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In re Petition of Comcast Cablevision of Jersey City

SUPERIOR COURT OF NEW JERSEY APPELLATE DIVISION


July 18, 2007

IN THE MATTER OF THE PETITION OF COMCAST CABLEVISION OF JERSEY CITY, INC., FOR ACCESS TO CERTAIN PREMISES KNOWN AS "NEWPORT," LOCATED IN THE CITY OF JERSEY CITY, COUNTY OF HUDSON

On appeal from the Board of Public Utilities, CE01090585.

Per curiam.

NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION

Argued: December 5, 2006

Before Judges Kestin, Weissbard and Lihotz.

Appellant, Newport Associates Development Company (NADC), the owner of a large complex of residential buildings in Jersey City, appeals from the final decision of the Board of Public Utilities (Board) denying NADC's request for over $1,500,000 as just compensation for the entry of respondent, Comcast Cablevision of Jersey City, Inc. (Comcast), into its complex to provide cable television services to residents. NADC has contended it is entitled to the amount requested because Comcast's entry will bring competition that will eliminate the revenue NADC had received under an exclusive contract with a provider of satellite television, RCN Telecom (RCN). We affirm.

Comcast holds a certificate of approval to construct and operate its cable television system throughout the City of Jersey City. On September 21, 2001, Comcast filed a verified petition with the Board pursuant to N.J.S.A. 48:5A-49 and N.J.A.C. 14:18-4.5 for access to the multi-family residential property in Jersey City known as the Newport Complex (Complex), owned by NADC. On October 15, 2001, NADC filed an answer and a request for a contested case hearing before the Office of Administrative Law (OAL). The matter was referred to OAL as a contested case on December 10, 2001.

The Complex is comprised of eight buildings with twenty-two to thirty-six floors each and a total of 3150 residential units. The first four buildings were built in 1987. From 1997 to 2000, four additional buildings were constructed.

In 1987, NADC signed an agreement with Liberty Cable Newport, Inc. ("Liberty") granting Liberty a "license" to provide "private cable television residential services" consisting of "one or more TVRO satellite dish antennae, off-air television antennae, underground cable, amplifiers, splitters, encoders, converters, taps[,] conduits, indoor cables, wires and other equipment and associated hardware" necessary to provide television programming to each residential unit. The agreement granted to Liberty to the extent the Owner is not otherwise prohibited by applicable law or regulation, such rights, licenses and authority . . . as may be actually and legally required by the [c]ompany to enter the Property and to install[,] operate, maintain, and manage broadband telecommunications equipment . . . .

The agreement required Liberty to pay NADC, as a "royalty fee," ten percent of the gross revenues derived from the system and, additionally, twenty-five percent of the net profits from the operation as defined in the agreement. Newport Telecommunications, Inc. (NTI), an affiliate of NADC, provided resold telephone and internet services to residents of the Complex through its own wiring and Verizon's.

On November 26, 2001, two months after Comcast filed the verified petition in this matter, it sent a letter to the general manager of NADC seeking to construct and install its facilities in the Complex at no cost to NADC. Service would be optional and provided on an individual basis to those residents who ordered it. Pursuant to N.J.A.C. 14:18-4.5(b)(6), Comcast gave notice that it would tender one dollar to Newport Associates in consideration for access.

In a letter dated December 27, 2001, NADC rejected Comcast's proposal on the ground it did not set forth an acceptable basis for access pursuant to law, and because one dollar did not constitute just compensation for the taking of NADC's property. NADC offered to engage in "good faith negotiations."

James Monroe Condominium (JMC) and RCN Telecom Services, Inc. (RCN) moved to intervene in this matter. RCN was the successor to Liberty. Administrative Law Judge Gural denied JMC's application, but granted RCN permission to intervene.

