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Case 5:20-cv-00135-RWS Document 92 Filed 09/30/21 Page 1 of 9 PageID #: 2163
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`IN THE UNITED STATES DISTRICT COURT
`FOR THE EASTERN DISTRICT OF TEXAS
`TEXARKANA DIVISION
`
`
`CITY OF NEW BOSTON, TEXAS,
`
`
`
`v.
`
`NETFLIX, INC., HULU, LLC,
`
`
`
`
`
`
`
`Plaintiff,
`
`Defendants.
`
`










`
`
`
`ORDER
`Before the Court is Defendant Netflix, Inc.’s Motion to Dismiss Pursuant to Fed. R. Civ.
`
`
`
`CIVIL ACTION NO. 5:20-CV-00135-RWS
`
`
`
`
`
`
`
`
`
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`P. 12(b)(6) (Docket No. 19) and Defendant Hulu, LLC’s Motion to Dismiss Pursuant to Fed. R.
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`Civ. P. 12(b)(6) (Docket No. 21). For the reasons set forth below, the motions are GRANTED.
`
`BACKGROUND
`
`
`
`Plaintiff City of New Boston, Texas, filed a class action suit for violation of Texas Utilities
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`Code § 66.005(a) on behalf of all Texas municipalities in which one or both Defendants Netflix,
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`Inc. and Hulu, LLC (collectively, “Defendants”) provide video services. See Docket No. 1. The
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`Texas Video Services Providers Act sets up a regime for issuing state-sanctioned franchises for
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`the provision of cable or video service through the Public Utility Commission (“PUC”). TEX.
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`UTIL. CODE ANN. § 66.001. Such a franchise authorizes the construction and operation of a cable
`
`or video services network in public rights-of-way. Id. § 66.002(5). In exchange, each municipality
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`in which a provider operates receives a five percent franchise fee based on the provider’s gross
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`revenue. Id. § 66.005. Plaintiff alleges Defendants are video service providers and derive gross
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`revenues from providing these video services, as defined by the statute. See Docket No. 1 ¶ 32.
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`

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`Case 5:20-cv-00135-RWS Document 92 Filed 09/30/21 Page 2 of 9 PageID #: 2164
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`Plaintiff further alleges that Defendants are required to pay each municipality in which Defendants
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`provide video services a franchise fee of five percent of their gross revenues derived from their
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`operations in that municipality under Texas Utilities Code § 66.005(a). See id. ¶ 33.
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`
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`Defendants move to dismiss this suit for failure to state a claim upon which relief can be
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`granted. See Docket Nos. 19, 21; FED. R. CIV. P. 12(b)(6). Defendants contend that Texas Utilities
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`Code § 66 does not apply to them because they are not holders of a state-issued certificate of
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`franchise authority.1 Docket No. 21 at 6–8.
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`LEGAL STANDARD
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`When considering a motion to dismiss under Federal Rule of Procedure 12(b)(6), a court
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`must assume that all well-pleaded facts are true and view those facts in the light most favorable to
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`the plaintiff. Bowlby v. City of Aberdeen, 681 F.3d 215, 219 (5th Cir. 2012). The Court must then
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`decide whether those facts state a claim that is plausible on its face. Id. at 219. The complaint
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`need not contain detailed factual allegations, but a plaintiff must plead sufficient factual allegations
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`to show that he is plausibly entitled to relief. See Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555–
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`56, 570 (2007) (“[W]e do not require heightened fact pleading of specifics, but only enough facts
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`to state a claim to relief that is plausible on its face.”); see also Ashcroft v. Iqbal, 556 U.S. 662,
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`677–79, 684 (2009) (discussing Twombly and applying Twombly generally to civil actions pleaded
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`under Rule 8). Rule 12(b)(6) allows dismissal if a plaintiff fails “to state a claim upon which relief
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`may be granted.” FED. R. CIV. P. 12(b)(6).
`
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`1 Netflix also contends that it does not provide “video programming” as defined by § 66.002(9). See Docket No. 19
`at 8–9. Both Defendants further argue that the statute does not apply to them because they do not operate video service
`networks in public rights-of-way and because there are several federal defenses to the statute, including that it is
`inconsistent or preempted by the Federal Communications Act of 1934; that it violates the Tax Freedom Act; that it
`violates the First Amendment; and that it implicates the primary jurisdiction doctrine. See Docket Nos. 19, 21.
`Page 2 of 9
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`

