Interview Date: November 28, 1990
Interview Location: Walnut Creek, CA USA
Interviewer: E. Stratford Smith
Collection: Penn State Collection
Note: Audio Only
SMITH: This is Side A of Tape 1 of an oral history interview with Mr. Harold Farrow, an attorney with offices in Walnut Creek, California. We're in Mr. Farrow's offices at...
FARROW: 2125 Oak Grove Road, Walnut Creek.
SMITH: This oral history is one of a series being conducted by the National Cable Television Center and Museum at the Pennsylvania State University, University Park, Pennsylvania in which the recollections and thoughts of Pioneers and current leaders of the cable industry are recorded for historical research purposes. Mr. Farrow has represented various clients in the cable television industry from its very early years. Much of his work has been pioneering and is almost always on the leading edge of the industry's regulatory and other legal problems.
Mr. Farrow is the founder and senior partner in the firm of Farrow, Schildhause and Wilson. His partner, Mr. Sol Schildhause, runs the firms' office in Washington, D.C. Mr. Schildhause was the first and only Chief of the Cable Television Bureau of the FCC, which makes him also a mandatory candidate for an oral history. The interviewer is E. Stratford Smith, holder of the Chair in Cable Television History, School of Communications at Penn State, and the Director of the Oral Histories Program of the Cable Center.
Harold, you and I have known each other for many years. Let us dispense with formalities and do this interview on a first name basis and have some fun.
SMITH: Harold, we usually start with a little bit of biographical data. Would you tell us when and where you were born and something about your parents and their ethnic background?
FARROW: I was born in Dallas in 1926. My father and mother met from neighboring farms in Oklahoma during the late farming depression. They ended up moving to Dallas. My father was a policeman in Dallas for a good while until he lost an eye. As of the time of his death in 1936, he owned a chain of liquor stores and a nightclub. He was the oldest of thirteen children. I was ten when he was killed and, I think by the time I was eleven, we had moved to California. My mother bought a restaurant and I worked in the restaurant until I went in the Army. I was in the Army for a couple of years. I got out of the Army and went to a junior college and spent a year there. I then went to Cal and did a couple of years there and then to law school.
I finished both in 1953 and began to practice in the Bay area, actually San Francisco. I worked for a fellow by the name of David Livingston, who had a small general practice office doing a lot of insurance defense work and a lot of general practice work. He represented some of the European companies and we did what was called treaty work, that is, the policy description, development, and agreement between the European insurers and the local representatives. We also did a fair amount of trial work. I learned to practice law from him.
In 1958 I opened an office in Oakland with a couple of classmates. I remained in Oakland until about three years ago when I moved out here to Walnut Creek. One of the reasons we stayed in Oakland as long as we did--although I've lived out here in Contra Costa County for many years--was that Lionel Wilson, the mayor of Oakland, is the Wilson of the firm. So for many years, we stayed over there just because of Lionel Wilson. But the practice had been scattered, even before I got into cable and I was doing, basically, real estate litigation, and that was scattered all over the state. I never really had a local practice too much, as such. As a matter of fact, I may have more of a local practice here in Walnut Creek than I've ever had before.
SMITH: Harold, you mentioned that your father was killed. Was that something in the line of duty?
FARROW: Well, he was in the Navy in World War I, but, no, he was shot by some drunk one night in Dallas.
SMITH: This happened to a brother of mine who was a policeman also.
FARROW: Some guy was disruptive so he took this guy out of the place of business and he turned around and this guy pulled a gun and shot him in the back. He was dead in moments.
SMITH: Harold, when did you first learn about the cable television industry and how did you get active in representing people in the industry?
FARROW: Well, after I moved to Oakland, I opened an office there with a couple of classmates. When we opened up that office, there was a fellow by the name of Walter Kaitz, who had been a student at Bolt also, a year ahead of us. I think he graduated from Bolt in 1952. We were '53 graduates. Anyhow, he needed some space. He was working as a lobbyist representing some real estate interests. My then partners wanted him to come in and lease space to him from our offices. I was opposed to it because I thought lobbyists were terrible people. But I lost the argument and Walter came in. He and I became very close. I lost both of those partners but I kept Walter Kaitz. He and I became very close and I worked with him. The first time I finally began to work with him in cable was about '65. He came to me with some problems in connection with an effort by the then owners of Warners to provide cable service without franchises.
SMITH: Before you get too far into that Harold, what was Walter Kaitz' position with respect to the cable industry?
FARROW: Walter, besides his real estate work, was representing the State Association of Broadcasters. Apparently, something came up and there was some problem for the state cable operators. I think there were a total of six of them, at the time, in the whole state. They hired Walter as their lobbyist. I think he was paid--in those days the legislature had short sessions one year and then longer sessions the next year--and I think he probably got $100 a month while the legislature was in session and $50 a month when they weren't. So he began with them and quickly had to choose between them and the broadcasters. He chose the cable people. By the time I first did some work, it was a larger group, although it was quite small, it was still a large group. I think the first convention I went to probably had 200 to 300 people at the convention.
SMITH: Are you talking about a national convention or a California convention?
FARROW: No, state, California convention. So I would assume there probably might have been thirty cable operators in the state by that time. We worked well with Walter, and over the years I've worked with him as special counsel to the California Association until his death and for a short time after that.
SMITH: What was the nature of the case that Walter brought to you when you first were exposed to the cable industry?
FARROW: There was an effort at that time by somebody at Warner Brothers--there was a different owner at that time than now--to go into the cable business without dealing with the local municipalities, dealing directly with the phone company. The other operators were objecting to this. He brought this problem to me and while I was looking at it--a problem that I never did solve nor do much work on, it kind of died of its own weight--a problem came up with the telephone company, lease back issues and access to poles and pole rates. He got me into that field, and very quickly I was in very deep into that problem.
SMITH: For the purposes of the record, what do you mean by the telephone company's lease back problem and lease back rates?
FARROW: Well, the cable industry, of course, makes use of the utility poles. The process, in those days, was that after a cable operator had a license or permit or franchise or whatever he had--and he had a variety of those things in those days--once he had obtained municipal consent to go into business, he would go to the phone company and get a pole attachment agreement. He would then walk out the poles; that is, go out and locate the poles, measure the heights, and see what needed to be done to the poles to provide surplus space on those poles for him to access to put in his plant. If there was not enough space, he had to provide the capital costs of replacing the pole with a taller pole or rearranging equipment on the pole. So he provided all the capital costs of making surplus space available. Quite often, he ended up buying this space--buying it and giving it to the phone company. Then he would be able to get on a pole and pay rent to the phone company on a per pole basis. In those days it was $2.50 per pole to build. General, in those days, was charging $3.00.
SMITH: You mean General Telephone?
FARROW: General Telephone was charging $3.00. The city of Los Angeles was charging $5.00. What was happening was that the telephone companies, in an effort to encourage, shall we say--we used to say force--the cable operator to use facilities owned by the telephone company. It would deny or delay pole attachment agreements and tell the cable operator, "Look you don't want a pole attachment agreement. With the lease back service I'll provide it on a tariff basis. We will provide you with lease channels."
But the lease channel process was a pretty negative, anti-competitive process. For example, the cable operator had to put up in advance all the capital to build a plant. He was limited to use of the plant in one direction to only twelve channels. Everything else was reserved for the phone company. He was then charged a rather exorbitant annual fee for the maintenance of that plant, he couldn't touch that plant, and he couldn't deal with it. So he might or might not have owned the headend or the reception area where the signals went into the plant. He would own the little piece of wire at the end of the plant where it was in the customer's house. Basically, everything else was under the control of the telephone company. There were prohibitions in those agreements, for example, against any kind of local broadcasting. With special permission you could do public service announcements. You couldn't provide educational television services. There was a whole series of anti-competitive provisions in those agreements. If you didn't agree to them, well then you found yourself not being able to get on the poles.
One of the earlier cases I handled was a situation down in Southern California where the operator had a permit from the County of Los Angeles to go into business. He went to the phone company about a pole contract from Pacific Telephone. But Pacific Telephone had to take the contract to the PUC and get it processed to get their OK. They had control of that process and it took weeks to do it. While they were doing that, the telephone company located a lease back operator and built a plant for him on exactly the same place. So by the time my guy got his pole attachment agreement and got free to start building, the market was preempted by the other guy. That's what got me into that warfare.
That series of facts, by the way, eventually we went to the PUC with that complaint and got ruling against us because the PUC was quite bitter. They were bitter because somebody by the name of Strat Smith had beaten them in a case back in '56. The California PUC, Mary Pagilist, I think, was their general counsel, very clearly and outspoken, stated, "If you don't want to be regulated by us, don't come to us for help." That's exactly the attitude we met. While we were sitting there with that case in progress waiting to take depositions to try the case, they came out with the ruling and said we lost it. When I petitioned the Supreme Court--I didn't have the luck you had of going directly to the state Supreme Court--that's where I ended up after that whole warfare. It took me until after that 214 case in order to turn that case around. It took me years.
SMITH: I had no idea of the waves we created with that case.
Note: Reference is to Television Transmission, Inc. vs. PUC of California, a 1956 case holding that cable systems were not public utilities in the State of California.
FARROW: You started the thing. In fact, I think that attitude is still somewhat common, although Les Printhouse is at the PUC now, still somewhat common. Those regulators at the PUC feel that if you're going to resist our regulation then don't come to us to help you against the people who we do regulate; they are our constituents. There is a feeling that the utilities are the constituents of the regulators. But that's mostly a staff concept, not necessarily the members of the PUC themselves. But it is an ongoing, persistent staff approach.
SMITH: Are you saying, Harold, did I understand correctly, that in that case then the PUC simply said that it was all right that the telephone company put in this system and destroyed your clients' opportunity to go into business?
FARROW: Absolutely. The voucher was that the lease back service is being offered pursuant to tariff, pole attachment service is not, it's my opening by contract, so they can discriminate it between the two. There is no remedy.
SMITH: This was before you took on the Section 214 case at the Federal Communications Commission?
SMITH: Since this logically leads to that, we might just as well go into that subject right now. Pacific Bell built that lease back system in California without a certificate of public convenience and necessity from the federal government.
FARROW: That's right. At that time, the FCC had not yet taken jurisdiction of those lease back services. That came after the Southwestern decision out of San Diego where the FCC took jurisdiction. I think that was late '66, as I recall. So the system there had been built pursuant to a state tariff. I was sent back by the California Association to D.C. to see what I could do about getting those tariffs suspended after the FCC took jurisdiction. We had been getting the tariffs suspended at the state level, after I got into the litigation. The problem was to get those tariffs suspended at the federal jurisdiction to stop the abuses from the telephone company by denying pole attachment while they built the lease backs. I think that is when I first met you because when I got there that was the first time I'd ever been to D.C.
One of the things that happened was that there was a group of cable television lawyers and I think you were one of them. I think you were there, Jack Cole was there, and I think several others of the group were there. There was a question about what to do about solving this problem. There was a lot of discussion. Finally, we filed complaints with the FCC and the tariffs were suspended. I'd been asked by Kaitz to get the tariff suspended. It was the consensus of Cole and several of the other guys that that wouldn't do the job, that the Commission would never do it. I was too dumb to know better, so I asked for a suspension. I managed to get it in late, but it worked. We got the tariff suspended. That got those complaints started in the case. The 214 was a spin-off from the main complaints. So it was the California Association complaint, which requested suspension that started the cases. Then 214 was spun off. What got it spun-off was a recitation of those very facts about that situation in Southern California--Altadena, it was Altadena--that got that 214 case spun-off.
SMITH: When you say the 214 case was spun-off, how did you actually get a proceeding instituted at the FCC to determine, if I'm correct, whether the Commission should require the telephone companies to get certificates of public convenience and necessity under Section 214 to build these lease back systems?
FARROW: First of all, they suspended the tariff as a result of the one filing. Then the complaints were filed by the California Association, by the National Association, by a number of regional associations, and the complaints were against these processes saying that these guys are building these facilities without a certificate of convenience and necessity and using them in an anti-competitive mode to prevent the development of competition in what could be, in the long run, local line competition.
After the complaints were filed, a general proceedings was started that dealt with the whole overall issue, but it wasn't going very fast. It looked like it was going to take forever and everybody was struggling around with it. There were a lot of parties, and a lot of issues, and a lot of questions. In an effort to shake it up, we filed a petition to deny and revoke, or something like that, where we took the facts from that Altadena thing and said you've got to do something now. The rate at which the telephone industry is taking over control of the cable industry is expanding at an alarming rate. Nobody is able to get into business. It's an area where the competition is worthwhile and the whole concept of competition in the telephone industry is being pushed by Strassburg from the Common Carrier Bureau.
The Carterphone case had recently been tried so that we had the potential for competition in the attachment at the end of the line. The MCI case was currently going along so there was the potential of competition between cities. The 214 then came and raised the possibility of competition within the cities. All those elements of potential competition were coming together at the same time. I think we used those in order to get that thing spun-off and just try that issue. The issue was, do they have to have a certificate of convenience and necessity before they build the lease channel facilities? Because the twisted pairs system of the telephone company couldn't carry the signals. In any event, they almost had to have a new wire put up for any kind of cable service. They then set that up. At the hearing we went through the process and the Commission said yes, that they did have to have a certificate. One of the things that came out clearly from the cross examination of the telephone company guys on the stand was that I got them to admit that if they had to get certificates before they built the facilities, it would seriously impel their ability to market those services. In other words, they would lose their ability to force it. The Commission went with us. As a matter of fact, after they had to get that, it was the death-knell to the lease backs. No more, as far as I know, were ever issued and almost all of them were sold back to the operators who were using them.
SMITH: They lost their Altadena leverage so to speak.
FARROW: I think Falcon was the one that bought that system in Altadena.
SMITH: In that case, in addition to representing the California Cable Television Association, did you not also represent the National Cable Television Association as their counsel?
FARROW: I did. I want to tell you that that has to be one of the accidents of history. I had been sent back by the California Association to file those documents. We got them filed. We got the position established and then the California Association ran out of money. So we were through with it. There was nothing we could do. The position was going and I didn't even plan on going to the hearings after they set up the hearing. Just a few days before they were to start which was, as I recall, right after Memorial Day in May, I got a call from Bruce Lovett, who was then general counsel of NCTA. He said the hearings were going to start in a couple of days and he had a meeting to attend in Colorado and it was kind of inconvenient for him to do it, and he wondered if I would mind coming back and sitting in for him the first day or so at the hearing. I said, "Well sure. I'd be happy to." After I'd got the pleading, I looked and found that there had been a lot of evidence, a lot of documents produced involving the telephone companies and I had copies of everything, but you know I wasn't in the case so I hadn't read them. I got on a plane with those documents to go back there. This file was a foot thick or two feet but, at the time, I just took it with me. I got back there and Bruce walked me over to the first day of the hearing and said, "Now I'm going to go." He left.
