Transcript

IN THE SUPREME COURT OF THE UNITED STATES

CITY OF NEW YORK, CITY OF MIAMI, CITY OF WHEATON AND NATIONAL LEAGUE OF CITIES, Petitioners, v. FEDERAL COMMUNICATIONS COMMISSION, ET AL.

No. 87-339

March 29, 1988

The above-entitled matter came on for oral argument before the Supreme Court of the United States at 11:39 a.m.

APPEARANCES:

STEPHEN J. MCGRATH, ESQUIRE, Assistant Corporation Counsel of the City of New York, New York, New York, on behalf of the Petitioners.

LAWRENCE G. WALLACE, ESQUIRE, Deputy Solicitor General, U.S. Department of Justice, Washington, D.C., on behalf of the Respondent FCC.

H. BARTOW FARR, III, ESQUIRE, Washington, D.C., on behalf of Respondent, National Cable Television

PROCEEDINGS

11:39 a.m.

CHIEF JUSTICE REHNQUIST: We'll hear argument next in No. 87-339, the City of New York, City of Miami, City of Wheaton and National League of Cities versus the Federal Communications Commission.

Mr. McGrath, you may begin whenever you're ready.

ORAL ARGUMENT OF STEPHEN J. MCGRATH, ESQUIRE ON BEHALF OF THE PETITIONERS

MR. MCGRATH: Thank you, Mr. Chief Justice, and may it please the Court.

The petitioners are here pursuant to Writ of Cert to the Court of Appeals for the D.C. Circuit. And the issue is the authority of the FCC to preempt through the promulgation of certain minimal guidelines as to cable television signal quality, to preempt all local franchisers from promulgating technical standards as to signal quality.

Now the Commission has adopted a deregulatory approach to technical standards explicitly as to signal quality. Now, in the past going back to 1972, the Commission itself had promulgated certain technical standards. It has recognized over the years, however, that these were incomplete and that they didn't cover certain problems such as ghosting of a picture.

Nevertheless, in 1985, after the passage of the New Cable Act, the Commission determined to no longer continue these standards and after comments, issued a ruling in which these prior standards were continued as guidelines that could be included by franchisers in franchise agreements but that no other standard, whether a similar standard which was more stringent, or a standard for some other quality of signal quality could be promulgated by local franchisers.

Now, the D.C. Circuit, finding more persuasive the argument of the Commission that it continue to have a broad delegated preemptive power which this Court had recognized in the Capital Cities case under the old Communications Act, that this continued under the New Cable Act, and held that as long as one technical guideline was adopted by the Commission as to a particular classification of channels, that they can preempt any standards by local franchisers.

But even the Court of Appeals had some difficulty with the approach of the Commission. The only classification of channels for which any standards, now guidelines, had ever been promulgated were the traditional broadcast channels. There had never been any standards or guidelines adopted for what is now the majority of cable televisions channels. The satellite but unencoded broadcasts, CNN, that sort of thing, the encoded broadcast, HBO, and then a fourth category that the FCC had promulgated, that is, the two-A interaction.

For those other three types of channels, they had never promulgated any standards. And the Court of Appeals was troubled by that. And pointing to certain aspects which I'll get into a little later in the Cable Act that it would be very difficult, specifically the renewal process, be very difficult for franchisers to take part and make full use of renewal process without there being some standards.

And therefore remanded that aspect back to the Commission to reconsider.

QUESTION: Which category does the City want to --

MR. MCGRATH: All categories.

QUESTION: Have they proposed standards for all categories?

MR. MCGRATH: We have standards that were included in the contracts back in 1983.

QUESTION: For all of them?

MR. MCGRATH: Yes, Your Honor. And these include not just the four guidelines that are discussed by the Commission. We put in an engineering report below which first indicates the insufficiency of the ones that are guidelines under the FCC and that under those guidelines, if those minimums were all that were met, the resultant picture would be ghosting, would be distortion, would be clearly an unacceptable picture.

QUESTION: Do you think the issue is different with respect to the first category where the --

MR. MCGRATH: I don't think so, Your Honor, because the Commission has taken a broader approach than the Court of Appeals has approved, but we think the issue is not merely with these other three categories, it's not merely --

QUESTION: Well, the Commission has some standards for Category I, right?

MR. MCGRATH: Category I and none for II, III and IV.

QUESTION: None for the others but how about Category I? Isn't the issue there different than with respect to the categories that the Commission --

MR. MCGRATH: Not really, Justice White, because under the Court of Appeals approach, they can merely through the issuance of the most minimal standard fulfill their entire regulatory responsibility.

QUESTION: And your argument is the same with respect to all of them as long as they're's not any real conflict?

MR. MCGRATH: Yes, Justice White.

QUESTION: And if you can prove that in question in the first category, why, it goes without saying to the other categories.

MR. MCGRATH: Yes, Justice White

QUESTION: We're only talking about Category I in this case, aren't we?'

MR. MCGRATH: I disagree, Justice Scalia.

QUESTION: Are you appealing II, III and IV? I thought you got what you wanted on those?

MR. MCGRATH: No, we don't --

QUESTION: For the time being, anyway, until the FCC decides what it's going to do?

MR. MCGRATH: No, the Court of Appeals remanded for them to consider.

QUESTION: Right. Have you brought that remand here? Have you objected to that remand?