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`Case 5:20-cv-00135-RWS Document 92 Filed 09/30/21 Page 3 of 9 PageID #: 2165
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`ANALYSIS
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`
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`While the parties extensively dispute the application of the video service provider provision
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`of Texas Utilities Code § 66, this is a case about franchise fees. The statute’s specific section on
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`franchise fees states:
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`(a) The holder of a state-issued certificate of franchise authority shall pay each
`municipality in which it provides cable service or video service a franchise fee
`of five percent based upon the definition of gross revenues as set forth in this
`chapter . . . .
`
`TEX. UTIL. CODE ANN. § 66.005(a) (emphasis added). The statute defines gross revenue as:
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`(6)(A) “Gross revenues” means all consideration of any kind or nature including
`without limitation cash, credits, property, and in-kind contributions (services or
`goods) derived by the holder of a state-issued certificate of franchise authority
`from the operation of the cable service provider’s or the video service provider’s
`network to provide cable service or video service within the municipality. Gross
`revenue shall include all consideration paid to the holder of a state-issued
`certificate of franchise authority and its affiliates (to the extent either is acting as
`a provider of a cable service or video service as authorized by this chapter), which
`shall include but not be limited to the following . . . .
`
`Id. § 66.002 (emphasis added).
`
`The Texas Legislature’s language is clear: to incur a franchise fee, the provider must be
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`“the holder of a state-issued certificate of franchise authority.”2 Id. §§ 66.002(6)(A), 66.005(a).
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`In drafting the statute, the legislature used different language for a holder of a state-issued
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`certificate of franchise authority and the separate concept of a “video service provider.”3 See id.
`
`
`2 The statute further supports this interpretation by recognizing that a state-issued certificate of franchise authority is
`not the only way for a video service provider to obtain authorization to construct or operate its networks in public
`rights-of-way. See id. § 66.004(a). Incumbent providers that negotiated franchise agreements with individual cities
`may rely on municipal authorization until those agreements expire and do not need, nor are eligible for, a state-issued
`certificate of franchise authority. Id. Moreover, such incumbent providers do not owe the five percent franchise fee
`under § 66.005.
`
` Plaintiff contends that whether Defendants qualify as video service providers is the operative term for the Court to
`decide in applying § 66 at this stage of the proceeding. Docket No. 61 at 43:18–21. But the Court finds that whether
`Defendants are holders of a state-issued certificate of franchise authority is a prerequisite requirement to applying
`§x66.005(a), for the reasons set forth in this order.
`
` 3
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`
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`Page 3 of 9
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`

