Prewitt’s Opening Brief Seeks Restoration of Charter's Cable Royalty Payments

The 5th U.S. Circuit Court of Appeals should reverse the district court’s declaratory judgment absolving Charter Communications of any further monetary obligations under a 1964 revenue-sharing cable-permit agreement signed by the predecessor companies of Charter and Prewitt Management, said Prewitt’s opening appellant brief Tuesday (docket 23-50419).

The appeal involves the “interplay” between the 2005 Texas Cable Act and the 1964 agreement, said Prewitt’s brief. Under the 1964 agreement, Charter’s predecessor acquired permits from Prewitt’s predecessor to provide cable service to the Central Texas cities of Waco, Temple and McGregor, it said. In return, Charter would make quarterly royalty payments to Prewitt based on its gross revenue derived from cable services in those cities, it said.

The 2005 Texas Cable Act “changed the regulatory landscape” such that the state, not the cities, would issue permits to provide cable service, said Prewitt’s brief. But the statute included a “saving clause” to account for existing contractual obligations such as those in the 1964 agreement, it said. Through the saving clause, “existing contractual obligations were preserved notwithstanding the change from city-issued cable permits to state-issued ones,” it said.

But after a one-day bench trial, the district court rendered a declaratory judgment that Charter had no further obligations under the 1964 agreement, said Prewitt’s brief. "In other words," said the brief, the district court decided the saving clause didn’t save any contractual rights under the 1964 agreement, “but instead washed them out.” The 5th Circuit should reverse “because that judgment misconstrues” both the saving clause and the 1964 agreement, it said.

The Texas Cable Act authorized the state's public utility commission to distribute state-issued certificates of franchise authority, said Prewitt’s brief. An SICFA grants the same rights to use the public rights of way of cities and to operate cable systems as were previously granted by the cities. Under the Texas Cable Act, franchises granted and permitted by cities and municipalities would terminate on the date the commission issues the SICFA, or whenever the municipal franchise permit expired, it said. But the saving clause in the Texas Cable Act stipulates that existing contractual arrangements will continue "in full force and effect," it said.

After enactment of the Texas Cable Act, between 2006 and 2011, Charter applied for and obtained SICFAs covering the cities of Waco, Temple and McGregor, replacing the existing city permits and franchises for each of those cities, said Prewitt’s brief. Under the saving clause, “a condition for the issuance and continuance of the state-issued permits to Charter for these three cities was that Charter’s contractual obligations to Prewitt be honored, paid and performed for the duration of the SICFAs for those cities,” it said.

Until October 2016, Charter continued to pay Prewitt, “without protest,” quarterly royalties based on 3% of the gross revenue derived from the operation of cable systems in those three cities, said Prewitt’s brief. Charter continues to operate cable systems in the cities of Waco, Temple and McGregor, “but it has made no further royalty payments to Prewitt since October 2016,” it said.

The district court’s April 23 declaratory judgment said the saving clause didn’t preserve Charter’s obligation to make the royalty payments after Charter acquired SICFAs covering the cities of Waco, Temple and McGregor, said Prewitt’s brief. The district court said the saving clause’s “only effect” was to “preserve the existing contractual rights of the parties” under the 1964 agreement, thus affording the savings clause “no meaning, purpose, or legal effect,” said the brief. The district court wrongly interpreted the language of the 1964 agreement to mean the obligation to make the royalty payments ended “when the city-issued permits were terminated and replaced by SICFAs,” it said.

But the “plain language” of the saving clause, “read as a whole,” preserves Charter’s obligation to make quarterly royalty payments under the 1964 agreement, said Prewitt’s brief. Not only does the plain language of the saving clause apply to preserve Charter’s obligation to continue to pay quarterly royalties to Prewitt, “but the courts must interpret this statutory provision in a way to give it meaning and a legal effect on the rights of the parties,” it said.

The district court’s interpretation of the saving clause is that all rights of the parties under any existing contract, such as the 1964 agreement, remain in place, said Prewitt’s brief. But all such rights “would have existed” even if the legislature hadn’t put the saving clause into the Texas Cable Act, it said. Independent of the saving clause, the plain and unambiguous language of the 1964 agreement “makes it clear that Charter’s obligation to pay continued after it acquired SICFAs and the city-issued permits covering Waco, Temple, and McGregor terminated,” it said.

A 5th Circuit holding in Prewitt's favor "does nothing more than make Charter keep the deal its predecessor made with Prewitt and the deal that Charter made with the PUC to obtain its new state permits or SICFAs for the three cities," said Prewitt's brief. "A deal is a deal," and the 5th Circuit "should make parties keep their deals," it said.