CLEVELAND (Legal Newsline) - The mayor of Maple Heights, Ohio, decided to sue Hulu and Netflix for cable-TV franchise fees after a bowling-alley owner connected her with outside lawyers and she held a 30-minute discussion with the city’s legal director.
Mayor Annette Blackwell acknowledged in a deposition she didn’t attempt to negotiate down the 33% contingency fee the city agreed to pay its private lawyers and couldn’t explain why she was suing Hulu and Netflix for streaming video to local residents but not the public library, a local college or the New York Times.
“I don’t have enough information to have my own view about this,” Blackwell said under questioning from lawyers for Netflix and Hulu. She said she relied entirely on Frank Consolo, who represents the city in legal matters, for his advice on the case.
The streaming services are fighting a request by Maple Heights to lead a class action in federal court on behalf of every municipality in Ohio to collect a 5% franchise fee now applied only to traditional cable TV operators. In court filings, Hulu and Netflix say Blackwell hasn’t discussed the proposed class action with any of her fellow mayors and isn’t an appropriate representative for other government bodies because she hasn’t considered questions including the First Amendment implications of taxing internet content or the impact on city residents.
In addition to paying an extra 5% for the two video services, subscribers might get hit with more than $200 in fees if the city wins back taxes.
Maple Heights is trying “to make these decisions for the entire state,” Hulu says in its May 17 motion opposing class certification. Among other effects of the litigation, the streaming services say, if they are classified as “video service providers” under Ohio’s cable-TV law, they would be exempt from $11 million in state sales taxes they are currently paying.
Maple Heights is represented by outside law firms DiCello Levitt, Nix Patterson and Schneider Wallace, who have shopped the video streaming theory to a number of cities nationwide as a way to replace declining revenue from traditional cable TV franchise fees. DiCello Levitt, which also represents government clients suing over the chemical PFAS, negotiated a 33% fee for itself and co-counsel in the video lawsuit. Nix Patterson, also part of the team representing Maple Heights, collected part of a $60 million fee award in Oklahoma’s lawsuit against Purdue Pharma.
In their motions to block class certification, Hulu and Netflix say Maple Heights is seeking a mandatory class action that would bind every Ohio city to the outcome if its case. Such class actions are intended to seek injunctive, not mandatory relief, the companies argue, yet the city’s lawsuit is really only about obtaining more money.
In her deposition, Blackwell said she understood Netflix to be in a “partnership” with the city, but couldn’t identify any city services or property the company used. She said she doesn’t subscribe to Netflix or watch it, but her daughter does, and she acknowledged her daughter watches it in several different places – a key point the streaming services make in differentiating themselves from cable-TV providers, who pay franchise fees based on the revenue they get from a specific subscriber address.
Streaming services, in contrast, can be accessed wherever a subscriber has a device with an internet connection, meaning if Maple Heights won, it could collect revenue from subscribers who are streaming video to a different city.
The city’s outside lawyers claim Hulu and Netflix were obligated under Ohio to seek a permit before streaming video to city residents. When asked if Maple Heights itself applied for a video service franchise before posting a public safety video on the internet, Blackwell said didn’t think it necessary. She said she hadn’t considered suing the public library for failing to apply for a video service franchise fee for providing books and videos over the internet, or the New York Times, which streams video to subscribers.
“Why is the city taxing Netflix and Hulu but not the New York Times or anyone else?” Hulu’s lawyer asked.
“Because it’s video content” and because the lawyers told her to do it, Blackwell said. She said she hadn’t considered whether city residents wanted to pay an extra fee for watching the two steaming services, or if they would be upset at paying back franchise fees.
In its objection to class certification, Hulu noted that cities could seek the franchise fees in a less expensive way than paying outside lawyers a 33% contingency fee. Under state law they could request an audit from the Ohio Department of Commerce, which administers cable franchise fees.