MR. MCGRATH: Yes, Your Honor, because we think it's an issue of law. It's not a mere matter for the Commission to consider the interworking and how to resolve the interworking of their issue standards and a requirement under the Renewal Provision. It's our position that reading those is an issue of law that makes it clear under all categories that we are preempted only when standards are issued which could conflict with our standards.

QUESTION: I didn't understand that.

MR. MCGRATH: Where none are, there's no conflict. Now, we submit that the Court of Appeals applied the wrong preemption standard by adopting what it called a more persuasive argument, and reached a result that's in conflict both with the purposes and the provisions of the Cable Act.

Turning first to the preemption, as Justice Brennan said in the Louisiana case, that touchstone of preemption is Congressional intent. And as this Court's recognized a number of times, where there are two legitimate schemes of regulation, Congressional intent to preempt should be clear, there should be no presumption of preemption, and that where possible, those two spheres of regulation should be accommodated so that they can stand together.

Now, the Commission really has taken the position that within this area of technical standards, they're allowed to preempt the field. Then as Justice White remarked, our position is they are not entitled to preempt the field and in fact, the only preemption is where ours cannot stand together with the guidelines issued by the FCC.

QUESTION: Mr. McGrath, will you help me with one thing? I've got a little lost in this case.

MR. MCGRATH: Yes, sir.

QUESTION: What is the statutory provision on which the Commission relies for its authority to adopt the regulations.

MR. MCGRATH: Okay, it's in 624(e). Now, --

QUESTION: And that's the sole authority that they rely on, 624(e)?

MR. MCGRATH: Well, they've made some oblique comments indicating they may be relying upon the old Communications Act, but it's our position that that's at an end.

QUESTION: But you think they rely exclusively on 624(e)?

MR. MCGRATH: Yes, Justice Stevens.

QUESTION: May I get back to what we have in front of us here?

I thought we just had Category I, not II, III, and IV, because the question presented as you set it forth in your brief is by a vote of 2 to 1, the Court of Appeals upheld an FCC order preempting local and state cable television technical standards which are more stringent, etcetera, etcetera. And then it goes on and says, the questions presented are whether the Court of Appeals applied an erroneous legal standard.

Now, on II, III and IV, it wasn't 2 to 1; it was 3 to 0, wasn't it? So I assumed you accepted the Court of Appeals decision on those?

MR. MCGRATH: With respect, Justice Scalia, I don't think Judge Mikva agreed that there should be a remand as to how the renewal provision worked with the power under 624(e). I think his position is consistent with ours, that is, the standards, if there are no standards or if there are standards which can stand with our local standards, there's no preemption. It really doesn't matter what --

QUESTION: But you bring before us dispositions, not legal theories, and the disposition on II, III and IV was 3 to nothing. And I did not understand that to be what you were complaining about. I thought you'd accepted that remand to the Commission.

MR. MCGRATH: With respect, Justice Scalia, I believe Judge Mikva would have voted to annul the rule rather than merely to send it back for reconsideration.

QUESTION: Well, it's a very confusing question presented if you're seeking to bring that here too.

MR. MCGRATH: Turning to the statutory, to the Cable Act, itself, the Commission has pointed to one of the stated purposes of the Act, that is to limit needless regulation. However, the preeminent purpose is to establish a national policy as to the cable industry.

Now, they did not choose to effectuate that policy as had been done under the Communications Act through a broad, vague delegation of power to the FCC. There were other problems that they meant to deal with. For instance, the FCC itself had moved in and out of the regulatory process and that's indicated in the authoritative report that Congress that was prepared for this legislation. So instead of giving the FCC broad power, they clearly delineated in the Statute the regulatory authority of the Federal and the state and local agencies.

They also had the purpose of assuring that the cable companies be responsive to the community needs. Accordingly, they made the franchise process the preeminent regulatory structure, and they set up national procedures and standards to assure that those structures, that the franchisers remained responsive to the needs of the localities, but at the same time, applied national standards.

Now, looking at the most relevant statutory provisions dealing with requirements for facilities and equipment confirms that in that area, the regulations must be intensely local. First, looking at Section 624, the Congress stated --

QUESTION: Where are they?

MR. MCGRATH: In the original Act at Section 624.

QUESTION: I understand. Where are they in the briefs?

MR. MCGRATH: They're in the Appendix. Starting at page 116 of the Appendix to the Petition.

In Section 624, they've empowered franchisers to include pretty much any requirement relating to facilities and equipment. And the report makes it clear that just about any requirement relating in any way to the operation of a cable system can be required to be put into the proposals and can be enforced by the franchiser.

The next relevant section is 625 which deals with modification. Now, Congress, as the Commission itself has indicated, had a concern.

QUESTION: Will you tell us where do you think 625 is and what exact sentence it is you're quoting from so we can follow it?

MR. MCGRATH: I'm sorry. It's 625.

QUESTION: 625(a)(1) appears to be on page 120 of the Appendix.

MR. MCGRATH: Yes. And immediately thereafter at page 125 is renewal.

QUESTION: Are we talking about the Joint Appendix?

MR. MCGRATH: No, the appendix to the Petition, Justice O'Connor.

QUESTION: Oh.

QUESTION: So we're now on renewal in your argument?

MR. MCGRATH: Modification, Justice Rehnquist.

Now, there was a problem back in the 70's and the early 80s, that both municipalities expected and the cable companies hoped to meet very sky high requirements, both as to services and to equipment and facilities.

Congress recognized this problem, passed this provision, which allows upon a showing that attaining a particular requirement was commercially impracticable that the franchisee can be relieved of the requirement.

