The Dallas Court of Appeals has ordered a Dallas County district court to dismiss under Rule 91a a lawsuit brought by dozens of Texas cities against streaming giants Disney, Netflix, and Hulu.
In In re Disney DTC, LLC n/k/a Disney Platform Distribution, Inc., Hulu LLC, and Netflix, Inc. (No. 05-23-00485-CV; January 31, 2024), 31 Texas cities sued the streaming providers alleging that they owed the cities millions of dollars in franchise fees. They sought declaratory judgment that the providers violated Chapter 66, Public Utility Regulatory Act (PURA) by failing to obtain state-issued certificates of franchise authority, under which franchise holders are required to pay 5% of gross revenues derived from operations in each city in which the holder has customers. Enacted in 2005, Chapter 66 requires entities that seek to construct cable or video services networks in public rights-of-way to obtain a certificate and pay the appropriate franchise fees. Under the prior law, cable providers had to negotiate separate franchise deals with each city. In response to the suit, the streaming providers filed a Rule 91a motion to dismiss for failure to state a claim. The trial court denied the motion. The providers filed a petition for writ of mandamus.
The court of appeals conditionally granted the petition and ordered the trial court to dismiss the case. The court held that Chapter 66 does not imply a cause of action by a city against a non-holder of a state-issued certificate of franchise authority and, as the streaming providers are not franchise holders, the cities’ claims do not belong in a courtroom. Citing a decision by the federal district for the Eastern District of Texas, which dismissed a class action filed on behalf of Texas cities against Netflix and Hulu, the court held that Chapter 66 clearly distinguishes between franchise holders and video service providers. Moreover, as the court of appeals pointed out, the Legislature limited cities’ enforcement authority over franchise holders and gave the PUC exclusive jurisdiction to determine who qualifies as a certificate holder and, through the attorney general, to enforce the certification requirement. Finally, the court of appeals pointed to several decisions in other jurisdictions that, based on parallel statutes, reached the same conclusion.