We were in this hearing room and there were representatives there from several law firms. When I say several, I'd say probably six or so from AT&T. There were at least two lawyers there from every AT&T subsidiary, Pacific Telephone, Wisconsin, General Telephone, and United Utilities. The room was full of lawyers. If I had to guess, I'd say forty lawyers. There were also several guys representing local cable associations. Jack Cole was there. There were also several people there representing broadcasting because they had an interest in this. They wanted to figure out a way to hold cable back while they protected their monopolies.
SMITH: Anything to hurt cable.
FARROW: Do you remember that old hearing officer, Fredericks?
FARROW: Fredericks was the Hearing Officer and he was charged with umpiring or refereeing this hearing. He was not to make a decision. He was to preside and certify the record to the Commission for their decision. That first day he called this thing to go. Bruce had left. They said, "Well, who's going to start?" General Telephone said, "We'll start." General Telephone got up and called a witness up and they handed him the book of prepared testimony that was twice as big as this case book and said, "Is this your testimony? The guy said, "Yes." I said by the time he got through that I could be quite prepared to cross-examine him. You know, I'd tried a few cases before that.
He said, "Would you turn to page 391. Any changes?" He said, "Yes the semi-colon has to be a colon." About one or two questions like that and he said, "Your witness." The attorney turned to me and said, "You go next." I said, "Well listen, I just got in this case a couple days ago so why don't you let somebody else go ahead." They went around the room and nobody was going to go ahead. Fredericks said, "You go." So I opened that thing up and said, "Turn to page 1." I started that thing out reading page by page. That's how we started that case. I sat up all that night, and the next day I was a little more prepared. Each day I gained a little ground. It was a lonely time.
SMITH: A few minutes ago, Harold, you mentioned the name Strassburg. You were referring to Bernie Strassburg, who was the Chief of the Common Carrier Bureau at that time, I believe. Is that correct? Did he participate in that hearing?
FARROW: No he didn't. Well, I think that the Common Carrier Bureau did, but Strassburg never came to the hearings. There was a guy there, a bright guy, who later went to work for United Utilities. I think he's probably still with them. I just don't recall his name now, but they did participate. Schildhause, with the then Cable Television Task Force participated. He had a guy named Kaufmann working for him. Kaufmann attended the hearings for Schildhause. Both of them were helpful, although obviously, a lot more help came out of Schildhause and Kaufmann. But both sides were helpful.
As the days went by and you'd see these guys at lunch time and after work and they were both helpful. Jack Cole was helpful, particularly in connection with procedures. Quite often Cole would sit next to me and I didn't know anything about these procedures. From a procedural standpoint Jack would help me out. Basically, they dumped it on me and I tried it like I was trying a drunk driving case or whatever. I went to work on the facts. We worked on it as hard as we could and we got enough stuff in there. It made a big difference. It was a big issue. There were problems all over the country. It was not just the California case. One of the things we did, for example, to the fury of Arnold Porter, who represented a guy named General Taylor, was that with Gary Christensen's help, one night about two or three weeks into that case, we gathered up a copy of everything we could find from all over the country of complaints of any kind about the lease backs. The problem was that they were unverified, unsigned in some cases. Some of them were drafts, sometimes we would have a complaint from a case, sometimes we had a complaint and an answer, sometimes we had a decision without having the complaint, and sometimes it was just a newspaper report, whatever. We got them all.
We made a zillion copies of them because you had to have a copy for every lawyer there in the case. We went to hearing the next day with a huge stack of these things and put a stack on everybody's desk. A newspaper from down in Bay City, Texas had a headline on the thing where they said something like "Telco Bribe Concerning Cable." The story was that the phone company had the local franchise and they paid franchise fees to the city for the telephone franchise. They were trying to get the cable franchise--this was General Telephone--in a competitive hearing. They offered to pay more franchise fees for the telephone service as well as franchise fees for the cable service. The local newspaper thought that was kind of unfair so they wrote this big heading "Telco Bribe." So I put that on top of this big stack and when I got up to start making these offers of proof, Fredericks wouldn't allow any of this stuff in. I said, "Well I want to make an offer of proof." So I got up. Instead of taking the first one, I took the next one. Porter was just poised to jump at me. He was waiting for me to try to put that headline in. But, I skipped it and went to the next one. I got through with that and got turned down on that one and I came to the next one and I skipped it again. I went all through that thing, all the way down to the bottom and never did offer that headline.
This guy from Arnold and Porter was, by this time, apoplectic. So when I sat down, he jumped up and took his copy of the newspaper article and shook it in my face and said, "Aren't you going to offer this?" I said, "Mr. So and So, if he wants to offer this, it's okay with me. It says, "'Phone Company Bribe', I think it's the General Telephone Company." I still remember that.
The record did get made and the Commission did finally solve the problem. They went ahead with the rule making that took the telephone companies out of the business in their operating territory. They couldn't own cable at all, including General Telephone. They couldn't offer the lease back services unless they also offered pole attachment services on reasonable terms and conditions. So that they basically solved their problem, for the time being. Of course the next thing, as you well know, the phone company said they were going to raise all their prices for pole rentals and that was the next line of war.
SMITH: That is the next subject this logically leads into. Before we start it, I just want, for the record, to identify the Gary Christensen that you referred to. Was Gary not the assistant general counsel of the NCTA, at that time?
FARROW: That's right.
SMITH: Gary went on to become general counsel at a later date.
FARROW: Right. Then he went on to one of the local firms there in D.C, the firm that Jay Ricks is with.
SMITH: He left the law firm and sort of went on the beach and I'm not certain what he is doing right now.
FARROW: Very nice fellow. He still kids me about that night when I gathered all that material up there for the offers of proof, knowing full well that none of it was going to be admitted.
SMITH: At the time, Harold, I was working on the United Artists case and I didn't concern myself with the Section 214 problem. I was unaware of the way that you, apparently, came in at the last minute without any adequate time to prepare yourself.
FARROW: I was too dumb to appreciate the fact that I was in over my head.
SMITH: Well, you obviously weren't. That case was one of the milestones in the development of the cable industry. If the telephone company had gotten away with that lease back service, they might very well have controlled the cable industry today.
FARROW: There would have been no question about it. That was what was really happening, no question about it. No one could compete with their ability at the franchising level. There is no way to provide this service without the use of the utility structures. It was, basically, a common carrier service. We went on to take the posture that, as a matter of fact, it (leasing cable television plant) was a common carrier service. We fought that war out at the Commission.
We got a decision in '83 of the Commission that the offering of pole attachment service was a common carrier service no matter who provided the poles. That covered municipalities, railroads, irrigation districts, fire company, telephone company. And they said, before we implement the rule we'll give them ninety days to talk about it. They never did implement the rules. But it solved the problem temporarily.
SMITH: That theory was that the poles were a communication facility; therefore, they were offering a communication facility for hire. Thus, it was a common carrier service.
You mentioned, Harold, that the successful 214 decision out of the Commission--and just for the record, 214 means Section 214 of the Communications Act of 1934 that requires certificates of public convenience and necessity...
FARROW: To begin the service or stop the service.
SMITH: Correct. That led to the next problem. That was the utilities--the telephone company and the power utilities--deciding to raise their attachment rates. My recollection is that you were very, very prominent in that struggle, in California in particular. Would you like to tell us how that got started?
FARROW: The rate question didn't come up until after the 214 decision. When it came up, I looked into it. I discovered that, at that time, before I had ever been involved with Walter Kaitz, that there had been a rate case in California. I don't know if very many people realize that. It must have been about '64, I think. There were proposals from both General Telephone and the Bell System to increase their pole rental rates, apparently about the time they realized that the cable industry was going to be there permanently. I've always believed that--I'm not able to demonstrate it for certain--originally, access to the poles was granted by the utilities to the cable companies on the belief that cable attachments would be temporary; but as soon as the FCC issued enough broadcast licenses, there would be no more need for antenna service and that they'd go away. For that reason, all the early agreements required bonds to be posted to cover the cost of taking the cable plant off the poles, for example.
After all that became obvious and when the cable industry began to not only carry local signals, for example, but also to bring in distant signals, it was obvious there would be a new industry that was going to remain. At that time, it was part of the telephone company plan to take the business over. I think the telephone companies began to attempt to raise rates. What had happened in California was that they had negotiated about it and, apparently, Bell had wanted $4.00 a pole and were adamant that they had to get $4.00 a pole.
SMITH: Is that an annual rate, Harold?
FARROW: An annual rate per pole. In those days, you could figure about one pole per customer, by the way, and I think probably fewer than that because there are more customers as you get in condensed areas. But we used to figure about one pole per customer. At any rate, when we went through that case, the Bell System adamantly wanted $4.00 and the industry never gave up and said, we'll fight you over that because they have been paying $2.50. General Telephone came in and agreed to take $3.00 so the industry agreed to pay $3.00 and that's how the $3.00 rate got set for the General people. When they got in the hearing, the Bell System produced numbers allegedly demonstrating that their costs were actually $4.50 per pole. The hearing officer didn't have any quarrel with that. He didn't have any way to quarrel with those numbers. But he said that the provisions of the agreement with all of its restrictions so decreased the value of the attachment that it wasn't worth more than $2.50 and so, denied the increase.
SMITH: Now is this a California hearing?
FARROW: That was a California decision of the PUC at a time when the PUC assumed it had jurisdiction, the telephone company assumed it had jurisdiction, and the cable companies all assumed the PUC had jurisdiction. Nobody questioned the jurisdiction of the PUC to set those pole rates or control them. At that time, the hearing officer even recommended that a tariff be filed. There were tariffs on file, by the way, for farmers. The amount of tariff on file in California was $1.00 per pole per year. That's something that we kept hammering away at all the time because we always figured we were using surplus space. We were paying all the capital costs. The only cost they have is the cost of billing us. They only bill us twice a year. It couldn't cost them two bits a bill to send the things out in the mail. Anything over $l.00 per pole is stealing money, and we were subsidizing the utilities from the cable suppliers, so it's improper. But, those were the arguments we used.
At any rate, I found that out about the earlier case, and I looked at that. About that time--we couldn't understand it because somehow or another--part of another case was a problem with Edison and General. I had some numbers on how many poles they owned in the state of California. I looked at the numbers that they used in '64 and I realized that these were equivalent pole numbers. That got to be a big item. Do you remember that? It turns out that what happened was that when the power company and telephone company used the same pole, depending on the state and the utility, they shared the cost of the pole. Usually either 50/50 or 40/60, 60 being power, 40 being telephone. Sometimes it varies, depending on the size of the pole; sometimes it varies on whatever. But they're equivalent poles. When Pacific Telephone, for example, makes a report to the FCC, they report on pole lines and numbers of poles, and reports equivalent poles. To it, an equivalent pole is if it had two poles where it was using half of said pole that made one equivalent pole. But when it rented the pole, of course, it's one pole at a time. So that when they reported the costs of the poles, they were reporting equivalent costs. That was the cost of two poles, not one pole. So that the numbers they had used in the '64 hearing were fraud on the PUC. They were twice as high. If you use their own numbers, the highest possible rate they could have justified was $2.25. They were already charging $2.50, using their own numbers. Once you understood that equivalent pole thing, then you begin to look at all the pole things all over the country. You found where they were using equivalent pole concepts. The pole rates would show they could justify increasing them. Where they had one pole at a time or if they had another concept going, their rates couldn't come to much over $1.00. That was the big warfare.
There was a time, in the early 70's, when a hearing was started at the FCC over new pole rates. After the proceeding was started, the NCTA, represented by Jay Ricks at the time, negotiated privately with the Bell System, AT&T, over pole rates. They came to an agreement that involved all of the rates going up to, I believe, $4.00 at the time. Then they would increase annually for a period of ten years, depending on whether it was rural, suburban, or urban. Three, five, and seven percent. If they were rural they would increase three percent per annum; suburban, five percent; and, urban, seven percent. They took that to the NCTA. I didn't know about this at the time, but the NCTA said, okay have you talked to Pennsylvania and California? They said no, because both of them had young representatives. The NCTA told them that if Pennsylvania and California would agree, they'd agree to this new rate. They then went to Pennsylvania--I found out later on--and Pennsylvania was represented by George Barco and most of the systems in Pennsylvania were small towns. The big towns hadn't been built yet. So Barco says, "I'll go along with it if you let us start at the $2.50 level in the small towns and only go to $4.00 in the big cities where there is no cable yet." So they made that deal. Then they came to California.
I still remember the meeting over in San Francisco at one of the hotels with NCTA. You were there, Hester was there from AT&T--who is now with Maritech--Ed Allen was there, Kaitz was there, everybody was there. They started that meeting, and boy were they pressing. I was waiting back in the corner, and they really had me in the corner. But I knew these numbers. They made the mistake of telling the NCTA what these numbers were. I recognized them as being equivalent pole numbers. I blew the deal. I kept them from agreeing to it. We kept the rates at $2.50 in California. A lot of guys got mad at me. There were some people down in Texas--Ben Conroy, he was so mad he wouldn't talk to me for a year or two. All the time I represented our association the rates never went above $2.50.
SMITH: I remember this story, Harold, particularly listening to you repeat it, very well. The interviewer is not supposed to do the talking on this record. However, to clarify some of the facts, Jay Ricks started that case representing the NCTA. He developed a conflict of some kind. They came and asked me to take over negotiations with AT&T from him. Which I did. Over a period of several months at a meeting that took place in San Francisco, we finally completed the negotiations with AT&T and the NCTA board of directors did buy the deal and California didn't.
FARROW: Strat, I don't want to quarrel with you but you're talking about a second time. You came in after I blew that first deal. The NCTA then came back to you and they started again.
SMITH: You're correct. You're correct.
FARROW: They had a new committee. I think Hostetter was in charge of that committee. Maybe that was the third time, I don't know.
SMITH: No, your memory is better than mine. That's absolutely correct.