Perhaps most importantly is the next provision, the renewal provision. Now, this again was to face a problem, a foreseen problem that cable companies that had expended vast capital resources to establish a cable system would not be unreasonably denied a renewal. And the thrust of the statute set out a detailed procedure controlling the renewal process, specifically when there's a dispute.

And the whole process is intensely local. The first step of the process is an inquiry into how the cable operator has performed under the prior contract, and the needs of the community. That's on notice, not to the Commission, but on notice to the members of the locality.

QUESTION: Mr. McGrath, what do you do about 624(e), which is on beginning at the bottom of page 118.

MR. MCGRATH: My point is this, Justice Scalia.

QUESTION: Which says, let me tell you my problem with it. It says, the Commission may establish technical standards relating to facilities and equipment which a franchising authority may require in the franchise.

Now, it seems to me the natural reading of that is the Commission may establish those technical standards which and only which the franchising authority may require. Otherwise, it seems to me, everything after, which, is meaningless if we follow what you think --

MR. MCGRATH: Justice Scalia, do you mean that the "which" refers back to the technical standards?

QUESTION: Right. Relating to the facilities and equipment -- may establish technical standards which a franchising authority may require in the franchise.

MR. MCGRATH: That would make their role essentially advisory. That they could promulgate certain standards and it would be up to the locality to include that in the franchise process.

QUESTION: That's right. I read that as saying the FCC may establish those standards that can be required.

MR. MCGRATH: Oh, you're reading it as limiting what can be done by the franchisers.

QUESTION: Well, what does it mean if it doesn't meant that? Which the franchising authority may require? What would it mean if it doesn't mean what I just said?

MR. MCGRATH: Oh, no. I think one could reasonably -- and that has not been our position, but one could reasonably read this to say the Commission could issue advisory technical standards. However, it has always been our position that they can issue binding technical standards.

The issue for the Court to resolve is whether or not that empowers them to issue certain standards and tell the localities that they can't issue other technical standards which can't -- which can --

QUESTION: I'm not saying, binding. I'm saying they may establish technical standards which a franchising authority may require. I think the only way to read that is they may establish those standards that can be required.

MR. MCGRATH: With respect, Your Honor, only by --

QUESTION: If it only means what I think you're saying, if it only means that they can issue advisory standards, you wouldn't need which a franchising --

MR. MCGRATH: No, that's not our position, it's never been. I'm just trying to point out that this is a very vague and ambiguous statute and might even be reasonably read to be advisory.

Now, we agree they can issue binding standards, but binding in the sense that if we tried to pass some standard that was in clear conflict, it can't stand with it, then that's the extent of their preemption.

QUESTION: It doesn't say, which a franchising authority must require. It says, it shall issue, or may establish standards which a franchising authority may require. If it said it may establish standards which they must require, then it would mean what you say. But it doesn't say, which they must require. It says it may establish standards which they may require, meaning only these may they require and no others may they require.

And that is what the FCC has done.

MR. MCGRATH: Well, first the actual wording of the Statute, I don't think that is a reasonable reading.

QUESTION: Well, it says, may and not must.

MR. MCGRATH: With respect, Justice Scalia, it refer back to the facilities and equipment. They can issue technical standards relating to the facilities and equipment. It's the facilities and equipment which we may include in the --

QUESTION: Oh, you think the "which" goes with facilities and equipment?

QUESTION: That's a very strange reading of the English language, I think.

It's on page 118 and 119 of the Appendix.

MR. MCGRATH: With respect -- if you go back to Section 624(a) --

QUESTION: Well, but why do we need to go back to 624(a) when we're talking about 624(e)?

MR. MCGRATH: All I'm trying to indicate is they frequently refer to facilities and equipment that may be required. That's why I read this provision, which a franchiser may require, as going back to the facilities and equipment. We can require any number, any different types of facilities and equipment.

QUESTION: That's just a very strange -- here's how the sentence reads: The FCC may establish technical standards relating to the facilities and equipment of cable systems which a franchising authority may require in the franchise. You think it's perfectly logical to read that as relating as to mean only that the franchising authority may require the facilities and equipment to be in the franchise?

MR. MCGRATH: With respect, Judge, that's our reading of the Statute.

QUESTION: You mean the FCC cannot require any standards for unrequired facilities and equipment, if the people put in some facilities and equipment that haven't been specifically required by the municipality, the FCC cannot establish standards for them? Is that a reasonable reading of it?

MR. MCGRATH: Justice Scalia, the whole structure --

QUESTION: It can only establish standards for required facilities and equipment and if the municipality chooses not to require any, no FCC standards apply?

MR. MCGRATH: Well, if no jurisdiction require particular facilities and equipment, I don't see what the purpose of them issuing the guidelines would be.

QUESTION: It seems to me the, which, has to relate to standards and not to facilities and equipment.

MR. MCGRATH: Well, getting back to the -- this is the only provision on which they rely, and if they're reading is given full force, they in essence read out substantial provisions of 625 and 626.

Under 626 in the renewal process, one of the findings which can be the basis for a denial of renewal is that the quality of the service under the prior contract in light of the reasonable needs of the community has not been satisfactory into the quality of the service. And one of the particulars that they point to is the signal quality.

Now, if the FCC can issue these minimal guidelines, how are we to turn down renewal based upon the signal quality if we're not able to point to specific guidelines? The Federal guidelines certainly are not going to enable us to do this because as we put in our affidavit below of an engineer, all that's going to result following those guidelines will result in a snowy picture.

