Court Rejects Texas City’s Franchise Fee Suit Versus Netflix and Hulu

An action brought against online video streaming platforms Netflix Inc. and Hulu LLC has been dismissed for failure to prove that the defendants were obligated to pay fees the City of New Boston, Texas said they were. Last Thursday’s dismissal ruling is among the first to issue in franchise fee lawsuits, which have cropped up in other states including California, Illinois, Indiana, and New Jersey.

According to the nine-page opinion, New Boston and a putative class of Texas municipalities claimed that the defendants are “video service providers” as defined by the Texas Utilities Code. As such, the plaintiff sought to hold the defendants accountable for franchise fees in the sum of five percent of their gross revenues accrued with city limits pursuant to the code. However, the complaint did not allege that the defendants hold certificates of franchise authority.

In their motions to dismiss, the defendants countered that the law does not apply to them for that precise reason: they are not certificate holders. Judge Robert W. Schroeder, III sided with the defendants, finding the language of the Texas Utilities Code unequivocal.

“It is not the province of this Court, or courts anywhere, to read words out of a statute,” Judge Schroeder said. The court rejected the city’s argument that the streaming platforms should be declared certificate holders after ruling that the judiciary is not imbued with that authority. Accordingly, Judge Schroeder dismissed the complaint without prejudice subject to refiling “should the Defendants become holders of state-issued certificates of franchise authority.”

The city is represented by Langdon & Davis, Bruster PLLC,  DiCello Levitt Gutzler LLC and Schneider Wallace Cottrell Konecky LLP.

Netflix is represented  by Haltom & Doan and Latham & Watkins and Hulu by Gilliam & Smith LLP and Wilson Sonsini Goodrich & Rosati.