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`Case 5:20-cv-00135-RWS Document 92 Filed 09/30/21 Page 4 of 9 PageID #: 2166
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`§x66.002 (11). It is not the province of this Court, or courts anywhere, to read words out of a
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`statute. See, e.g., BankDirect Cap. Fin., LLC v. Plasma Fab, LLC, 519 S.W.3d 76, 86 (Tex. 2017)
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`(“Separation of powers demands that judge-interpreters be sticklers. Sticklers about not rewriting
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`statutes under the guise of interpreting them. Sticklers about not supplanting our wisdom for that
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`of the Legislature. Sticklers about a constitutional design that confers the power to adjudicate but
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`not to legislate.”). And giving effect to the language of the legislature is especially important
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`where the pertinent language appears throughout the entire statute, as it does here. See KMS Retail
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`Rowlett, LP v. City of Rowlett, 593 S.W.3d 175, 184 (Tex. 2019) (citing TIC Energy & Chem., Inc.
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`v. Martin, 498 S.W.3d 68, 74 (Tex. 2016) (“[W]e consider the statute as a whole, giving effect to
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`each provision so that none is rendered meaningless or mere surplusage.”)) (“Our interpretation of
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`a statute should ‘giv[e] effect to every word, clause, and sentence.’ ”). If the Court were to modify
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`the concept of a holder of a state-issued certificate of franchise authority in § 66.005, it would
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`impact not only that instance in the statute, but every instance that phrase appears,4 introducing
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`possible inconsistencies and ambiguities.
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`Plaintiff has not pled and does not dispute that neither Defendant is a holder of a state-
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`issued certificate of franchise authority. Plaintiff argues that this fact is irrelevant because Plaintiff
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`pled a declaratory judgment claim asking the Court to determine that Defendants “were required
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`to file an application with the [PUC] for a state-issued certificate of franchise authority”; that
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`“Defendants are required to pay Plaintiff and each of the other Class members a franchise fee of
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`5% of their gross revenues derived from their operations in each such municipality”; and that
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`Defendants have violated the statute by not paying those fees in the past. Docket No. 29 at 5–6;
`
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`4 The phrase “holder of a state-issued certificate of franchise authority” appears more than 70 times in Texas Utilities
`Code § 66.
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`
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`Page 4 of 9
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`

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`Case 5:20-cv-00135-RWS Document 92 Filed 09/30/21 Page 5 of 9 PageID #: 2167
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`Docket No. 1 ¶ 39. Plaintiff thus effectively asks the Court to declare that Defendants are, and
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`should always have been, holders of a state-issued certificate of franchise authority.
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`The statute, however, does not grant such authority to the courts. The statute defines a
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`franchise as:
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`(5) “Franchise” means an initial authorization, or renewal of an authorization,
`issued by a franchising authority, regardless of whether the authorization is
`designated as a franchise, permit, license, resolution, contract, certificate,
`agreement, or otherwise, that authorizes the construction and operation of a cable
`or video services network in the public rights-of-way. . . .
`
`TEX. UTIL. CODE ANN. § 66.002(5) (emphasis added). Section 66.001, titled Franchising
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`Authority, states: “[t]he commission shall be designated as the franchising authority for a state-
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`issued franchise for the provision of cable service or video service.” Id. § 66.001. This
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`unambiguously grants authority to the PUC to issue state franchises for the provision of cable or
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`video services. This authority is not qualified in any way, nor does the statute carve out any basis
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`upon which the Court may also act as a franchising authority.
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`And this grant of power to one body in the PUC to issue certificates of franchise aligns
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`with the purpose of the statute. Prior to 2005, providers were required to negotiate separate
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`authorization from each municipality served by a provider’s network. But in 2005, the legislature
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`established a statewide franchise scheme for entities seeking to construct and operate cable and
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`video services networks. See id.; id. § 11.002(a) (“This title is enacted to protect the public interest
`
`inherent in the rates and services of public utilities. The purpose of this title is to establish a
`
`comprehensive and adequate regulatory system for public utilities . . . .”). The legislature added
`
`Chapter 66 to the Public Utility Regulatory Act, entrusting the PUC with overseeing this new
`
`regime. See id. § 11.002(c) (“It is the purpose of this title to grant the Public Utility Commission
`
`of Texas authority to make and enforce rules necessary to protect customers of telecommunications
`
`
`
`Page 5 of 9
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`