And a cable operator can say, you can't deny my renewal based upon this because I've complied with the Federal guidelines. And there's a further step under the renewal process. The whole process is aimed at clear determination consistent with --

QUESTION: We'll continue there at 1:00 o'clock, Mr. McGrath.

(Whereupon, at 12:00 noon, the hearing was recessed for lunch, to reconvene the same day, Tuesday, March 29, 1988, at 1:00 o'clock, in the same place.)

AFTERNOON SESSION

1:00 p.m.

CHIEF JUSTICE REHNQUIST: Mr. McGrath, you may continue.

MR. MCGRATH: Thank you, Justice Rehnquist.

I'd like to return to the discussion of Section 624(e) and Justice Scalia's interpretation of that provision.

Now, we submit that a reading of that provision as providing that there can be only technical standards where the Commission has promulgated such standards is inconsistent with the statute.

Now, first at page 116, Section 624(a)(1) empowers a franchiser to require that in proposals, that the franchiser may establish requirements for facilities and equipment. These are highly technical matters, and we submit that only through -- and technical standards would naturally be part of a requirement for facilities and equipment.

Possibly more relevant at page 127, as I stated before, there's a delineated process in which renewal can be accomplished, and there are a limited number of findings which can be made to support a denial of renewal. One of those findings is laid out at page 127. And if I can quote it:

"The quality of the operator service including signal quality has been reasonable in light of community needs." First of all, we submit that without technical standards, there's no way in which such a finding can be made. We'd be left to basing unsatisfactory signal quality, assuming the Commission issued no guidelines, upon subjective complaints.

QUESTION: Well, that just gives you more authority.

MR. MCGRATH: But if one reads 624(e) the way I believe the Chief Justice and Justice Scalia read it, we would not have the power to issue any standards unless the Commission first took the affirmative step of allowing us, in essence, passing their own regulation and then we'd be allowed to adopt that.

Now, if we're only empowered to pass the regulation at the whim of the Commission and the Commission decided not to pass any regulations this section would in essence be read out of the Statute. And we submit the Commission's also probably the last entity that could determine whether signal quality is satisfactory in light of community needs.

QUESTION: Mr. McGrath, why is that so? I mean, subsection (b) includes things like quality of operator service which I guess means whether maintenance people would come in, and so forth, and you don't have to have any standards on that.

The response to consumer complaints, you don't have standards on that.

And billing practices, there are no standards on that. Why couldn't they make findings dealing with each of these subjects without any standards saying what the maximum or minimum was?

MR. MCGRATH: Justice Stevens, the main thrust of the renewal procedure is to set up a due process kind of procedure.

QUESTION: I understand.

MR. MCGRATH: Whether or not it's absolutely impossible to make this finding, it would seem quite reasonable, and we submit compelling to be able to base the determination upon whether or not they satisfied certain kinds of standards.

QUESTION: Do you think that this means by the same argument that the FCC must promulgate regulations dealing with billing practices and how to respond to consumer complaints?

MR. MCGRATH: No, Justice Stevens, my argument is just as Justice Scalia read 624(e), that the only entity that's empowered to allow technical standards to be placed into franchise agreements is the FCC. We submit, no, that in fact, both the local franchiser in light of 626 and the general provisions of 624 is similarly empowered to issue technical standards.

QUESTION: You mean the local. But they are to the extent consistent with the Title, and I suppose with regulations promulgated by the FCC pursuant to the Title.

You don't claim a right to promulgate inconsistent regulations?

MR. MCGRATH: No, our position --

QUESTION: And if there's a regulation out there that says, there shall be no regulation in this area because we want the free market to set the standards, then it's inconsistent with the regulation.

MR. MCGRATH: No. Our reading of the Statute is that they can issue standards, and as long as our standards are not inconsistent. Not that it's inconsistent with the policy of the FCC. They're empowered here to issue standards, not to set broad policy.

QUESTION: Well, but if they have the power -- where do they get the power to issue. You said you think they only get the power from the 1984 Statute, don't you?

MR. MCGRATH: Yes, Justice Stevens.

QUESTION: Why is it then that their order reads, as an amendment of the preexisting '72 rules rather than as a brand new --

It seems to be we're relying on preexisting authority as well as --

MR. MCGRATH: Well, as I mentioned earlier in my argument, they do make references to the earlier Communications Act, but do not clearly state in their briefs that they are relying upon that Statute.

QUESTION: But if that Statute --

MR. MCGRATH: We believe to some extent that they are relying on it, and that that's improper.

QUESTION: Now, why is that improper? Is there anything in here that repeals the prior statute?

MR. MCGRATH: Well, in essence there was no prior statute. If you'll look, the Midwest Video case, --

QUESTION: Well, do you contend that the '72 regulations were invalid, also?

MR. MCGRATH: Not at that time, but there's a long case load going back to Southwest Cable through the two Midwest Video cases and finally the Capital Cities case where this Court recognized that the Commission under the Communications Act had broad regulatory powers.

But as Justice Berger, Chief Justice Berger pointed out in his concurrence of the first Midwest Video case, because the Communications Act was passed ten, 20 years prior to cable television, in essence it was the Commission and this Court that was setting broad policy decisions that had to be made by Congress.

