Affiliated Capital Corporation, Etc. v. City of Houston, Gulf Coast Cable Television and James J. McConn

735 F.2d 1555
Court of Appeals for the Fifth Circuit·Decided September 17, 1984·No. 81-2335·Published·Cited by 60 cases

Opinions

GARZA, Circuit Judge:

In Affiliated Capital Corp. v. City of Houston, 519 F.Supp. 991 (S.D.Tex.1981), the district court granted the defendant’s judgment n.o.v. motion in an antitrust action because 5t believed there was insuffi“ent evidence f0n,necting Plaintiffs ^ ^ conspiracy to llmlt competition and its failure í a cable television franchise. A divided panel of this court re- . in , _ . . r ™vsed *hat decisi0n holdmg am°ng things that the conspiracy complained of was a per se antitrust violation. Affiliated Capital Corp. v. City of Houston, 700 F.2d 226 (5th Cir.1983). We vacated that decision and decided to hear this case en banc, 714 F.2d 25 (5th Cir.1983). Because the [1557] district court’s j.n.o.v. ruling can be reversed without reaching the issue of a per se violation, we again reverse the court below, and reinstate the jury verdict. The City of Houston is not a party to this appeal, having been voluntarily dismissed by the plaintiff on June 23, 1982.

I.

FACTS

The events leading to the litigation at bar commenced in 1972, when several firms sought cable television franchises from the city of Houston. After reviewing these applications the Houston Public Service and Legal Departments recommended two firms to the Mayor and City Council. The Mayor and City Council then awarded one corporation a franchise for the entire city. The unsuccessful franchise applicant, Gulf Coast Cable Television Co. [hereinafter Gulf Coast] then secured a petition of more than five hundred Houston voters calling for a referendum on the Council action.1 The voters soundly defeated the grant of a monopoly franchise.

In 1978 the city was again considering granting cable franchises. Mayor McConn; who had been a city councilman in 1973, wanted a plan that would not be overturned by the voters. The Mayor testified at the trial below that he, therefore, determined that several franchises would be granted. In addition, he decided that qualified, local applicants would be favored. Finally, he concluded that any plan should include minority participation. Defendant Gulf Coast was the first of many concerns to seek a cable television franchise in 1978.2 There is ample evidence that the city of Houston did not even initiate the franchise process; defendant Gulf Coast approached the city and made application for a franchise. The city of Houston is a highly desirable cable television market. The city, however, made no effort to take advantage of its position by publicizing its intention to award franchises. Instead of following this common practice, the city passively accepted applications as they arrived. From the many applications submitted to the Public Service Department, four emerged as strong contenders. Their strength was not based on the merits of their proposals, however, but on the political power of the men behind them. These four actors were Gulf Coast, Houston Cable Television Co., Houston Community Cable Television Co., and Meca. Mayor McConn had let it be known that he did not want to choose between competing applicants. He wanted the applicants to cooperate, resolve any overlaps in their territories and present him with a finished product. He abdicated his responsibility in the franchising process to a group of powerful Houston businessmen. In turn, these businessmen became friendly competitors in an effort to divide the city among themselves and prevent competition from any outsiders.

These businessmen and their attorneys met, and over a period of time mutually agreed on franchise areas. After this agreement, the Mayor informed Gulf Coast that another applicant, Westland Corporation, a group primarily controlled by the Mayor’s personal attorney, had to be added to the ranks. A portion of the area West-land desired was in the territory sought by Gulf Coast. Conscious of both the political realities of the situation and the need to avoid competition among potential franchises, Gulf Coast decided to redraw the franchise boundaries in order to comply with McConn’s wishes. After this arrangement was completed the .businessmen were ready to present proposed franchises to the May- or and City Council for approval.

While Gulf Coast and the above-mentioned applicants were cutting out competition by carving up the city amongst themselves, the plaintiff, Affiliated Capital Cor[1558] poration, [hereinafter Affiliated] entered the picture. Affiliated is a publicly-held corporation that owned a savings and loan association. A federal prohibition against owning both a savings and loan association and a cable television system prevented Affiliated from making application for a franchise until it sold the savings and loan association. After the mid-September sale, Affiliated hired a local attorney to investigate the state of the franchising process. When the attorney contacted counsel for Gulf Coast, he was informed that Affiliated was too late because the “pie had been cut.” Surprised by this news, Affiliated’s president, Billy Goldberg, went to visit the Mayor who assured him that there was still time for Affiliated to receive a fair hearing. Consequently, Affiliated made application for a cable television franchise on October 16th.

Although the city never advertised its intention to award cable television franchises, it did undertake other measures calculated to give the appearance that the citizens of Houston would receive quality cable television service. The Public Service Department prepared a questionnaire, which was distributed to all franchise applicants. The city hired a consultant, Dr. Robert Sadowski, to evaluate the applicants based on their responses to this questionnaire. By the middle of November, Dr. Sadowski had completed a report that was highly critical of the franchising/selection process. He warned that it was irrational to allow the applicants themselves to divide the city into franchise territories. He concluded that such a procedure did not give the citizens of Houston the best possible cable television service.

In addition to this general indictment of the process, Dr. Sadowski recommended that only two of the applicants, Meca and Cable-Conn, be awarded the franchise areas they sought.3 He urged that three applicants, Houston Cable, Westland, and Houston Community Cable, be rejected and that the size of defendant Gulf Coast’s service area be reduced substantially. He apparently had doubts about the ability of Gulf Coast to service even this smaller territory so personally inspected its facility. Shortly after this visit, Sadowski was fired. His conclusions were altered before the report was publicized. The five ultimately successful applicants were pronounced qualified.4

The City Council then began taking final action on the franchise applications. The president of Affiliated appeared before City Council and requested that his application be given due consideration. Instead of due consideration, the City Council (through Councilman Johnny Goyen) admonished Affiliated to go and work out an agreement with the defendant and the other above-mentioned applicants. Goyen said:

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Affiliated Capital Corporation, Etc. v. City of Houston, Gulf Coast Cable Television and James J. McConn, 735 F.2d 1555 (5th Cir. 1984).

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