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HomeMy WebLinkAbout11-04-13 SMCITY OF LAKEVILLE SPECIAL CITY COUNCIL MEETING MINUTES November 4, 2013 Mayor Little called the meeting to order at 5:30 p.m. in the Marion Conference Room. Members present: Council Members LaBeau, Anderson, and Davis, and Mayor Little Members absent: Council Member Swecker Also present: City Administrator Steve Mielke; Roger Knutson, City Attorney; Brian Grogan, Moss & Barnett; Tom Bordwell, Director of Government Affairs, Charter Communications; LeeAnn Herrara, Charter; Carol Sindt, Charter; Jane Bremer, Bremer Law, representing Charter; Char Friedges, City Clerk Steve Mielke provided background regarding the purpose of the public hearing. Charter Communications is requesting renegotiation of their Franchise Agreement with the City of Lakeville in conjunction with its renewal. Council had previously authorized staff to work with Moss & Barnett on a thorough review of the current Charter Franchise Agreement. Both technical and legal issues were brought to light as a result; including nonpayment of required EG fees. In spite of several meetings and discussions, this issue has not been resolved. Legal counsel for the City and Charter, as well as members of the public, will have the opportunity to participate in the public hearing, after which staff will ask Council to provide direction. 2. Public hearing to consider whether Charter Cable Partners, LLC is in violation of its Cable Television Franchise Agreement with the City of Lakeville due to the nonpayment of educational and governmental (EG) access fees as required by the Franchise Mayor Little opened the public hearing. Brian Grogan stated that he had been retained by the City of Lakeville as outside legal counsel. He asked that a copy of the PowerPoint which will be presented and 14 supporting attachments be entered into the public hearing record. Grogan stated that Section 3.9 of the Franchise provides a procedure for the City to follow if it believes there has been a material violation or a breach in the Agreement. In determining whether the violation is material, Council needs to consider five factors as defined in the Franchise: 1) The reliability of the evidence of the violation or breach; 2) The nature of the violation or breach; 3) The damage, if any caused thereby to the City, the City's residents or subcontractors; 4) Any justifying or mitigating circumstances; or 5) Such other matters as the City may deem appropriate. Special Council Meeting, November 4, 2013 Page -2- Cable regulations are governed by Title 3, Chapter 11 of the Lakeville City Code. The Franchise was originally granted to Marcus Cable Partners, L.P; however, control of the Marcus Franchise was transferred to Charter Communications in 1998. By accepting control, Charter agreed to be bound by the terms which had been negotiated by Marcus. The City adopted Resolution 98 -236 on by November 2, 1998 which approved the transfer. Marcus continued to be the underlying business entity, doing business as Charter Communications. The fundamental issue is the Educational and Governmental (EG) Access Fee. Section 6.2 of the Franchise guarantees access to educational and governmental programming within the Franchise service area at no charge. This section also requires Charter to collect $.50 per subscriber per month to fund EG access - related expenditures. At issue is the question of whether the EG fee was collected by Charter as required and paid to the City. When Charter submitted their request for Franchise renewal in February 2011 as required by Federal law, the City conducted a review of Charter's past performance and Franchise compliance, as well as possible future needs, including a review of Franchise fees and EG payments. The Franchise fee of 5% of gross revenues that is submitted by Charter under the Franchise agreement is not in dispute. A letter from the City to Charter dated May 23, 2012 asked for data in order to conduct the Franchise fee review to verify that all fees owed to the City had been remitted. A second letter on November 16, 2012 notified Charter that there was no record of any EG fee payments. Subsequent correspondence and meetings between Charter and the City addressed noncompliance issues regarding the EG fee. Although the EG fees were unpaid for 14 years, the State Statute of limitations is applicable and reduces Charter's obligation to six years, which is calculated to be $469,341. In situations where there is not an interest rate specified in a contract for unpaid fees, the State sets a minimum rate of 6 %. At this rate, the non - compounded accumulated interest would be $96,587.33, making a total of $565,928.33 in unpaid EG fees and interest due to the City. Grogan explained that a Franchise is comparable to a contract. In exchange for Charter's use of the City's rights of way, the Franchise mandates collection and payment of the EG fee to the City. A review of all available records did not find any evidence that the Franchise was ever amended to modify the obligation for payment of the EG fees. The City entered into a second contract with Marcus Fiberlink, LLC, referred to as a Telecommunications Capacity Lease Agreement (CLA) for the purpose of constructing a telecommunications network for City data transmission. Following approval of this agreement the payment terms were amended to allow two lump sum payments. This did not in any way amend the Franchise Agreement. This contract is not in dispute. Special