TOWN OF NORWOOD & another [Note 1] vs. ADAMS-RUSSELL CO., INC.

GREANEY, J. In July, 1982, the town of Norwood granted a license to Adams-Russell Co., Inc. (Adams-Russell), authorizing it to construct and operate a cable television system in the town. That license, which took the form of a bilaterally negotiated contract, contains a rate freeze provision providing as follows: "The License [Adams-Russell] agrees that it will not change the schedule of monthly rates for all cable and pay TV services for at least twenty-four (24) months after the cable system is initially fully constructed and energized." [Note 2]

The event underlying the town's complaint in this case occurred in August, 1985, when Adams-Russell announced a rate increase on its "Supercable" service, effective on September 1, 1985. [Note 3] It is undisputed that Adams-Russell had not, and in fact still has not, completed construction of the cable system in accordance with the requirements set forth in the license.

In August, 1985, the town and its board of selectmen filed a two-count complaint against Adams-Russell in the Superior Court. Count one alleged that Adams-Russell had violated the rate freeze provision in the license agreement by raising its rates prematurely. Count two alleged that this rate increase also constituted an unfair or deceptive business practice in violation of G. L. c. 93A, Section 11 (1988 ed.).

On November 17, 1986, a judge sitting in the Superior Court allowed the town's motion for summary judgment on count 1, but deferred any ruling on the proper remedy under that count or on liability under count 2. Adams-Russell appealed. In Norwood v. Adams-Russell Co., 401 Mass. 677

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(1988) (Norwood I), we affirmed the grant of partial summary judgment for the town. In reaching this decision, we rejected Adams-Russell's argument that the Cable Communications Policy Act of 1984, 47 U.S.C. Sections 521-559 (Supp. III 1984) (Cable Act), preempted the rate freeze provision to the extent of rendering Adams-Russell's September 1, 1985, rate increase legal. The pertinent part of the Cable Act permits a franchising authority, such as the town, to regulate the rates for "basic cable service," but only until December 29, 1986. See 47 U.S.C. Section 543 (c)(1). [Note 4] Any other type of rate regulation is prohibited. See 47 U.S.C. Section 543(a). We concluded that Adams-Russell's Supercable tier constituted "basic cable service," and thus could be regulated by the town, pursuant to Section 543(c)(1) of the Cable Act, until December 29, 1986. See Norwood I, supra at 684. Since the proposed rate increase occurred before that date, and violated the terms of the license agreement, we affirmed the Superior Court's judgment and remanded the case to that court for "further proceedings consistent with this opinion." Id. at 686.

On remand, the town moved for an appropriate remedy under count 1 and for summary judgment on count 2 (c. 93A claim). Furthermore, the town moved to amend both counts of its complaint to account for a second rate increase effective July 1, 1988. Adams-Russell sought to confine recovery under count 1 to damages incurred prior to December 29, 1986, [Note 5] filed a cross motion for summary judgment on count 2, and opposed the motion to amend the complaint.

On November 17, 1988, a judge in the Superior Court agreed with Adams-Russell's position. The judge concluded that the case was an appropriate one for summary judgment,

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but that the town's remedy under count 1 was limited to losses incurred prior to December 29, 1986. Accordingly, the judge determined that Adams-Russell was required to refund the rate increases charged between September 1, 1985, and December 29, 1986, and denied the town's motion to amend its complaint to include the July 1, 1988, rate increase. The judge also decided that the town could not maintain its action under G. L. c. 93A, Section 11, and thus granted summary judgment for Adams-Russell on count 2 of the complaint. The town has appealed from the judgment entered pursuant to the judge's memorandum. We granted the town's motion for direct appellate review, and now affirm the judgment.

