`
`LATHAM & WATKINS LLP
`Jean A. Pawlow (Bar No. 139451)
`Email: jean.pawlow@lw.com
`555 Eleventh Street, N.W., Suite 1000
`Washington, DC 20004
`Tel: 202-637-2200/Fax: 202-637-2201
`
`Mary Rose Alexander (Bar No. 143899)
`Email: mary.rose.alexander@lw.com
`Robert C. Collins III
`(Admitted Pro Hac Vice)
`Email: robert.collins@lw.com
`330 North Wabash Ave., Suite 2800
`Chicago, IL 60611
`Tel.: 312-876-7700/Fax: 312-993-9767
`
`Michael Hale (Bar No. 319056)
`Email: michael.hale@lw.com
`355 South Grand Avenue, Suite 100
`Los Angeles, CA 90071-1560
`Tel.: 213-485-1234/ Fax: 213-891-8763
`
`Counsel for Defendant Netflix, Inc.
`
`SUPERIOR COURT OF THE STATE OF CALIFORNIA
`FOR THE COUNTY OF LOS ANGELES
`
`
`
`Case No. 21STCV01881
`
`CLASS ACTION
`
`[PROPOSED] FINAL JUDGMENT OF
`DISMISSAL IN FAVOR OF
`DEFENDANTS NETFLIX, INC. AND
`HULU, LLC
`
`Assigned to: Yvette M. Palazuelos
`
`
`CITY OF LANCASTER, CALIFORNIA
`individually and on behalf of all others
`similarly situated,
`
`
`Plaintiff,
`
`
`v.
`
`NETFLIX, INC. and HULU, LLC,
`
`
`Defendants.
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`LATHAM&WATKINScc•
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`ATTO RNEYS AT LAW
`LOS ANGELES
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`[PROPOSED] FINAL JUDGMENT OF DISMISSAL
`CASE NO. 21STCV01881
`
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`Electronically Received 04/15/2022 04:12 PM
`
`

`

`
`
`
`Defendants Netflix, Inc. (“Netflix”) and Hulu, LLC (“Hulu”) (collectively, “Defendants”)
`separately demurred to the Amended Complaint filed by Plaintiff City of Lancaster, California
`(“Plaintiff”). Netflix also joined in Hulu’s demurrer. On April 13, 2022, the two demurrers to the
`Amended Complaint (the “Demurrers”) came on for hearing in Department 9 of the above-entitled
`Court, the Honorable Yvette M. Palazuelos presiding. Counsel appeared on behalf of Plaintiff,
`Netflix, and Hulu.
`After considering the papers filed in support of and in opposition to the Demurrers, and the
`arguments of Plaintiff’s and Defendants’ counsel, the Court SUSTAINED the Demurrers without
`leave to amend. A copy of the Court’s Final Ruling/Orders Re: Defendants’ Demurrers to First
`Amended Complaint is attached hereto as “Exhibit A.” A copy of the Court’s accompanying
`Minute Order is attached hereto as “Exhibit B.”
`Having sustained the Demurrers without leave to amend, and good cause appearing
`therefor, IT IS HEREBY ORDERED, ADJUDGED, AND DECREED that this action is
`dismissed in its entirety with prejudice, and accordingly,
`JUDGMENT OF DISMISSAL IS HEREBY ENTERED IN FAVOR OF
`DEFENDANTS NETFLIX, INC. AND HULU, LLC.
`
`Dated: __________________, 2022
`
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`__________________________________
`HON. YVETTE M. PALAZUELOS
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`ATTO RNEYS AT LAW
`LOS ANGELES
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`[PROPOSED] FINAL JUDGMENT OF DISMISSAL
`CASE NO. 21STCV01881
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`Defendant to give notice.
`
`Superior Court of California, County of Los Angeles
`
`All future dates are vacated.
