Full opinion text
FINDINGS OF FACT AND CONCLUSIONS OF LAW AFTER BENCH TRIAL ALSUP, District Judge. INTRODUCTION In this case of first impression concerning the application of the 120-day rule under Section 617 of the Cable Television Consumer Protection & Competition Act of 1992, 47 U.S.C. 537, the issue is whether the County of Santa Cruz, California, unlawfully and unreasonably refused to consent to a change in ownership for a local cable franchise. Also presented is the question whether its refusals violated the First Amendment. PROCEDURAL HISTORY This action commenced in early 1999. On November 12, 1999, the Court granted in part and denied in part the County’s Rule 12 motion, dismissing plaintiffs’ takings claim as unripe and their direct claims under Section 617 of the 1992 Cable Act, 47 U.S.C. 537, for lack of a private right of action. Plaintiffs were allowed to proceed on them claim for infringement of their constitutional free-speech rights under 42 U.S.C.1983 and their contract claim to enforce a franchise agreement promise not to “unreasonably refuse” to approve such transactions, a claim that indirectly takes into account any violations of the 120-day rule. Charter Communications, Inc. v. County of Santa Cruz, 74 F.Supp.2d 937 (N.D.Cal.1999). On January 11, 2001, the Court denied cross-motions for summary judgment. A bench trial began in late January. The trial concluded on February 15, 2001. The Court now makes the following findings of fact and conclusions of law. FINDINGS OF FACT The parties have submitted voluminous proposed findings, and the Court has considered all of them. In the interest of clarity, however, this order focuses on the essentials. A number of proposed points, while arguably relevant and accurate, have been omitted as too distracting. That a finding has not been incorporated into this order does not mean that the Court rejected its accuracy. This order will cite the record as the exception and not the rule. For some exhibits, page cites are to the original page numbers and for others to Bates numbers, as convenient. The Parties 1. Formed in 1992, Charter Communications, Inc. (“CCI”), has been at all relevant times in the cable-television business, providing service through one or more operating subsidiaries, including Charter Communications Properties, LLC (“Charter”). The latter acquired a group of cable businesses in California in 1997-98, one of which operated in Santa Cruz County, namely, the so-called “south county franchise,” covering unincorporated areas surrounding the cities of Capitola and Wat-sonville. By 1998, CCI was a nationally-ranked cable operator and had acquired 22 cable systems in the United States. In 1998, Paul G. Allen purchased CCI, including its subsidiaries, in a $4.5 billion nationwide transaction. Mr. Allen was the co-founder of Microsoft Corporation and is wealthy. He paid cash for the Charter stock. Mr. Allen, CCI and Charter are the plaintiffs herein. They sued Santa Cruz County when it refused to approve the change in control for the local franchise in question. Whether that refusal was reasonable and lawful is the question presented. The County is the sole defendant. The History of Cable in Santa Cruz County 2. Topography has long made cable important in Santa Cruz County. The area is surrounded by mountains that block reception of over-the-air signals from major metropolitan areas such as San Jose and the Bay Area. Until recently, the quality of service of cable providers in the area has lagged behind other parts of the country. 3. To operate a cable business in Santa Cruz County, it was (and remains) necessary to obtain a franchise from the local franchising authority, as elsewhere in the United States. Here, that franchising authority was the county government. From time to time, the county government had been frustrated over the cable service in the area. In dealing with cable operators, the County had even been threatened with termination of cable services. At least one operator told local officials that it could not continue providing services due to financial stress. 4. One troublesome prior operator was Sonic Cable Television. Prior to May 19, 1998, it had the south county area. Its franchise had actually expired in or about 1982, but thereafter Sonic had continued to operate as a holdover tenant. Under its franchise, the County’s consent was required for a transfer of ownership (TX 3). The Charter/Sonic Transaction 5. In 1997, an opportunity arose to improve conditions for the franchise. On August 19 of that year, Charter purchased Sonic’s cable assets, including the south county operation. The Charter/Sonic transaction involved over forty cable television franchises located in two states, serving over 100,000 subscribers. Although the Charter/Sonic transaction is not at issue herein, it serves as important foundation, both sides assert, for the events that followed a few months later in the transaction that is at issue. By way of prelude, consequently, the following findings have relevance. 