FARROW: I remember Hostetter was supposed to have said--reported to me by Kaitz--"The only way to control FARROW: is to put him on the committee, but don't hire him as a lawyer so he wouldn't have any money in it." So Kaitz said to me, "Fine, you get on the committee and I'll pay you." Before I got off that committee, I'd convinced everybody that I was right. I had all these guys arguing with Hostetter. Finally Hostetter settled and agreed to pay the power companies. Later on, the third time around, he agreed to pay to make those $5.00 rates and they were going to come to $5.00 rates. That's when I wrote that article about Wiley's forced settlement. By innuendo, Wiley thought I was going to file suit against him personally. They never put that rate increase into California. We've had the rate of $2.50 in California as long as I've represented the state association. The FCC finally took complete jurisdiction, after Congress had passed the Pole Act. What happened was that they reduced rates all over the country. The rates went down from $5.00 to as low as $1.15.
SMITH: Now was this before Congress passed legislation giving the FCC jurisdiction, or did it follow it?
FARROW: It followed that.
End of Tape 1, Side A
Start of Tape 1, Side B
SMITH: This is Side B of Tape 1 of the oral history interview with Harold FARROW:. Harold, would you continue with the comments you were making. At the time, we were discussing the reductions in pole line rates that followed the FCC taking jurisdiction after Congress had passed legislation giving the Commission jurisdiction over the pole rates.
FARROW: Right. We got the Commission set up to take jurisdiction over pole rates and access to poles both in '83. They put out a public notice--which I still have a copy of somewhere--saying that they want to give the parties an okay to negotiate for ninety days and let's see what happens. I thought it was a tremendous victory. I was, as you know, in the thick of that and I really felt like I'd finally won the war and now it was time to talk. I talked to our people and I said there is a way now to solve the problem without having a lot of bureaucracy. It's time now to talk settlement with AT&T. It was my view that we could go to AT&T at that time and say, okay we'll set up something like the joint pole committees where we can work out an arbitration process, mediation process, to work out pole rates and access. We can solve the problems so we don't have to fight the business of having a governmental jurisdiction take jurisdiction. I assumed that would be attractive to AT&T because that would give them a little bit less regulation and if we could hold the rates at the $2.50 level, that would be attractive to us.
It was my view that I could go to AT&T and say that what they wanted is no regulation. What we're worried about is the amount of money we have to pay. We can now work together and solve that problem because if we don't solve it, the FCC is going to take jurisdiction. So I went back to AT&T and sat with these guys in New York City and hit them with this proposition. Their response was, have you applied for welfare anyplace else? It turns out that the reason for that response was because they had already got a copy of the paper--which I hadn't seen--where a fellow by the name of Gold, who was then working at NCTA, had announced that NCTA was going to take over negotiations with AT&T and that they were certainly negotiating from the place where they had left off back in 1971, which was the raising of the rates up to $10.00. This guy is looking at me and we're saying $2.50, and somebody else is talking to him about going to $10.00. He wasn't about to talk to me. That's why I ended up with the warfare I had later on, in order to hold the rates in California at $2.50. It was clear that the NCTA was really going to go up higher. And they did.
SMITH: I do not recall the name Gold.
FARROW: He was there at the NCTA for a short period of time. He was one of the young lawyers there. He was post-Lovett. He was after Christensen left. That quote, I think I still may have that quote someplace, I thought, my God that's just like bad money driving out good. Why would they talk to me when this guy is offering to take the prices up. So I was out of that picture. After that, all I did was protect the cable operators in California.
Later on, the problem got so bad because it wasn't solved. Eventually, as you may recall, Hostetter's committee agreed to $5.00 rates with the power companies thinking that would make everybody settle down at that rate. All it did was to just feed their greed and it didn't solve the problem. Eventually, they had to go back in and get the Pole Act passed by Congress. Congress passed the Act and that Act gave the Federal Commission jurisdiction except with the states that had taken jurisdiction. In the meantime, we had already passed the Cable Act in California to protect the California people. The Federal Act was a copy of the state act here in California with just a little bit of difference in language, but basically the same thing that we had developed before. It had to be cost based. It was based on the original cost to the utility and the poles. It accepted the concept that we would be charged for a whole foot of space even though we only used a few inches. That was the bill we passed in California and the Federal bill followed that. Then the Commission took jurisdiction with that and when they began to set rates, uniformly they were reducing rates. Now our rates stayed the same, the $2.50, because that was what we'd built into that legislation in California.
SMITH: Where are the rates today in California?
FARROW: The last I heard they were up around $4.00, maybe close to $5.00. The CCTA has been negotiating on the rates. I haven't represented that association for several years now. They're probably as high, or higher, than the median.
SMITH: Were you active in presenting the legislation to the California legislature?
FARROW: Yes, I did. Actually, it took two of us to do it. The first time we drew two bills, we had a long bill and a short bill. The first year we came close, but we didn't get there. The second year we got the bill passed. It was pretty simple, straightforward legislation.
SMITH: Can you give me the citation to that in the California Code?
FARROW: It's Public Utilities Code Section 767.5. It's been amended a few times since then, but that was the code section. It gives jurisdiction to the Commission to set those rates if the parties don't agree. What's happened since I left there, when the utilities tried to move rates up, they've negotiated and agreed to go up. I don't think they've ever had a proceeding at the Commission. I think it's all been done by negotiation.
The last thing going on at the Commission, I think, was when PG&E tried to raise their rates from $3.00 to $5.00. That was the last major thing I handled for the state Association. When we got into that, we drew a referee who decided he was going to make a finding that cable television was a public utility contrary to your case. He and I had a little trouble over that. He decided that, as an interim rate, he was going to set a pole rate of $12.00 and he had the support of the PUC staff. I remember one guy's quote--and the guy said this right in front of the then president of the Commission when we were discussing it with the head of the power company. We were complaining about the concept of being charged so much money for the use of surplus space. We were talking to the president of the Commission and he brought in the head of the division and he says, "Sure, for years PG&E's has been f*** the small telephone companies all over the state by making them pay half the costs of those poles they're on. Why should cable not take the same treatment?" That was the position of the staff.
When we had that $12.00 rate, at that point, that was a disaster for the industry and I had to stop that. I went to the general counsel of the Commission and said, "I want that man replaced. If you don't take him off because of bias, then I'm going to move to have him come off for bias. If he doesn't agree to get off because of bias, then I'm going to take him to the Commission. If they don't agree to take him off because of bias, I'm going to the state legislature because I'm not going to have one idiot put this industry out of business in California." They said, "Well, we'll think about it." After a while they said, "Well, take your best shot."
In the meantime, he had asked for a brief. This guy was not a lawyer, he as an engineer, this head officer. He told me not to give him a lot of legal mumbo jumbo. He wanted things clear, he wanted to see the picture of it. So we wrote a brief with a lot of pictures. We kept it pretty simple and straightforward. That was one of the best briefs I ever wrote, I think. We took the same brief and put a different cover over it with a picture of a guy on a horse with a telephone pole sticking through a little cable guy and we called it the "horse brief." To this day, we call it the horse brief. We took that brief to the legislature. The legislature set the maximum rates at $2.50. They took that guy off the case. But I wasn't too popular with the PUC after that. We had an anti-trust case on file against PG&E. They cross-complained against me, personally. They accused me of trying to illegally violate anti-trust laws by maintaining the pole rates.
SMITH: Harold, start at the beginning on that.
FARROW: I didn't worry too much about that because I thought I was pretty well protected by not paying any attention to those exceptions.
SMITH: Start at the beginning on that case. What was its title and what were the circumstances that brought it up?
FARROW: It was PG&E's attempt to double the rates from $3.00 to $6.00. The industry didn't use as many PG&E poles as it did telephone company poles. Typically, if it was a joint pole, the power and telephone companies agreed by the joint pole agreements that the access to the power portion of the pole, the upper portion of the pole, is controlled by the power company. Access to the lower portion, the communication space, would be controlled by the communication company, which sounds quite logical. This also gives each one of them control of access of any potential competitor. With that kind of control, when you go to get your pole attachment agreement you go to the telephone company and you get a pole attachment agreement for all the solely owned telephoned poles and for all of the joint poles. So you only have to get a contract from PG&E for the solely-owned power poles because if the telephone company is on it, then you deal with the telephone company. If there is not enough communications space on the jointly used pole, the telephone company would buy space from the power company, charge you the cost of that, and then rent you that space.
When PG&E then asked for this rate increase, there weren't that many poles compared to telephone poles, but if PG&E could get away with going from $3.00 to $5.00, there's no way in the world we're going to hold the phone company down to $2.50. By this time, there might have been a million subscribers in the state, maybe not, I just don't remember the numbers at this particular time. But at that time, I remember doing numbers and there were probably .9 poles per cable subscriber in the state of California. Probably eighty-five percent or better of those were utility, controlled by the telephone company. This small number of power poles was very important to us. If we lose there, we're going to lose more in the future, so we had to fight that. As part of that process, we were not only fighting at the PUC, but we filed in court in an anti-trust case and were pressing that case.
SMITH: Is that a case that is still pending?
FARROW: No. The case was settled. After the hearing officer came out with that $12.00 temporary order, there was a lot of panic in the cable group, as you can quite imagine. Walter was dead by this time, as I recall. I think that's right. But, I remember that Spencer played a key part in all of this; and they brought in a guy by the name of Monroe Price, who had been involved in Los Angeles with UCLA for a while; and they brought in a guy from San Francisco, who, strangely enough, was on the board of directors of PT&T. They brought these guys in because they were "going to have" a lot of political strength to help solve this problem. Their recommendation was that we negotiate a $9.00 rate. I was pretty unhappy with that. I used Lionel Wilson, at that time, and we got some help from him. We went to the governor's office and we saw one of the guys who is now a district court of appeals judge who I'd run across on the other side of some dispute over some of the access groups. He was a guy with a hell of a lot of political control in the state at the time. Brown was the governor. We used him. We went back to the legislature and we got the problem solved ourselves without these guys. But I was pretty upset with the treatment I was getting and the fact that these guys were trying to give away what I'd fought for years to preserve and there was no justification for it. That was one of the reasons why, after that, I refused to represent the California's group.
SMITH: In your anti-trust suit, did you charge the power utility and the telephone company with a conspiracy?
FARROW: Sure. And it was a pretty obvious conspiracy because they set the prices when they brought these prices back and forth. The PUC knew practically nothing about this. We went to the PUC to ask for copies of these joint pole agreements--there is a northern California joint pole agreement and a southern California joint pole agreement, a little bit of variation between the two, but basically the same concept--they didn't even know about it. They didn't even have copies of it. They didn't pay any attention to it.
The small things that the PUC does, they're out of. You remember the attitude of the one guy who said the power companies have been screwing the phone companies for years. Why should the cable companies get a decent break? That was their attitude about that whole concept. You know poles were a boring subject they didn't give a damn about. They were dealing with the big picture. To us, this was the big picture. In those agreements, they agreed that if somebody wants to compete with me the power company, you've got to deal with me, and if they want to compete with you, you've got to deal with them. They set up the position by which they controlled access to what is an essential facility. Then they sit there and trade the interest back and forth. That's when I was using guys like Frank Drendel to give us help on how these things were handled, and other people. You found that there was no control and the interests were being bought and sold between the utilities, so that typically, the power company would put the pole in on a new subdivision. Then they would come along and put the pole in at whatever their cost is and they weren't supposed to do that. But then they would sell an interest--maybe that year, maybe five years later--to the telephone company. When they'd sell the interest to the telephone company, they wouldn't sell it at their cost, they'd sell it at the cost of reproduction price in the year they sold it. But they didn't show it as a profit. They had another column where they would just reduce this number, which didn't show up otherwise. So this number would go up and down. But what was happening was that the rate base was constantly going up for both companies. The poles began to be a source of false rate base, which meant false revenue from the standpoint of the sale of power and telephone services. They were sticking us with it. This is something I felt pretty strongly about.
I know one time there was one of the PM&S lawyers, who was then representing the telephone company. We had a discussion about rearrangement costs.
SMITH: PM&S, what's that?
FARROW: Pillsbury Madison & Sutro. They were defending some of these extraordinary costs they were sticking us with for rearrangements. His statement was that we charge cable television the same for rearrangements as we do for the state of California. He was just ****everybody. As a matter of fact, they were. I tried to get someone in the state to look into that problem. We had done some research, for example, and one of the areas we had against General was that we discovered General's people were instructed--with respect to materials for rearrangement for cable--that there was one price plus ten percent, I believe it was. But only for cable. So that if anybody else wanted that rearrangement done, there was one price. But for cable they added another price factor on it. Labor, I think, was twenty-five percent. I may have those reversed. Maybe one was ten and the other twenty-five. They may not be exact numbers. But there was no question about it. They were doing that and applying that in the Los Angeles area, an area where cable systems were being built that covered both General and Pacific territories. We checked with the operators there and we found, as I recall, that the average rate--this is way back in the late '60s, early '70s--for pole rearrangement for the General area was around $10.00 a pole. But for the same area, same kind of poles, with Pacific it was $40.00. Now we knew that General was bouncing their rates up. So if they were bouncing their rate up at $10.00, you see what they were doing to what Pacific was doing. When these guys said they were charging us the same rearrangement costs that they were charging the state of California, all I could think of was that it was institutionalized fraud.
SMITH: Did you ever get the state of California to take a look at that for themselves?
FARROW: No. As far as I know no one has ever looked at it. The war is still going on. I think that's still happening. As a matter of fact, we've got a case pending, or we've just settled it, which was the only one I know of, the only real warfare over pole rights. It may not be settled yet so I'm not going to tell you the name of it. You see, typically, they never give you details on it before the work is done, as you know. Once they give you the bill, that's how it is. You ask for details, they're not going to give you a lot, that's the bill. If you fought with them, you didn't get yourself another pole attachment agreement in the next town and your costs would go up in the next town four times what they were the last town.
In this particular case, there was a company that had built its last system. They didn't give a damn any more. They had paid about a half million dollars for pole rearrangements based on the telephone company's estimate. After the work was all done, they got another bill for another half million dollars. They were pretty upset about it and they were dragging their feet. They came to us and we said, "If you go to the PUC, we're not going to have much luck over there because they're not very sympathetic to wars between cable and telephone. They're going to go with the telephone company. So why don't you just hang on and we'll see what they're going to do. They're threatening to sue you. Maybe they'll sue you." So we hung on with them and sooner or later, they did. They filed suit. We said, "Hooray! Now we're in court, not at the PUC." Now we get discovery. We made them produce the material. You can't believe what a mess it was. There was no way they could prove the damages. They had records that indicated on this pole they had installed a cross-arm that took so much time, on this pole they installed one that took ten times as much time. Their basic records, when they finally produced them, there was no way to make sense out of them.
SMITH: This is a case that is still pending?
