The Commission has released a Report and Order and Further Notice of Proposed Rulemaking ("FNPRM") regarding its authority to regulate with respect to the Communications Act’s prohibition against local franchising authorities ("LFAs") unreasonably refusing to award competitive franchises for the provision of cable services. Following is a summary of the Commission's decision.
The Commission found that the current operation of the local franchising process in many jurisdictions constitutes an unreasonable barrier to entry that impedes the achievement of the interrelated federal goals of enhanced cable competition and accelerated broadband deployment. In this regard, it explicitly stated its "concern ... that traditional phone companies seeking to enter the video market face unreasonable regulatory obstacles, to the detriment of competition generally and cable subscribers in particular."
The Commission first determined that it is authorized to act. Although a fundamental premise of its decision, this is an issue that almost certainly will be subjected to judicial scrutiny. Indeed, two of the five Commissioners dissented. Commissioner Adelstein characterized the FNPRM as "legislation disguised as regulation" and "an arrogant case of federal power riding roughshod over local governments." He noted that states and municipalities already have introduced franchise reform where needed, that a national remedy is unnecessary, and that many of the specific determinations are unwarranted by the anecdotal evidence presented.
The Commission adopted rules determining that all of the following would constitute an unreasonable refusal to award a competitive franchise:
* an LFA's failure to issue a decision on a competitive application within explicit timeframes – 90 days for entities with existing authority to access rights-of-way and six months for those without such authority;
* an LFA's refusal to grant a competitive franchise because of an applicant’s unwillingness to agree to unreasonable build-out mandates;
* an LFA demanding certain specified costs, fees and other compensation unless such costs are counted toward the statutory 5 percent cap on franchise fees;
* an LFA's denial of an application based upon a new entrant's refusal to undertake certain obligations relating to public, educational and government ("PEG") and institutional networks ("I-Nets") channels; and
* an LFA's refusal to grant a franchise based on issues related to non-cable services or facilities.
Failure to act within the prescribed time limits will result in the grant of an interim franchise based on the terms proposed in the application. The interim grant will remain in effect until final action is taken on the application.
The FNPRM seeks comment on how its findings should affect existing franchisees.
The Commission also preempted local laws, regulations and requirements, including level-playing-field provisions, to the extent they permit LFAs to impose greater restrictions on market entry than the rules adopted in this item.
The Commission found that certain build-out conditions can have an entry-deterring effect. It identified several instances where a build-out requirement would be unreasonable.
* Absent other factors, to require a new competitive entrant to serve everyone in a franchise area before it has begun providing service to anyone.
* To require facilities-based entrants, such as incumbent LECs, to build out beyond the footprint of their existing facilities before they have even begun providing cable service.
* Absent other factors, to require more of a new entrant than an incumbent cable operator by, for instance, requiring the new entrant to build out its facilities in a shorter period of time than that originally afforded to the incumbent cable operator, or requiring the new entrant to build out and provide service to areas of lower density than those to which the incumbent cable operator is required to build out and serve.
The Commission also identified reasonable build-out requirements that an LFA could consider:
* the new entrant's market penetration.
* benchmarks requiring the new entrant to increase its build-out after a reasonable period of time had passed after initiating service and taking into account its market success.
The Commission clarified that cable operators cannot be required to pay franchise fees on revenues from non-cable services. It also held that non-incidental franchise-related costs required by LFAs, such as attorney’s and consultant’s fees, must count toward the 5 percent franchise fee cap. It found that the term "incidental" should be limited to those costs itemized in the Act as well as certain other minor expenses. It also held that requests made by LFAs that are unrelated to the provision of cable services by a new competitive entrant are subject to the statutory 5 percent franchise fee cap.