`
`

`

`EXHIBIT A
`EXHIBIT A
`
`3
`
`

`

`E-Served: Apr 13 2022 1:53PM PDT Via Case Anywhere
`
`FINAL RULINGS/ORDERS RE: DEFENDANTS'
`
`City of Lancaster v. Netflix et al., Case No.:
`
`APR 18 2022
`DEMURR&ia!9te,.~
`live Dffteen'C1er1c Of
`Coutt
`By: Roxa,me A
`rtatga, Deputy
`21STCV01881
`
`I
`
`Defendant Defendants Hulu, LLC and Netflix, Inc.'s
`Demurrers to the First Amended Complaint (FAC) are SUSTAINED,
`without leave to amend.
`
`Defendants must file a
`April 28, 2022.
`
`[Proposed] Judgment of Dismissal by
`
`The Court sets a Non-Appearance Case Review is set for May
`5, 2022, 8:30 AM, Department 9.
`
`I.
`INTRODUCTION
`
`This is a putative trade regulation class action .
`Plaintiff City of Lancaster alleges that Defendants Netflix,
`Inc. (Netflix) and Hulu, LLC (Hulu) provide video services
`throughout California using broadband wireline facilities
`located at least in part in public rights-of-way. Under the
`Digital Infrastructure and Video Competition Act of 2006
`(DIVCA), Plaintiffs claim that Defendants must pay a video
`service provider fee of up to 5% of their gross income derived
`from providing video service in each city, county, or joint
`powers authority in California.
`
`On
`October
`(FAC) .
`action:
`Utility
`
`January 15, 2021, Plaintiff filed its complaint. On
`20, 2021, Plaintiff filed its First Amended Complaint
`In the FAC, Plaintiff asserts the following causes of
`(1) failure to pay video service provider fee (Public
`Code§ 5840); and (2) declaratory relief.
`
`On January 14, 2021, Defendants filed the pending demurrers
`to Plaintiff's FAC.
`
`II.
`DISCUSSION
`
`A. Applicable Law
`
`"[A] demurrer tests the legal sufficiency of the
`allegations in a complaint . " Lewis v. Safeway, Inc. (2015) 235
`
`1
`
` 4
`
`

`

`Cal.App.4th 385, 388. A demurrer can be used only to challenge
`defects that appear on the face of the pleading under attack or
`from matters outside the pleading that are judicially
`noticeable. See Donabedian v. Mercury Insurance Co. (2004) 116
`Cal . App.4th 968, 994 (in ruling on a demurrer, a court may not
`consider declarations, matters not subject to judicial notice,
`or documents not accepted for the truth of their contents). For
`the purpose of ruling on a demurrer, all facts pleaded in a
`complaint are assumed to be true, but the reviewing court does
`not assume the truth of conclusions of law. Aubry v. Tri-City
`Hospital District (1992) 2 Cal.4th 962, 967.
`
`B. Meet and Confer
`
`Netflix's attorney Michael Hale and Hulu's attorney Ryans.
`Benyamin attest that they met and conferred with Plaintiff's
`counsel on November 18, 2021, pursuant to Code of Civil
`Procedure§ 430.4l(a). Such meet and confer attempt occurred
`more than five days before the demurrers were filed on January
`14, 2022, pursuant to Code Civ. Proc., § 430.4l(a) (2).
`C.
`DIVCA Provides Local Entities Limited Private Rights of
`Action, Which Do Not Apply to This Dispute.
`
`"Whether [a statute] provides
`. plaintiffs a private
`right of action is a pure question of law that does not turn on
`disputed facts or evidence." Noe v. Superior Court (2015) 237
`Cal.App.4th 316, 336.
`"A violation of a state statute does not
`necessarily give rise to a private cause of action. [Citation.]
`Instead, whether a party has a right to sue depends on whether
`the Legislature has "manifested an intent to create such a
`private cause of action" under the statute. [Citation.)" Lu v.
`Hawaiian Gardens Casino, Inc. (2010) 50 Cal.4th 592, 596.
`"Such
`legislative intent, if any, is revealed through the language of
`the statute and its legislative history."
`Id.
`
`A statute may contain "'clear, understandable,
`unmistakable terms,'" which strongly and directly
`indicate that the Legislature intended to create a
`private cause of action. [Citation.) For instance, the
`statute may expressly state that a person has or is
`liable for a cause of action for a particular
`violation. [Citations.] Or, more commonly, a statute
`may refer to a remedy or means of enforcing its
`substantive provisions, i.e., by way of an action.