After the testimony on behalf of the parties was prefiled, a two-day hearing was held on April 14 and 15, 2003. Comcast's attorney asserted that NADC had filed a lawsuit against RCN seeking to terminate the agreement between those entities "on the basis that RCN's service is obsolete, it's improper, it hasn't been functioning right, [and] they are otherwise in breach of their obligations." Comcast contended, on judicial estoppel grounds, that NADC could not rely on the expert financial evidence it had proffered in this matter because it had offered "two terribly dramatically inconsistent positions" in the two cases.

In response, NADC's attorney asserted that "at no point in the other litigation . . . does [NADC] contend that it is not entitled to royalties from RCN under that agreement." He also argued that judicial estoppel did not apply because the proceeding was still underway, and NADC had yet to prevail. The ALJ made no ruling on Comcast's application, and proceeded to hear the testimony.

The pre-filed testimony of NADC's real estate expert, Mark Sussman, provided the opinion that just compensation for Comcast's entry into the Complex was $1,552,000 because the taking entailed an economic loss in the form of lost revenue from the RCN agreement. The land and buildings would "remain essentially the same after the taking . . . with the exception of the physical presence of wiring and equipment and any repairs and/or renovations required to accommodate Comcast's wiring and equipment." Sussman concluded that "an appraisal of the entire property in the Before and After conditions would yield the same result," with the exception of the lost revenue. He opined that the "difference between the Before and After conditions can be measured directly (in this case by analyzing the effect of the lost revenue), and this is equivalent to a 'Before-and-After' approach."

At the hearing, Sussman explained how he reached the conclusions in his report. He had conducted no market appraisal of the buildings' before-and-after values beyond his assessment of the value of the income stream from the RCN agreement. His analysis had assumed a taking in the beginning of 2003, even though Comcast had not yet had access to the building at the time of the hearing in April 2003. Sussman's analysis also assumed that, if Comcast were permitted to provide services, RCN would be unable to compete because "[y]ou are not going to have two cable service providers in that property." However, he had no market studies to support that assumption.

Sussman's damages calculations were based on the assumption that Comcast's market share would go from zero to one hundred percent almost immediately. His analysis "presume[d] that Comcast comes into the property, achieves one hundred percent penetration and RCN is out[.]" He believed the change-over would happen in six months to one year, although he had no marketing studies to support that conclusion, either. He rejected the propositions that some residents might elect to continue with RCN on the basis of price, or that RCN might upgrade its service to retain customers.

Sussman was aware that NADC had filed a complaint seeking to terminate the RCN agreement, but he did not believe that information affected his analysis. He acknowledged that, if NADC succeeded in its lawsuit to terminate the RCN contract, the concept of just compensation would be inapplicable. His damages calculations "wouldn't apply" if the revenue stream from RCN was discontinued as a result of the termination of the contract.

Kevin Rooney, Comcast's technical manager, whose direct and rebuttal testimony had also been prefiled, was cross-examined on the extent of construction that would be required for the installation. The direct and rebuttal testimony of Comcast's area director, Fred Kopecki, had been prefiled, as well. He testified regarding Comcast's business practices and its authorization to provide services in New Jersey, and with respect to the terms of the access agreement offered to NADC, as well as comparable agreements.

Richard Garrigan, of Garrigan Consulting Services, which acted as manager of NTI's operations, testified regarding NADC's arrangements for the installation and provision of telecommunications services. He also testified regarding NADC's efforts to terminate the RCN contract and obtain a shorter contract period because of the rapid changes in the telephone and technology industries.

Michael Abrams of RCN testified as to his company's concern that the Comcast installation not interfere with RCN's own facilities.

About a month after the hearing, on the application of the parties, ALJ Gural entered protective orders with respect to some of the confidential documents and other evidence introduced at the hearing. The ALJ issued his initial decision in the matter on June 25, 2003.

He found that NADC's denial of Comcast's request to service NADC's tenants violated the provisions of N.J.S.A. 48:5A-49, which prohibits a dwelling owner from forbidding or preventing any tenant from receiving cable television, or from demanding or accepting payment as a condition of allowing service.