The Commission further clarified that the Act grants LFAs jurisdiction only with respect to the provision of cable services over cable systems and that it would be unreasonable for an LFA to deny a franchise based on issues unrelated to such services. The Commission makes it clear that LFAs may not use their video franchising authority to regulate a local exchange carrier's network beyond the provision of cable services.
http://www.wcsr.com/default.asp?id=114&objId=226
Tuesday, June 5, 2007
Recording Industry Legal Action Against College Students
On February 28, 2007, the Recording Industry Association of America ("RIAA") announced that it would escalate its efforts to deter illegal music sharing by sending "pre-litigation" letters to approximately 400 college students at 13 colleges and universities with the highest incidents of illegal music file sharing according to the RIAA. These 400 letters represent the first step in an increased effort by the RIAA to take legal action against college students. In announcing its new approach, the RIAA is enlisting the aid of university administrators to deliver the "pre-litigation" letters to the students whose IP addresses match the RIAA’s records of illegal file sharers. The pre-litigation letters offer the allegedly offending students terms of settlement at a "discounted settlement rate" to avoid litigation. The students must accept the settlement terms within 20 days from the date of the letter to accept the offer and avoid litigation.
In light of the escalated approach by the RIAA, we recommend that colleges and universities take the following actions:
* Review and update their peer-to-peer (P2P) network policies to include information about the RIAA’s new approach
* Distribute the updated P2P policies to faculty and students
* Consult with legal counsel regarding communications to students identified in the RIAA "pre-litigation" letters
* Consult with legal counsel to determine which of the other actions suggested by the RIAA are appropriate for institutions to take
Under the Digital Millennium Copyright Act, network operators, including colleges and universities that provide networks for faculty and student use, are protected from liability for the infringing activities of third parties who post or transfer infringing materials on or through the network, as long as the network operators follow the procedures set forth in the Act for removing the infringing material upon notice that it is infringing. However, institutions that know of and promote, or profit from, infringing conduct on their networks may be found liable for contributory or vicarious infringement. For this reason, colleges and universities must work closely with legal counsel in responding to the recent RIAA announcement and in preparing and implementing their policies relating to infringement on their networks.
Jennifer Collins is a member of the Firm’s Intellectual Property Practice Group. Her practice includes counseling clients with respect to copyrights and other intellectual property. She chairs a team of transactional lawyers who assist clients in negotiating agreements involving intellectual property.
http://www.wcsr.com/default.asp?id=114&objId=229
In light of the escalated approach by the RIAA, we recommend that colleges and universities take the following actions:
* Review and update their peer-to-peer (P2P) network policies to include information about the RIAA’s new approach
* Distribute the updated P2P policies to faculty and students
* Consult with legal counsel regarding communications to students identified in the RIAA "pre-litigation" letters
* Consult with legal counsel to determine which of the other actions suggested by the RIAA are appropriate for institutions to take
Under the Digital Millennium Copyright Act, network operators, including colleges and universities that provide networks for faculty and student use, are protected from liability for the infringing activities of third parties who post or transfer infringing materials on or through the network, as long as the network operators follow the procedures set forth in the Act for removing the infringing material upon notice that it is infringing. However, institutions that know of and promote, or profit from, infringing conduct on their networks may be found liable for contributory or vicarious infringement. For this reason, colleges and universities must work closely with legal counsel in responding to the recent RIAA announcement and in preparing and implementing their policies relating to infringement on their networks.
Jennifer Collins is a member of the Firm’s Intellectual Property Practice Group. Her practice includes counseling clients with respect to copyrights and other intellectual property. She chairs a team of transactional lawyers who assist clients in negotiating agreements involving intellectual property.
http://www.wcsr.com/default.asp?id=114&objId=229
The Upswing Is In Lawsuits
As the housing market slows, buyers & sellers are increasingly at odds.
It's no secret that the housing market has slowed in recent months. According to the National Association of Realtors, new home sales in 2006 were estimated at 1.06 million, the fourth highest annual total on record. In contrast, experts predict that new home sales will decline to 961,000 in 2007 and then rise only slightly to 971,000 in 2008.
This downturn in the housing cycle is not just making things difficult for sellers. It’s also creating an environment of increased adversity between buyers and sellers of residential development projects and spawning a flurry of litigation.
In recent years, when the housing market was on a consistent upswing, residential home developers were clamoring to snatch up property to add to their inventory. When residential developers entered into contracts to purchase land for development, they were willing to conduct the required due diligence in as few as 30 to 90 days. And even if issues turned up that could increase the development costs, purchasers then had more flexibility in their anticipated profit margins to overlook the problems.
They were willing to take these risks on the assumption that the accelerating sale prices of the homes to be built on the property would be more than enough to absorb any unexpected increases in development costs. Residential developers were also willing to expedite their land acquisitions by waiving conditions to closing so as not to delay the time line for construction of the new homes that were then so highly in demand. Trying to hold on to their real-estate contracts, purchasers were quick to file suit to force the sale if they heard of any attempts by a seller to break a deal and sell instead to a competing bidder.