1. Preemption and the contract claim. We first take up the issue of whether the Cable Act preempts the town's ability to enforce the rate freeze provision in the contract beyond December 29, 1986. In determining whether the rate freeze provision of the franchise agreement between the town and Adams-Russell is preempted by the Cable Act, we inquire whether Congress intended such preemption to occur. See Cablevision of Boston Ltd. Partnership v. Flynn, 710 F. Supp. 23, 26 (D. Mass. 1989), aff'd per curiam, 889 F.2d 337 (1st Cir. 1989); New York v. FCC, 814 F.2d 720, 724 (D.C. Cir. 1987), aff'd, 486 U.S. 57 (1988). Our inquiry on this point is resolved by the plain language of the statute: "Except as provided in section 557 of this title . . . any provision of any franchise granted by [a franchising] authority, which is inconsistent with this chapter shall be deemed to be preempted and superseded." 47 U.S.C. Section 556(c). [Note 6] Section 557 in turn provides that provisions of licenses which predated the enactment of the Cable Act shall remain in effect "subject to the express provisions of this subchapter." 47 U.S.C. Section 557(a). The Cable Act preempts only those franchise provisions which are inconsistent with its terms, and has been so interpreted by other courts which have addressed this issue. See Cablevision of Boston Ltd. Partnership

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v. Flynn, supra at 28. See also Housatonic Cable Vision v. Department of Pub. Util., 622 F. Supp. 798, 806 (D. Conn. 1985); Dubuque v. Group W Cable, Inc., No. C 85-1046 (N.D. lowa June 18, 1986). The rate freeze provision will conflict with the Cable Act, and thus be preempted thereby, only if the provision "stands as an obstacle to the accomplishment and execution of the full purposes and objectives of Congress." Jones v. Rath Packing Co., 430 U.S. 519, 526 (1977).

Adams-Russell contends that the rate freeze provision conflicts, within the meaning of the Jones decision, supra, with Section 543 of the Cable Act. That section provides, in pertinent part, that "[a]ny franchising authority may regulate the rates for the provision of cable service . . . but only to the extent provided under this section." 47 U.S.C. Section 543(a). Thus, a franchising authority may not regulate rates unless an express exception is provided for in Section 543 of the Cable Act. See Dubuque v. Group W Cable, Inc., supra. Section 543 provides for two such exceptions; a franchising authority: (1) may "regulate rates for the provision of basic cable service in circumstances in which a cable system is not subject to effective competition," Section 543(b); and (2) may enforce franchise provisions regulating basic cable service which antedate the enactment of the Cable Act for a two-year period following that enactment, Section 543(c)(1). [Note 7]

Adams-Russell argues that the town cannot avail itself of the first exception because the town's cable system is subject to effective competition. Furthermore, argues Adams-Russell, while the second provision does permit the town to enforce the rate freeze, that permission extends only until the expiration of the two-year grandfather clause period -- which ended on December 29, 1986. Thus, Adams-Russell contends that any attempt to enforce that provision beyond December

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29, 1986, conflicts with the Cable Act and consequently is preempted.

The town, on the other hand, maintains that to enforce the rate freeze provision is not to "regulate rates" within the meaning of the Cable Act, and thus is not covered by the Act's preemption provisions. In support of this position, the town relies on the facts that the rate freeze provision (1) was enacted through bilateral contract negotiations rather than as a unilateral ordinance; (2) is time limited rather than permanent; and (3) was initially proposed by Adams-Russell rather than by the town. The town apparently concedes, as it must, that, if the rate freeze provision constitutes "regulation," it cannot be enforced beyond December 29, 1986.

While clearly prohibiting certain rate regulation by franchising authorities, the Cable Act does not define the term "regulation." We therefore must examine the Act's legislative history to determine what meaning Congress attached to that term. A convenient starting point in this analysis is the problem that prompted the Cable Act's enactment: "Faced with stiff competition for franchises, some cable operators simply overpromised and oversold in the franchise process." H.R. Rep. No. 934, 98th Cong., 2d Sess. 21, reprinted in 1984 U.S. Code Cong. & Admin. News 4655, 4658. As a result of this overreaching, recognized Congress, "[t]he past two to four years have shown that, in many instances, the terms of the urban franchises may be beyond the point of economic viability . . . . In major cities across the country, cable operators have soon after the grant of a franchise turned to the city with requests to reduce channel capacity from that bid in the franchising process, cut back on the services provided, reduce public access facilities, increase rates and slow down the timetable for construction." Id. at 4658-4659. The resolution of this problem in the franchising process is expressly identified as a "significant purpose" for passing the Cable Act. Id. at 4659.