The ALJ found that NADC's calculation, through Sussman's testimony, of the value of the taking "on a cost of service basis" was "improper." He determined that "NADC [had] failed to comply with the requirements of N.J.A.C. 14:18-4.5(d)[.]" That regulation requires an appraisal of just compensation to show, inter alia, "the value of the . . . property before the installation of cable television facilities [and the] value of the . . . property subsequent to the installation of the cable television facilities[.]" N.J.A.C. 14:18-4.5(d)1, 2. Based on NADC's failure of proof in accordance with that regulation, the ALJ denied compensation beyond the one dollar award allowed by the regulation. In the initial decision, Comcast's access was conditioned on the payment of any damages caused by the installation work, and Comcast was directed to compensate NADC and RCN for their employees' monitoring of the installation.

The initial decision also contained rulings on a series of installation-related issues. The ALJ held that telephone and internet service issues were outside the parameters of the Comcast petition because the provision of telephone service required compliance with various statutes, and because the Federal Communications Commission regulated cable modem service. He also held as "unreasonable" NADC's insistence that Comcast's access be limited to three years. Instead, he ruled, "access should have a life of at least the length of the remaining life of Comcast's franchise if it exceeds three years or at least 5 [] years." He also ruled that the disposition of any wiring upon termination was the proper subject for inclusion in a service contract, and Comcast would be allowed the option of removing its wiring upon termination.

The ALJ noted that the parties had agreed to compromise on the use of existing chases for wiring, and he approved Comcast's plan to place "hallway wire molding" in older buildings where chases were unavailable. Comcast would color the moldings to match the hallways and apartments so it would be less intrusive. The ALJ also ordered that, in the newer buildings, Comcast would have the option of installing the wires above the sheetrock ceilings.

The matter came before the Board for a vote on August 6, 2003, with the final decision issuing on August 7, 2003. The Board accepted the ALJ's determination that NADC had failed to carry its burden under N.J.A.C. 14:18-4.5 to prove its entitlement to compensation beyond the one dollar default figure; and it ruled that the ALJ had correctly determined the "cost of service basis" for valuation to be improper. Given Sussman's testimony that there would be no difference in a comparison of the value of the property before and after the taking, the Board concluded NADC was seeking compensation for loss of income based on the introduction of competition to RCN's current television system. The Board determined that, under NYT Cable TV v. Homestead at Mansfield, Inc., 214 N.J. Super. 148, 165 n.4 (App. Div. 1986), aff'd, 111 N.J. 21 (1988), a landlord's loss of income engendered by the competition between cable companies is not a compensable loss. The Board held that the potential decrease in revenue stream from RCN was "not subject to compensation."

Neither NADC nor Comcast disputed that Comcast was "both obliged and entitled" to access the NADC property to service the tenants. The Board determined that Comcast had the right of access to the Complex subject to the requirements of N.J.S.A. 48:5A-49 allowing "reasonable conditions necessary to protect the safety, functioning, appearance and value of the premises and the convenience, safety and well-being of other tenants."

The Board modified the ALJ's ruling that the term of service would be between three and five years, because the Board concluded that finding was based on evidence outside the record that had not been subjected to proper cross-examination. The Board, instead, set the term of service as "coterminous with the expiration of Comcast's Jersey City franchise."

On the issue of the disposition of the wiring on the termination of the service, the Board rejected the ALJ's determination and ordered that Comcast and NADC be bound by the provisions of 47 C.F.R. § 76.804. In the absence of a service contract, which did not exist because access had been granted by the Board's order, the parties were bound to conform with the requirements of the federal regulation.

