when state law stands in the way of full accomplishment and execution of federal law. (Ibid.) Field preemption applies when comprehensive federal regulations leave no room for state regulation. (Ibid.)
Preemption may be based either on federal statutes or on federal regulations that are properly adopted in accordance with statutory authorization. As a result, a federal agency acting within the scope of its congressionally delegated authority may preempt state regulation and “render unenforceable state or local laws that are otherwisе not inconsistent with federal law.” (City of New York, supra, 486 U.S. at p. 64.) The current appeal presents primarily the question of regulatory, not statutory, preemption.
When regulatory preemption is at issue, the regulation‘s force does not depend on express congressional authorization to displace state law. As a result, a narrow focus on Congress’ intent to supersede state law is not appropriate. (City of New York, supra, 486 U.S. at p. 64.) Therefore the focus is on the agency and whether it acted within the bounds of its lawful authority. (Ibid.)
A federal agency‘s regulations will preempt any state or local laws that conflict with or frustrate the regulations’ purpose. Beyond that, in proper circumstances an agency may determine that its authority is exclusive and preempts any state efforts to regulate at all in the forbidden area. (City of New York, supra, 486 U.S. at p. 64.) Many of the responsibilities conferred on federal agencies include a broad grant of authority to reconcile conflicting policies. “Where this is true, the [Supreme] Court has cautioned that even in the area of pre-emption, if the agency‘s choice to pre-empt ‘represents a reasonable accommodation of conflicting policies that were committed to the
2. Applicable Federal Statutes and Regulations in the Cable Industry
The Federal Communications Commission (FCC) regulates cable television service through the Cable Television Consumer Protection and Competition Act of 1992. (
Pursuant to its regulatory authority, the FCC promulgated
In sum, changes to a service tier that do not amount to a fundamental change in the nature of service do not run afoul of the negative option billing prohibition, meaning that such changes can be made without a subscriber‘s express advance agreement. Particularly relevant to this case,
The question remains: Was the inclusion of the three sports channels to the basic tier (1) simply the addition of “specific” programs or channels and hence a form of negative option billing that is lawful under the regulations or (2) a fundamental change in the nature of an existing service or tier and hence subject to state consumer protective laws?
3. Regulations Part 76.981 Preempts the UCL
The trial court concluded, and respondents contend here, that Time Warner did nothing more than add three sports channels to its enhanced basic service tier and adjust subscribers’ rates accordingly, changes that did not fundamentally alter the nature of the existing tier. As a result, respondents contend that appellants’ UCL action is expressly preempted by Regulations part 76.981, which authorizes such minor channel lineup changes (
Appellants contend that Regulations part 76.981 does not apply because (1) Time Warner‘s unilateral addition of new channels at a higher rate was a negative option billing practice prohibited by section 543(f); (2) the new channels fundamentally changed an existing tier of channels under Regulations part 76.981(b); (3) section 552(d)(1), part of the Cable Act, permits enforcement of state consumer protection laws unless the Cable Act expressly states otherwise; and (4) section 543, part of the Cable Act, does not provide for such preemption in this setting. We disagree.
The only case to construe Regulations part 76.981, determine the FCC‘s authority to promulgate it, and consider the regulation‘s preemptive effect, is Time Warner Cable v. Doyle (7th Cir. 1995) 66 F.3d 867 (Doyle).14
The district court entered summary judgment for the state. The Seventh Circuit reversed, finding the action was preempted by Regulations part 76.981. The Doyle court began by noting the rule that when a statute is silent or ambiguous on the issue of preemption, the courts must defer to an interpretation by the administering agency so long as it is based on a permissible reading of the statute. (Doyle, supra, 66 F.3d at p. 876.) The negative option billing provision of section 543 was ambiguous because its language standing alone did not “answer the question of whether the unbundling or the merе relabeling of existing services” was sufficient to require affirmative customer consent. (66 F.3d at p. 877.)
The appellate court also observed that a literal interpretation of the “negative option billing” prohibition in section 543(f) would impose the burdensome requirement of cable operators obtaining affirmative customer consent every time a station was substituted, “producing significant compliance costs that would be difficult to reconcile with the contemplated rate regulation scheme.” (Doyle, supra, 66 F.3d at p. 877.)15 Because section 543(f)‘s negative option billing prohibition was placed in the Cable Act‘s rate regulation section, not the consumer proteсtion section (§ 552), an inference arose that the requirement of an affirmative request for service was at least a factor in the regulatory scheme for rates, and was therefore subject to the bar on rate regulation under section 543(a)(1). (66 F.3d at p. 877.)