Congress has made those policy decisions. Has decided that regulation is not to be done broadly through a vague delegation of power as pursuant to the Communications Act, but under the specific guidelines of the Cable Act. The Cable Act gives some duties to the Commission. It gives some duties to --

QUESTION: You take the position that unless affirmative authority for an FCC regulation can be found in the Cable Act of '84, it has no such authority to regulate in this area?

MR. MCGRATH: Yes, Your Honor, that's our position.

Now, I have a few minutes left.

I didn't have a chance before, but I'd like to reserve a few minutes for rebuttal.

CHIEF JUSTICE REHNQUIST: Thank you, Mr. McGrath.

We'll hear now from you, Mr. Wallace.

ORAL ARGUMENT OF LAWRENCE G. WALLACE, ESQUIRE ON BEHALF OF THE RESPONDENT, FCC

MR. WALLACE: Thank you, Mr. Chief Justice, and may it please the Court.

Historically, the Commission applied technical standards requirements to so-called class one channels which are channels used to deliver broadcast signals of television stations because that was the clearest authority that the Commission had under the ancillary jurisdiction doctrine of the Southwestern Cable case. The Commission began to regulate in this area before Congress enacted any statute dealing specifically with cable casting.

Because the technical standards that the Commission adopted were principally focused on the signal both visual and oral that the worst located subscriber would actually receive on his set, and because the other classes of cable were coming through the same system, the standards for Class I channels tended also to control the quality of signals for the other classes. And for that reason, the Commission never did adopt standards specifically with respect to the other classes.

But it is now considering that question on remand in this case. We did not raise any question about the correctness of that remand. The question that the petitioners have presented with respect to the Commission's authority to prescribe maximum standards for Class I channels will necessarily have a spillover effect to what the Commission can do about the other classes of channels.

So they're is a relationship there regardless of whether technically the other classes are before the Court on this petition. The regulation that is at issue here --

QUESTION: Do you understand them to be before us?

MR. WALLACE: I had not understood them to be before the Court except in the spillover effect that would necessarily occur from the decision here.

The FCC Regulation that is at issue explicitly prohibits local franchising authorities from enforcing more stringent technical standards for cable casters than the standards that the FCC has prescribed. After the standards are set out on the preceding pages, then on page 87 of the Appendix to the Petition, the Commission Regulation is quite explicit that these rule sections or less stringent versions of them may be used as standards by state or local regulatory authorities, no technical parameter in excess of the above rule sections may be required.

And the way local authorities require standards is through the franchising process or the renewal process in the franchise agreements. So there's no doubt that the Commission's intent, as its report and order explain unmistakably as well, was to prevent the local authorities from enforcing more stringent standards on the cable casters. And this case therefore presents no occasion to consider guides to interpretation that the Court has adverted to in other cases that would disfavor preemption when there's some ambiguity about whether preemption was intended.

The question in the case is whether this regulation exceeds the scope of the Commission's statutory authority. We do not claim that the statute itself accomplished this preemption of more stringent standards or that the statute required the Commission to preempt local authority in this way

And in this respect, the case is similar to the Capital Cities against Crisp case in which the preemption flowed entirely from the Commission's regulation adopted in the exercise of its broad authority to further the national communications policy and not from anything in the statute, which at that time didn't even refer to cable casting.

QUESTION: You also would not agree with the reading of 624(e) that I was suggesting earlier?

MR. WALLACE: I would agree with it entirely, Mr. Justice, with the possible exception that it starts off saying the Commission may establish technical standards. So that the discretion is in the Commission whether to establish the technical standards. And what has been remanded by the D.C. Circuit in this case is the question of whether the Commission could preclude local authorities from establishing their own technical standards with respect to Classes II, III and IV, if the Commission has not established any technical standards.

And of course that could be resolved by just having the Commission establish some technical standards.

QUESTION: You don't think anything about Classes II, III and IV is here?

MR. WALLACE: Not directly, no, sir.

QUESTION: Directly? Do we have to face it either way we decide it? If we decide either for you or for the other side, we still don't reach II or III or IV?

MR. WALLACE: I agree with that, Mr. Justice White.

QUESTION: Yes, Mr. Wallace, but is it not true that your theory might make a difference, does it depend on the existence of some Federal standard, there's some minimal Federal standard under Title I for Title I but not under Titles II, III and IV, isn't that the point?

MR. WALLACE: That is correct.

QUESTION: And the question I have in my mind is whether we agree with you on Title I, do we just leave open the question on Title II, III and IV, or will we necessarily have decided that?

MR. WALLACE: Well, I think you do leave it open because we did not petition from the remand.

QUESTION: I'm not questioning about the remand but the question I have is whether without promulgating any technical standards at all, could the FCC under the statute say we think the best way to achieve quality signals and all the rest of it is by letting the free market have full play, and simply say, we will promulgate none, and we forbid the states and franchises.

MR. WALLACE: That's what the Commission did with respect to II, III and IV, and we argued in the Court of Appeals that we could do that, and they said not without explaining how that relates to the franchising process.

And now the Commission is reconsidering that, so we're making no contention here.

QUESTION: But my question is whether you would still make the same legal -- because if you're right on that, this is an awfully easy case. But I don't know whether you're really arguing that or not.

MR. WALLACE: We're not arguing it that way because that question is back before the Commission and the Commission has not spoken yet.

QUESTION: Yes, but now can you win on Class I on the ground that you are urging without winning on II, III and IV?

MR. WALLACE: Well, on Class I, the Commission has prescribed technical standards within the meaning of 624(e) on page 118 of the Appendix, which says, the Commission may establish technical standards. The Commission has established technical standards for Class I, and those are the standards which it has said a franchising authority may require. And that's how we can win on Class I.