NOT SO FAST
However, since the housing market entered its cyclical downturn, the buyers of residential development projects are no longer analyzing deals under fast and furious trajectories of increased new home prices. Profit margins have tightened, and developers’ flexibility to take on the risk of increased development costs has correspondingly declined.
In this environment, residential developers can no longer assume that issues affecting their development costs will not financially strain a project. They now expect sellers, who are typically sophisticated parties in these types of transactions, to share more in the financial risks. Many residential home developers have also found themselves holding excess inventory—and their interests have shifted from acquiring property to depleting the supply that they hold. Sellers, on the other hand, no longer have a line of back-up bidders knocking at their doors and have lost much of the leverage they previously held over their buyers.
In short, as the housing market has slowed, tensions between purchasers and sellers with diverging interests have mounted, and a new wave of litigation is spinning off from residential land development deals gone sour. So what is all the fighting about?
The crucial fact is that the typical land acquisition deal for the construction of new homes involves a due-diligence period during which the purchaser studies the feasibility of the project. At the conclusion of the due-diligence period, the buyer typically decides if it wants to go forward with the contract or to exercise an option to walk away from the deal. Once the purchaser (the developer) commits to the project, the seller is usually obligated to complete the process of subdividing the land into buildable lots, with all required governmental approvals, before the purchaser has an obligation to close. These two periods—due diligence and the subdivision development process—are breeding grounds for disputes.
In today’s market, disagreements between buyers and sellers are arising as early as the due-diligence period. Developers are now taking more time with their due diligence than they did when new home sales were burgeoning and are more closely scrutinizing the economics of a project before committing to it.
The discovery of issues that can affect the costs, complexity,and time line for the intended development is causing developers with narrower profit margins to proceed with caution. For example, if a developer discovers the presence of a hazardous material that requires remediation on the site, it may seek an extension of the due-diligence period to see whether the hazardous material might lead to increased costs or delay. A developer may try to renegotiate the deal for a reduced purchase price reflecting the increased risk or may demand that the seller share the risk by bearing some or all of the remediation costs. Such demands to rewrite a deal or share costs tend not to sit well with sellers, who are anxious to close their deals as quickly as possible to convert their asset to cash.
Other tensions related to due diligence arise out of the sellers’ obligations to disclose information known to them about the property. While buyers expect sellers to fully disclose information about conditions on the property that might affect its development, sellers also have a disincentive to come forward with information that may have an adverse impact on the buyers’ willingness to purchase the property. In fact, sellers may delay making their disclosures until late in the study period to diminish the amount of time the buyer has to consider the information. But that can lead to further problems: Once the buyer is committed to the contract but may still want to get out of the deal, the buyer may look to the seller’s nondisclosure of any important information as a means for declaring the seller in default.
THE GREAT DIVIDE
The subdivision process is the next phase in the development process place where disputes are on the rise. The contracts typically require the seller to apply for and obtain approval of the planned development from the required governmental authorities. This process often means the seller must submit plans for the new residential development to the locality’s land-use or planning commission. It may also mean that the seller must apply to rezone the property to maximize the allowable density of lots, thereby increasing the number of lots the seller can sell and the number of new homes the purchaser can build.
The sellers are also typically responsible for coordinating the provision of water, sewer, utilities, and roadway access to the site, responding to the locality’s comments and conditions to approval for the project, working with transportation departments on roadway approvals, and working with environmental, wetlands, engineering, or archaeological consultants to analyze and address factors that can affect the development of the land.
These activities can give rise to countless obstacles. It’s these obstacles that are giving rise to disputes. For example, the presence of wetlands or environmentally protected areas may limit exactly where residential lots will be permitted on the property. And with a reduced area of usable land, the number of buildable lots the property will yield might be cut to an amount less than the minimum number of lots required by the contract. In circumstances like this, if buyers cannot negotiate a sharing of the risk or resolution of the issue, they often seek to get out of the deal. Sellers, on the other hand, may attempt to avoid this obstacle and simply allow time to pass in hopes that the purchaser will become more willing to rework the project once the market bounces back. As the economics of a project start to fail, the developers are not hesitating to immediately hold sellers in default and terminate deals. Sellers resist, and litigation is under way.