With regard to the placement of wire moldings, the Board accepted a post-hearing submission from Comcast asserting the initial decision was based on the mistaken notion, advanced by Comcast's expert in the hearing, that the newer buildings had drop ceilings that could easily accommodate the wiring. In fact, the ceilings were solid sheetrock that would have to be cut for placement of the wires. The Board approved Comcast's requests to place cable in the existing wire chases, where that was feasible; to place it above ceilings that did not require the cutting of sheetrock; and to place it in wire moldings selected by NADC in the instances where neither option was available. The Board rejected NADC's argument that Comcast should be required to build supplemental wire chases between the existing chases and the ceiling before being allowed to use wire molding. In any instance where NADC and Comcast were unable to reach an agreement, the Board ordered that a neutral third party selected by the parties "shall be employed to resolve the issue," with the parties sharing the cost.

The Board noted that, on April 29, 2003, it had found RCN was a cable system that used the public right of way, and it had directed RCN to file a petition for a certificate of approval.

RCN had appealed that finding. As intervenor in this matter, RCN argued that Comcast should not be granted access to the Complex until the validity of the Board's order that required RCN to seek municipal consent and a certificate of approval could be resolved, but the Board rejected that argument.

Consideration of NADC's appeal from the Board's decision in this matter was stayed pending the outcome of RCN's appeal in the prior matter.

On March 1, 2006, the Supreme Court, in In re RCN of NY, 186 N.J. 83 (2006), held that RCN's Newport facility constituted "a 'cable system' under the meaning of [47 U.S.C.A.] § 522(7)(B) and is subject to BPU regulation." Id. at 98. The Court remanded the matter to the BPU for further proceedings. Id. at 99. In its opinion, the Court observed: "At oral argument, RCN declared its intent to cease operation of its Newport SMATV system sometime during December of 2005." Id. at 87-88. The parties nevertheless requested an opinion on the merits because they did not consider the matter moot. The Court determined that the question presented was "one of public importance." Id. at 88.

Before entertaining the issues raised in this appeal, given the passage of time and the advent of the Supreme Court's decision in RCN, we inquired of the parties regarding the status of the matter in respect of various issues. NADC informed us by letter dated October 16, 2006, inter alia, that it has no extant contract with RCN for the provision of cable or satellite television services to the Complex, that an NADC affiliate had contracted with another provider regarding service to certain buildings in the complex, that litigation between NADC and RCN had been resolved by settlement, and that Comcast "currently" provides "services to residents of each of the eight [Complex] apartment buildings that are the subject of [this proceeding]." At oral argument, NASD conceded that issues bearing upon installation and wiring had become moot. The letter from NASD also called our attention to the recent enactment of L. 2006, c. 83, amending the Cable Television Act, N.J.S.A. 48:5A-1 to -53.

Appellate review of agency rulings in matters of this type is limited. We are bound by all findings and conclusions of fact that are supported by substantial evidence in the record, with due regard for the agency's expertise, Close v. Kordulak Bros., 44 N.J. 589, 598-99 (1965); In re Public Service Electric and Gas, 35 N.J. 358, 376 (1961), and we are not to overturn an agency determination within the sphere of its authority, especially where the subject matter involves the application of technical expertise, unless the decision is arbitrary, capricious, unreasonable or violates legislative policies. See Murray v. State Health Comm'n, 337 N.J. Super. 435, 442 (App. Div. 2001); In re Hackensack Water Co., 41 N.J. Super. 408, 418-19 (App. Div. 1956).

In this appeal, the issues NADC raises fall into three categories: 1) whether the Board's decision that NADC was entitled only to the one dollar compensation provided in the regulations was arbitrary and capricious, contrary to the evidence, and inconsistent with the proper application of its own rules; 2) whether the Board erred when it failed to adopt certain conditions for access approved by the ALJ; and 3) whether the Board erred when it declined to preclude Comcast from providing internet and telephone services. Based upon our analysis of the record, in the light of the written and oral arguments advanced by the parties and prevailing legal standards, we discern that the Board's findings and conclusions are well supported by the record developed. The reasons given for each element of the decision reached are not arbitrary, capricious or unreasonable; are within the scope of the agency's discretion as committed by the Legislature; and are respectably in furtherance of statutory standards and policies.

