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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 0 0 RUTAN & TUCKER, LLP ATTORNEYS AT LAW A PARTNERSHIP INCLUDING PROFESSIONAL CORPORATIONS JAMES JAMES L. 611 ANTON BOULEVARD, SUITE 1400 II PAUL J.CAFLAN wAl... n n (Uw RICHARDEA �C LEONARD A Y.xORNAn PHILIP D� nN COSTA MESA, CALIFORNIA 92626-1096 .PFR— wCR—III.SR s SANTAGATA UVT�JR. V!:CHAKIL W AMM 'LL eTEVENIL RER KRO DIRECT ALL MAIL TO P. O. BOX 1950 OAMxN R E I.R III L i.G.. n. • Ory JR• WILunNw OD COSTA MESA, CALIFORNIA 92628-1950 J[w^Ir R wwnE-lruun0 STEVENEJ. OOOx R.CHAR. p IM94 nI NICKII xx ....LGI J. O INOT.. MNIDAuw EH TELEPHONE (7141641-5100 TOO. D LTY- N v....A. 1 CAROL L LER WNEv THOMAS 3 AUNGEA FAX (7141 346-9033RICHARD .Lu DAVID C HOWELL ERIC _DUNN pIEDEn T Ox xv J. CxwxO .ICHAEL. Ix DUKE HLOY ST pIC HARD OA MONTEVIDEO N I18E0-10731 HUROx SEAN P. FARRELL O[PMAN' R fMI T. CNCA. s NEPL 1 x1 FGMC JOSEPH n P 1 vep-IDE EI STAN WOLCo�.6R A=EI H. RODOER HOWELL I1025-IRE3) AMG55?wx wNIDE x.Yw SSSS UNOAB 7 DANIEL HARROTLE LIOTENVE WILLIAM M. MAATICOAENA MANS VAN CU—_ 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 0 0 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 124/048170-0515/3097475. &08/22/97 • RUTAN 6 TUCKER, LLP ATTORNEYS AT LAW s enwrxwwsww �xuowxc vworess�oxu coweownnoxs 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: 12,4i0+817o-051513M7475. ,08a2197 0 0 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. ammm 0 0 RUTAN & TUCKER, LLP ATTORNEYS AT LAW August 22, 1997 Page 5 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 124/048170-0515/3097475. A08/22/97