FARROW: Yes. What's happened is that nobody had ever looked at this process. So engineers charged one figure justifying their time, workers charged would justify their time. They would go in and park their truck and mark down eight hours doing pole rearrangements. But they couldn't identify which pole. They were being charged for rearrangement for poles that weren't rearranged. They were being charged for rearrangement of poles that weren't. There were no such poles. This was abuse, absolute abuse.
SMITH: You construe that situation, Harold, as being a deliberate effort to gouge the industry, or was it, perhaps, an effort to try to block the industry from realizing its potential?
FARROW: First of all, this isn't about sloppy recordkeeping. That is the type of thing that happens when nobody cares. When nobody is checking and nobody cares. That is a negligence that starts from the ground level up, from the guy who wants to go eat his lunch in the shade and doesn't want to work the rest of the day. That's endemic to any industry and it's more endemic to those where nobody's checking and where it's kind of institutionalized protection for the worker. You can't say that's a policy decision on the part of anybody, other than the fact that if it's a regulated utility, maybe their regulator should pay closer attention to that. But there were policy decisions being made by the telephone company. I can never really understand any policy decision on the part of the power company in California except a defensive one worrying about, we don't want a situation to develop where somebody can offer an alternative to power. Cable has never really threatened that, so I think to the extent they can get more money, they want it. If they can charge $6.00 for the space instead of $3.00, why not. I think it was just pure profit motivation, in that respect.
There is no question about it, the telephone company, I'm sure, made conscious policy decisions at the highest levels. First of all, to try and end the whole concept of an independent, parallel land line in their local areas. I think that's going back into the '50s, late '50s and early '60s those decisions were made. After losing the war about Section 214, I think they made conscious decisions to try to impede the development of the industry while they tried to regroup by increasing the costs so that if they ever got a chance to compete, they would be competing with a guy who had a higher cost than otherwise. Plus the typical anti-competitive movement. I strongly believe that those decisions were probably made at some level in some of the companies. The ones that didn't make them followed suit with the other people. I think that's probably so because when we finally got to the point where they had to justify the costs, they couldn't. They just didn't discover arithmetic later on. I mean they knew arithmetic all the time. They had some of the smartest people in the world working for them.
SMITH: I think that was my real question. Were they out for whatever they could get?
FARROW: Well, sure. I think from the standpoint of getting more money in, they were always justified in trying to earn more money. To the extent that earning that money might reduce their telephone rates, that was a good thing to say. But the effect of that is that the guy who is selling a first amendment service to a small portion of the population--less than half typically--his people were subsidizing the people who were getting the power and the telephone service. So it was kind of a regressive, backward tax, in that respect. But I think there was also a consciousness on the part of the telephone company that one day they would get in there. I think they fully intended to get in there and it probably didn't hurt to have the competition's costs higher than would otherwise be the case.
But you see cable companies are doing it to each other these days. I mean you see the first cable company in town, when he's doing his rebuild and he's looking to potential competition, how many times do you see these guys doing zigzags on the pole space up there so that the rearrangement costs for the second cable operator is going to be much more than it otherwise would be? More often than anybody would like to admit. In every one of the cases I've been involved in, I've seen some of that.
SMITH: You're talking deliberately constructing your system in such a way that, for another system to comply with code, they're going to have rearrangement costs that really weren't necessary to have?
SMITH: That doesn't reflect very well on the pristine cable industry, does it?
FARROW: I don't think the cable industry has always been pristine. It happens to be a hell of a wonderful business, but the people in it are the same people that are in other businesses. There aren't any angels there any more than there are in the telephone industry.
SMITH: Harold, are there any pole line attachment cases that you've been involved in that you haven't mentioned in this discussion?
FARROW: Strat, I don't know. We covered the problem of access and we covered the problem of rates and we covered the horse brief. I'll have to find you a copy of that horse brief. I've always enjoyed that brief. I thought that was one of the better pieces of work we turned out.
SMITH: I'm going to ask you to the extent that you have extra copies of these briefs to let us have them for research purposes at the Center. I'd love to see that cover of the horse brief.
FARROW: While we're on the subject matter, we had the Eleventh Circuit decision about the Federal Act. I was upset with that. That case was argued, we had no part of it. That was the case that came out after the Cable Act had been passed by Congress. I think it was United Utilities quarreling about rates. They got mad and they, literally, took some cable operators' plant down. Isn't that what brought about that Eleventh Circuit case? I think that's what brought about the Cable Act. I'm not sure.
SMITH: Can you remember the name of the case?
FARROW: No. Not right now. But, eventually the Pole Act was tested in the courts and did go to the Supreme Court. It went through the Eleventh Circuit. We might have fought it, Amicus brief in the case, but we certainly weren't involved with the argument. In the argument, on behalf of the industry, they were asked, specifically, at the oral argument whether or not it was the position of the industry that they had the right of access to the poles. The industry replied, "No." To this date, I don't think they should be forgiven for that. But the reason they said no is because that, by this time, the established industry was worried about competition. So that if there was a right of access to the poles, that would aid another competitor to come in.
I think there is such a right. I think the Federal Act is in Section 224 of the Cable Act, which is in the common carrier section. In California, there is no question that it is in the public utility code section. There is no question that anybody who is a cable operator has got a right to those poles. We still have to get what our license permits. I've been upset by that position by the industry. There was no need for that. We fought too many years to establish the right to be on the poles for somebody to casually just give it away in the interest of self-protection or protection against potential competition. That's always made me cross.
SMITH: And this was after it had been established that furnishing poles was a communications service, a common carrier service?
FARROW: Right. Now the only way you can harmonize it is you can take the argument to say that when we bargain this many times that you cannot require somebody to be a public utility. You can't coerce public utilities or common carriers. But once election is made, then you can enforce the provision on it. Now if by saying what they were saying is that if a utility had never allowed its poles to be used for cable, then it couldn't be forced. I'll agree with that because that is a new service. But once they provide that service, then I think the right of access exists and you can't then say I'm going to make access to Company A and not give access to Company B in that situation. That may be the way you would harmonize that remark and the way I would use to try and argue the case, I'd get into that posture.
SMITH: If it were made in that context.
FARROW: I'm not sure that was the context. That's where we are with that one. I think those issues are probably done away. I've talked to a few people a few times and I've even made a suggestion to a couple of telephone company people that if they wanted the cable television industry and if what is stopping them is the claim of cross-subsidization and so-called control of the essential facility--the poles--what they ought to think about doing is taking the poles and putting them in a separate company and spin them off to a separate public utility. That pole company public utility business being there would give these poles to both the telephone company and the cable company. That would eliminate that situation. That would be before age and everything else and that would eliminate their so-called essential facility blockade that's being used against the telephone company entry. Nobody seems to be jumping at that idea. I doubt if they will because I think, probably, those guys in the telephone industry who say they really don't want to abuse their essential facilities would still like to have them there in case it got to be important.
SMITH: That's an interesting concept.
FARROW: If you had such a company, that company could be in the position of providing conduit space and pole space to both communication and television. You could include the power utility too, why not. It could be a specialty business. There is a tendency to be specialists these days. It would be a perfectly appropriate business and would eliminate an awful lot of agreements and disagreements and would get fair payment for fair use.
SMITH: Let's change the subject then. When did you first have occasion to introduce the First Amendment issue into litigation that you were involved in?
FARROW: I was in Muncie. We had gotten involved in rate cases in California. There was a model franchise issued by the California League of Cities that Houlihan, the ex-Mayor of Oakland, had worked on. Houlihan was Mayor of Oakland and got into some difficulty. He was practicing law. The mayor's job was a formalistic job. There is not a strong Mayor government in Oakland, it's run by the city manager, so the Mayor was always, typically, into other things. Like, Wilson has always been a member of our firm, for example. But Houlihan, I think, was practicing by himself. He apparently got into some problem of dipping into some trust funds and was tried and pleaded guilty and was convicted. He spent some time in the lock-up. He came out and as a part of his rehabilitation, ended up doing a lot of work with a foundation of municipalities tied to, in some way, with the California League of Cities. While Walter was around, Walter and I had worked with Houlihan to try to temper somewhat the model ordinance for the League of Cities. This was, I think, after the '72 movements at the FCC.
Before that, typically, these things would say that the cable operator could not increase his rates without the consent of the city. That's all it would say. There would be no standards, no criteria. Nobody knew how to do it. For a long time it didn't make any difference because, basically, it was a $5.00 industry as an antenna service. Once your plant was in place, as you increase you customers, you cut your per unit cost. It followed much of the history of the original power companies; that is, as the usage grew, the costs went down so that you keep the rates the same, even though there was inflation going on around you. But, eventually, inflation caught up and there was no question but that the industry had to have increased rates. It was not just a question of inflation but the industry, technologically, was moving so fast. That's one of the benefits of getting out from under the PUC and the benefits of having a free industry. A lot of things were happening. The plant was becoming obsolete before it was depreciated so that these guys were having to rip down perfectly good amplifiers and replace them with those that go to the twelve channels or past twenty, and twenty would pass twenty-eight, and go from twenty-eight to thirty-five, and fifty-four and on and on. For a while the amplifiers were changing pretty quick and you had to get spacing changes. You had to take out not only amplifiers but all the cable had to come out. So that costs were escalating.
The industry really had to have an increase. One out of every so many cities would take a look at that and then say--somebody like Tracy would take a look--and say, "What are we doing trying to control the rates anyway. This is a luxury service. You don't have to take it if you don't want it. We're not going to control rates." When the issue first came up, they said, forget it and they'd amend the ordinance and get rid of it. But other cities said, "Oh boy, I'm not going to let my neighbors say I'm the guy that increased his cable rates." The next guy would say, "Oh boy, if I give them a rate increase, what do I get out of it?" So all of a sudden, campaign contributions began to go up. Demands began to go up. The little cottage industry of cable consultants came into being to give the cities advice on how much money they could extort out of their companies. All of a sudden, there began to be specialists in the cities who were getting to be experts at extorting this money. They called themselves the National Association of Telecommunications Officers and Advisers, the NATOA group. Anyhow, in the early stages of the process we looked at this rate gain thing and you could see that it was a political problem of the kind that was difficult to solve. There was no way to cosmetically hide a rate increase. I mean, the guy's got to pay the check. You can write ten sentences or ten pages but when you get all through, a rate increase is a rate increase. That made it very difficult, politically, for a city to approve of these rate increases. So we took the position, well it's a whole lot easier in a city if the court tells them they have to. On top of that, in some of these cities, you're going to have to have the court say they have to. We looked at that and said, "Well, how do you go about it?"
There was one case in California that beat us to the market. Times-Mirror had a case down in southern California where a company was making one half a percent return, as I recall on their investment. One half of one percent return. They went to get a rate increase and the city said no. So they then wanted to sue the city and they went out and got a attorney who knew something about this. He turned out to be a utility lawyer. He said, "Well you've got to make sure you have a record established there so you have to go back to the city and make sure we establish the rate base and the other stuff." So they went back to the city and produced a tremendous record with all the experts to demonstrate that they only made a half a percent return. The city said no again. So then they filed suit in California under the Mandamus Theory which says, tell the city to do what's right. You go into court on that basis, what happens is that you take the record down below and you take it in and that's the record, and then you argue that. That cuts away all that motion matter. They went in and produced this huge record and put it on the judge's desk and he looked at it and said, "Boy it looks to me like they thought about it for a long time. They've got a lot of material down there. I'm not going substitute my judgment for this. The answer is no."
They took that case up to the DCA and they lost it. Then they took that and tried to get a hearing before the state Supreme Court, and they didn't get that. Someplace in there, while they were doing that, what the courts were saying was that rate setting is a legislative function. Unless you prove that it is arbitrary and capricious completely, then you can't do anything about it. If the judge had really read over the whole record and had found that they were arbitrary and capricious, he then could have ordered the city to increase the rates. Well that meant that these guys could spend a ton of money and a ton of time, and finally got the cities' wrists slapped. Then they would go back to the city and the city could have said, "Well okay so we'll go back and do it again." But they've got to come with another reason. You know it would be a whole repetition of this thing. That seemed kind of dumb to me.
We took a look at that thing and we decided either they are unconstitutionally confiscating the property of the company or they are in breach of contract. These so called ordinances are really contracts because the typical ordinance says that we're going to make an agreement with you and you have to agree to all of these things but you don't get the permit--the franchise--until you come and accept it. When you file your exceptions, among other things, you agree that you have no right to contest anything in here. So they make a contract out of it. We had to first establish that it was a contract. Then once we established it was a contract, we said okay either they are confiscating the property of the operator or they are in breach of contract.
About the same time, we filed two suits, one in Santa Maria and one in Santa Cruz. I still remember the first hearing down in Santa Maria. The judge down there said, "Are you talking about judicial mandamus or whoop-ti-do thing down there?" I didn't know what he was talking about. I didn't know anything about mandamus to answer his question. I said, "Well let me try a little of both." But we established through that guy. We got him to say, "Well your contract theory is baloney but it does look like to us that this is unconstitutionally taking your property so if these guys don't give you the rate increase, we're just going to declare that there is no authority. It's rates control."
About the same time, we got the judge in Santa Cruz to say, "Well I don't understand all that constitutional baloney, but it seems to me it's a clear breach of contract so if they don't give you an increase, I'm going to take away their power to control the rates." So in both places we got them. But in both cases, on a different theory. It was the two theories we worked with and developed. The one dealing with damages we liked better because that produced the risk of losing to the city. So we developed that one stronger. We had a ruling, for example, over in Stockton that says if the city says you can't raise your rates without a consent when you ask them to raise the rates, they have the obligation to reasonably respond. If they unreasonably refuse to give that, then that's a breach of contract. It certainly follows that if there is a breach of the contract, then damages follow. The damages are, the amount of rate of increase that you should have had. That was the theory. We were using that.
Then we got into a problem in Indiana. I don't know Indiana law. Their mandamus rules are different and their contract rules are different. By this time the copyright cases were passed so we then brought in, for the first time, a concept of, you've got no business regulating the rates in the first place. If you can tell me the real, the proper amount, to allow for the capital facilities to produce Sesame Street and the proper annual budgets for the production of Sesame Street--and you can do that without censorship--then maybe you've got a right to regulate cable rates. But short of that, you've got no business doing it because it gives you too much power. Power to budget is the power to censor. You can't imagine doing this to a newspaper or a magazine. Why should you be able to do it to cable companies? That theory, we still believe in, we still think that is working. We think a lot of regulators know that's right. That's one of the reasons there are a lot of hesitations about controlling rates. You remember before the '84 Act, the Commission had backed off regulating anything except broadcast signals, the retransmission of broadcast signals. You remember that earlier than that--back in '72--the Commission said that nobody could regulate the rates of the Class 2, 3 and 4 services, which is what has turned out to be all those satellite services such as premium services and all those other things. When we eliminated government control of those rates, that's the part of cable that blossomed.