QUESTION: Well, but I thought you were trying to defend, and I think you do, the power of the Commission to preempt. Just say, just on the grounds that we can forbid locals from establishing technical standards, whether they're in conflict or not?

MR. WALLACE: But we have not argued that in this Court. That is what is on remand.

In this Court, we have argued that the Commission has established standards and said that Class I and said that the local franchising authorities may not exceed them in requiring standard policy.

QUESTION: Well, doesn't that go to the power of the Commission to preempt? Because except for the power to preempt, just the fact that there are regulations there wouldn't preempt locals?

MR. WALLACE: Well, the forum of the regulation that is before the Court here is a form that includes an explicit preemption provision but that form is encountered in a situation where a Federal Agency has concluded that certain options should be preserved for the regulated industry.

In that respect, this case is like Fidelity Federal Savings against de la Cuesta where the Federal Home Loan Bank Board concluded that federal savings and loan associations should be allowed the option to use due on sale clauses if they wished. They didn't want to require them to use them so the only way to preserve the option unambiguously was to say that the option cannot be taken away by state regulatory authority.

QUESTION: Well, I guess, Mr. Wallace, you're also taking the position that even apart from the regulation adopted by the FCC preempting that any promulgation of standards by the FCC would effectively preclude the franchising authority from having stricter standards?

MR. WALLACE: If, it would depend on --

QUESTION: You are arguing both things? I that right?

MR. WALLACE: It would depend on if the Commission told cable casters, these are the standards that you must use, and you can't deviate from them up or down, then that would preclude a requirement that would require them --

QUESTION: Well, what if all the FCC did was adopt some standards without telling anybody anything else?

MR. WALLACE: Then that would leave an ambiguity which is not present in this case, and might lead to the conclusion that the FCC did not mean to preempt local authority from applying a more stringent standard.

But here --

QUESTION: Now, as I understand it, you take the position that the reason the FCC wants to promulgate standards of this type is to encourage competition? Is that right?

MR. WALLACE: Well, to encourage the development of the cable industry including in the competitive environment, yes. But also to encourage technological change.

QUESTION: At the renewal stage, I gather it makes no difference if there's another cable company that can put out a stronger better signal and meet high standards?

MR. WALLACE: But what the Commission's reports and orders, both in '74 and in '85 said is that we're dealing with a national market for this equipment. And it isn't just a matter of competition in the particular community.

QUESTION: Well, I gather the competition only occurs in the first instance of granting a franchise, not at the renewal stage. Is that right?

MR. WALLACE: Well, there can be competitive applicants for renewal, but one of the things that the '84 Act did was to limit the discretion of local authorities to deny renewals. It put in safeguards for the renewal applicant that did not previously exist.

QUESTION: And today under that amendment now a franchising authority could not deny renewal because it had a better offer from some other company offering stronger and better facilities, equipment, and signals?

MR. WALLACE: It could not. It could not if the renewal applicant is meeting the standards prescribed by the Commission.

What the reports and orders in both '74 when the Commission first imposed nationwide technical standards, and in '85 when the Commission concluded that it needed to prescribe a standard that could not be exceeded in requirements imposed by local authorities, what these reports emphasized was that a multiplicity of standards would cause cost inefficiencies in the industry.

And if some of the larger wealthier systems were to move the industry to more expensive equipment, this could cause problems of cost ineffectiveness for small systems that may have only one or two thousand subscribers and might not be able to get less expensive equipment.

And there was a great problem with rapid technological innovation in the development of equipment that standards might be prescribed in ways that would make technological innovations not meet the standards. And by the time of the '85 report and order, there were more than 18,500 local jurisdictions with franchising authority, and a diversity of standards that would have to be changed in order to accommodate technological innovations, and it might be conflicting with one another, would impede the development of cable casting and the ability of cable casting on a nationwide basis to compete with other technologies.

QUESTION: Mr. Wallace, what about the renewal procedure?

Supposing that New York City has given a franchise and they've got 300,000 people and at the time of renewal, 200,000 subscribers say, these signals are awful, it's all snow. Can the franchisee say, well, you can't go into that franchiser because they haven't shown we haven't complied with the minimum standards of the FCC?

MR. WALLACE: If the local system concluded that notwithstanding these 200,000 complaints the cable system is in fact complying with the FCC standards, then its only option would be to go to the Agency and say these standards are inadequate.

But that would be a an implausible conclusion to reach. They might reach it. And the reason it would be implausible is because the standards don't vary from locality to locality and they're, they're, what they prescribe --

QUESTION: Well, what if the standards prove to produce snow in every locality?

MR. WALLACE: But the standards are defined in terms of what the subscriber will receive, the poorest located subscriber, and because the signal is coming through cable, it isn't affected by terrain or configuration of buildings, so that if complaints were to be received in one place, comparable complaints presumably would be received elsewhere.

QUESTION: You say the standards are described in terms of what the person sees on their set?

MR. WALLACE: That is correct. That is the main thrust of the standards. To some extent, it also defines standards for transmission but the main thrust of it, and what the standards are designed to assure is an acceptable quality of picture and of sound on the screen of every subscriber including the most poorly situated, the one farthest from the head end, and the standards are all directed toward that.

So it would be implausible that one community would be having problems that others wouldn't, if the standards were being met.

