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Crumley v. Time Warner Cable, Inc.: US District Court : TELCO - filed rate doctrine bars cable service overcharge claims

Patricia Crumley,
on behalf of herself and all
others similarly situated,
v. Civil No. 07-3946 (JNE/JJG)
Time Warner Cable, Inc.,
Karl L. Cambronne, Esq., Bryan L. Bleichner, Esq., and Jeffrey D. Bores, Esq., Chestnut &
Cambronne, PA, appeared for Plaintiff Patricia Crumley.
Joseph W. Ozmer II, Esq., and Michael S. French, Esq., Wargo & French, LLP, and Tracey L.
Baubie, Esq., Kelly & Berens, PA, appeared for Defendant Time Warner Cable, Inc.
Crumley brings this action against Time Warner Cable, Inc. (TWC), alleging that TWC
deceptively and unlawfully overcharged customers for upgrades to its cable television service,
for which it previously had been reimbursed, and seeking both money damages and declaratory
relief. The case is before the Court on a Report and Recommendation issued by the Honorable
Jeanne J. Graham, United States Magistrate Judge, on March 7, 2008. The magistrate judge
recommended that TWCs motion to dismiss be granted. Crumley objected to the Report and
Recommendation, and TWC responded to the objections. For the reasons stated below, the
Court adopts the Report and Recommendation and grants TWCs motion to dismiss.
To ensure that basic cable service rates in noncompetitive markets are reasonable, such
rates are subject to Federal Communications Commission (FCC) regulations that are
implemented and supplemented by local franchising authorities. See 47 U.S.C. 543(a), (b)(1)
(2000). Cable operators undertaking significant network upgrades requiring added capital
investment may seek to recover upgrade costs by filing a Form 1235 with the appropriate local
franchising authority. See 47 C.F.R. 76.922(j) (2007). If the local franchising authority
approves the request, either affirmatively or by inaction, an additional amount may be added to
the basic cable rate. See id. Such costs cannot be recovered until the upgrade has been
completed and begins providing benefits to customers.1 Id. The parties do not dispute that these
regulations apply in the present case.
In her first amended complaint, Crumley asserts that the FCC and various cable
providers, including TWC, entered into an agreement in 1995 to settle large numbers of rate
complaints against the providers. Crumley claims that this agreement, known as the social
contract, required TWC to perform certain upgrades to its cable systems and allowed TWC to
recover certain costs attributable to the upgrades via surcharges to customer bills from 1996 to
2000. TWC allegedly completed the required upgrades and collected the maximum amount of
cost-related surcharges permitted under the social contract.
Crumley claims that TWC filed a Form 1235 on October 2, 2001, even though it had
completed no upgrade other than the one required by the social contract. An additional charge
was approved by the relevant local franchising authorityapparently through inaction rather
than affirmative approvaland TWC proceeded to levy the resulting surcharge. Crumley claims
that, by billing its customers this additional amount, TWC overcharged or double-charged
customers for the upgrades made pursuant to the social contract in violation of the cost-recovery
limits in the social contract.
1 The parties agree that the Report and Recommendation is inaccurate to the extent that it
states that such costs may be recovered before completion of the upgrade.
Crumley brought this putative class action on behalf of herself and all other individuals
and entities located in Minneapolis, Minnesota, that bought TWCs cable services at any time
between 2002 and the present, excluding individuals and entities with certain ties to TWC or that
have commenced separate lawsuits. Crumley alleges that TWCs actions and representations
violated the Minnesota Prevention of Consumer Fraud Act, and she alleges that TWCs
overcharge constitutes unjust enrichment. Crumley seeks, among other things, restitution,
money damages, and a declaration that TWC unlawfully filed a Form 1235 when in fact there
were no eligible upgrade costs to be recovered.
The magistrate judge recommended that TWCs Rule 12(b)(6) motion to dismiss be
granted on the ground that Crumleys claims are barred by the file[d] rate doctrine. Crumley
objected, TWC responded, and the Court heard the parties arguments on April 25, 2008.
As explained in the Report and Recommendation, the cable rates at issue in this action
are subject to federal regulation, see 47 U.S.C. 543; 47 C.F.R. 76.922, and therefore lawsuits
related to those rates may implicate the filed rate doctrine, cf. 47 U.S.C. 543(a)(1) (No Federal
agency or State may regulate the rates for the provision of cable service except to the extent
provided under this section and section 532 of this title.). Under the filed rate doctrine, once a
rate subject to regulation has been set or approved by the appropriate agency, a court may not
review, alter, or invalidate it. See Wegoland Ltd. v. Nynex Corp., 27 F.3d 17, 19 (2d Cir. 1994)
(Simply stated, the doctrine holds that any filed ratethat is, one approved by the governing
regulatory agencyis per se reasonable and unassailable in judicial proceedings brought by
ratepayers.); H.J. Inc. v. Nw. Bell Tel. Co., 954 F.2d 485, 490 (8th Cir. 1992) (indicating that a
court may not second-guess a rate-making authority). This prohibition on review of filed rates
is broad, extending so far as to bar claims when the measure of damages is determined by
comparing the approved rate and the rate that allegedly would have been approved absent the
wrongful conduct. H.J. Inc., 954 F.2d at 488.