ONE MORE STEP
The final place where disputes are arising is the closing phase of the deals. In the closing phase, a series of conditions usually must be satisfied before the buyer is obligated to tender the purchase price on the property. For example, contracts tend to require the seller to be able to deliver a clear and marketable title free of any liens at closing. But if the seller has run short on cash and failed to pay the contractors it hired to construct the roadways and if the contractors have filed for a lien against the property, a buyer is now more likely to delay closing and demand that the seller resolve the issue on its own, rather than waive the condition or assist the seller in satisfying the obligation. Buyers who used to be willing to tie up these kinds of loose ends are now, instead, holding the sellers strictly to their obligations.
Residential developers’ increased scrutiny of the conditions to closing and decreased flexibility to take on extra economic risk are also leading to disagreements over the quality of a seller’s satisfaction of conditions. For example, the buyer who learns that a seller failed to disclose certain information about the property that will increase development costs is now more willing to declare the seller in default and refuse to close on the deal. Then, what often happens is that the seller contests knowledge of the condition, argues that the purchaser knew of the condition all along, and demands that the purchaser close. When buyers terminate or refuse to close, which they are increasingly willing to do, litigation over the deposit, at a minimum, is almost certain to follow.
We expect disputes and litigation between purchasers and sellers of land for new home development to continue until the housing market for new homes picks up again. In the meantime, residential real estate developers will probably spend a little more time with their litigation counsel than they did in past years.
http://www.wcsr.com/default.asp?id=114&objId=230
It's no secret that the housing market has slowed in recent months. According to the National Association of Realtors, new home sales in 2006 were estimated at 1.06 million, the fourth highest annual total on record. In contrast, experts predict that new home sales will decline to 961,000 in 2007 and then rise only slightly to 971,000 in 2008.
This downturn in the housing cycle is not just making things difficult for sellers. It’s also creating an environment of increased adversity between buyers and sellers of residential development projects and spawning a flurry of litigation.
In recent years, when the housing market was on a consistent upswing, residential home developers were clamoring to snatch up property to add to their inventory. When residential developers entered into contracts to purchase land for development, they were willing to conduct the required due diligence in as few as 30 to 90 days. And even if issues turned up that could increase the development costs, purchasers then had more flexibility in their anticipated profit margins to overlook the problems.
They were willing to take these risks on the assumption that the accelerating sale prices of the homes to be built on the property would be more than enough to absorb any unexpected increases in development costs. Residential developers were also willing to expedite their land acquisitions by waiving conditions to closing so as not to delay the time line for construction of the new homes that were then so highly in demand. Trying to hold on to their real-estate contracts, purchasers were quick to file suit to force the sale if they heard of any attempts by a seller to break a deal and sell instead to a competing bidder.
NOT SO FAST
However, since the housing market entered its cyclical downturn, the buyers of residential development projects are no longer analyzing deals under fast and furious trajectories of increased new home prices. Profit margins have tightened, and developers’ flexibility to take on the risk of increased development costs has correspondingly declined.
In this environment, residential developers can no longer assume that issues affecting their development costs will not financially strain a project. They now expect sellers, who are typically sophisticated parties in these types of transactions, to share more in the financial risks. Many residential home developers have also found themselves holding excess inventory—and their interests have shifted from acquiring property to depleting the supply that they hold. Sellers, on the other hand, no longer have a line of back-up bidders knocking at their doors and have lost much of the leverage they previously held over their buyers.
In short, as the housing market has slowed, tensions between purchasers and sellers with diverging interests have mounted, and a new wave of litigation is spinning off from residential land development deals gone sour. So what is all the fighting about?
The crucial fact is that the typical land acquisition deal for the construction of new homes involves a due-diligence period during which the purchaser studies the feasibility of the project. At the conclusion of the due-diligence period, the buyer typically decides if it wants to go forward with the contract or to exercise an option to walk away from the deal. Once the purchaser (the developer) commits to the project, the seller is usually obligated to complete the process of subdividing the land into buildable lots, with all required governmental approvals, before the purchaser has an obligation to close. These two periods—due diligence and the subdivision development process—are breeding grounds for disputes.