QUESTION: Mr. Wallace, may I ask you a question about the statutory authority which I think is the bottom line here for the regulation.

As I understand your argument thus far, you rely exclusively on 624(e), the section that deals with the situation where the Commission has promulgated standards.

And as I also understand it, under Titles II, III and IV, there were no Federal standards, and the Commission still asserted the authority to preempt in the same way.

And I would like to know what the statutory authority for that position was, because if that's valid, it would seem to me this case would a fortiori. Can you tell me that?

QUESTION: Would rather do it in one bite rather than two. You're going to be back up here for II, III and IV, anyway, if it's all that clear, make a clean sweep of it.

MR. WALLACE: Not necessarily, because the Commission, you might adopt standards, but --

QUESTION: I still would like an answer to the question, if there is one.

MR. WALLACE: Well, one answer is 624(e) itself could be interpreted to say that the Commission could decide that zero is the technical standard that may be required in the franchise.

Another possibility is to refer back to authority under the Communications Act itself and the broad standards. We don't think it's necessary in this case for the Court to resolve whether the Commission retains authority to deal with cable casting apart from the provisions of the '84 Act. Although we think the answer to that is probably, yes, and I would refer the Court particularly to page 79 and following of the Appendix to the Petition. Since the Commission is still applying to cable casters signal leakage limitations which the Commission enforces itself. And those have historically been based on Section 302 of the Cable Act which gives the Commission authority to regulate devices that interfere with radio reception.

And the Commission is particularly concerned about leakage from cable systems that interfere with airplane communications.

QUESTION: 302 is a Section of the '84 Act?

MR. WALLACE: No, it is a section of the '34 Act.

QUESTION: Okay, so that you do contend that we need not look entirely to the '84 Act in order to find the statutory --

MR. WALLACE: No. Well, we think the '84 Act suffices of purposes of what's before the Court.

QUESTION: I understand that.

But I'm trying to find out, if we disagreed on that, to what extent do you think it is appropriate to go to an earlier statute to find authority.

MR. WALLACE: We think the authority is there as it was there for the '74 report and order. We think that the Congress did not in any way disapprove of the preemptive order that the Commission had issued in '74.

QUESTION: And therefore the '84 Act did not withdraw any authority that previously existed under your view?

MR. WALLACE: No. However, the main thing is that the '84 Act mirrors what the Commission had developed as the difference between its jurisdiction over technical standards and the local authorities' jurisdiction over facilities and equipment is elaborately developed in the Commission's regulations, and the same terminological breakdown was explicitly used in the '84 Act.

CHIEF JUSTICE REHNQUIST: Thank you, Mr. Wallace.

We'll hear now from you, Mr. Farr.

ORAL ARGUMENT OF BARTOW FARR, III, ESQUIRE ON BEHALF OF RESPONDENT, NATIONAL CABLE TELEVISION

MR. FARR: Thank you, Mr. Chief Justice, and may it please the Court.

As the Commission has indicated, the issue in this case is different from the issue in the usual preemption case that comes before the Court, because here there is an express statement by the Commission that it intends to preempt local regulations.

The basic question then is the question that the Court has been discussing which is, what is the scope of the Commission's authority under the Cable Act? Is it broad enough in fact to allow the Commission to issue the regulations that it has.

We think that the authority is broad enough, for a couple of reasons. First of all, the Commission was specifically given authority in Section 624(e) to establish technical standards. And there are no limitations in that grant of authority.

We think that language is broad enough not just to give the Commission the power to pick some numbers, which seems to be the interpretation that the Cities argue for, but a power also to consider the policies that go together within picking the numbers. Now, the Commission, I think everybody concedes could have established more detailed or more stringent standards than the ones it did. But what it decided as a matter of Federal policy is that the best way to serve the goals to encourage better technology and to keep the cost of cable services reasonable was not to have any additional regulation, but in fact to let the industry itself develop the standards that would achieve those goals.

Now, obviously, to suit that policy, there must be preemption of additional local standards. Otherwise, in fact, the policy couldn't be carried out.

QUESTION: That made a lot of sense to me until I realized these standards you're talking about are performance standards.

What you've just described makes it sound as though you're describing technological standards so that the municipalities won't force technology into one direction or another. But you're telling me that what the Commission has come up with anyway is performance standards, hasn't it?

MR. FARR: Well, they are performance standards that involve obviously a technical component. And the question for the industry of course is what kinds of facilities and equipment will meet those particular performance standards. I think that is what the Commission has aimed at.

If you look at the history of technical regulation, there is a ten-year period of course where the Commission has followed exactly the same policy before the Cable Act as it now is pushing in the same, in the regulations since then. Before that, however, from 1972 to 1974, the Commission followed exactly the policies the cities would like it to have to follow now.

QUESTION: You mean to 1984, don't you?

MR. FARR: No, I'm sorry. It's from '72 to '74, that's right. And then in '74, they changed the regulations and followed them that way for a decade.

But from '72 to '74, they had just this policy that the cities are arguing for where they imposed minimum standards and allowed the cities to go above those standards and impose whatever technical standards they wanted. And in '74, the Commission came back to the issue and said, this has been a disaster.

What is happening is that we are having inconsistent regulations. The cities are competing with each other to outdo each other in these requirements and the opposite of what we hoped would happen is happening. The cost is going up, and technology is being stifled. So it changed its regulations and for ten years prior to the Cable Act, followed a policy of preemption.