6. In September 1997, Charter and Sonic requested the County’s consent to the transfer of the franchise. Federal law recognizes the power of local franchising authorities to approve or disapprove transfers but imposes certain restrictions discussed hereinafter. The FCC has promulgated a specific form to be used to seek approvals from local franchising authorities called Form 394. 47 C.F.R. 76.502. In the Charter/Sonic transaction, the parties submitted a Form 394 plus attachments to the County, which then requested and received additional voluminous supplemental information. 7. In the consent process, two individuals were the main actors for the County. One was Mr. Pat Busch, the assistant county administrative officer. He was schooled in cable issues. The County also retained Attorney William Marticorena, a private lawyer in Costa Mesa, California, to act as its special counsel. Mr. Marti-corena was a graduate of Harvard Law School and specialized in cable law. For Charter, the individual primarily involved was Ms. Trudi Foushee, a vice president and senior counsel of the parent company CCI. All three were later leading actors in the CCI/Allen transaction. All three testified at trial. 8. The County was advised that CCI, the parent company, would manage the south county franchise area and was provided with information concerning CCI’s technical qualifications to do so. The County did not ask for copies of employment contracts for CCI personnel or other evidence that CCI senior management would remain in place. The County did not ask any questions regarding the technical or financial qualifications of individual shareholders of CCI, or for a guaranty by individual shareholders, or for individual employment contracts. These omissions arguably stand in contrast to affirmative inquiries made by the County in the later CCI/Allen transaction. 9. Two of the items provided to the County were a five-year projected income statement for Charter nationwide and a ten-year projected income statement for Charter allocated specifically for Santa Cruz County (TX 58 and TX 60). These projected income statements contained projected capital expenditures, including rebuild costs, and a footnote explaining how revenue, expense and capital items were allocated. The County did not ask any questions regarding the revenue-growth assumptions used therein. 10. Through Mr. Marticorena, the County served Charter with extensive information requests. After the County served on Charter its second information request (TX 30), the discussions shifted to what concessions the County wanted. Messrs. Busch and Marticorena made clear that any grant of a cable franchise to Charter would have to include, at a minimum, the following: (a) a commitment by Charter to construct or rebuild a state-of-the-art cable system (750 MHZ, two-way system), which would ensure a minimum of 61 channels; (b) an immediate reduction of existing subscriber rate levels plus a rate freeze until the system rebuild was completed, plus significant restrictions on Charter’s ability to increase rates in the future; and (c) cash payments for what the County believed had been franchise violations by Sonic. The proposed rate order would have limited Charter’s ability to increase rates as might otherwise be permitted under the applicable FCC rate regulations. Charter demurred. 11. Mr. Busch then sent Ms. Foushee a “draft staff report” and draft county board resolution recommending denial of the transfer (TX 20). Among other things, they stated that Charter had failed to provide critical information regarding its ability to receive an acceptable rate of return and that Charter did not have the qualifications to own or operate the cable system. Viewed in the overall context of the negations, it seems clear that the County utilized the threat of a denial as a way to get Charter to accept its demands. 12. In the face of this threat, Charter acquiesced. An agreement resulted. On or about May 19, 1998, the County’s board of supervisors adopted a resolution approving the transfer to Charter (TX 3). The parties entered into the following, which reflected various conditions imposed by the County for its consent: (a) a new franchise agreement; (b) a rate order; and (c) a transfer agreement. 13. The hard bargain was excellent for the County. The new franchise agreement required Charter, among other things, to construct, within 24 months, a two-way state-of-the-art cable system, and to offer a 61-channel “basic service tier,” including 23 channels not previously available. It further required Charter to put up a $500,000 letter of credit and a one-million-dollar performance bond. It also provided for the County’s recovery of liquidated damages of up to $2,500/day for material breaches (TX 3). 