`(Citations.) If, however, a statute does not contain
`
`2
`
` 5
`
`

`

`such obvious language, resort to its legislative
`history is next in order. [Citations.]
`
`Lu, 50 Cal . 4th at 597 .
`
`1.
`
`DIVCA's Provides No Express Private Right of Action
`The Court begins with DIVCA's statutory language. The
`parties dispute whether Public Utilities Code§ 5860(i) provides
`for a private right of action by Plaintiff against Defendants.
`With respect to underpayment of franchise fees, Section 5860(i)
`states , "[e]ither a local entity or the holder may, in the event
`of a dispute concerning compensation under this section, bring
`an action in a court of competent jurisdiction." From its plain
`language, Section 5860(i) clearly provides a private right of
`action to Plaintiff - "a local entity" - with respect to
`disputes with a franchise holder over underpayment of franchise
`fees.
`
`Section 5860(i), however, provides only for a limited
`private right of action. First, any private right of action
`Plaintiff has under Section 5860(i) is limited to disputes with
`franchise holders . Non-franchise holders are not required to
`pay DIVCA franchise fees, and thus no dispute over underpayment
`of franchise fees would ever arise. Plaintiff concedes that
`Defendants do not hold a state franchise under DIVCA.
`FAC, 1
`39.
`
`Section 5860(i)'s plain language expressly limits any
`private right of action to "a dispute concerning compensation
`under this section."
`In the FAC, Plaintiff alleges that
`Defendants failed to pay the required franchise fee .
`FAC, 1 43.
`However, as noted above, Plaintiff concedes that neither
`Defendant holds a franchise. Plaintiff also seeks to compel
`Defendants to comply with DIVCA by applying for and obtaining
`such a franchise. Yet Section 5860(i} does not contemplate any
`private right of action apart from "dispute[s] concerning
`compensation." No language in the Section 5860(i) authorizes a
`local entity to bring an action compelling a non-franchise
`holder to apply for a state franchise under DIVCA or to comply
`with its requirements.
`
`Elsewhere, DIVCA provides for limited private rights of
`action . For example, Public Utilities Code§ 5870 provides that
`a state franchise holder must designate a sufficient amount of
`its network capacity to public, educational, and governmental
`access (PEG} channel s .
`If a dispute under Section 5870 arises,
`
`3
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`then 11 [a] court of competent jurisdiction shall have exclusive
`jurisdiction to enforce any requirement under this section or
`resolve any dispute regarding the requirements set forth in this
`section, and no provider may be barred from the provision of
`service or be required to terminate service as a result of that
`dispute or enforcement action." Pub. Util. Code, § 5870(p).
`In addition, Section 5890 prohibits franchise holders from
`"redlining," or discriminating against customers based on
`income. Section 5890(i) expressly contemplates a private right
`of action 11 [i)f a court finds that the holder of the state
`franchise is in violation of this section, the court may
`immediately terminate the holder's state franchise, and the
`court shall, in addition to any other remedies provided by law,
`impose a fine not to exceed 1 percent of the holder's total
`gross revenue of its entire cable and service footprint in the
`state in the full calendar month immediately prior to the
`decision. 11
`
`Section 5900 requires state franchise holders to comply
`with state and federal laws governing customer service and
`privacy standards. Pub. Util. Code, § 5900(a). Local entities
`may enforce Section 5900 by setting penalties, notifying
`franchise holders of any material breach, and collecting
`penalties. Pub. Util. Code, §§ 5900(d)-(g).
`If a dispute under
`Section 5900 arises, the statute expressly provides for a
`private right of action:
`
`(h) Any interested person may seek judicial review of
`a decision of the local entity in a court of
`appropriate jurisdiction. For this purpose, a court
`of law shall conduct a de novo review of any issues
`presented.
`
`(i) This section shall not preclude a party affected
`by this section from utilizing any judicial remedy
`available to that party without regard to this
`section. Actions taken by a local legislative body,
`including a local franchising entity, pursuant to this
`section shall not be binding upon a court of law. For
`this purpose, a court of law shall conduct de novo
`review of any issues presented.
