Court Refuses to Hit the Brakes

by Manatt, Phelps & Phillips, LLP

Manatt, Phelps & Phillips, LLP

The New York attorney general’s false advertising suit challenging Time Warner Cable’s (TWC) speed claims is not preempted by Federal Communications Commission (FCC) regulations, a New York federal judge has ruled.

In a complaint filed last February, Attorney General Eric T. Schneiderman claimed that Time Warner (later purchased by Charter) and Spectrum management deliberately and systematically defrauded New York consumers over a five-year period by promising high-speed Internet services and reliable access to online content that the defendants knew they could not deliver.

The Spectrum-TWC defendants offered a range of Internet speeds from 20 to 300 Mbps, charging consumers more for faster tiers of service. In addition to the advertised speeds, the defendants made more general guarantees, such as “reliable Internet speeds,” delivered “consistently,” “without slowdowns,” “no lag” and “without interruptions.”

According to the AG, the company failed to deliver the promised level of service, in part because the speeds were impossible to attain due to technological bottlenecks for which Spectrum-TWC was responsible, and because it leased outdated modems to many subscribers despite knowing the modems were incapable of delivering the speeds promised. The defendants also neglected to sufficiently maintain the network to provide the advertised speeds, the AG said.

The defendants moved to dismiss the suit based on conflict preemption. The FCC’s regulations and policy precluded the state regulator from bringing suit, they told the court, pointing to the agency’s Transparency Rule, which requires providers to disclose “expected and actual access speed and latency,” among other information. The FCC did not mandate a single measure of speed measurement, the defendants argued, and established a “safe harbor” program that measured the averages of a provider’s speed and performance.

But New York County Judge O. Peter Sherwood denied the motion to dismiss, finding no indication that when Congress provided the FCC with the authority to regulate broadband providers, it intended to preempt state efforts to enforce consumer protection laws.

“Spectrum-TWC fails to identify any provision of the [Federal Communications Act] that preempts state anti-fraud or consumer protection claims, or reflects any intention by Congress to make federal law the exclusive source of law protecting consumers from broadband providers’ deceptive conduct,” the court wrote. “Indeed, no such provisions exist.”

To the contrary, the court said Congress expressly preserved the states’ authority in both the general saving clause of the FCA, and in a specific saving clause. Thus, the FCA “not only does not manifest a clear Congressional intent to preempt state law actions prohibiting deceptive business practices, false advertisement, or common law fraud, it evidences Congress’s intent to allow such claims to proceed under state law.”

The FCC itself has “repeatedly recognized” that its regulation of telecommunication carriers coexists with—rather than displaces—state laws protecting the rights of consumers. The voluntary safe harbor relied upon by the defendants gives broadband providers the option to disclose the required information in a particular format to satisfy the Transparency Rule, the court explained, but “nothing in the Rule suggests that making this disclosure would insulate broadband providers from liability for misrepresentations made in other consumer communications.”

Further, the consumer protection claims set forth in the AG’s complaint do not conflict with the Transparency Rule or its safe harbors, the court added, and the FCC’s goal of promoting competition through the Rule was not thwarted by state laws that require broadband providers to speak truthfully.

A fallback argument from the defendants that the “up to” speed claims were not actionable because they promised nothing more than maximums flew in the face of New York state law and Federal Trade Commission interpretations. The court found that the advertised “up to” speeds were functionally unattainable as a result of the defendants’ knowing conduct.

Finally, Judge Sherwood rejected Spectrum-TWC’s argument that the general representations about reliability were simply puffery. “Contrary to defendants’ arguments, plaintiff’s allegations that Spectrum-TWC advertised its Internet service as having ‘no buffering,’ ‘no lag,’ with ‘no slowdowns,’ ‘without interruptions,’ and ‘without downtime’ are all highly specific claims that are easily capable of being proven to be true or false through common testing methodologies, and, by definition, are not puffery,” the court wrote.

To read the decision and order in New York v. Charter Communications, Inc., click here.

Why it matters: While AG Schneiderman declared the decision “a major victory for New York consumers,” the defendants are doubling down on their preemption argument. In seeking review by the state’s intermediate appellate court, the defendants stuck with their position that the FCC’s Transparency Rule precludes the lawsuit and that the AG’s allegations “directly conflict with the FCC’s regime for measuring and disclosing broadband speeds and are therefore preempted.”


DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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