1997-0822_COX COM, INC._Transmittal to CitiesJerry Patterson, Esq.
City Attorney
City of Lake Forest
Burke, Williams & Sorenson
3200 Park Center Drive,
Suite 750
Costa Mesa, CA 92626
Peter M. Thorson, Esq.
Richards, Watson & Gershon
333 S. Hope Street
Los Angeles, CA 90071-1469
Myrna Erway
City Clerk, City of San
Clemente
100 Avenida Presidio
San Clemente, CA 92672
Terry E. Dixon, Esq.
City of Laguna Niguel
2600 Michaelson
Suite 1000
Irvine, CA 92715
Mary Laub
Administrative Assistant
City of San Juan Capistrano
32400 Paseo Adelanto
San Juan Capistrano, CA 92675
Re: City of Irvine, et al. v. Federal Communications
Commission, et al.
Ladies and Gentlemen:
Please find enclosed the final version of the Settlement
Agreements in the above-described matter for submission to each
of your City Councils for approval and, upon approval, final
execution. There are two settlement documents to be executed.
The first settlement agreement, which resolves the global dispute
1241048170-051513097475, *08121197
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WILLIAM M. MAATICOAENA MANS VAN
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August 22, 1997
.AE 5MAL NIERGER
WILLIAM R `MRL
Judy
Vonada
Lois Jeffrey,
Esq.
City
Clerk
City Attorney
City
of Irvine
City of Laguna
Hills
One Civic Center
Plaza Woodruff, Spradling
& Smart
Irvine, CA 92714
701 S. Parker
St., Suite
7000
Orange, CA 92668
Jerry Patterson, Esq.
City Attorney
City of Lake Forest
Burke, Williams & Sorenson
3200 Park Center Drive,
Suite 750
Costa Mesa, CA 92626
Peter M. Thorson, Esq.
Richards, Watson & Gershon
333 S. Hope Street
Los Angeles, CA 90071-1469
Myrna Erway
City Clerk, City of San
Clemente
100 Avenida Presidio
San Clemente, CA 92672
Terry E. Dixon, Esq.
City of Laguna Niguel
2600 Michaelson
Suite 1000
Irvine, CA 92715
Mary Laub
Administrative Assistant
City of San Juan Capistrano
32400 Paseo Adelanto
San Juan Capistrano, CA 92675
Re: City of Irvine, et al. v. Federal Communications
Commission, et al.
Ladies and Gentlemen:
Please find enclosed the final version of the Settlement
Agreements in the above-described matter for submission to each
of your City Councils for approval and, upon approval, final
execution. There are two settlement documents to be executed.
The first settlement agreement, which resolves the global dispute
1241048170-051513097475, *08121197
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RUTAN & TUCKER, LLP
ATTORNEYS AT LAW
August 22, 1997
Page 2
regarding the additional outlets, must be approved and executed
by all of the Cities (the "Global Agreement"). There is a
separate settlement agreement for the City of Irvine which
relates to its Basic Service Tier dispute which only needs to be
approved and executed by the City of Irvine (the "Irvine
Agreement"). As I indicated to you in prior correspondence, Cox
Communications, Inc. ("Cox") would like to have these documents
approved as quickly as possible. In addition, no refunds will be
made to subscribers and the Cities will not be reimbursed for
their costs until the last of the Cities has approved and
executed this the Global Agreement and I am thus in a position to
execute and file the Dismissal of our Petition for Review with
the Ninth Circuit Court of Appeals. I have indicated to Cox that
I am hopeful that all of the Cities can have these documents
approved at the first City Council meeting in September. I
understand that San Clemente and Irvine have already approved
these agreements and are in the position to execute these
documents without further City Council action.
As you know from my prior correspondence, Cox initially
requested complete confidentiality in relation to this
settlement. I explained to Cox that such is not possible under
California law and that the settlement agreements public
documents which must ultimately be approved pursuant to a public
process. Cox has accepted the reality of this situation and
Paragraph 5 of the Global Agreement, entitled "Public
Statements", acknowledges that the settlement agreement is a
public document which must be approved in public session.
However, as the provisions of that paragraph indicate, all of the
Cities are agreeing to utilize "reasonable efforts not to
publicize, communicate, disclose, or reveal in any manner, either
by themselves or through counsel or any other agent, any of the
terms of this Settlement Agreement to any person or entity not a
party to this Settlement Agreement without prior written
permission from the other parties." Discussions of this Global
Agreement during the public approval process would not be subject
to this limitation. However, subsequent to City Council
approval, the Cities are bound by the terms and conditions of
Paragraph 5 of the Global Agreement. However, as that paragraph
states, if anyone makes inquiry regarding this matter, the Cities
may make a public statement in accordance with Exhibit B to the
Global Agreement and may provide, if requested, the dollar amount
of refunds allocated to each City. It is my suggestion that each
of you carefully review the requirements of Paragraph 5 of the
Global Agreement and instruct anyone charged with the
responsibility of making any public statements regarding this
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RUTAN 6 TUCKER, LLP
ATTORNEYS AT LAW
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August 22, 1997
Page 3
matter to carefully honor its contents. To the extent that you
would like to refer all questions in this matter to our office, I
would be happy to respond to inquiries from the press or other
individuals or entities.