`
`Pub. Util. Code, §§ 5900 (h), (i).
`
`Thus, Sections 5870, 5890, and 5900 expressly provide for
`limited private rights of action against franchise holders for
`
`4
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`PEG channel, redlining, and customer service and privacy
`disputes. As these statutes apply only to franchise holders,
`non-franchise holders Defendants need not comply.
`In addition,
`none of these sections expressly authorizes actions to compel a
`non-franchise holder (1) to apply for a state franchise or (2)
`to comply with DIVCA's requirements.
`
`"[W)hen the Legislature want[s] to limit the remedies
`available in a private enforcement action.
`. it clearly
`[knows] how to do so." Donovan v. Poway Unified School Dist.
`(2008) 167 Cal.App.4th 567, 595 (discussing Gov. Code§ 11139).
`In light of the foregoing, it appears that the Legislature
`restricted the private rights of action under Sections 5860,
`5870, 5890, and 5900 to (1) actions against DIVCA state
`franchise holders for disputes regarding (2) underpayment of
`franchise fees, designation of PEG channels, redlining, and
`customer service and privacy, respectively.
`
`Although DIVCA limits local entities' private rights of
`action, the statute also grants exclusive enforcement rights to
`the Public Utilities Commission (PUC) .
`In 2006, AB 2987 enacted
`DIVCA, the primary provisions of which are codified at Public
`Utilities Code§ 5800 et seq. Legis. Counsel's Dig., Assem.
`Bill No. 2987 (2005-2006 Reg. Sess.) Stats. 2006, c. 700 (A.B.
`2987), § 3. AB 2987 also enacted Public Utilities Code§ 444,
`which addresses defaults in payment of state franchise fees
`under DIVCA.
`
`Unlike Sections 5860, 5870 and 5900, Section 444 is
`directed not solely at franchise holders, but more generally at
`"video service provider[s]" under DIVCA as defined in
`Section 5830(t). Pub. Util. Code, § 444(a).
`If a video service
`provider defaults on its franchise fees, the PUC "may suspend or
`revoke the state franchise of the video service provider or
`order the video service provider to cease and desist from
`conducting all operations subject to the franchising authority
`of the commission . "
`Pub . Util. Code, § 444(a) (emphasis added).
`Thus, Section 444 expressly contemplates a situation where a
`video service provider does not already hold a state franchise .
`In such a situation, the PUC may, in the alternative, order a
`video service provider to "to cease and desist from conducting
`all operations subject to the franchising authority" of the PUC.
`
`Section 444 also expressly provides that "[t]he [PUC] may
`bring an action, in its own name or in the name of the people of
`the state, in any court of competent jurisdiction, for the
`collection of delinquent fees estimated under this article, or
`
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`

`for an amount due, owing, and unpaid to it, as shown by report
`filed by the commission, together with a penalty of 25 percent
`for the delinquency." Pub. Util. Code, § 444(d}. Thus, from
`the plain language of Section 444, the Legislature knew how to
`authorize a private right of action against a "video service
`provider" that is subject to DIVCA but that may not yet hold a
`state franchise. Section 444(d} also clearly grants only the
`PUC - and not local entities -
`a right of action against non(cid:173)
`franchise holding video service providers subject to DIVCA's
`requirements.
`In other words, under a plain reading of the
`relevant statutory provisions, only the PUC can bring an action
`to compel non-franchise holders such as Netflix and Hulu to
`comply with the DIVCA.
`
`Relevant case law supports this conclusion. Each of the
`DIVCA cases reviewed by the Court involved a local entity suing
`a DIVCA franchise holder. See, e.g., Comcast of Sacramento I,
`LLC v. Sacramento Metropolitan Cable Television Commission (9th
`Cir. 2019) 923 F.3d 1163 (local entity sued franchise holder);
`Sacramento Metropolitan Cable Television Commission v. Comcast
`Cable Communications Management, LLC (E.D. Cal. 2020) 507
`F.Supp.3d 1226 (same); City of Del Marv. Time Warner Cable
`Enterprises, LLC (S.D. Cal., Aug. 28, 2017) 2017 WL 3705833
`(same); County of Los Angeles v. Time Warner NY Cable LLC (C.D.