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`Case 5:20-cv-00135-RWS Document 92 Filed 09/30/21 Page 6 of 9 PageID #: 2168
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`and electric services consistent with the public interest.”). The legislature’s changes thus relieved
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`providers of having to negotiate with each municipality and vested the public authority to grant
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`franchises in one entity—the PUC.
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`The fact that Plaintiff sought declaratory relief does not save its claim. The Supreme Court
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`has explained that “the Declaratory Judgments Act is not an independent source of federal
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`jurisdiction; the availability of such relief presupposes the existence of a judicially remediable
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`right.” Schilling v. Rogers, 363 U.S. 666, 677 (1960) (citation omitted); see also Reid v. Aransas
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`Cty., 805 F. Supp. 2d 322, 339 (S.D. Tex. 2011) (“[A] plaintiff cannot use the Declaratory
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`Judgment Act to create a private right of action where none exists.”). As explained above, under
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`the statute, the Court does not have the authority to issue the certificates of franchise underpinning
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`this case for franchise fees.
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`Plaintiff’s other arguments are also unavailing. Plaintiff contends that if the failure to
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`obtain the required state-issued certificate of franchise authority excuses the obligation to pay
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`franchise fees, a party can deliberately not comply and be rewarded with immunity and dismissal
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`of any lawsuit by a municipality. Docket No. 29 at 6. That Plaintiff’s desired avenue of
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`enforcement is not available, however, does not mean that no ability to enforce compliance with
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`the statute exists. The question is which entity has the authority to decide who should be holders
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`of state-issued certificates of franchise authority: individual municipalities or the state. The statute
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`answers this query. It centralizes the authority to grant a certificate of franchise to a provider in
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`the PUC and removed negotiation on a municipality-by-municipality basis for such franchises.
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`The statute did not reserve to individual municipalities any authority to declare a provider a holder
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`of a state-issued certificate of franchise authority.
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`
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`Page 6 of 9
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`

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`Case 5:20-cv-00135-RWS Document 92 Filed 09/30/21 Page 7 of 9 PageID #: 2169
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`Likewise, this Court cannot bypass the state’s authority to declare who holds a state-issued
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`certificate of franchise authority for municipalities. The language inserted into the statute about
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`the holder of a certificate of franchise authority demarcates the line of authority between
`
`municipalities and the state. The statute grants municipalities limited enforcement authority,
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`which is restricted to the authority to regulate holders of state-issued certificates of franchise
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`authority. See TEX. UTIL. CODE ANN. § 66.011 (Municipal Police Power; Other Authority), §
`
`66.013 (Municipal Authority) (referring to municipalities’ powers to regulate only vis-à-vis
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`holders of state-issued certificates of franchise authority). But before a certificate of franchise is
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`issued, the PUC, through the attorney general, is the body to determine who should be a holder of
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`such a certificate and to enforce compliance if a party improperly fails to file for a certificate. See
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`id. § 15.021(a) (“The attorney general, on the request of the commission, shall apply in the name
`
`of the commission for a court order under Subsection (b) if the commission determines that a
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`public utility or other person is: (1) engaging in or about to engage in an act that violates this title
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`or an order or rule of the commission entered or adopted under this title; or (2) failing to comply
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`with the requirements of this title or a rule or order of the commission.”). To allow a municipal
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`plaintiff to bypass the PUC would undermine the regulatory scheme set forth in the statute and its
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`overall purpose to centralize the issuance of franchises in one statewide body.5
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`Moreover, to allow such a divergence from the statutory scheme would affect enforcement
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`decisions. The PUC has enforcement discretion, as well as options in imposing penalties for
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`noncompliance. See id. § 15.023 (a). The statute gives the PUC an array of possible remedies that
`
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`5 Section 66.003 requires an “entity or person seeking to provide cable service or video service in this state shall file
`an application for a state-issued certificate of franchise authority with the [PUC].” TEX. UTIL. CODE ANN. § 66.003(a).
`If Plaintiff believes that Defendants are not acting in compliance with that rule, Plaintiff may file a formal complaint
`with the PUC. 16 TEX. ADMIN. CODE § 22.242 (PUC, Complaints).
`Page 7 of 9
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`