The specific solution legislated in the Cable Act is deregulation. With the discrete exceptions noted above, cable rates are to be determined by the forces of marketplace competition

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rather than by municipal fiat, bilateral contract, or any other nonmarket mechanism. See id. at 4662 ("The [House Energy and Commerce] Committee believes that the availability of competing sources of programming in a given market will keep the rates for basic cable services reasonable in that market without the need for regulation. A franchising authority should be granted authority to regulate rates for basic cable service only in circumstances in which a cable system is not subject to effective competition"); S. Rep. No. 67, 98the Cong., 1st Sess. 23 ("The [Senate Committee on Commerce, Science, and Transportation] firmly believes in encouraging competition and in not imposing any regulation where marketplace forces are better able to insure innovation, diversity, and efficiency . . . . [I]t is the intent of this committee that [telecommunications] services, when offered over a cable system, shall be free of any governmental regulation or restriction"). This congressional intent is clearly reflected in the Cable Act itself. After the two-year grandfather period has elapsed, the sole basis upon which franchising authorities may regulate basic cable service is the absence of effective competition in the marketplace. See 47 U.S.C. Section 543; Westwood v. Adams-Russell Co., 24 Mass. App. Ct. 914, 916 (1987).

The interpretation of the term "regulation" proposed by the town is in direct conflict with the unambiguous, pro-competitive intent manifested in the Cable Act. The town's attempt to enforce its rate freeze provision beyond December 29, 1986, has the pronounced effect of perpetuating the problem Congress set out to resolve in the Cable Act -- the setting of rates through the often economically unviable franchise process. Were we to adopt the town's position, we would be insulating the basic cable rates in that town from market competition, and for a potentially indefinite term. [Note 8] Such an interpretation would run directly counter to both

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congressional intent and the express language of the Cable Act.

Our conclusion on this point is reinforced by the complete absence in either the language or the legislative history of the Cable Act of evidence which supports the town's attempt to remove its bilaterally negotiated rate freeze provision from the Act's proscription of "regulation." On the contrary, the language of the Cable Act indicates that Congress fully intended the Cable Act's reach to extend to rate regulation taking the form of a contract. The Act defines the term "franchise" as "an initial authorization . . . issued by a franchising authority, whether such authorization is designated as a franchise, permit, license, resolution, contract, certificate, agreement, or otherwise, which authorizes the construction or operation of a cable system" 47 U.S.C. Section 522(8) (emphasis added). Congress thus was clearly aware that rate regulations in cable television franchises sometimes take the form of contractual provisions. Yet nowhere did Congress indicate that the effects of such rate regulations were any less pernicious simply because they were drafted as terms of a contract rather than as local ordinances, or any other type of unilaterally imposed regulation. Having reviewed the terms of the Cable Act, as well as its legislative history, we are convinced that Congress did not intend to draw any distinction between the various technical forms a rate regulation might take. In fact, ascribing to Congress any such intent would be simultaneously to ascribe to it an intent to permit the circumvention of the Cable Act itself. As the Supreme Court of Vermont has astutely noted, a franchising authority "cannot avoid the Act's clear prohibitions of regulation by arguing that it achieved rate control only through `proprietary' means. Otherwise, governmental subdivisions could use threats of market competition to obtain de facto rate regulation through contractual settlements, thus avoiding the dictates of the Act." [Note 9] Burlington v. Mountain Cable Co., 559

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A.2d 153, 156 n.4 (Vt. 1988), cert. denied, 109 S. Ct. 3245 (1989).

We conclude that the rate freeze provision contained in the franchise contract between Norwood and Adams-Russell is a "regulation" within the meaning of Section 543 of the Cable Act. [Note 10] The fact that the freeze takes the form of a bilateral, time-limited contract provision rather than of a unilateral, permanent ordinance is irrelevant. Both types of restrictions frustrate the purposes of the Cable Act equally, and are

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therefore equally preempted thereby. [Note 11] The town may not enforce the rate freeze provision after December 29, 1986. [Note 12]

2. The G. L. c. 93A claim. We assume, without deciding, that the town in these circumstances has standing to sue under G. L. c. 93A, Section 11. The foregoing discussion makes

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clear that Adams-Russell has committed no violation of G. L. c. 93A, a conclusion further supported by the Cable Act itself. [Note 13]

Judgment affirmed.