`Cal., July 3, 2013) 2013 WL 12126774 (same); accord City of
`Glendale v. Marcus Cable Associates, LLC (2015) 235 Cal.App.4th
`344 (same}; City of Glendale v. Marcus Cable Associates, LLC
`(2014) 231 Cal.App.4th 1359 (same). Plaintiff cited no
`authority holding that a local entity may sue a non-franchise
`holder for non-compliance with DIVCA.
`
`In opposition, Plaintiff contends that Public Utilities
`Code§ 444 only authorizes the PUC to sue over state franchise
`fees, and not local franchise fees. Compare Pub. Util. Code, §
`444(d) with Pub. Util. Code, § 5860(i). Plaintiff is
`technically correct, but misses the mark. The Court addresses
`Section 444(d) to show that the Legislature knows how to
`authorize a private right of action under DIVCA against non(cid:173)
`franchise holders. No language in Section 5860(i) authorizes
`local entities to sue non-franchise holders for non-payment of
`local franchise fees.
`
`Courts in other jurisdictions construing statutes similar
`to DIVCA have also found no private right of action to compel
`non-franchise holders to obtain a public utility franchise or to
`
`6
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`

`pay franchise fees. 1 See, e.g., City of Ashdown, Arkansas v.
`Netflix, Inc. (W.D. Ark . , Sept. 30, 2021) 2021 WL 4497855, at *5
`(appeal pending) (holding that because "[t]he Arkansas
`legislature has not expressed any intent that individual
`municipalities are the ones who should ensure compliance with
`the [statute]," but has rather "intended for the Arkansas Public
`Service Commission to ensure compliance"; "to imply that the
`[statute] gives Plaintiff a right of action would undermine the
`clear intent of the statute"); City of New Boston, Texas v.
`Netflix, Inc. (E.D. Tex., Sept. 30, 2021) 2021 WL 4771537, at *4
`(holding that municipalities have no right to enforce Texas
`Video Services Providers Act against Netflix and Hulu); City of
`Reno, Nevada v. Netflix, Inc. (D. Nev., Sept. 3, 2021) 2021 WL
`4037491, at *7 (appeal pending) (holding that "in recognizing
`the public policy reasons for uniformity, the Nevada Legislature
`intended the State via the Office of the Attorney General to
`enforce actions, remedies, and penalties for violation of the
`provisions of the [statute]" and thus "local
`governments .
`. do not have a private right of action")
`
`2.
`
`No Implied Private Right of Action in DIVCA.
`
`"A private right of action may inhere within a statute,
`otherwise silent on the point, when such a private right of
`action is necessary to achieve the statute's policy objectives."
`Mabry v. Superior Court (2010) 185 Cal.App.4th 208, 217. For
`example, "the presence of a comprehensive administrative means
`of enforcement of a statute" may suggest "no private right of
`action to enforce a statute."
`Id. at 218 (citing Moradi-Shalal
`v. Fireman's Fund Ins. Companies (1988) 46 Cal.3d 287 (holding
`no private right of action under Insurance Code provision where
`statutory scheme and legislative history provide only for
`administrative enforcement)) .
`
`If the Legislature intended a private right of action,
`that usually ends the inquiry.
`If the Legislature
`intended there be no private right of action, that
`usually ends the inquiry.
`If we determine the
`Legislature expressed no intent on the matter either
`way, directly or impliedly, there is no private right
`of action [citation], with the possible exception that
`compelling reasons of public policy might require
`judicial recognition of such a right. (Citations.]
`
`1 Defendants did not request judicial notice o f these out-of-state cases.
`However, the Court may take judicial notice of these cases pursuant to
`Evidence Code§ 4 52 (d), but not of truth of any reasonably disputable matters
`contained in the cases.
`
`7
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`

`Animal Legal Defense Fund v. Mendes (2008) 160 Cal.App.4th 136,
`142.
