ST. LOUIS (Legal Newsline) - Private lawyers who hoped to make a killing by suing Netflix, Hulu and other streaming video services with claims they owed taxes to municipalities lost again, with the U.S. Court of Appeals for the Eighth Circuit ruling there is no basis in Arkansas law for their case.
The federal appeals court upheld the dismissal of a lawsuit by the city of Ashdown, Arkansas seeking to collect cable-television franchise fees from the streaming services. The Video Service Act of 2013 doesn’t allow such lawsuits by individual cities and counties, the Eighth Circuit ruled, because that would undermine law’s objective of creating a uniform cable franchise system statewide.
Ashdown was represented by attorneys at firms including Nix & Patterson and DiCello & Levitt, who recruited municipal clients around the country with the promise of collecting taxes from streaming services to replace declining franchise revenue from traditional cable service. The lawyers sought to collect a percentage of the 5% tax as contingency fees.
Courts nationwide have rejected the lawsuits as unsupported by state law, however. In September, a magistrate judge dismissed East St. Louis’s lawsuit against Netflix, Disney, Apple, Hulu, Warner Media, Amazon, CBS, You Tube, Curiosity Stream, Peacock, DirecTV, and Dish Network. As with the Eighth Circuit, the judge ruled “it does not make sense” for the legislature to leave enforcement of Illinois cable franchise law to “a thousand municipalities.”
A judge in Georgia earlier this year dismissed lawsuits by Gwinnett and other counties, ruling that the law only applied to companies that hold cable-TV franchises. Streaming services argue they don’t need a franchise agreement because they merely transmit over lines operated by traditional cable companies. Those counties filed briefs in support of Ashdown in the Eighth Circuit case.
Despite these failures, plaintiff lawyers convinced 25 Texas cities to sue the streaming services in a proposed class action that has been removed to federal court.
Ashdown argued the VSA gave municipalities the right to sue streaming services, even though they were operating in the city before the law passed.
“We are unpersuaded by Ashdown’s argument,” the appeals court ruled. “The fact that the VSA does not `prevent’ a party from exercising a right does not, itself, confer a right. This provision is more logically read to preserve existing rights of action.”
The Legislature “clearly knows how to confer a right of action,” the court went on, since it did so in that law giving the Public Service Commission the right to sue to enforce it. “The legislature’s failure to use such explicit language with regard to municipalities supports the conclusion that it did not intend to create an express right of action,” the court said.
The court rejected a second argument based on Arkansas Supreme Court decisions creating an implied right of action for “a special class of citizens” protected by a law. But municipalities are not a “special class,” the VSA was intended to protect, the court ruled.
Only the Public Service Commission can sue to enforce the VSA, the court concluded, and that doesn’t include the right to compel past-due fees. The statute is intended to create a statewide franchising system, the court ruled, and that uniformity would be undermined if individual municipalities could sue cable companies on their own.