In today’s market, disagreements between buyers and sellers are arising as early as the due-diligence period. Developers are now taking more time with their due diligence than they did when new home sales were burgeoning and are more closely scrutinizing the economics of a project before committing to it.
The discovery of issues that can affect the costs, complexity,and time line for the intended development is causing developers with narrower profit margins to proceed with caution. For example, if a developer discovers the presence of a hazardous material that requires remediation on the site, it may seek an extension of the due-diligence period to see whether the hazardous material might lead to increased costs or delay. A developer may try to renegotiate the deal for a reduced purchase price reflecting the increased risk or may demand that the seller share the risk by bearing some or all of the remediation costs. Such demands to rewrite a deal or share costs tend not to sit well with sellers, who are anxious to close their deals as quickly as possible to convert their asset to cash.
Other tensions related to due diligence arise out of the sellers’ obligations to disclose information known to them about the property. While buyers expect sellers to fully disclose information about conditions on the property that might affect its development, sellers also have a disincentive to come forward with information that may have an adverse impact on the buyers’ willingness to purchase the property. In fact, sellers may delay making their disclosures until late in the study period to diminish the amount of time the buyer has to consider the information. But that can lead to further problems: Once the buyer is committed to the contract but may still want to get out of the deal, the buyer may look to the seller’s nondisclosure of any important information as a means for declaring the seller in default.
THE GREAT DIVIDE
The subdivision process is the next phase in the development process place where disputes are on the rise. The contracts typically require the seller to apply for and obtain approval of the planned development from the required governmental authorities. This process often means the seller must submit plans for the new residential development to the locality’s land-use or planning commission. It may also mean that the seller must apply to rezone the property to maximize the allowable density of lots, thereby increasing the number of lots the seller can sell and the number of new homes the purchaser can build.
The sellers are also typically responsible for coordinating the provision of water, sewer, utilities, and roadway access to the site, responding to the locality’s comments and conditions to approval for the project, working with transportation departments on roadway approvals, and working with environmental, wetlands, engineering, or archaeological consultants to analyze and address factors that can affect the development of the land.
These activities can give rise to countless obstacles. It’s these obstacles that are giving rise to disputes. For example, the presence of wetlands or environmentally protected areas may limit exactly where residential lots will be permitted on the property. And with a reduced area of usable land, the number of buildable lots the property will yield might be cut to an amount less than the minimum number of lots required by the contract. In circumstances like this, if buyers cannot negotiate a sharing of the risk or resolution of the issue, they often seek to get out of the deal. Sellers, on the other hand, may attempt to avoid this obstacle and simply allow time to pass in hopes that the purchaser will become more willing to rework the project once the market bounces back. As the economics of a project start to fail, the developers are not hesitating to immediately hold sellers in default and terminate deals. Sellers resist, and litigation is under way.
ONE MORE STEP
The final place where disputes are arising is the closing phase of the deals. In the closing phase, a series of conditions usually must be satisfied before the buyer is obligated to tender the purchase price on the property. For example, contracts tend to require the seller to be able to deliver a clear and marketable title free of any liens at closing. But if the seller has run short on cash and failed to pay the contractors it hired to construct the roadways and if the contractors have filed for a lien against the property, a buyer is now more likely to delay closing and demand that the seller resolve the issue on its own, rather than waive the condition or assist the seller in satisfying the obligation. Buyers who used to be willing to tie up these kinds of loose ends are now, instead, holding the sellers strictly to their obligations.
Residential developers’ increased scrutiny of the conditions to closing and decreased flexibility to take on extra economic risk are also leading to disagreements over the quality of a seller’s satisfaction of conditions. For example, the buyer who learns that a seller failed to disclose certain information about the property that will increase development costs is now more willing to declare the seller in default and refuse to close on the deal. Then, what often happens is that the seller contests knowledge of the condition, argues that the purchaser knew of the condition all along, and demands that the purchaser close. When buyers terminate or refuse to close, which they are increasingly willing to do, litigation over the deposit, at a minimum, is almost certain to follow.
We expect disputes and litigation between purchasers and sellers of land for new home development to continue until the housing market for new homes picks up again. In the meantime, residential real estate developers will probably spend a little more time with their litigation counsel than they did in past years.
http://www.wcsr.com/default.asp?id=114&objId=230
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