`In short, courts will only find an implied private right
`of action if (1) the statute is silent as to direct or implied
`private rights, and (2) compelling public policy reasons require
`a court to do so.
`
`DIVCA statutory provisions expressly allow local entities
`such as Plaintiff limited private rights of action as to
`disputes concerning (1) underpayment of franchise fees; (2)
`designation of PEG channels; (3 ) income discrimination against
`customers; (3) customer service and privacy. Pub. Util. Code,
`§§ 5860(i), 5870(p ) , 5890(i), 5900(h), (i). Public Utilities
`Code§ 444 also expressly grants the PUC sole authority to
`compel a non-franchise holding "video service provider" to
`comply with DIVCA's statutory requirements.
`
`Accordingly, because "the Legislature expressly intended
`[these) private rights of action," the inquiry ends here:
`the
`Court may not find an implied private right of action if the
`Legislature has already provided express private rights of
`action. Animal Legal Defense Fund, 160 Cal.App.4th at 142.
`Nor has Plaintiff provided any compelling policy reasons
`for extending to local entities the PUC's authority to compel
`compliance with DIVCA. Contrary to Plaintiff's contentions,
`this holding does not allow Defendants "to escape the law's
`reach by ignoring it." Opposition to Hulu Demurrer at 6. As
`Section 444 clearly states, the PUC may sue to compel non(cid:173)
`franchise holding video service providers to comply with DIVCA.
`In addition, the PUC "may supervise and regulate every public
`utility in the State and may do all things, whether specifically
`designated in this part or in addition thereto, which are
`necessary and convenient in the exercise of such power and
`jurisdiction." Pub. Util. Code, § 701.
`
`Public Utilities Code§ 2101 also provides the PUC with
`broad enforcement powers. The PUC "shall see that the . . .
`statutes of [California] affecting public utilities . . . are
`enforced and obeyed, and that violations thereof are promptly
`prosecuted and penalties due the State therefor recovered and
`collected." Pub . Util. Code, § 2101.
`"Upon the request of the
`[PUC], the Attorney General or the district attorney . . . shall
`instit ute and prosecute actions . . . for the enforcement
`of . . . statutes . . . affecting public utilities and for the
`punishment of all violations thereof."
`Id.
`
`8
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`

`Finally, the PUC's role is not simply ministerial.
`Plaintiff cites Public Utilities Code§ 5840(b), which states
`that "the authority granted to the [PUC] under this section
`shall not exceed the provisions set forth in this section."
`However, Plaintiff ignores that under DIVCA, the PUC "is the
`sole franchising authority for a state franchise to provide
`video service under this division." Pub. Util. Code, § 5840(a).
`As such, local entities such as Plaintiff and the putative class
`members may not compel Defendants to obtain a DIVCA franchise or
`comply with DIVCA - only the PUC has authority to determine
`whether to issue, suspend, or revoke franchises and or to compel
`non-franchise holders to comply with DIVCA.
`D.
`
`DIVCA Does Not Apply to Defendants.
`1. Defendants Do Not "Use" the Public Right-of-Way Under
`DIVCA.
`
`Previously, the Court held that DIVCA does not apply to
`Defendants because they do not own or operate infrastructure in
`any public rights-of - way. Plaintiff has provided no reason for
`the Court to change its prior ruling.
`
`The "touchstone" of statutory interpretation is the
`probable intent of the Legislature. [Citation.] When
`interpreting a statute, "'we must ascertain
`legislative intent so as to effectuate the purpose of
`a particular law.' [Citation.]" [Citation.] Our first
`step in determining that intent "is to scrutinize the
`actual words of the statute, giving them a plain and
`commonsense meaning." [Citation.]
`Sampson v. Parking Service 2000 Com, Inc . (2004) 117 Cal.App.4th
`212, 223.
`
`In California,
`
`[a] franchise agreement is granted by a governmental
`agency to enable an entity to provide vital public
`services with some degree of permanence and stability,
`as in the case of franchises for utilities .
`[Citation.] Examples of franchises granted by local
`governments in California are gas and electric utility
`franchises [citation] and cable television franchises
`[citations] .
`
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`[1] A franchise is a grant of a possessory interest in
`public real property, similar to an easement.