Council Meeting, November 4, 2013 Page -3- For the following reasons, the City believes that Charter has committed a material violation of the Franchise by failing to remit payment of the required EG fee: • The evidence of the violation is reliable • The unpaid fees represent a substantial sum of money over the life of the Franchise • The City incurred damage through the loss of valuable funding for educational and governmental programming, resulting in the City funding through other sources • There is no justification or mitigating circumstances for Charter's failure to comply with the requirements Tom Bordwell stated that Charter values their partnership with the City and is proud of their accomplishments and annual Franchise fees that are paid to the City, and is committed to finding an amicable solution to this issue. Jane Bremer, Bremer Law, stated that the telecommunications industry has seen many changes in the 15 years since Charter acquired the cable system. Charter has grown with the City and spent millions of dollars expanding products and services not required by the Franchise, such as broadband to residents and businesses, building a fiber network, and maintaining 1999 broadband rates for City buildings. Charter has a positive business impact and employs 69 people at their Lakeville office. They are a Fortune 500 company serving six million customers and believe they have complied with the Franchise. Charter has no incentive not to collect the EG fee and was surprised that the oversight had not been detected earlier by the City. Charter's staff spent a significant amount of time going through their own records but found no explanation for why EG fees were not being paid. Charter then searched City records and discovered a discussion that was held at the April 12, 1999 Council work session (Exhibit 1) regarding possible deferment of EG fee implementation and collection, and recommending further discussions at a future meeting. There are no records that indicate subsequent discussions were ever held. Charter believes this discussion constitutes the Council's decision to defer EG fees and the decision was never modified, revoked or terminated. Over the years, as the City has acquired EG equipment, held monthly meetings of the Telecommunications Commission, and conducted audits, the EG fee has never been discussed. Bremer submits that because of the April 12, 1999 work session minutes there is no evidence of noncompliance. She stated that the Franchise Agreement gives the City the right to increase, decrease or waive the EG fee, and such action would not be required to be in writing. Charter is asking Council to choose one of two options: • Dismiss consideration of Charter being in noncompliance with the Franchise Agreement due to the discussion by the Lakeville City Council in 1999; or • Continue the public hearing to allow time for further research of City records. Special Council Meeting, November 4, 2013 Page -4- Mayor Little asked if EG fees had been paid by Charter from November 1, 1998 to April 12, 1999. Bremer stated that Charter took control of the Franchise in January 1999 and she does not believe EG fees were paid from January to April 1999. Bremer referred to the March 9, 1999 minutes of the Telecommunications Committee (Exhibit 2) which ask staff to make a recommendation of whether to implement the EG fee. Little asked if there is any contention that the Franchise had been amended in any way as a result of staff's recommendation. Bremer stated that the issue involves Council's authority to defer implementation of the EG fees and the contract can be amended in ways other than in writing. Grogan stated it is his understanding that municipal law is different from general law in that a City contract authorized by ordinance cannot be amended except by an ordinance. Roger Knutson declined to comment without reviewing the case. Bremer maintained that the City had the authority to verbally defer implementation as opposed to amending the agreement in writing, and their discussion which constituted that decision was never modified. Knutson stated that recommendations can be made at a work session but official Council action must be made at a regular Council meeting. There was no vote indicated in the work session minutes. Anderson asked if there had been an audit conducted of Charter to determine if they had actually collected the fee from their subscribers. Bordwell stated that the period from 2010- 2011 had been audited and there was no revenue from EG fees recorded in the general ledger. There was no audit conducted for the period from 1998 to 2010; however Charter contends that there were no EG fees collected. Bremer stated that the City had hired an independent firm to conduct an audit in 2005 for the three to four previous years. A compliance review was also done in 2000. Bremer asked if would have been reasonable for Charter to rely on this decision at the work session and suggested that more time be taken for research of records, since these minutes were just discovered on November 1St Little stated that Charter has had a year to review the records and questioned if additional time would be beneficial. Bremer stated the time would allow them to research Council minutes back to 1999 as well as do legal research. Grogan stated that City staff has thoroughly reviewed all applicable materials and is confident there were no amendments or further action taken by the Council. The contract language clearly requires that an