End Tape 1, Side B
Start of Tape 2, Side A
SMITH: This is Tape 2, Side A of the oral histories interview with Harold FARROW: in his offices in Walnut Creek. Harold, we were just entering a new subject in the interview and that is your theories on the use of the First Amendment as applied to cable television. You'd given us a little bit of background on how you developed the theory and, certainly, at the moment, the case for which you're best known in this field is the Preferred case. I wonder if you would mind starting at the beginning on that case and giving us details on how it originated and the various arguments and problems that you've had with it. I'll just sit back and listen to you.
FARROW: Okay, Strat. In the Muncie case, we used the arguments there and we put them in the pleadings. I don't recall for sure, but I would assume we probably did some briefing at that stage. The case was not tried. It was, eventually, settled with the help of Ned Tow, who is one of the better negotiators in the world. He really didn't want to have the knockdown, drag out fight, but the concept was begun there. Before the Preferred case, you really can't deal with the Preferred case unless you deal with the Boulder case because I'm not sure that was the next place we used the theory but it certainly may be the most significant place we used it. The facts in that case were kind of important.
SMITH: You're referring to the Boulder case now?
FARROW: The Boulder case. Televents, I think, originally had the little license there in Boulder. Boulder is situated in such a way that there is a portion of the city in the shadow area behind a mountain for the Denver signals. There is no Boulder broadcast station, as I recall. So that for a number of years before I got involved, the company with that license had been providing cable television service in the shadow area of the city. In the mid-'70s, after the development of the satellite processes bringing in line development of a new cable television program per se--which would provide a new product other than broadcast product--the company, then owned by TCI, wanted to build out the rest of the town, build the whole town. Local interests decided it was a wonderful time to take the franchise away from them. So with the local boys hustling the city council, they managed to pass an ordinance that said that the license for TCI was revoked but that it would be renewed in the area in which they were operating only. They would be prohibited from expanding through the rest of the town.
The theory of the local lawyer was that they probably didn't have sufficient grounds to revoke the license--as a matter of fact he knew they didn't have sufficient grounds--but by going through this process, when the company continued operating in the shadow area, they would, in effect, be accepting the new contract being offered by their new ordinance, which gave them only the shadow area. Then they couldn't go ahead and expand in the rest of the town. This is not atypical of the type of municipal thinking that affected cable over the years. Now to me that's like saying to a newspaper, you can sell your newspapers on the north side of Main Street but you can't sell them on the south side of Main Street. So we took the position that the city just did not have the right to do this. The problem was what to do about it.
One of the things that you must understand is that to get a preliminary injunction is difficult. You've got the uphill burden at a time before the case is tried; and so if you can arrange your life and your client's procedures in such a way that the other side has to get the preliminary injunction, it's tougher for him to get it. It's easier to beat him, often. For you to go get it, you have the burden.
So what we did was we elected to continue to build out in the rest of the town saying that the process was not enforceable and wrong. We still had the old license and we're still entitled to go and we didn't accept their new ordinance. They have no right to cancel the old ordinance so we kept building. The city then would make threats. We ignored the threats. The city then came out and arrested the workers building the plant and gave them citations which they had to pay. We posted bail and promised to provide and kept them working. We would try to make the city be the one to go to court to get the preliminary injunction. We filed suit, but we didn't want to have to do the preliminary injunction. The city finally started coming out each day and ripping the plant down. We'd put it up and they'd rip it down. At that point, I had to give up. After all, their guys had guns and we didn't.
So we then went in and got a preliminary injunction issued by Judge Maatch in that case. The cause of action was threefold, First Amendment--the Civil Rights Act--and anti-trust laws--trust violation. The only defendant, I believe, was the city. I don't recall for sure, I'd have to go back and look at the pleadings. But, certainly the city was the main defendant. I think we took the theory that they were conspiring with others but we didn't sue the others. I think that's right, but I'd have to check it. We got a preliminary injunction. The judge wouldn't go just based on affidavits. He insisted we put eye witnesses on. We had a mini trial, a couple or three days of testimony and we got an injunction issued. The judge said the First Amendment of the Constitution argument itself was kind of new and unusual, but he certainly well understood anti-trust law and there was no question that this would have to indicate anti-competitive conduct on the part of the city.
So he was going to issue a preliminary injunction on the basis of the anti-trust violation by the city. The city appealed and it went on up to the Tenth Circuit. By a vote of two to one, they reversed it. Chief Judge Markey from the Claims was the dissenter. The prevailing two judges on the reversal said that, "The judge was wrong. It's a matter of law and, of course, anti-trust. The city has (Parker) immunity because they were self-help so they're not liable under the anti-trust laws." They didn't have to examine the facts, the judge had made a mistake of law and they reversed his decision and would not look at the merits. Markey looked at the merits and wrote a dissenting opinion which, I think, is a model for where the law will be. It certainly is a model for the position we believe we took. We then petitioned for cert to the Supreme Court on the basis of the reversal from the Tenth Circuit. As you know, they granted cert. But the only issue for the Supreme Court, at that time, was the question of the immunity of the city under the anti-trust laws. The Supreme Court agreed with us that there was no such immunity. But in the meantime, even though we had taken a petition for cert, and even though the Supreme Court had granted cert, we went back to the trial court judge and said, "Judge, your preliminary injunction based on the anti-trust law was really not worth a damn. Why don't we try one on the First Amendment." So we went for another one and this time the judge said, "Okay." We had some more hearings and he granted us a second preliminary injunction based, specifically, on the First Amendment. But he said because he hadn't had a remand from the Tenth Circuit, he was free still on the anti-trust issue and he disagreed with it. So he threw in the anti-trust ground too. We, once again, had a second injunction.
SMITH: On both grounds?
FARROW: On both grounds. The city appealed again. It went back up to the Tenth Circuit. The Chief Judge of the Tenth Circuit was on the first panel. He was the guy who wrote the decision. He was the controlling vote on the first decision. Markey was, of course, the first judge. The second time, then, before the Tenth Circuit, we lost again. But they couldn't figure out how to overcome the way Maatch had written the injunction this time because he'd taken a lot of trouble with it. He'd written an injunction they just couldn't figure out how to upset. But in order to take it away from us, what they did was they granted suis pondi, on their own motion, not even asked for, they granted an injunction in favor of the city, which kept us from going ahead. So now we had two injunctions facing each other. In effect, it was just like taking the injunction away from us as to grant one against us because they cancelled each other out so we couldn't go ahead. That was the stage we were at with the Tenth Circuit.
In the meantime, we were arguing with the Supreme Court on the question of anti-trust liability. We prevailed in the Supreme Court. They sent it back to the Tenth Circuit. That kind of shook up the circuit. They then asked for some more briefing and we briefed again, as I recall, with the Tenth Circuit. Without writing a new opinion, what they did was they said, "We're going to remand back to Trial Court for further proceedings and give the Trial Court the authority to set aside our injunction, if it thinks it appropriate." We had the extraordinary situation now that the Federal District Court is going to be reviewing the injunction issued by the Circuit Court.
It didn't take them long to fix that one. After it got back down to that guy, then the city bailed out. They came to us and said, "You win. What does it take to get this case settled?" We said, "Well it takes a consent decree. That's what it takes. We don't want to screw with you guys anymore." So we then negotiated out the terms of a contempt decree and we took it to court and got it approved. The only thing that Judge Maatch emphasized was that he insisted that the consent decree reflect the fact that there was a First Amendment function involved and that there would be no bar to competition and that TCI's right would cover the whole city. It would be nonexclusive. So when you look at that case, we always think of it as a First Amendment case. Everybody else thinks of it as an anti-trust case, because that's the only issue decided by the Supreme Court. What you have is two published District Court decisions, two published Circuit Court decisions, a Supreme Court decision, and a non-published consent decree. If you don't see them all, you don't know what it was. That was a major win for the First Amendment. Because it's fractionated out in so many cases, and because the final piece is not published, in order to make people understand the significance of that case, you have to take them through all of that history. As you already know, that is very difficult to do. We didn't get the full effect of that.
SMITH: But you made that consent decree?
FARROW: Oh, sure.
SMITH: I've never heard of it.
FARROW: Well, it's a consent decree. I've got a copy of it here and I'll get you a copy of it. Of course, you know you have access to all of the published decisions. But you need the consent decree to really know what happened with that case.
I really don't remember all the cases and all the places where we used the First Amendment. Lots of times, for example, we would never have to draw up a complaint, sometimes we would draw up a complaint but never file it. But, in connection with--particularly the rate situation for all those years the municipalities were having those problems--we used that a number of times in a number of places. Berkeley, for example. Those terrible situations where TCI had a system there for Bay Cable. They had a company that couldn't afford Bay Cable during the tough times of TCI. They, literally, couldn't pay their property taxes. The rate was, I think, $4.50. They had a convertor system. There was no installation charge and no deposit for the convertor. The city wouldn't let them disconnect anybody until they were at least sixty days in arrears. That's a college town. In order to keep them from going completely out of business, in order to get service, you had to practically go down there and beat them over the head for service. You know the chances are they're going to make a $100 investment in you for installation, convertor, and some service for a couple of months and you're going to disappear and they're not going to do anything about it.
The city wouldn't even let them on the agenda to ask for a rate increase. One time they got up during public participation and one of the Councilmen said, "I move to strike that from the record. We're not going to have it on the record." They appointed a committee and told them to come back a year from now and tell us what you think about this. That was the kind of status we had when we went down to try to get a rate increase. When we filed suit, the first thing we had to do was get rid of that committee. In order to get rid of that committee, I just insulted the hell out of them. I made them all furious and they went running back to the city council to get directions on how to take over the cable company. Once we got it back to city council, we could get a decision, yea or nay, on the rate increase so I could go to court and say, "I've tried and they won't give it to me so you've got to do something." Of course, we got the rate increase that way and solved the problem. That's the kind of thing you had to do in order to be able to deal with some of these people. I don't know if Berkeley was the worst but, they certainly were one of the bad ones. Santa Cruz may be crazier than that.
That problem was around because the concept of the local city council controlling rates was just impossible. It was asinine. I think everybody knows it, even the city people know it now, although they're still yelling for that power.
That led up to the Preferred case. The Preferred case had to do with Los Angeles. Los Angeles, as you know, started out--certainly in the county--you could get franchises out county-wide and then you could go and make a deal wherever you wanted to in the early days. The Altadena case was a county franchise. I think the city, from the beginning, did territorial to state franchises. I was not in the franchising process in Los Angeles in the very early days. But by the time I got involved with the Preferred case, they were certainly doing that.
At that time, two black guys, the Galloway brothers, had a system there called Universal Cable. They started up the franchise in the area that everybody on the East Coast thinks of as being Watts. It's the black area of Southeast Los Angeles. The city council had passed a special arrangement that said in that area, as opposed to the rest of the town, it was a good idea to have local people. In other words, the local renters association. So they had changed the ordinances to encourage the renters association in the South central district, whereas the rest of the city didn't have that problem. There was cable everywhere else except in the South central district and these guys wanted to go to that district. They got financing from Khashoggi. They went in and the bosom buddies of the Mayor came in and said they wanted to have a piece of the thing. Our guys were told by the Mayor that if they wanted to be in the cable business, they had to get in bed with these other guys and give them a piece of the action. Our guys were supposed to furnish the money and these other black guys would furnish the votes. The Mayor was black, you understand. This was the black area of Los Angeles. Our guys wouldn't do it. So they didn't get the franchise. They went another round later on.
In the meantime, they had filed a suit in the Federal District Court and got a judge who threw it out of court with a really strong opinion, although they could have the right to amend. But he really viciously attacked them for making a filing. These guys were kind of disheartened at this point, and they came to us. I took a look at it and said, "Okay, we'll take the case on a contingency. But, I don't like the history and I don't want to deal with all this baggage you've got here. I want you to dismiss that case without prejudice. After you do that we'll form a new corporation, we'll make a new application, and then if we don't get it, we'll move on that." They agreed to that.
Before we got involved, they went to the other lawyer and had the other case dismissed without prejudice. They then came back to us and we started to work on it. It took us six or eight months to draft that complaint the way we wanted it because by now we were trying to pull all the knowledge we'd developed together from all the other cases. This was going to be the critical, direct, head-on assault on the franchising process. So we took a lot of extra trouble with that. We took a number of months to get it ready. We got it filed. Towards the end as we were getting ready to file it, we said, "If it's good in one place, it's better in another place."
We had some people approach us about Sacramento. Sacramento had just gone through the franchise process and selected United and then turned the negotiations over to a new group of politicians to negotiate an agreement with United. They spent six months at it and finally came to no deal. They were going to have to go through the franchising process all over again. These guys found out it produced a hell of a lot of campaign contributions. These people came to us about Sacramento and we said we might as well do Sacramento as well as Los Angeles.
We had a client come to us about Palo Alto which was talking about doing a municipal one. So we said we'd do Palo Alto too. We went in, basically, in about a day or two, and filed all three cases in September of 1983. We used the same approach. In all three areas there was no cable in place. While the actions were pending in all three places, the cities chose somebody else and somebody else got started. Kauffman and Broad was picked in Los Angeles. They never built it. They eventually sold it for $2,500,000 to American who then sold it to Hostetter, who has finally built it. In Palo Alto, they picked a co-op backed by the phone company. They built that. In Sacramento they picked Scripts. Scripts and Cablevision was a combination. Scripts managed to squeeze Cablevision out of it and Scripts built it. So all three cases were filed about the same time.
Los Angeles moved the fastest with this motion to dismiss. Judge Marshall picked up the case, Consuelo Marshall, a young, black, woman judge on the Federal Court bench. She tossed the whole case out. Motion granted, complaint dismissed. The only thing before now, of course, is the complaint and the motion to dismiss. She tossed us out without us even arguing the case. I was sitting in the courtroom and a clerk comes out and says, "Motion granted and dismissed. Does anybody want to be heard?" I said, "Yeah, I'd like to be heard." Well she finally came out and she listened for a few minutes and she said, "Well, it's dismissed. The city has prepared findings, and facts, and conclusions of their own." Your eyebrows just went up didn't they? That's the direction she went. The city was erected and nothing was on file except the complaint. The complaint, by the way, was later determined by the Supreme Court to be a well pleaded case. By God, they drafted it. They took our complaint and kind of moved things around and changed some of the facts to be led, so she signed them. But that gave us the first access to the circuit courts.