Now, the particular argument that the cities make, therefore, if you look at it carefully, would mean that what Congress did in 1984 is it said to the Commission, you cannot follow the policy that you've been following for ten years -- ten years where the technology of cable expanded enormously, and you must go back to a policy that you tried for two years, and gave up on as a failure.

And what we are saying is that if you look at the structure of the Act, and particularly Section 624, which deals with these matters, there simply is not any indication that Congress intended to do that.

QUESTION: The language of the Act to the uninitiated is a little confusing, though, because in 624(b), it says the franchising authority may establish requirements for facilities and equipment.

MR. FARR: That's correct, Justice O'Connor. Of course, 624 does not make any specific reference to technical standards. And I think what essentially 624 and 624(b) and (e) do put together is to essentially have the same structure that the FCC regulations have. The FCC didn't try to regulate many aspects of facilities and equipment, like safety codes and things like that, whether they met fire codes.

They did regulate this one area of technical standards, and I think the language fairly tracks that.

Now, I would just like to touch briefly on the point about renewal that has been made several times here, because I think the cities have said, referring not to 624, but to Section 626, that they really can't have a renewal process unless they have their own standards. And I don't think that that's so.

First of all, there are the FCC standards. So if you are looking for a set of objective standards, the FCC standards are ones that cities can use in their franchises.

QUESTION: Well, I guess their argument though is those are so minimal that they want to do better, that they don't do well enough.

MR. FARR: Well, Justice O'Connor, I think that that points up one of the differences here. I think that there is a difference between the power of the Commission essentially to establish regulations and to make them preemptive which I think is what this case is about.

I think there is a separate issue which is whether these standards are adequate standards for the purposes that the cities would like to use them. They are of course free to do several different things if they don't like the particular standards. They can go to the Commission, for example, and say, we have particular local conditions which are causing us a problem that makes your standards inadequate. And we would like a waiver from the Commission in order to allow us to use some additional standards or more detailed standards.

And the Commission has the power to grant that waiver. They even have a procedure for it.

Or it can go to the Commission and say, change the standard. We think the Federal standards should be higher. They should be more detailed.

What the cities can't do though I think is what they are asking to do here, which is to say regardless of what your standards are, however high they are, we can always impose our own idiosyncratic standards on top of those. And it is that, I think, what the Commission was concerned about.

QUESTION: Mr. Farr, do you think they could do that if the Federal standards were withdrawn entirely?

MR. FARR: I think that the issue would be the same one, Justice Stevens. I think again that would not be a question of basically the power of the Commission to regulate.

QUESTION: They would withdraw them but continue to preempt?

MR. FARR: That's right. But I think the question there would not be the basic question of whether they have the power to preempt but whether the decision to do so was arbitrary or capricious. And I think in the case of the channels II, III and IV below, that is what the Court of Appeals in essence said.

We said, you know, you have broad powers in this area but at some point we are concerned that if you exercise them in a particular way, that is not defensible just as a matter of their exercise, but not as a matter of the existence of the power in the first place.

QUESTION: And would you agree with Mr. Wallace the power is still derived from 624(e)?

MR. FARR: I think that is the power that the --

QUESTION: Even if there is no Federal standard, just the power to preempt all standards and say the free market shall be the only standard?

MR. FARR: What I think Justice Stevens is that 624(e) conveys the power to the Commission to regulate in the area of technical standards, and I think that is a source of power for the Commission to do that. And if their explanation was sufficient, if they could show for example that even without standards, the goals of the Act could be met, I think that would be perfectly legitimate.

Thank you.

CHIEF JUSTICE REHNQUIST: Thank you, Mr. Farr.

Mr. McGrath, you have three minutes remaining.

ORAL ARGUMENT OF STEPHEN J. MCGRATH, ESQUIRE ON BEHALF OF PETITIONERS - REBUTTAL

MR. MCGRATH: Thank you, Chief Justice.

As to Justice Stevens' inquiry as to the source of the power under the Act, I'd refer you to footnote 7 in which we set out the wording under the New Cable Act, and it amends the Communications Act Section 2(a) to provide that the provisions of this Act, the Communications Act, shall apply with respect to cable service to all persons engaged within the United States as provided in Title IV, the Cable Act.

And at footnote 16, we've indicated there was a prior Senate version of that kind of amendment which might more reasonably support their argument. That version was rejected and this version was adopted.

And I want to point out that there is a claim that the Federal policy is to protect the national market, that there be standardization. We submit, Your Honor, that that's a matter that was decided by the Congress. If one looks at 624, it's clear that the standards are those that are to be responsive to the community needs, it's the local franchiser. Even if we don't have the power to issue technical standards, our broad power to require equipment and facilities would necessarily reject the argument that the effect on national suppliers is a consideration under the Act.

Congress decided those kind of problems would be dealt through the modification process. If they're not commercially practicable, then they fall.

Finally, I'd like to point out that this claimed continuance of the prior dual regulation, it's always been the FCC's position, at least under the Communications Act, that it would regulate the operational aspects and leave to the localities some small area of protection, protection of the equipment from the elements.

And that approach is confirmed by a reading of Capital Cities. The purport to have a broad power in this area. They are now trying to continue that under the Act. At most, they've been given some power as to technical standards but it certainly in any event is not a continuation of what was being done prior the the Act.

Thank you, Your Honors.

CHIEF JUSTICE REHNQUIST: Thank you, Mr. McGrath.

The case is submitted.

(Whereupon, at 1:37 p.m., the case in the above-identified matter was submitted.)