Finally, as I have previously indicated to you, the issue
has arisen as to whether or not the $1,000,000 credits should be
allocated to subscribers within each of the jurisdictions on a
pro rata basis or whether some of the Cities should receive a
proportion of the settlement larger than their subscriber count
would indicate. During the settlement discussions, Cox took the
position that Irvine subscribers would not be entitled to any
refunds in that Basic Service Tier equipment undercharges in
Irvine during the relevant period exceeded additional outlet
overcharges and thus, even if the additional outlet charges were
deemed unlawful, Irvine subscriber overcharges would be more than
offset by the equipment undercharges. Jay Smith of Public
Knowledge, Inc. did determine that mathematically Irvine
equipment undercharges did exceed additional outlet charges
incurred by Irvine subscribers subsequent to July of 1994 when it
is alleged that the first CPS complaint was filed by Irvine.
Irvine disputed this fact and argued that CPS liability extended
back to September 1, 1993. However, even if the revenue obtained
through this period was factored into the equation, Irvine
equipment undercharges would still probably exceed additional
outlet charges.
I am obviously not in a position to resolve this issue since
I jointly represent all of the Cities participating in this
litigation. It was my suggestion, which I understand is
acceptable to all of the Cities, that the Cities appoint a staff
member to a committee (the "Allocation Committee") charged with
the responsibility of making this allocation. Cox has agreed to
honor the allocation of the Allocation Committee so long as its
decision is transmitted to Cox within thirty (30) days of the
execution of the Settlement Agreements by all of the Cities. If
no allocation is provided to Cox within said thirty -day period,
Cox will distribute the settlement amount equally among all
eligible subscribers in all of the Cities. Thus, a pro rata
distribution will default if no specific allocation is made.
I have above expressed the arguments in favor of a
disproportionate allocation. The arguments in favor of a
proportionate allocation are as follows:
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RUTAN & TUCKER, LLP
ATTORNEYS AT LAW
August 22, 1997
Page 4
(1) At the time of the negotiations of the settlement
agreements, the law was unclear as to whether Basic Service Tier
undercharges, which include equipment undercharges, could be
offset against Cable Programming Tier ("CPST") overcharges which
include additional outlet charges. Within the last two months,
the Federal Communications Commission (the "Commission") has
definitively ruled that a cable operator cannot offset BST
undercharges against CPST overcharges or vice versa. In essence,
the BST and CPST must be treated separately and thus, if this
case was resolved pursuant to the most recent decision of the
Commission, Irvine subscribers would be entitled to the full
amount of the refund since Cox would not be entitled to offset
BST equipment undercharges against the additional outlet
overcharges.
(2) In order to resolve this matter, Irvine, in essence,
relinqueshed claims to additional outlet charges imposed upon
Irvine subscribers from September 1, 1993 to July 1, 1994.
(3) In order to settle this entire lawsuit, Irvine agreed
to resolve its Basic Service Tier dispute currently pending at
the Commission, which is technically unrelated to the additional
outlet dispute, by agreeing to impose no refunds against Cox.
Thus, Irvine subscribers have, in essence, given up potential
refunds in order to resolve the global dispute.
(4) Pursuant to our "Outlaw Charge" theory, whereby the
Cities claim that all additional outlet charges collected
subsequent to December of 1994 when the Cable Services Bureau of
the Commission issued an order barring Cox from collecting any
additional outlet charges are per se unlawful, there would be no
discrimination between Irvine and other jurisdictions. The
"Outlaw Charge" theory suggests that no offsets of any kind are
appropriate against rates collected in blatant violation of an
order of the Commission. In my opinion, one of the reasons that
Cox chose to settle this dispute was to avoid litigation of this
theory since it would be difficult for Cox to justify to a
reviewing court the defiance of an order of the Commission. In
addition, this argument possessed great potential for
embarrassment to Cox especially if it was leaked to the trade or
popular press.
(5) The City Council of Irvine was the first to initiate
this lawsuit and Irvine Staff took the "laboring oar" in
organizing, orchestrating, and administering this litigation.
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RUTAN & TUCKER, LLP
ATTORNEYS AT LAW
August 22, 1997
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Please provide me executed copies of the settlement
documents as soon as they are approved and executed. In
addition, please provide me the results of the Allocation
Committee's decision so that I can direct Cox how to allocate the
settlement amount.
If you have any questions in this matter, please feel free
to contact me.
Very truly yours,
RUTAN & TUCKER, LLP
William M. Marticorena
WMM:vjb
Enclosure
cc: Joel D. Kuperberg, Esq., City Attorney, City of Irvine
Jeffrey M. Oderman, Esq., City Attorney, City of San
Clemente
John Shaw, Esq., City Attorney, San Juan Capistrano
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