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`Case 5:20-cv-00135-RWS Document 92 Filed 09/30/21 Page 8 of 9 PageID #: 2170
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`it may seek, including issuing a penalty, seeking disgorgement of all excess revenue or entering a
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`voluntary mitigation plan. See id. § 15.023.
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`Plaintiff also contends that dismissal on these grounds would nullify the specific grant of
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`jurisdiction to the courts in the Texas Public Utility Code to hear disputes on compensation.
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`Docket No. 29 at 5 (quoting TEX. UTIL. CODE ANN. § 66.005(b) (“A municipality may, in the event
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`of a dispute concerning compensation under this section, bring an action in a court of competent
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`jurisdiction.”)). To be clear, Plaintiff is not without a remedy here, as has been described above.
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`But Plaintiff goes further, however, arguing that the need for a judicial forum is underscored by
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`the limits on the PUC’s remedial authority, as it “does not have the power to remedy past wrongs.”
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`Id. at 6 (quoting Penny v. Southwestern Bell Tel. Co., 906 F.2d 183, 187 (5th Cir. 1990)). But the
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`language Plaintiff relies on in § 66.005(b) is plainly limited by the phrase “a dispute concerning
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`compensation under this section,” i.e., the section on franchise fees.6 TEX. UTIL. CODE ANN.
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`§x66.005(b). And § 66.005 is limited to what a holder of a state-issued certificate of franchise
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`authority shall pay a municipality. Id. § 66.005(a). In other words, a municipality’s right to bring
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`an action in court is limited to actions against holders of a state-issued certificate of franchise
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`authority. This reserves the question of who must obtain a state-issued certificate of franchise
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`authority to the PUC while limiting judicial recourse by a municipality to disputes over the amount
`
`of compensation against providers who have already obtained a state-issued certificate of franchise
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`authority. See supra note 5. And Plaintiff’s reliance on Penny does not suggest otherwise, as
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`Defendants must be holders of state-issued certificates of franchise authority, and thus subject to
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`the statute, before a court can consider whether past damages are warranted. This all accords with
`
`
`6 The same language is used in other sections of statute to provide for judicial authority over those specific sections;
`for example, § 66.009 (Public, Educational, and Government Access Channels) also gives a grant of jurisdiction to
`the courts to “enforce requirements under this section.” TEX. UTIL. CODE ANN. § 66.009(i).
`Page 8 of 9
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`
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`

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`Case 5:20-cv-00135-RWS Document 92 Filed 09/30/21 Page 9 of 9 PageID #: 2171
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`§ 66.015, titled Compliance, which allows courts to “order the holders of a state-issued certificate
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`of franchise authority. . . to cure such noncompliance” with Chapter 66. Id. § 66.015(a).
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`Under the language of the Texas statute, before the Court can decide whether a party owes
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`franchise fees, that party must hold a certificate of franchise authority. Plaintiff has not pled that
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`Defendants hold such certificates. Thus, as pled, Plaintiff has not stated a claim upon which relief
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`can be granted pursuant to the Texas Utilities Code § 66.005(a).
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`The parties make other arguments concerning requirements for the statute to apply, the
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`meaning and application of other definitions and regarding various federal defenses. But because
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`Plaintiff has not cleared this initial requirement, the Court will not resolve those other arguments
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`at this time.
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`Accordingly, the Court is of the opinion that Defendants’ motions to dismiss under 12(b)(6)
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`(Docket Nos. 19, 21) should be GRANTED. It is therefore
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`ORDERED that Plaintiff’s Complaint (Docket No. 1) is DISMISSED WITHOUT
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`PREJUDICE subject to refiling should the Defendants become holders of state-issued certificates
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`of franchise authority.
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`Page 9 of 9
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`.
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`
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`____________________________________
`ROBERT W. SCHROEDER III
`UNITED STATES DISTRICT JUDGE
`
`So ORDERED and SIGNED this 30th day of September, 2021.
`
`

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