Two rationales support the filed rate doctrine. First, application of the filed rate
doctrine prevents discrimination in rates paid by consumers because victorious plaintiffs would
wind up paying less than non-suing ratepayers. Wegoland, 27 F.3d at 21. Second, the filed rate
doctrine preserve[s] the regulating agencys authority to determine the reasonableness of rates.
H.J. Inc., 954 F.2d at. 488. By ensuring that rate-making decisions are made by the designated
agencies, the doctrine both ensures that those decisions are informed by the agencies experience
and expertise and preserves the stability of the larger regulatory framework in accord with
legislative intent. See Nantahala Power & Light Co. v. Thornburg, 476 U.S. 953, 964 (1986)
(indicating that judicial interference with regulated rates usurp[s] a function that Congress has
assigned to a . . . regulatory body (quotation omitted)); Wegoland, 27 F.3d at 21 (discussing
special competence of regulating agency and indicating that judicial interference with ratemaking
may undermine the regulatory regime).
In her objections to the Report and Recommendation, Crumley argues that the magistrate
judge misread her first amended complaint. She claims that she does not challenge any rate as
unreasonable or inflated but instead alleges only that TWC impermissibly overcharged or
double billed its customers. Crumley further argues that the filed rate doctrine should not
apply to her claims because she does not seek to have the Court directly regulate TWCs rates
and, to the extent that she challenges a filed rate, she does so only indirectly.
Under the facts and circumstances of this case, the Court concludes that these are
distinctions without differences. For Crumley to prevail on her claims, the Court must invalidate
a filed rate, i.e., the additional charge stemming from TWCs Form 1235. Moreover, the first
amended complaint alleges that Minnesotans outside of Minneapolis paid the additional charge
levied pursuant to TWCs Form 1235. If that allegation is proved true, cf. Midwestern Mach.,
Inc. v. Northwest Airlines, Inc., 167 F.3d 439, 441 (8th Cir.1999) (When ruling on a [Rule
12(b)(6)] motion to dismiss, courts are required to accept the complaints factual allegations as
true.), recovery by Crumleys Minneapolis-based class could mean other Minnesota-based
TWC customers would face a higher effective rate than that paid by class members. For these
reasons, the filed rate doctrine applies to bar Crumleys claims.
The Court notes that the regulatory scheme at issue in this case provides for rate refunds
in certain instances, but the scheme also limits when and for what periods such refunds may be
ordered. See 47 C.F.R. 76.933(g)(2) (2007) (In the event that the franchising authority does
not act within this 12-month period, it may not at a later date order a refund or a prospective rate
reduction with respect to the rate filing.); id. 76.942(b) (2007) (An operators liability for
refunds [is] limited to a one-year period [with one exception].). In general, permitting recovery
outside of the regulatory process would undermine the limited nature of provider liability and
constitute the sort of judicial interference in the regulatory scheme that the filed rate doctrine is
supposed to prevent. See Wegoland, 27 F.3d at 21 (Apart from participating in the political
process and filing complaints with the regulatory agencies, individual ratepayers simply have no
role in attacking the reasonableness of filed rates.); Taffet v. S. Co., 967 F.2d 1483, 1491,
1494 (11th Cir. 1992) (en banc) (Given that the [relevant agencies] are equipped to take the
defendants fraud into account in setting future rates, a courts award of damages against a utility
for fraudulent rate-making would be unnecessarily disruptive to the states scheme of utility
Finally, Crumley cannot avoid application of the filed rate doctrine on the ground that the
results are seemingly harsh. See Maislin Indus. v. Primary Steel, Inc., 497 U.S. 116, 128 (1990).
Nor are Crumleys claims spared by her contentions that TWC only obtained approval for the
rate at issue through false representations to the rate-making authority. See Sun City Taxpayers
Assn v. Citizens Utils. Co., 45 F.3d 58, 62 (2d Cir. 1995) (stating, in a RICO case, that claims
premised upon alleged fraud perpetrated by utilities upon a rate-setting agency are barred by the
filed rate doctrine because determination of damages would necessarily require a court to
discern what rate would have been reasonable absent the alleged fraud); Wegoland, 27 F.3d at 21
(holding that a joint RICO/state-law action involving telephone companies that allegedly misled
a regulatory agency to obtain approval of higher rates was barred by the filed rate doctrine);
Taffet, 967 F.2d at 1491, 1494 (en banc) (indicating plaintiff could not maintain a RICO action
where utility companies allegedly obtained fraudulent rate increases by understating their net
income to the agency charged with approving rates).
The Court has conducted a de novo review of the record. See D. Minn. LR 72.2(b).
Based on that review, the Court adopts the Report and Recommendation. Therefore, IT IS
1. Defendants motion to dismiss [Docket No. 14 ] is GRANTED.
Dated: May 12, 2008
s/ Joan N. Ericksen
United States District Judge


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