14. The rate order had, and still has, the effect of restricting Charter’s ability to increase rates that might otherwise be permitted under applicable FCC rate regulations (TX 3 at 1864-71). The rate order included provisions requiring a basic-service rate plan which provided for an immediate rate reduction to subscribers, a ten-percent discount for low-income senior citizens and the disabled, a rate freeze for approximately two years during completion of the rebuild, a low “basic service rate” when the system rebuild was completed, lower than Sonic’s former rates, on a per-channel basis, and a provision restricting Charter’s ability to increase rates thereafter to the greater of either (a) 95% of the increase in basic 'service rates (weighted by system and by tier) in Los Angeles and Riverside systems (where there was “intense over the air competition”) owned and operated by Charter entities or (b) 95% of the TCI regulated basic service rates, plus $2.00 (TX 3 at 1864-65). Another effect of the rate order was that Charter was required to maintain its “cable programming service tier” as a part of the “basic tier,” and to waive the federal deregulation of the “cable programming service tier” that went into effect in 1999. As a result, the County has further regulated an area of cable services that is not normally regulated in the country. 15. Piling guarantees on assurances, the transfer agreement finally included a further unconditional guarantee by parent CCI of Charter’s performance of its obligations under the franchise agreement and County ordinance, and included an agreement to pay the County $75,000 (TX 3 at 1852,1858). It also provided that a breach of the rate order or the transfer agreement would constitute a breach of the franchise agreement. The transfer agreement set forth, among other things, (a) a specific requirement that Charter submit a cost-of-service filing to thé County, (b) the parties’ agreement, in advance, to the County’s adoption of the rate order (which, in the interim, Charter agreed to treat as a valid mutual contract), (c) Charter’s waiver of any right to challenge or appeal the rate order, (d) Charter’s agreement to accept the rate order as a lawful and fully binding cost-of-service rate order, (e) Charter’s agreement to waive any right to file any further cost-of-service forms for the remainder of the franchise term (TX 3 at 1855-57). 16. At trial, the County asserted that the draft denial report had been no threat at all, but was legitimate ambivalence. It advanced reasons for its sending the draft and then reversing course. For example, the County knew, it claims, that Sonic had been levying a bogus possessory interest tax on its bills and collecting it from subscribers, even though no such tax in fact existed. The County also argued it had discovered that the acquisition would be routed through a Norwegian company. These were, the County claims, the real reasons for the denial recommendation. These were marginally plausible considerations. Ordinarily, a court should give the benefit of the doubt to the County on this point. Considering all the evidence and considering carefully the entire course of conduct, however, the Court finds that these considerations were make-weights and that the real reason for the denial recommendation was to use the County’s power to deny as a basis for extracting concessions illegal under federal law, particularly as to the rate order. This also explains why Mr. Marticorena and Mr. Busch insisted on the extraordinary waivers in the final language, acquiesced in by Charter. The CCI/Allen Sale 17. With the foregoing history, we now turn to the transaction at issue, which followed the foregoing by only a few months. On July 29, 1998, Paul G. Allen contracted with CCI and others to purchase approximately 94% of the outstanding shares of CCI and certain of its affiliates as part of an approximately $4.5 billion acquisition (approximately $2.26 billion in cash and $2.2 billion in assumed debt) that would (and later did) result in a common ownership of all cable properties then managed by CCI under a single umbrella company. As a result, the ultimate corporate control of Charter was held by Mr. Allen, as the new majority shareholder of CCI. 18. Through the CCI/Allen transaction, Mr. Allen acquired controlling ownership interest in legal entities holding over 473 cable television franchises in eighteen states, serving over 1.2 million subscribers and more than 38,000 plant miles of coaxial and fiber-optic cable. In addition to being a co-founder of Microsoft, Mr. Allen was a director of various technology-related companies involved in the development of new technologies and the deployment of new services. 19. On July 30, 1998, Charter and CCI notified the County of the transaction and represented that CCI’s existing senior management would continue as the senior management of the newly-consolidated companies. Charter, CCI and Mr. Allen requested the County’s consent to the change of control. Consent was required under the local cable ordinance, incorporated into the franchise agreement, but could not be “unreasonably withheld,” a phrase that is the crux of the case (TX 2 at 900). They submitted an FCC Form 394 with attachments on August 18, 1998 (TX 6). 