`[Citations.]
`
`Santa Barbara County Taxpayer Assn. v. Board of Supervisors
`(1989) 209 Cal.App.3d 940, 949.
`
`DIVCA expressly states:
`
`It is the intent of the Legislature that a video
`service provider shall pay as rent a franchise fee to
`the local entity in whose jurisdiction service is
`being provided for the continued use of streets,
`public facilities, and other rights-of-way of the
`local entity in order to provide service. The
`Legislature recognizes that local entities should be
`compensated for the use of the public rights-of-way
`and that the franchise fee is intended to compensate
`them in the form of rent or a toll, similar to that
`which the court found to be appropriate in Santa
`Barbara County Taxpayers Association v. Board of
`Supervisors for the County of Santa Barbara (1989) 209
`Cal. App . 3d 940.
`
`Pub. Util. Code, § 5810(b) (emphasis added).
`DIVCA defines "public rights-of-way" as "the area along and
`upon any public road or highway, or along or across any of the
`waters or lands within the state." Pub. Util. Code,§ 5830(0) .
`A "network" means "a component of a facility that is wholly or
`partly physically located within a public right-of-way and that
`is used to provide video service, cable service, voice, or data
`services." Pub. Util. Code, § 5830(1).
`'"Franchise' means an
`initial authorization, or renewal of an authorization, issued by
`a franchising entity . . . [for] the construction and operation
`of any network in the right-of-way capable of providing video
`service to subscribers . " Pub. Util. Code,§ 5830(f).
`"The
`local entity shall allow the holder of a state franchise under
`this division to install, construct, and maintain a network
`within public rights-of-way under the same time, place, and
`manner as the provisions governing telephone corporations under
`applicable state and federal law." Pub. Util. Code, § 5885(a).
`Plaintiff alleges that:
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`• Defendants rely on the availability of high-speed Internet
`and the related infrastructure traversing the public
`rights-of-way to provide their services .
`FAC, 11 22, 25 .
`• Defendants' subscribers use Internet-connected devices to
`send requests for programming to Defendants' dedicated
`servers, which relay the programming back to the
`subscribers. FAC, 11 25-26.
`• This transmission occurs via Internet protocol technology
`and through the subscribers' internet service provider
`(ISP) connection, which - according to Plaintiff - uses
`public rights-of-way. FAC, 11 26-27, 37.
`• Defendants use wireline Internet {which uses public rights(cid:173)
`of-way) to transmit programming through (private) content
`delivery networks from central content servers to those
`located in California to improve the quality and delivery
`speed. FAC, 11 24 , 29-30, 33.
`• Netflix also contracts with ISPs to locate hardware for its
`content delivery network on ISPs' property, and controls
`the entirety of its Open Connect system, including any
`servers located in Lancaster, and that Open Connect allows
`most subscribers to receive Netflix's video programming
`from servers inside of, or connected to, the subscriber's
`ISP's network in their local region. FAC, 11 31, 32.
`
`However, the FAC still does not allege that Defendants
`construct or operate any facilities in public rights-of-way. As
`the Court previously noted, Defendants' reliance on In the
`Matter of: Entm't Connections, Inc. {1998) 13 F.C.C. Red. 14277
`(ECI) has merit.
`In ECI, the issue was whether ECI qualified
`for the private cable exemption of 47 U.S.C. § 522{c), which
`provides that "a facility that serves subscribers without using
`any public rights of way" does not constitute a "cable system"
`Id., 1 62. The FCC
`under the Telecommunications Act of 1996.
`ruled that because "ECI's signal moves across public rights-of(cid:173)
`way to reach its subscribers does not by itself render ECI the
`operator of a cable system . "
`Id. Noting that "[i)t is
`Ameritech, not ECI, that uses the rights-of - way," the FCC
`reasoned:
`
`Because Ameritech possesses the authority to operate
`in the right-of-way and to transmit ECI's, or other
`video distributors', signals, we conclude that the
`underlying premise tying the franchise requirement to
`the use of public rights-of-way is not present in
`ECI's circumstances, and that requiring ECI to obtain
`a franchise would be needlessly duplicative. As
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`discussed above, a cable operator's construction in
`and use of public rights-of way is an important
`factor, and advantage, underlying the Communication
`Act's requirement that all cable operators be
`franchised. ECI engages in neither of these
`activities, relying on Ameritech's authorization,
`construction and maintenance of its right-of-way
`facilities. We cannot conclude that ECI's mere
`interaction with Ameritech's authorized facilities in
`the public right-of-way is the type of use to which
`Congress spoke in defining what constitutes a cable
`system.