EG fee be collected and submitted to the City and a discussion between staff and Council does not change the terms. Bremer asked if the City was aware of these minutes before or after the violation notice was sent to Charter. Mielke stated that staff was aware of the work session discussion; however it is irrelevant as it does not constitute Council action. The other cable - related agenda item at the work session was brought to Council for consideration at a later regular meeting, but the EG fee item was not. Special Council Meeting, November 4, 2013 Page -5- Regarding additional contributions by Charter, LaBeau stated that these are appreciated, but are not in lieu of any part of the contract. LaBeau asked if the results of the 2005 audit are being used as a starting point for calculating the amount due. Bremer stated that subscriber numbers are not available. Bremer believes Charter relied on the discussion of the Council since the EG fees were apparently never implemented. Little asked if Charter has ever paid EG fees to the City of Lakeville and if so, how much. Bremer said yes, beginning in August 2013 approximately $10,000 was paid based on $.50 per subscriber. This was implemented at the request of the City. Bremer stated that when it was learned that the EG fee had not been collected, a decision was made to begin collecting it on August 1, 2013 and the City was informed. Davis referred to Item #9 of the Telecommunications Commission minutes of March 9, 1999, stating that the commission had voted 6 -2 to recommend implementation of the EG fee as of June 1, 1999 in the amount of $.45 per subscriber. Davis reiterated that a work session is for the purpose of further discussions amongst Council members and is not an action meeting. He asked if the decision to begin paying the EG fees was the result of the Franchise or due to the contact by the City. Bordwell stated it was due to conversations with the City. Bremer stated that due to claims that Charter was in breach of the contract they felt it was better to be begin making payments while they were researching why the EG fees had not been paid. Little stated that Anderson had prompted him with a note to see if there were members of the public in attendance who would like to speak. The note will become part of the meeting materials. There was no one in attendance who wished to speak. Grogan closed by saying the contract is unambiguous and states that the fees should have been implemented and should be in effect today. Although a portion of the time is limited by State Statute, a substantial amount is due. He does not see a need for further continuation of the public hearing and believes adequate information is available for the Council to make a decision. He recommends Council close the public hearing and direct staff to prepare Findings of Fact, either that Charter is not in compliance, or that Charter is in noncompliance due to a material violation of the Franchise. Findings of Fact will be considered by Council at their next Council meeting. Bremer stated that the work session minutes make it reasonable to assume that the parties agreed to defer implementation of the EG fees, and the law would support that conclusion. Charter is recommending that the public hearing remain open for one to two weeks to allow time for further research of Council meeting minutes after the April 12, 1999 work session. Special Council Meeting, November 4, 2013 Page -6- Anderson asked if that research has already been completed. Staff confirmed that it had and that no further documentation had been found which pertains to amending the Franchise. Little asked for comments from Council regarding closing the public hearing. Davis believes that ample time has been provided for research and would be in favor of closing the public hearing. Little agreed and believes both sides have adequately researched the issue. Anderson expressed his appreciation for the positive open dialog and would also favor closing the public hearing. LaBeau believes it is unfortunate that this situation has occurred; however, she is also in favor of closing the hearing. There were no other comments. Motion was made by Davis, seconded by Anderson, to close the public hearing. Roll call was taken on the motion. Aye: Anderson, Davis, Little, LaBeau Little asked for comments from Council on whether to find Charter Communications in material violation or breach of the Franchise due to nonpayment of EG access fees, as required in the Agreement. LaBeau believes there has been adequate opportunity for research and suggested Findings of Fact reflect a material violation of nonpayment of the EG fees by Charter. Little agreed with LaBeau that the purpose of any contract is to clarify the obligations of both parties and he believes there has been a material breach. Davis concurred with LaBeau and Little and believes adequate opportunity has been provided for research. Anderson also concurred. Motion was made by Davis, seconded by LaBeau to direct staff to work with the attorneys to prepare Findings of Fact that Charter Communications has committed a material violation of the Franchise agreement consistent with noncompliance with respect to nonpayment of the EG fees and to present the Findings of Fact at the November 18, 2013 Council meeting. Roll call was taken on the motion. Aye:. Davis, Little, LaBeau, Anderson 3. Adjourn Mayor Little adjourned the meeting at 6:45 p.m. Respectfully submitte Char Friedges, City Clerk "'jo Aoe� MatfTiitle, May