In Sacramento and in Palo Alto, the anti-trust provisions were knocked out on the Parker theory, but the civil rights theories were left in, so neither one of them went to the Circuit Court. Palo Alto never won its close down settlement. The Sacramento case didn't get up to the Circuit until much later. So the Preferred case was the one that got to the Circuit. We got that decision in the Spring of '85. The decision basically said, that if there is physically room for two, you can't deny a second operator. The franchising process, which limits you to one, is unconstitutional.
There was a lot of talk about all kinds of other defenses. Falk, in the firm in San Francisco, was defending the Palo Alto case and had intervened in the L.A. case. He was pressing all these things about the aesthetic rules--they wanted to cut some limbs off of trees, and they were going to disturb the street, and they're going to make noise. All of the reasons were made up after the fact. He was pressing all of those. He was doing it because he used to be a clerk to Justice Warren at the Supreme Court and he had some status in San Francisco, kind of a high society lawyer. So he was doing it not only for permission to intervene and write a brief, but, actually, to participate as a lawyer. At the moment the judge is saying, "Falk, you're supposed to be helping me do liberties. What are you doing on the wrong side of this case?" It was particularly pleasing to us. Anyhow, it was a great opinion.
Then of course, the city appealed, the Supreme Court, very surprising to us, accept granted cert. We always wondered why they did it. But I have my own theory. My theory is that about the time it came up to them on a petition for cert, it was the time when there was franchising going in and around the D.C. area, over in Maryland and Virginia. There was a lot of newspaper coverage there and I think that a lot of people that worked in the Supreme Court were really wondering what the hell this was all about. They figured this was the way to find out. I think that is the reason they agreed to cert because there was no other logical reason, at that stage of the case, to take the case. They took the case though, and, of course, as you know, affirmed the Circuit by a 9-0 vote. What they said was that this so called narrow ground but they never picked out which ground was narrow and indicated that they would wait and see some facts.
When I went to argue this case, I'd been before those guys before when I argued the Boulder case, for example. Brinkley jumped all over me. He didn't go with me. I won that Boulder case by--one guy was out so there was only eight votes--5-3. The swing vote was Blackmun, I guess. I lost the Chief Justice. In the Boulder case, he jumped all over me because I started talking about the First Amendment. He said, "Wait a minute, this was an anti-trust case." I said, "As I understand the anti-trust rules, what's reasonable depends upon the nature of the visit. I mean whether or not somebody violates it depends upon the reasonableness, and whether or not it is reasonable, you have to look at the particular commerce involved. This happened to be a commerce of ideas. I don't think you can make a decision in this case without considering its impact on the First Amendment and that's why I'm talking about the First Amendment." He didn't like that very much, but I think that's how I picked up the extra vote. I think that's how I got Blackmun's vote.
When we got up before, I was anticipating the same kind of problems out of Rehnquist. It happened that the brief filed by the government--the Justice Department or the Solicitor General or whoever filed it--allegedly in support of us, had made a mistake and reported that the cable company used city streets and so forth. You know that old myth that everybody perpetuates about the cable using city streets. We jumped on to that in the oral argument and I said, "I want to straighten you out on a couple of things. We appreciate the support. He's right on part of his grounds. But on this ground he's wrong." I took them through the concept of the lease back from the telephone company. I said, "Will you stop worrying about that. It's the telephone company that's got the right in California to use all public rights-of-way. It's got easements over all public and private rights-of-way. So when we go to them and use their facilities--it's a public utility service--we're not using the city streets. We're using common carrier service being offered by a common carrier. Just like when you pick up the phone and you talk." That stopped him. I figured if I could get Rehnquist, I'd get all the votes. That's what got him. That's why you'll find he wrote the decision. That's why he sent it back down and wanted to know more about how to get on those poles. That was a critical piece of that case. To this day, we still have difficulty getting people to understand this concept, because everybody is so used to this myth that we're using city streets. Probably in some places, there may be somebody using some city streets. I would venture to guess that in ninety-five percent of a cable plant in this country from border to border, they're not using city rights-of-way.
SMITH: Can you read that Preferred decision to stand for that?
FARROW: No, it just stands for the possibility of that. Because, you see, they had no facts to base it on. All the facts they had to work with were in the complaint. They have to accept the complaint. There was, basically, no way I could lose in the Supreme Court. The risk was that we'd get a bunch of bad law out of it. Now we didn't get any bad law, we just didn't get as good a law as we'd like to have had. But there was no way to lose. Hell, it was a well pleaded case. There was no way they were going to reverse that decision at the Supreme Court, particularly at the Ninth Circuit that dealt with it. I had plead a cause of action. There was a constitutional cause of action. If what I said was true, I am an automatic winner. What I said was true, it is true. The only thing that keeps us from being a total winner right now is that trial judge does not want us to put that mayor (or Los Angeles) in front of a jury. They're not going to give us damages. If they possibly do it, they're not going to give us the business down there.
SMITH: What theory do you have on how you're going to handle her?
FARROW: We have filed a second suit, to start with. Remember, I told you their argument was that there was not enough physical space for two. They argued like that, there wasn't space for two. We took the deposition of the power company down there and the municipally-owned poles. It turns out that the Los Angeles municipally-owned poles are all, on average, five feet taller than any other set of poles in the world. These municipally-owned poles, you know they're going to be the best they are, and they're going to cost the most. And there they are, great big, tall poles. Everybody else is using twenty foot poles, they've got forty-five or fifty foot poles. All kinds of space on these poles. Nevertheless, they've got a guy coming in there telling the court that they'd have to replace fifty percent of the poles in town in order to accommodate a second cable operator. Well, that did not sell.
In 1989, they finally admitted in open court, that there was plenty of space on the poles for two operators. They knew this all the time. It's a fraud on the court. That created a new cause of action, as far as I'm concerned. Second of all, if after the city knew that their processes were unconstitutional, not only from the Supreme Court and the Ninth Circuit but from that Federal Court judge, the District Court said she'd ruled, herself, on some of the motions that limiting to one was unconstitutional. She ruled that after it got back down there on some of these judges' motions. Instead of doing something to provide a mechanism for those--again they refused to allow any kind of mechanism--as a matter of fact, they took the position that they wouldn't do a damn thing until we've got a final judgment and went all the way through appeal before they would provide any mechanism by which we would get access to the market. Put those two things together and that's got to be a new violation of Civil Rights.
This time we filed that, not only under the name of the city, but also with a number of individual defendants and we're going after punitive damages. Because she's ruled that we're not allowed damages too speculative--we got one dollar in damages from her--we still don't have a final judgment, she's indicated that we're going to be entitled to one dollar in damages, but not anything else. Of course, she got the next case. We filed in the State Court, they removed it to the Federal Court, and gave it to her. I think, that I've got her to where she has to let me get to a jury. I think I've got a shot at damages, but if I don't get compensatory damages, I want to have a shot at punitive damages. In addition, we've developed a new theory about damages and we're going to press this theory. I don't know, you might be interested in that theory.
SMITH: I'd like to hear it.
FARROW: We ran across, one time, there was an old case somewhere--I forgot where we filed it--where somebody was involved in a bribe. The penalty for the bribe was the amount of the bribe. That was the amount of the fine. One way to look at the damage caused by the denial of a civil right is to think of it in terms of a conversion. If I steal your automobile and I go out and use it to haul taxicab passengers, I'm using your property to earn money for me. One way for you to be compensated for it is to take from me the money I made hauling passengers around.
In the Copyright Law, if I steal your programming and I show it for profit, you'll sue me and establish that I violated your copyright, and you're entitled to recover the profits I made. If I can't prove how much profits there were as opposed to how much expenses there were, you're entitled to the gross amount, right?
SMITH: Um, hm.
FARROW: Now, if you take my civil right and use it to make money for yourself, then the money you made is the value of the damages made to me for the loss of my civil right. So when the city takes away from my client the right to be a publisher and grants an exclusive to somebody else and makes money from him--gets free channels, gets franchise fees, and gets all these goodies--we'll value all of these things and that's the profit. That's the damages. That's the value of my civil right that you took away from me. How do you like that?
SMITH: There's a question or two, obviously. You're saying the person who took your Civil Right away from you is the franchisee that got the franchise.
FARROW: No, no. The municipality.
SMITH: But the municipality is not making any profit.
FARROW: Oh, yeah it is. It controls the market. By controlling the market it can go to the franchisee that it selects and say to him, "Okay, I'm going to let you be the selected monopolist, but I want six channels for PEG (Public Access, Educational and Government) and I want four studios and I want five percent of your gross and I want a few other things." Now, he wasn't entitled to any of those things. If I'm right, they're not entitled to any of those things, not even a franchise fee.
SMITH: Yes, if you're right, that may be true. How do you put a dollar value on that?
FARROW: The dollar value is the cost of the studio. That's easy enough to figure out. There's quite a few million dollars involved in this case. The access money they're charging, the free service to the city. Newspapers don't give them free newspapers. The channels, if it's a sixty-channel system and they're taking ten percent of the system for their use exclusively, that's ten percent of the capital costs and ten percent of the maintenance costs. Expert witnesses could put values on all of those things.
SMITH: Of course, sure. You can do that.
FARROW: They took all those things and they used them for their benefit. They said, "We're going to do it for the public benefit."
Do you remember when Patty Hearst got kidnapped by the Symbionese Liberation Army? Do you remember what their ransom demand was? The ransom demand was truckloads of food for the hungry. The fact that they were giving the food to the hungry, did that make it that much less of a ransom? Did it make it any less extortion? Did it make it any less damage to the victim?
Who says the city of Los Angeles has the right to come along and tell my clients that they're going to be charitable and give the rest of the world, through the process of this confiscation, my clients civil rights? The fact that they used them to extort money from the public, basically, is what they do. What they do is create a monopoly process and they share the monopoly process with their franchisee.
SMITH: Then the damages, under your theory, are the value of the benefits to the city?
FARROW: Yeah. Well, actually, the city. Don't sue the other guy. The other guy may, or may not, be guilty. But I'm going to make the presumption that the other guy is just another guy trying to get in business, too. He finds that the only way to get into business is by paying these guys off. It's government by chiefs? He's willing to pay the back chiefs? More clients, more principal. I'd say, "God damn it, there's got to be something wrong with that." As far as I'm concerned, it's the city, the government, that is the guilty party.
SMITH: Have you any idea, at this stage, what those damages would amount to? What do you think you'd allege?
FARROW: I'll tell you. The case is still going, obviously, but I can give you an estimate. This is a 1983 case, the filing was made in 1983. The second suit was filed in 1989. I think the suit for major damages extends from the time at which it was admitted that there was plenty of room on the poles, so we probably will not be able to go back past that, I'm not sure. In any event, I think we're talking about $30,000,000 or $40,000,000 as a potential claim.
It's a unique theory and there is no case holding that as a...it's there by itself. If I get that established I'm going to have to establish it at the federal level and that's going to make a new law. But, it's logical law and it may be the only way that you can ever figure out how to compensate for denial of a civil right. If I take away your right to vote, for example, how do you measure damages for that? You could say, "Okay, the next time you'll get to vote." But, in more free speech areas, if you get a preliminary injunction, in most cases, that solves the problem right there.
It's like the case in Florida. They toss out the preliminary injunction, that resolves the case. But in cable television when you take away a guy's right to be in this business--he has to make a big investment, he doesn't dare invest all that money because its non-recoverable, non-salvageable, until he knows he can keep the money and keep the industry. So by delaying, you're keeping this guy away from practicing his occupational profession for many years. It's not going to be enough to slap him on the wrist ten years later and say, "Hey you should have been a nicer guy ten years ago." One of my people could be dead. I've got one of my clients who's got terminal cancer now. He may not survive the trial, or even two trials. That's no way to deal with a man's civil rights to be a publisher in this town. That's no way to treat the First Amendment. You have to find a different, better remedy for the damage done in order to protect the basic right. You look for it, and you look for it, and you finally begin to say, "What is it worth to the son of a bitch who stole the right? What did he do with it? Why did he do it?" He did it for political prestige and for profit. He could control the press and get the political prestige. He took your money and used it, he converted it.
SMITH: The implications of the theory are enormous. Have you encountered any cases at all that would sustain the theory that one who denies a civil right is liable for the damages resulting from that denial?
FARROW: There are lots of laws that say if you take away civil rights, the guy is entitled to compensatory damages. The question is, how do you compensate? If the court says it's how much money you're going to earn in the business, that becomes too speculative to figure out. If you figured damages that way, then you're left without a remedy unless there's some other way. The First Amendment says you have the right to publish whether you make a profit or not. You shouldn't be denied the right even if you know you're not going to make a profit. So how do you fix that value? You have to find another rule, otherwise, it becomes senseless. You have to do that. If you start looking at the field of damages and the cause of actions, then you'll find all kinds of law that says, logically, it fits. But, nobody has ever done it. I'm not inventing anything new, I'm just using all the other things together to produce what may be a new result.
SMITH: I don't have any problem with the theory that if you're denied a civil right, you've been damaged and there ought to be a measure of damages. That's something that I would like to see far more widespread. What's unique is your theory about how to measure the damages. That is, whatever the benefit was to the person who denied you your Civil Right, is going to be your damages because you don't have any other way to measure.
FARROW: He's the guy that put a value on it by taking it from you. He fixed the value when he took them.
SMITH: Very interesting. Very interesting.
FARROW: Strat, I see the way to deal with those things. You worry with them and you worry with them and you worry with them and you know there has to be an answer. The law they taught me at law school was that for every wrong there has got to be a remedy. I remember that. I remember the simple things. Once you remember the simple things, then you just have to keep looking. As you think about it, you ask a lot of questions, you keep people thinking, until later somebody says the right thing and your mind pops open.
SMITH: When we went off the record for a moment, we were talking about the theory of measuring damages for a civil rights violation by the benefit to the one who deprived you of your civil right. That is a theory that would be some fun to sit back and apply to any number of civil rights that people are denied in their daily existence.