`
`Id. (emphasis added) . The Seventh Circuit Court of Appeals
`affirmed ECI, reasoning:
`
`We think it likely that when the average person thinks
`of the construction of a cable system, he thinks of
`the installation of cables, either on poles or
`underground. That this sort of construction is highly
`intrusive on local governments is a large part of the
`reason for the local franchising requirement.
`[ 1 ] In ECI's system, construction of a cable system
`over the public right-of-way is not necessary.
`Ameritech had previously constructed its supertrunking
`system .
`It seems incontrovertible that in some
`important and historical sense of the word, it is
`reasonable to conclude that ECI has not "used" the
`public right-of-way.
`
`City of Chicago v. F.C.C. (7th Cir. 1999) 199 F.3d 424, 433
`(emphasis added).
`
`Plaintiff distinguishes ECI because Defendants do not use
`another video service provider's franchise. Opposition to Hulu
`Demurrer at 9 . However, the FCC noted in ECI that "construction
`in and use of public rights-of way is an important
`factor.
`. underlying" public utility franchise requirements.
`ECI, 13 F.C.C. Red. 14277, 1 62 . As in ECI, Defendants here
`neither constructed nor asked for the construction of the ISP
`networks delivering their services to subscribers. Defendants
`do not control where the ISPs' network cables lines go or how
`its signal travels over the ISPs' network . Under DIVCA, the
`Legislature intended the franchise fee to compensate local
`entities for "the continued use of streets, public facilities,
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`and other rights-of-way of the local entity in order to provide
`service." Pub. Util. Code, § 5810{b).
`
`Thus, just as ECI's use of Ameritech's system did not
`constitute "use" under the Telecommunications Act, Defendants'
`use of ISP networks does not constitute "use" under DIVCA. To
`hold otherwise and require Defendants to obtain a franchise -
`in
`addition to whatever franchises are held by the owners and
`operators of the ISP networks - would, as the FCC determined in
`ECI, be "needlessly duplicative." ECI, 13 F.C.C. Red. 14277, 1
`62.
`If Defendants were required to obtain a DIVCA franchise to
`deliver their services, then Plaintiff could presumably seek to
`require Disney Plus, Peacock, HBO Max, and Amazon Prime Video to
`also obtain DIVCA franchises. Under Plaintiff's reading of
`DIVCA, numerous franchise holders could "use" a single public
`right-of-way, and local entities would be allowed to collect a
`5% franchise fee from each franchise holder. Such an
`interpretation would result in a financial windfall for local
`entities that the Legislature did not intend. 2
`
`Plaintiff's interpretation of DIVCA also would create
`numerous statutory inconsistencies. Plaintiff interprets the
`phrase "provided through facilities" in isolation. See Pub.
`Util. Code, § 5830{s) {"Video service" means video programming
`services .
`. provided through facilities located at least in
`part in public rights-of-way without regard to delivery
`technology, including Internet protocol or other technology.").
`However, the Court must interpret DIVCA as a whole. "'If
`possible, significance should be given to every word, phrase,
`sentence and part of an act in pursuance of the legislative
`purpose.'" Phelps v. Stostad (1997} 16 Cal.4th 23, 32.
`"A
`court must, where reasonably possible, harmonize statutes,
`reconcile seeming inconsistencies in them, and construe them to
`give force and effect to all of their provisions." Hough v.
`McCarthy {1960) 54 Cal.2d 273, 279.
`
`Plaintiff's interpretation of "provided through facilities"
`cannot be harmonized with the rest of the statute. DIVCA
`defines a franchise as authorizing "the construction and
`operation of