By Erika Jacobson Moore
May 25, 2011
The debate over whether the contract between OpenBand and the Southern Walk at Broadlands HOA is legally defensible is now in the hands of the court system.
The Southern Walk HOA filed suit in U.S. District Court for the Eastern District of Virginia, charging that the exclusive contract for telecommunications services is illegal under the Federal Communications Commission Act regarding exclusivity.
“Because the rights and obligations of the parties to the Telecommunications Services Contract and the Ancillary Agreements are exclusive, and allow no competition for the Services specified therein, the servitudes thus created impose an unreasonable restraint on trade and competition and are therefore invalid and unenforceable,” the lawsuit states.
Southern Walk HOA president Erika Cotti would not comment on the details of the suit and would state only that, “Earlier this year, the Southern Walk HOA retained the firm Miles & Stockbridge. After a unanimous vote by the Southern Walk HOA Board of Directors, our firm filed suit on Friday, May 13. The lawsuit seeks a court order declaring the exclusive contract with OpenBand is void and unenforceable.”
OpenBand has been served with the suit, and has 21 days to respond. OpenBand’s communications director Sharon Hawkins said the company could not comment about the pending litigation specifically.
“I will confirm that OpenBand continues to work in good faith, with the county and partner communities, toward continued service expansion and enhancements and continued excellence in customer service,” Hawkins stated.
The lawsuit seeks declaratory relief on three counts, focused on claims of the illegality of the agreement; the unconscionability of the agreement; and unenforceable servitude.
In 2001, Broadlands developer Van Metre and OpenBand entered into a contract that allows the telecommunications carrier to provide exclusive service to the residents for a period of at least 25 years, with the option for an extension of up to 65 years. Under the terms of the contact it is OpenBand that has the option to extend the contract for four 10-year periods.
The Southern Walk HOA was created specifically so the telecommunications infrastructure could extended to the southern part of Broadlands, and at a time when Van Metre controlled the greater Broadlands HOA, of which Southern Walk residents also are members. Control of both HOAs has since been turned over to the residents. OpenBand at Broadlands was created, according to the lawsuit, with two parties, OpenBand LLC and Broadlands Communications, a subsidiary of Broadlands Associates owned by Van Metre.
The lawsuit notes that at the time the telecommunications contract was entered into, Broadlands Associates was “the developer of the community…a principal of one of the contracting parties as a member of OpenBand (via its ownership of Broadlands Communications)…and in control of the other contracting party, Southern Walk.”
“Through such self-dealing and overreaching, Broadlands Associates gained unjust and undeserved advantages by giving exclusive rights to itself and its affiliates to OpenBand and its affiliates…” the lawsuit reads.
The lawsuit also makes note of the exclusive easements granted to OpenBand to provide the service-easements that even if the contract is broken make it impossible for other providers to install telecommunication cables there.
The lawsuit cites the FCC order of Oct. 31, 2007, regarding exclusive contracts for video services and other real estate development that stated any exclusive access is illegal under “applicable federal communications law” and “not only new contracts were illegal, but that existing contracts could not be enforced,” according to the lawsuit.
Specifically the 2007 order found that “exclusivity clauses that bar competitive entry harm competition and broadband deployment and can insulate the incumbent [telecommunications company] from any need to improve its service” and that the use of exclusivity clauses in contracts for the provision of video services constitutes an unfair method of competition or an unfair act or practice.
For years residents have sought a way out of the multi-decade contract, working to oppose the renewal of OpenBand’s Loudoun County franchise agreement and filing an informal complaint with the FCC. They have claimed OpenBand services have not kept up with those offered in the county by other providers, including Comcast and Verizon. Many residents of Southern Walk have switched to using satellite companies for their television service because of what they call poor service and offerings through OpenBand, but they still pay the required OpenBand fees through their ongoing HOA dues.
For more than a year the county’s Cable & OVS Commission worked on a new franchise agreement with the county.
After long negotiations, including a technical audit of OpenBand that produced favorable results for the telecommunications company’s system, the Cable & OVS Commission approved a 10-year contract that also was backdated two years to the expiration of the 2005 agreement. The negotiations spurred provisions that had previously not been seen in the agreement, including the addition of On Demand service and an increase in the number of high-definition channels offered-to 71 by May 1 and 91 by Dec. 31. The 91 channels would increase the number of HD channels offered by 40.
In addition, OpenBand has agreed to replace all the set-top boxes being used by residents beginning with the phase-out Jan. 1, 2012. Any customers who request a replacement for their converter box must be provided one within 10 days. OpenBand also has agreed to use probes for monitoring the reception for residents and a performance review every two years. Among the series of penalties included in the franchise agreement is a $100 fine per day, per complaint, that a concern or problem reported by a resident is not addressed. Just like the previous agreement, the new agreement requires OpenBand to notify the county if it wishes to renew 12 months before the franchise expires.
The Board of Supervisors will hold a public hearing on the franchise agreement Monday, June 13.
OpenBand also provides service to Lansdowne on the Potomac, Lansdowne Village Green and Leisure World-where each building has an individual contract. Recently, OpenBand was selected as the provider for Magnolias at Leisure World after a competitive bidding process.