By Erika Jacobson Moore
Aug. 18, 2011
Following up on its vote earlier this month to authorize legal action, a lawsuit was filed Tuesday in federal court by the Lansdowne on the Potomac homeowners’ association against telecommunications OpenBand, its parent company MC Dean, Lansdowne’s developer and several subsidiaries over the exclusive communications agreements in place in the community.
The suit was filed in the Fourth Circuit in the Eastern District of Virginia, the same court that received a revised suit from another Loudoun community serviced by OpenBand, Southern Walk at Broadlands. In late July, a federal judge dismissed Southern Walk’s original suit, but did so without prejudice. That gave Southern Walk leave to file a new amended motion, which it did. That case is scheduled to be back in court Sept. 9.
OpenBand, a Dulles-based telecommunications company, provides television, telephone and Internet services to 4,200 residents in four communities: Lansdowne on the Potomac, Southern Walk, Lansdowne Village Green and Leisure World. All of the contracts are made through the homeowner’s association. Leisure World, in which each building is an individual HOA, is the only community in which the resident-controlled HOA awarded a contract to OpenBand following a competitive bidding process.
In the Lansdowne suit, the HOA is alleging that OpenBand and the Lansdowne Community Development, “have participated in a conspiracy designed to monopolize and otherwise restrain trade in the markets for various communication services” and “have engaged in a course of conduct that includes unlawful self-dealing, misrepresentations, and the creation of sham companies designed to evade federal laws that mandate competition.”
Around 2000, when the Lansdowne development was under construction, Lansdowne Community Development entered into an agreement with MC Dean and OpenBand to provide telecommunications services to all future residents. It provides an initial period of 25 years, with the right for OpenBand at Lansdowne to extend for four additional 10-year periods. Under the deal, residents are assessed monthly fees by the HOA for television, telephone and Internet services and those fees are paid to OpenBand. The lawsuit estimates that, to date, the HOA has paid around $26 million to OpenBand. Of that, the lawsuit states the OpenBand at Lansdowne has paid LCD around $2 million in “guaranteed payments,” in addition to a portion of the money paid by residents for premium cable services.
OpenBand competed to provide service for the community and the telecommunications company was offering to install fiber, something not being done by other providers. A similar process was undertaken with Southern Walk’s developer as well. The way the agreement is set up, OpenBand has exclusive access to the easements, making it difficult for other companies to provide services even if the exclusivity agreement was challenged.
The HOA’s lawsuit challenges the three different agreements-the multi-decade contract, the exclusive right of way easements, and restrictions contained in the community’s covenants, conditions and restrictions. “Although these agreements were stylized as three separate documents, they were designed to work in tandem to achieve a single outcome: monopolization of the markets for communications services.”
The lawsuit notes that while the blanket easement exists, OpenBand maintains, and published to potential homeowners, that residents may receive service from any other provider.
“This representation was and is false, and the Defendants knew and intended it to be false,” the lawsuit alleges.
It also alleges that during construction of Lansdowne that Adelphia Cable Communication, which has since been purchased by Comcast, attempted to lay its own service lines and was blocked by Lansdowne Community Development.
The lawsuit also takes issues with the formation of several subsidiaries by MC Dean and Lansdowne Community Development, including OpenBand at Lansdowne, for entering into the agreements for and the delivery of various aspects of communication services.
“LCD and MC Dean, acting through their subsidiaries, created OpenBand at Lansdowne with the intent of evading federal laws and regulations governing certain types of telecommunications providers,” the lawsuit alleges. “In addition, OpenBand at Lansdowne was created for the purpose of funneling kickbacks to LCD in exchange for its agreement and assistance in orchestrating and implementing the Defendants’ conspiracy.”
The lawsuit also notes that because of the interlocking nature of the subsidiaries, the developer and OpenBand, often the same person signed for all three parties in the agreements. It also states that having the developer-controlled HOA vote in favor of an agreement that benefited the developer, the HOA members were operating with a conflict of interest.
Like the Southern Walk lawsuit, the Lansdowne HOA is alleging that the OpenBand agreements violate the Federal Communications Commission’s ruling against exclusive access agreements.
OpenBand representatives declined to comment on the Lansdowne or the Southern Walk lawsuits.
This is a developing story. More will be reported as it becomes available.