The plain language of N.J.A.C. 14:18-4.5 governing "compensation for taking because of installation of cable television facilities" provides for an award of compensation, subject to standards and limitations established in the regulation, only when the building is not already being serviced by cable television. In every meaningful sense, therefore, the Supreme Court's ruling in the RCN case, affirming the Board's prior designation of RCN as a cable television operator, rendered the application for compensation moot. Because RCN was determined to be a cable television operator as a matter of law, NADC's property had been "currently receiving cable television service" when Comcast applied for approval, and it had been receiving such service for years prior. The regulation provides no basis for the owner of a multi-family property to demand compensation for a taking each time a new company enters the property. Because NADC's multi-family property was already being serviced by a cable television operator when Comcast sought to enter, NADC was not entitled to further compensation.

A position based upon the terms of the RCN contract, the sole basis for appellant's claim for compensation, does not suffice as a basis for the claim. The parties are governed by the plain language of N.J.S.A. 48:5A-49, which prohibits payment of compensation for the right to enter and install cable television facilities, as distinguished from contracts to compensate property owners for their market support. We are substantially in agreement with the Board, for the reasons given, that NADC had not met its burden to prove an entitlement to the compensation it sought.

The Board's determinations regarding the conditions of Comcast's access are, to the extent not moot, likewise free from error. The discretionary determinations made contain no features that, in the circumstances, may be seen as arbitrary, capricious or unreasonable.

NADC argues, also, that the Board erred when it declined to preclude Comcast from offering telephone or Internet service. NADC argues that the Board's order should have specifically limited the scope of the taking to prevent Comcast from utilizing the facilities to provide telephone and internet service. This argument is without merit.

Under N.J.S.A. 48:5A-3(d), "Cable television system" or "CATV system" is defined as any facility within this State which is operated or intended to be operated to perform the service of receiving and amplifying the signals broadcast by one or more television stations and redistributing such signals by wire, cable or other device or means for accomplishing such redistribution, to members of the public who subscribe to such service, or distributing through its facility any television signals, whether broadcast or not; or any part of such facility. The term "facility" as used in this subsection includes all real property, antennae, poles, wires, cables, conduits, amplifiers, instruments, appliances, fixtures and other personal property used by a CATV company in providing service to its subscribers and customers.

"Cable television reception service" is defined as "the simultaneous delivery through a CATV system of the signals of television broadcast stations to members of the public subscribing to such service, which service may include additional nonbroadcast signals delivered as a part of the service with no additional charge." N.J.S.A. 48:5A-3(e). A "[c]able communications system" or "cable communication service" is "any communications service other than cable television reception service delivered through the facilities of a CATV system and for which charges in addition to or other than those made for cable television reception service are made or proposed to be made." N.J.S.A. 48:5A-3(f).

The definition of "'Cable television service' includes the definitions of cable television reception service and cable communications service herein, as well as the provision of any other impulse or signal by a cable television company or other service lawfully provided, utilizing the facilities of the system." N.J.S.A. 48:5A-3(j).

By specifically including cable communication service and the provision of all other impulses or signals within the definition of cable television service, the statute authorized Comcast to provide those services, and no basis existed for the Board to override the statute and prohibit them. Also, Federal law specifically precludes the Board from granting NADC's request because, under 47 U.S.C.A. § 541(b)(3)(b), "A franchising authority may not impose any requirement under this subchapter that has the purpose or effect of prohibiting, limiting, restricting, or conditioning the provision of a telecommunications service by a cable operator or an affiliate thereof." It is axiomatic that primary jurisdiction over internet services rests with the federal government. See Nat'l Cable & Telecomm. Ass'n v. Brand X Internet Servs., 545 U.S. 967, 125 S.Ct. 2688, 162 L.Ed. 2d 820, (2005). Accordingly, the federal standard controls. We note, as well, that any determination regarding Comcast's future provision of services other than cable television would have been beyond the scope of this petition.

The decision of the Board is affirmed.

20070718

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