FARROW: If a policeman beats a guy up, they've got the whole history of tort litigation to value the pain and suffering to work with. We have worked out the mechanism to measure an immeasurable, in that case. If a person breaches a contract, as an example, we were talking about these cases where the municipality insists upon denying rate increases, there is a mechanism for that. There is a mechanism worked out for breach of contract damages. As I mentioned to you a while ago about copyright, which is the closest thing I can come to, where you measure the benefit to the tortfeasor, the guy who steals the copyright, as being the damages to the guy who owned the copyright. There are a number of other situations, I'm certain, where once you get the idea and get the concept going and you begin to look at other feasor law, you'll find more and more of those situations. I'm satisfied that we're going to be able to present a decent brief to the Appellate Court, but I think it will be unique and they'll have to see the policy reason for developing the theory in order to accept it. It's not enough that the concept be logical or that it's found fair or whatever. There is going to be a compelling reason to do it. In this case, the compelling reason is that if you don't do it and you let this process continue going on, you're going to, in effect, eviscerate the First Amendment. If you can do it to cable, you can do it to magazines and newspapers and everybody else. If you do that, you destroy the one thing that really holds the glue of the democratic society together. It is, from a policy standpoint, imperative that we solve the problem. With a municipal government, that's where tyranny begins in this country.
End of Tape 2, Side A
Start of Tape 2, Side B
SMITH: We have just turned the tape over. Do you recall where you were?
FARROW: We were talking about damages for denial of a civil right.
SMITH: I had a question to ask you. I'm floundering with this because it's a new theory. Would you see any need to establish any malice on the part of the city in order to collect damages under circumstances like this?
FARROW: If you go under the theory of punitive damages, of course, you'd have to establish the ground for that. But if I'm correct in my analysis, you should be able to get it without having to prove that kind of malice, any more malice than it would take to prove conversion. That, basically, is the concept you're talking about. Whether you did it stupidly, or negligently, or maliciously, you did convert the civil right of another and you did it from a position where, you, as an elected official, with access to counsel with people telling you that you're wrong. Certainly with that notice, you're denying somebody something that's a basic constitutional right. You can certainly read the First Amendment as an elected official as well as anybody else can. You have access to counsel. It's hard for a municipality to say that they're caught unawares by the concept that they're doing something wrong that they might be held accountable. They might be unaware of that. But that's like the guy saying, "I didn't expect to get caught."
SMITH: Do you see any possible defense of immunity from such kinds of actions by virtue of one's status as a city official?
FARROW: The civil right we're talking about is a Federal constitutional right so the typical state and community statutes dealing with tort liabilities would not apply. For example, you don't have to deal with the notice provisions of the state tort laws in connection with the 1983 cause of action. If there is going to be immunity granted, it's going to have to be done either by Congress or by the courts. It's not there now. Probably the only reason it's not there now is because they haven't thought about it. Of course, you know the cities are lobbying today for statutory immunity for violation of civil rights.
As a matter of fact, it's my understanding that one of the bills that they have pending before Congress--or maybe more of them--have those provisions in them. I heard just the other day in the proceedings down before the state Senate Committee, a representative of the National League of Cities, Zangnet, one of the things that they intend to press for next year is immunity.
As you know, for example, following the Boulder case, the National League of Cities pressed for immunity from anti-trust damages and with the cooperation of the NCTA's representatives, they were able to obtain that. You could get injunctive relief for a violation of the anti-trust provisions but you couldn't get attorney's fees or damages. As to future cases, and even to pending cases, the court has discretion to deny you damages. But nobody has ever tested that, so I don't know whether or not that is constitutional. But it produced the anomaly that if you were a municipal official--from the standpoint of anti-trust--you could do things with impunity that a private citizen would have to go to the penitentiary for. This created a new set of role models for our citizens.
SMITH: Do you think the NCTA did that as a quid pro quo for something in the Cable Policy Act of '84?
FARROW: No. I think, initially, the NCTA opposed them and then they dropped the opposition. I think they dropped the opposition about the time they began to realize that the anti-trust laws could be used effectively to force municipalities to allow a second operator into business, which would then, of course, produce competition. So I think, spoken or unspoken, it was the policy of the NCTA to avoid that situation. The NCTA likes the concept of the benefits of the First Amendment, up to the point where it produces the potential of competition. They lose their fervor, very quickly, at that stage.
SMITH: Would you care to comment on that policy?
FARROW: It's a human policy. It's the kind of weakness that humanity demonstrated time and time again since its been in business. It is not very admirable, but it's part of human responses. How can you blame the guy who has a monopoly of a service that is well sought after and who can make a monopoly profit? How can you blame him for wanting to preserve that monopoly? So long as they do it in a lawful manner, they are entitled to keep working for it. I can't quarrel with their right to do that. You can say that it's too bad they're not more principled, but I'm not sure that's a fair consideration. I think if you have a corporate manager, he's got a responsibility to his stockholders to maximize his return on his investment. If he finds a way that he can lawfully and properly provide his services without competition, then I think that maybe he might even have an obligation to do that. That doesn't make it any better from the standpoint of preserving the value of the Constitutional right of free speech and free press. It does, perhaps, satisfy his obligation to the people he is responsible for. Now if he steps over the line and he gets outside of the North Pennington protected area, which is based upon the First Amendment itself, and he starts committing anti-competitive acts, then he's fair game at that point. We went after a few of those.
SMITH: What you're saying is its perfectly proper for somebody not to exercise all of the rights he might have if it's in his best interests not to exercise it.
FARROW: That's another way to put it. It is, as I understand the law, entirely appropriate for a guy who has the only franchise in the town to provide cable services to argue to the city that he hopes they don't give another one out to the city. He can plead that very strongly. It's important to protect his right to plead that, to say that. That's another form of the First Amendment. That's where the (nonpending) exemptions comes from. But when that turns into a sham, and when it's tied to anti-competitive acts that don't have a damn thing to do with the First Amendment, then I think he's over the line. I think he's fair game for anti-trust liability and I wouldn't hesitate for a second to jump all over him if my client came in to me and hired me to go after him.
SMITH: I was thinking of what is somewhat of an analogy to the question I was raising that arose in connection with the must carry cases. The industry won a rather resounding victory in the must carry in the Court of Appeals in the District of Columbia. After having done so, even though the NCTA was not a party to that case, if I'm correct, then the industry turned around and said, "Alright, we'll negotiate a new set of must carry rules," which were on the surface, as unconstitutional as the first ones were. The FCC righteously criticized the industry for giving up some of its First Amendment civil rights.
FARROW: I don't think the NCTA was very admirable in that connection. First of all, the fact of making the deal, to me that's a slimy way to deal with legislation. We're moving into a whole new area now the way Congress operates these days, and it's not very admirable in many situations. But we're dealing with government buy backed chiefs in this case. Who posts the most money, who pays the most campaign fees, they're the people who get listened to. Congress so often says, "Don't bring me a long list of your dirty laundry. I don't want to deal with it. You and he get together and make a deal and bring it to us and we'll enact a law that says that that's the deal." So when would that make it proper for the NCTA as a trade organization, to get together with the League of California Cities as a trade organization, and decide that they're going to screw the converters by passing a law that both of them get to share monopoly profits together. That's baloney. That's a pretty slimy way to run a legislation.
SMITH: Isn't that exactly what happened in the Cable Policy Act?
FARROW: Sure. There's not any question that that's what happened. I don't think that's very admirable but you know I've been pretty vocal opposition to the '84 Act from the day it was first thought up until today. It is my belief that ninety-nine percent of it is unconstitutional to start with. We've had no hesitation to try and argue that and to demonstrate that. We've got findings to that effect out of Judge Lynch in the Palo Alto case. There is a whole series of decisions there. As a matter of fact, we gave both the Attorney General and the Justice Department notice of the fact that we were attacking those cases. We took the position that they were unconstitutional. Do you remember what the Justice Department's response was? Well, the courts found that what these cities did was unconstitutional. Now, we think they were right. But as far as the law is concerned, the Congressional Act is permissive. It's not mandatory. So it wasn't really called into question. We don't believe that it really was a ruling that the Federal Act was unconstitutional because it was only permissive in there that the cities could do this. But when he did it then it was unconstitutional. That's a ruling against the cities, not the feds. That's true.
SMITH: Do you see Congress turning to that style of legislation? That is, saying to opposing interests, "You guys sit down and agree on something and bring it to us and we'll make it the law."
FARROW: Make a deal and we'll make it the law. I'm sure it will probably happen again. It's happened many times in the past and I'm sure it will happen many times in the future. What I'm hoping is that there are enough voices out there now so that it is less likely. As time goes by, it will be less likely. If, though, I'm wrong and the law gets enacted the way some of these guys want it enacted and spread out, it will just take longer to undo it. Sooner or later it will be undone. Either that or the Republic will be undone. If you destroy the First Amendment, you will destroy the public. So we're going to solve the problem one way or another.
It's my belief that the court system is strong enough, generally speaking, so that if it really gets too bad, it's going to be solved in the court system. It just takes longer, it's more painful, a lot more people get hurt, a lot more people get denied their rights in the meantime, but eventually you will get a solution. Of course, it might take twenty years instead of two, or it might take fifty years instead of five, but it will eventually happen. That I believe. I like to think the system is strong enough to be self-correcting. It's just that some self-corrections seem to be a lot slower and more painful to others.
SMITH: You and I were talking last evening about the Preferred case and its current status as we have on the record today. You have indicated that you have another case that, essentially, raises the same issues that you feel may get back to the Supreme Court before Preferred does that could produce a decision as to just what is the scope of First Amendment rights of the cable system. What case is that?
FARROW: It's Knowles vs. The City of St. Paul. We filed that case in the early '80's through a series of decisions the trial court took us out of and moved against us across the board. Not only once, but a series of decisions. We took it up on appeal.
SMITH: What, specifically, was the foundation of the case, access rules or....
FARROW: In the Knowles case the facts were these--the city had decided that they were going to get some cable. So they started a franchising process. After a proposal came in, the city got a little greedy and they said, "Oh, hell, we can do that. There's a lot of profit to be made here." So they dumped the franchising process and decided they were going to go in there and do a municipal cable system.
The NCTA got into the act, along with some local operators in there, and they got that thing put to a vote. It was a major campaign there. The NCTA dumped a fair amount of dough into that campaign and they defeated the municipal cable rather resoundingly. After that, the city said, "Okay, now we'll go back to the franchising process again." So they started again.
The clients I represented, a fellow by the name of Skinsky and another fellow, were two of what was a group of local people--about eight or nine of them. Between them they put together a very fancy application, in those days of fancy applications, using as an expert a young fellow who put together C-4. I can't think of his name right now, but he was a very competent fellow, a very nice guy. But he was a franchiser. You know the type of multiple volume bibles they put together. He put this thing together for them, all engineered out and the whole routine, and they went through the typical franchise hustle with two or three companies. Everybody hassling them--City Council and all that process--and our guys won. The Mayor had veto power and the city was still in the process. But he didn't like the winners so the Mayor vetoed the franchise. Very quickly Hostetter's company and Group W--these guys were the three people in the end--came in. The votes were split amongst the three but our guys managed to put it together the first time before City Council and after the Mayor vetoed it, they very quickly then--apparently the nominating people didn't like Group W, at least that's what I'm told--so they all quickly agreed on the Mayor's candidate, which was Hostetter's operation.
FARROW: Continental. Before that was final, our guys said, "What the hell, we'll go into competition with them." So they said, "Give us one too. Same terms. Whatever you give them, give us the same." The city apparently indicated no, so they filed suit in September of whatever year that was saying they wanted to go in there too. They had a process by which the award had to be okayed by the state after the city made it. So in that process they got into the dispute.
Someplace along in there, they brought us into the case. We, then, amended the complaint to bring in our First Amendment theories and civil rights theories. We made yet another request saying that we would obey the proper laws of whatever was going on. In the meantime, they granted the other guy the franchise and we said we wanted one like that. They said no. So we went to trial, we filed suit. The court then took us out and denied all of our First Amendment claims, anti-trust claims. We ended up on the Circuit.
SMITH: You're talking about trial court.
FARROW: The Eighth Circuit Court, after briefing, issued, not an opinion, but an order. No one knows why, it's unusual. But what they did was sent it back down to trial court and said, "You're wrong. There is a cause of action here on the First Amendment. You want to review your decision on all the other grounds too." So they sent it back without an opinion, but with an order like that.
SMITH: No guidance in the opinion.
FARROW: So we went back down and the judge says, "Okay, everybody agree that there is a cause of action now according to the Appellate Court on the First Amendment?" Everybody said yes. Now we're going to brief again on all these things we've already briefed on before. So we briefed again the other ancillary cause of actions. One by one he ruled against us on all of those things again.
But still, we got the First Amendment. It went to trial before a jury. The court refused to give any preliminary instructions and refused to let some of our expert witnesses testify. We produced one witness on our side who was an expert in dealing with the cost that was up, who was an idiot and did a terrible piece of work for us.
One afternoon, this guy wanted to catch a plane and he just got to the point where he would say "yes" to anything I asked him on cross examination. He even said in front of the jury, "Ask me anything you want to. I'll say yes. I want to get out of here." That was the closest I came to murder in some time. But, after all, it was only two hours out of what was a nine week trial. We had a hell of a record going.
Then we had one other witness, one of our plaintiffs, who got on the stand and made a damn fool out of himself. But, overall, it was a very good record. A lot of the stuff that he wouldn't let the jury hear, we did manage to get on the record out. So it's a good record to take up. We got those instructions and the judge just killed us on those instructions. He wouldn't instruct on the First Amendment. He wouldn't tell them the standards, he wouldn't tell them the criteria, he wouldn't tell them what they were obligated to do with the suit. He left everything hanging. It was a mess. We all went to the jury with a bunch of special verdicts. We won a lot of the special rates but, we lost on the damages. We got no damages. Then we went back to the Court and told them they could still give us an injunction to put us in business and we can appeal the damages. But we briefed again with the Court. We waited and we waited. Finally, the Court came out and said, "The jury found you are not entitled to any damages because you weren't prepared to build a cable system. So I don't think you have any standing. I don't have to rule on this sort of stuff. No standing. You're out of Court." Of course, we took that up. That has now been briefed and argued last Spring. If we lose, we'll petition for cert. We may not be able to get it but it would be up there at a time where there is a pretty full record. So it would be the kind of thing the Supreme Court was asking for. It might be the first shot they would have for that. If we lose, we're satisfied the city would probably take it up. The only thing that could interfere with that is we're probably going in to apply for another application with the city.
Since then the politics have changed hands and we may get an application. They're pretty unhappy with Continental. So they may give us permission to go into business. That may moot some of this. It won't moot the damage question, they may still be able to maintain that. So unless they want to pay some money, we wouldn't recommend to our client that they would write off the damage claim in exchange for the simple right to get in business at this stage. It's going to be the client's decision. At any rate, that one has the potential for being the case that gets settled first.