In short, the Seventh Circuit concluded that, while state consumer protection laws may be enforced generally under the Cable Act, where enforcement is sought in regard to negative option billing practices that concern nonfundamental service changes, they are preempted by Regulations part 76.981. (Doyle, supra, 66 F.3d at pp. 880-881.)
Another factor the Doyle court considered was the potential remedy of disgorgement available under Wisconsin‘s unfair trade practices act. Even thоugh the parties later stipulated that disgorgement would not be sought, the Seventh Circuit held that the initial availability of that remedy impacted rate regulation because, were disgorgement ordered, the net effect would be that Time Warner would have provided the disputed channels for free. (Doyle, supra, 66 F.3d at pp. 881-882.) As a result, enforcement of that state law would have “impact on the rate rules by discouraging the provision of new services at a reasonable cost.” (Id. at p. 882.) Accordingly, Regulations part
With Doyle as a guide, we conclude that Regulations part 76.981 is a proper exercise of the FCC‘s regulatory authority and preempts appellants’ UCL claim. First, as in Doyle, appellants seek restitution of the rate hike fees, thereby retroactively affecting rates Time Warner has already charged its customers. Second, the trial court took judicial notice of the channel lineups as they stood before and after the new sports channels were added. Only three of nearly 100 in the nonbroadcast basic cable tier were affected. An FCC order interpreting Regulations part 76.981 states that tier changes of that nature are minor, not “fundamental,” even if they аre accompanied by a rate adjustment, and are therefore within the preemptive scope of Regulations part 76.981(c). (Implementation of Sections of the Cable Television Consumer Protection and Competition Act of 1992; Rate Regulation, Sixth Order on Reconsideration, 10 F.C.C.R. 1226, ¶¶ 109–110, adopted Nov. 10, 1994, released Nov. 18, 1994 (FCC Sixth Order).) By contrast, deleting all existing channels from a particular tier and replacing them with an entirely new set of channels would constitute a fundamental change to a tier of channels. (Id., ¶ 110.) In that hypothetical setting, negative option billing would be implicated and state laws that addressed such changes would not be preemptеd.
Appellants challenge Doyle by citing to the Doyle dissent‘s contention that section 543 was not ambiguous and therefore did not support the FCC‘s interpretation and concomitant enactment of Regulations part 76.981. Of course, a dissent has no precedential value, and we find it unpersuasive here. (Tearlach Resources Limited v. Western States Internat., Inc. (2013) 219 Cal.App.4th 773, 783 [162 Cal.Rptr.3d 110].) We agree with the Doyle court that literal application of negative option billing to every minor change would be seriously burdensome to cable operators, and it was that reality that prompted the FCC to add the “fundamental change” rule to negative option billing in Regulations part 76.981. (Doyle, supra, 66 F.3d at p. 877.) Thus, the regulation was compatible, not inconsistent, with sectiоn 543, and hence a proper subject for regulatory promulgation and regulatory preemption. (City of New York, supra, 486 U.S. at pp. 63-64.)
Appellants also contend that the FCC Sixth Order actually supports their contention that Time Warner‘s addition of the three sports channels constituted a fundamental change to the basic service tier that brought it outside the preemptive effect of Regulations part 76.981. Because the FCC Sixth Order provides a 20-cent-per-channel cap on the costs of adding new channels, appellants contend that the $9-per-month rate hike for the three new channels did constitute a fundamental change. However, as Time Warner points out,
Appellants also rely on decisions that have allowed enforcement of various state laws against cable operators, but none is applicable. (Total TV v. Palmer Communications, Inc. (9th Cir. 1995) 69 F.3d 298 [action under the Unfair Practices Act (
In short, the FCC, pursuant to its statutory authority, has made it clear that state consumer protection laws are preempted in regard to negative option billing practices that result in rate hikes due to the addition of a small number of channels because those rate hikes do not represent a “fundamental change” in service. The essence of appellants’ complaint is to the contrary—nonfundamental changes are not preempted. Even though they seek leave to amend to allege that the three channel additions fundamentally altered the basic cable tier, such an allegation would not eliminate that defect, as the cited authorities indicate that such additions are not fundamental changes. We therefore hold that the action is necessarily preempted as to all respondents.18
The judgment of dismissal based on the order sustaining respondents’ demurrers without leave to amend is affirmed. Rеspondents to recover their appellate costs.
Flier, J., and Grimes, J., concurred.
A petition for a rehearing was denied March 16, 2015, and appellants’ petition for review by the Supreme Court was denied June 10, 2015, S225395.