SMITH: You don't see any of these California cases getting up there, except maybe Preferred, if you can ever get the judge to move on it.
FARROW: Well if the judge never moves, we'll take it to the Circuit first. The Santa Cruz case, which was a case with many of issues involved where they were trying to take Group W out of the business. Their franchise expired and they were not going to renew it, they refused to renew it. We beat that.
But what happened is that after we won the case, then the company, Group W, sold to this consortium. The consortium didn't like that. They wanted to make a deal to have the decision vacated. No way in hell I'd approve of that. I said, "If you guys want to do that, get me off the record quick." All of the trial lawyers, myself and another firm in Los Angeles, were on the case. We both said we wouldn't touch it. We both got off the case and that case was settled. But the judge refused to vacate his decision.
In the Palo Alto case, we had a series of decisions there. First of all, their one-to-a market was unconstitutional. Then we got before the city and said, "Okay, give us an injunction to get into business." They said, "Well, not so fast." I said, "Well, we need it fast. The other guy is building. They want to go." They said, "Well we're going to have to take a look at the franchise." So he said to the city, "Okay, you've got this one hundred page ordinance that you passed to the guy that you picked for the co-op. You go through that and tell me what you want to apply to these people. They'll tell us what they object to and I'll rule on it. We said, "That's going to be one hundred pages. You're brief limits are going to be overrun. What are we going to do with the pieces?" So he took several pieces. We briefed each of them and got a series of decisions. We knocked out everything.
Palo Alto was really representing itself and Menlo Park and Atherton and a portion of the two county areas, so they had a big area, with the city of Palo Alto controlling it. We settled out with Menlo Park earlier on. We got the right to go into business. Our guy held off and in the meantime, another guy went into business. There were now two guys operating in Menlo Park, but not my client. Then the Palo Alto came up and they paid $2,000,000 for what was about a 35,000 home market on the condition that our guys bail out. My client took it. So the case settled at that stage.
Then they tried to argue that we had agreed that we had vacated several judgments attachments. We said, "No way." After the settlement, they went back and asked the court for a motion to get the judge to vacate the judgment. We went in and opposed it. The judge absolutely refused.
As a matter of fact, strangely enough, after they amended that motion, one of his decisions he had not decided to publish. Then he had those decisions published. I just noticed the other day when I was getting decisions out for another purpose that in one volume of the Fed Sup he has two cases sitting side by side--one is an '86 case and one is an '87 case--they follow each other in the same volume of the Fed Sup. I said, "This can't be." They have got to have decided a few other cases in between times. The wrench was that he got mad and decided to publish the other decisions. Anyhow, that's what happened to that.
In the Sacramento case, we tried that case and got a decision up there that the so called natural monopoly was a sham. They used some very strong language in that, very strong decisions. But no damages from the jury. The reason we got no damages from the jury in the Los Angeles case was that our guys--in order to win this case you've got to prove that you've got the ability to build this system--were not rich enough to prove that they could build a system. That's why you have to take rich people in, because the jury says they don't need the money. To compound that, this trial judge in Sacramento said, "From any damages those guys might have suffered, they had to be subtracted from all the profits they had made in the meantime." As it happened, my guys had made a ton of money in land development, which had nothing to do with it. The jury was instructed to subtract this from the damages. Our guys had made about $40,000,000 in the meantime.
SMITH: From another business?
FARROW: From another business. It's crazy. There's no law like that in the world. This Judge used to be a city attorney, by the way. The jury came out with a whole bunch of things and there would be no damages. They filed an appeal, obviously, on that. The Judge cut our Attorney's fees in half. He not only didn't give us a lode star and add to it, he cut the lode star in half.
SMITH: What do you mean by the lode star?
FARROW: In this kind of case, what you do is take the actual time you put into the case, times your rate, and that's the basic nut, the lode star. Where they got the name, I don't know, but that's the name they use. Then the question is, if you won such a case where you were entitled to attorney's fees, should you get that or one and a half times that or two times or three times that. Put it in a court case and the court has the discretion to augment that. They'd say, "You did a hell of a job so you'll get your money." Well here's a brand new case, the Sacramento case, he'd cut it in half rather than do anything to it. He wasn't very happy with us.
Of course, he and I didn't get along too well during the trial of that case, I'll have to admit that. He was a short man given to fits of temper. I insisted on having a reporter at all times. When I insisted on having a reporter present while he's going over the instructions, I thought the guy was going to have apoplexy. He screamed and yelled for twenty minutes. Literally, red faced, leaping up and down.
In open court one time, while the jury was out, he accused me of misrepresenting something on a record in connection with the jury instructions. He was dead ass wrong. The record demonstrated he was wrong. I wasn't going to let him get away with this. On the record--I was up shouting and finger pointing at him--I said, "You're not going to accuse me of that kind of stuff on the record without giving me some kind of response." We had quite a few words with each other.
SMITH: But you got some satisfaction, did you?
FARROW: What happened was the city appealed even that award of attorney's fees so they had to post the money. We went up on an appeal and the city settled and paid us $6,000,000. We got contingency fees out of the $6,000,000, which was quite a lot more than the judge was going to give us.
SMITH: The city decided to pay $6,000,000?
FARROW: Yes. They collected $6,000,000 from them and they collected $5,100,000 from Scripts. We've still got a lawsuit going against Scripts. We collected another $900,000 from Scripts on behalf of Westar. Scripts after we got the judgment, was so pissed off that they said they were going to go out and overbuild these guys. This was one of the Hanson's Westar Company. Hanson had been a consultant to these guys in Sacramento. They went out and said, "We're going to go apply for franchises every place he is. We're going to overbuild him." This was pure bullshit retaliation. We filed suit on that and picked up $900,000. Hanson had a system for sale and he had a solid offer for $20,000,000. When the threat to overbuild came in, the guy backed out of the sale. He had a hell of a time selling it. He was finally able to sell it to Jones Intercable for $19,000,000. There was a demonstrated loss of $1,000,000 there, a rock solid loss as a result of those asinine threats.
SMITH: Do you expect to see any significant judgments in this area against franchising authorities or the loss of profits that a cable system would have made if they hadn't been deprived of their First Amendment rights to build?
FARROW: Yes. I hope to. You're knocking on new doors when you do it, but, certainly, that's the theory of the case. In Preferred the judge has said that she didn't believe his testimony about being able to raise the money, but they gave it to somebody who has never built the damn thing. The Mayor's buddies pulled out $500,000 out of that $2,500,000. The guys have never had a nickel in the damn thing. I suspect that if I'm right, we'll get back to trial with the instructions to the jury on damages. I intend to try to do so in that first case, that's besides the second case we've filed. So we're not going to abandon that.
In the St. Paul case, we certainly have a damage claim there. In Sacramento, we settled it. In Palo Alto we settled it. In Santa Cruz that wasn't an issue. I think we've got some other cases going with damages, but I can't think of them. So if it's going to come in existing cases, it's going to come on Preferred or out of St. Paul. But when they come out of one, we'll file more. I'm being pressed not to go to the Convention because they wanted me to go up and make a last pitch motion to another city up there in connection with their refusal to grant a franchise. They're suggesting that if I don't, they won't file.
But you have the technical problem of dealing with somebody strong enough to go in and say, "I've got the ability to build and I will build or attempt to build." That means that you're going to take away any sympathy that he needs the money to pay for damages and you ask for tax money. That's tough. That's taxpayers' money. I think that affects the cities and Sacramento. The people and the jury in Sacramento, I think that affected them a fair amount. It's not the best of all worlds but they are the guys that are denying their rights. That's the wrong way to go.
SMITH: One could speculate that a significant judgment against the franchising authority, let's say in the multi millions of dollars, and also assuming a community would be very hard pressed to give that money up out of its coffers, could be a chilling effect on this sort of activity by franchising authorities.
FARROW: I do have another one going in Wisconsin that has that potential. That's what you would hope for. But when we've actually collected money, it's been settlements. They don't give nearly as much publicity as would be if you had the judgment. In Palo Alto, for example, the spent $1,000,000 fighting to keep from having competition. Think about it. Arnold Porter is now advising them and they had other cable consultants. I think they paid $500,000 to Norm Sinel with Arnold Porter to tell them how to write these one hundred pages of bullshit. Why would they do that? The reason they would do that is they want control of the press or it's just misguided knee jerk-liberalism thing where they have got to regulate everything that moves, walks, or sounds.
FARROW: Do you think the motivation is that they've got to regulate the press?
FARROW: Oh sure, the government always wants to regulate the press. Think about the capacity of cable as a window or an eye on the local government. You're not limited by the single channel concept. You can put a camera there and keep it there all day and show it all there. You can show it live, you can do it taped, you can do it with voices over it, you can do it with commentary. If you didn't have to worry about local government, think of what you could do with the city meetings. It's just like in the Court system. To read a transcript you never get the full thing, even to hear it. But if you can watch the witness, listen to him and hear him, you've got a better idea of what's really going on.
Now you think about the politicians. You see what being able to see the politicians has done in this country. All of a sudden, everybody when they think about Bush, they see Bush. They know what Bush looks like. It wasn't that way a hundred years ago, twenty years ago. Think of the power cable will have to be able to bring home the processes of government to everybody, anybody who is interested. It's not expensive, it's easy and cheap, and better than a newspaper, any day. That's a frightening thing if you're an elected official or, more yet, if you're a God damn little bureaucrat building an empire. These bunches of politicians don't know their ass from a hole in the ground. There are a few of those around.
SMITH: But it's even more frightening if you're a non-bureaucrat, non-government official sitting there and realizing that your municipal government is supporting (consciously doing this) a monopoly in cable in order to control the press. You feel that was the motivation in that case?
FARROW: We have cameras, we have tapes. We went over to Palo Alto when the proceedings were going on, when they were deciding which monopoly they were going to choose. We went over there with our tapes and we taped them. I think I've still got them. I remember two things, particularly, that came up. They had somebody get up and speak to the Council who had been appointed as a committee to investigate how each one of the would-be applicants would deal with studios, access programs, and so on. While he had earlier recommended one or the other, he now found that this new one that was recommended today had now agreed to not only provide the studio and the equipment and the money to support it, but would surrender to the Committee selected by the city the right to program the studios. Whereas, before, he had insisted upon the right to do his own programming to maintain editorial control. So for that reason, he was now recommending this other company. That's when they got him. In order to get the franchise, he had to agree to buy the studios' equipment, build and furnish the studio, give it to the god damn city for their people to regulate, their Committee to regulate, and surrender all control to them. The city said, "Well, no, that was an independent commission we appointed." Back then in a franchise, if the city didn't like it the way we were treating them, they had the right to replace all of those trustees every day, any day. Those are facts. There is no question about that.
The other thing I remember from that particular proceeding was that--you wouldn't know this, probably--Atherton was kind of the Beverly Hills of the Peninsula. Menlo Park is not quite so rich and Palo Alto is not quite as rich as Menlo Park, or maybe a little richer, I'm not sure. The ghetto over there is East Palo Alto. That's a Black ghetto down on the Bay. I had indicated earlier that Palo Alto was administering the franchise area for Atherton/Menlo Park/Palo Alto/East Palo Alto and a little piece of the county. They were two separate counties and a piece of Stanford University. All of that was under the control of this one guy. We went there and the guy who was the City Manager from Atherton gets up and speaks to the Palo Alto Council. He says, "There are two companies to choose from. Which one you choose is up to you. One thing we insist upon, though, is that whoever you choose charge fair and nondiscriminatory rates. We want exactly the same rates for our citizens as all of the other citizens get." Sounds fair, right.
There's forty homes to the mile in Atherton, the estates at Atherton. In East Palo Alto there are one hundred sixty homes to the mile. You know damn well that per unit costs is four times as expensive, just to start off with, to serve Atherton as East Palo Alto. Second of all, you're dealing with the establishment up there and you know damn well they're going to use a hell of a lot more executive time than East Palo Alto and the ghetto. Third of all, you know that it's going to be underground in Atherton and it's aerial in East Palo Alto. The effect of that is that the ghettos of East Palo Alto were subsidizing the estates of Atherton. That's what I think about universal services. Some of these asinine positions the city and the state are taking. I remember those two things from that process. I don't think they're unique. I don't that's unique at all. Maybe it's a little extreme. Maybe they out-Berkeleyed Berkeley a little bit. They're not a hell of a lot worse than Boulder was and a lot of other cities.
SMITH: I'm troubled, not at the fact that you have that view, I'm troubled at the fact that apparently, you may be justified in it. That these people aren't consciously denying second franchises on the theory that they can control what is disseminated over the system. Am I fairly stating that?
FARROW: Sure. Strat, have you ever been to a NATOA meeting?
SMITH: Yes I have. I've even spoken at one.
FARROW: Alright, I've spoken at a couple. I think the first one they ever had in Boulder, they put me up there on the thing and I told them then, "What you people are hearing today, the first thing I want you to do when you get home, you get the Penal Code and you look up the definition of extortion because that's the business you're in." They remember that. Because that is the business they're in. Now you listen to their tapes--I get the tapes even when I don't go to the meeting--and on and on and on these guys go on telling each other how to extract the goodies from the cable operator. It all depends on maintaining their monopoly. They can't get that. If the right is there to compete, and even the threat of competition, that is going to keep them from being able to extract those goodies. But if you can make the choice--if you can decide who can be the guy when he wants to renew, when he wants to sell, when it's a reopening, and all these things--you drag your feet and you hang in there. You have to watch out because if you go too far, you might be in court. That can be expensive. Hang in there, stall, whatever. I hear time and time and time again that there is no question that 's what the [????] I think the bureaucrats are worse than elected officials. But many elected officials, old-timers who have been around the block a time are two, all have the same view. No question about it. A lot of them are Mayors or Governors. Part of the deal with Continental was that they went and made a deal with the public radio station based there. Strangely enough, Latimer got an awful lot of coverage from the state public radio operation going on. You think Latimer was unconscious of that when he vetoed that thing? Here comes Continental saying, "We're not going to be critical of you. Public radio is going to get all of these benefits that you're going to give the cable company. We're going to give them money and give them studio time."
SMITH: Bud was on the Board of Directors of the Corporation for Public Broadcasting?
FARROW: Does that come as a surprise to you?
SMITH: I guess not. I asked the question.
FARROW: Well, I think it was shortly after he was on the Board, but his contacts, obviously, were still there.
SMITH: Note: The interview was adjourned at this point to be resumed at a later date. No further interview has been recorded.