20. The cover letter from Charter’s president and CEO, Mr. Jerald Kent, stated in part (TX 6 at 0762): You will be pleased to know that there will be no increase in debt-to-equity ratios of the entities as a result of this transaction. Mr. Allen will assume the current debt and in many instances liquidate some debt instruments. Notwithstanding the consumer benefit of this transaction, the effect of this transaction on you and your subscribers should be transparent for the most part. The current corporate staff and system management will remain under my leadership. And of course, Charter will retain its commitment to superior customer service. 21. The materials provided to the County as part of the Form 394. submissions supported the following facts: (a) As a result of the transaction, Mr. Allen would become a majority shareholder and a chair of Charter’s corporate parent, CCI. (b) Following the close of the transaction, Charter (and not Mr. Allen or CCI) would continue, as before, to be the legal entity holding the franchise for the south county franchise area with no change in Charter’s obligations thereunder. (c) Charter would still be the legal title holder for the cable system serving the south county franchise area. (d) The transaction was to be financed from Mr. Allen’s personal assets, required no new debt to the Charter or CCI entities, and would not result in any increase in the debt to equity ratios of either Charter or CCI. In fact, the submission stated that Charter’s existing debt would be reduced by $34 million. (e) Charter and CCI had substantial experience owning and operating cable systems, and the management of the systems was to remain under Mr. Kent’s personal direction. (f) Mr. Allen and the sellers were contractually required (assuming the other conditions were satisfied) to close the transaction, if and when consents to the transfer of control had been obtained from local franchising authorities of franchises representing ninety percent of the total number of subscribers of the Charter entities, taken as a whole. Any delay of the closing past December 31, 1998, required a $100,000,000 reduction of the purchase price. (g) Mr. Allen had fabled wealth and sufficient assets to close the transaction and to operate the nationwide system including the south county franchise area. 22. In sum, the transaction was structured without any increase in the debt-to-equity ratios of the Charter entities, CEO Kent represented he and other management would remain in place, and the previously-negotiated rights and obligations of the parties remained the same. The applicants simply wanted approval of the new majority shareholder. The County’s Response 23. One of the key issues in this case is whether it was lawful for the County to respond to the change-of-control request by launching a wide-ranging investigation into what Mr. Allen might or might not make as a return on his stock investment in CCI over the years and whether he would eventually have incentives to try to increase rates and cut services. The County insists that its concern arose out of the fact that Mr. Allen seemed to be paying a high price for the nationwide enterprise, ie., a price at the high end of the market (or higher) for cable systems in general. If so, the County claims it feared Mr. Allen would cut back on local service or try to increase local rates as a way to earn an “acceptable” rate of return. In contrast, plaintiffs contend that these fears were fanciful and mere pretexts for a holdup, ie., the manufacturing of false or exaggerated concerns to trade off later for monetary or other illegal concessions. 24. In this context, the same teams acted for the parties as before. Mr. Mar-ticorena and Mr. Busch were the primary bargainers for the County. Ms. Foushee negotiated for Charter. 25. Out of the approximately 497 local franchising authorities who received FCC Form 394 applications in connection with the CCI/Allen transaction, no more than ten percent requested additional information. Of those franchising authorities that did request additional information, the ones jointly represented by Mr. Marticore-na, including Santa Cruz County, propounded the most lengthy requests. His was the only information request that sought information to determine what rate of return Mr. Allen would receive on his equity investment. 26. The Santa Cruz cable system had sold only months before (during the Charter/Sonic transaction) for a price of approximately $1,564 per subscriber, according to the Kagan financial data book, an industry publication read and relied on by those in the cable business. In contrast, the price per subscriber for the CCI/Allen transaction, as indicated in the Kagan financial data book, was $3,600. According to the Kagan financial data book, the $3,600 value per subscriber established for the transaction was the highest or most expensive price paid for any franchise nationwide. Also, the cash-flow multiplier for the CCI/Allen transaction was higher than industry averages at the time. The cash-flow multiplier for the transaction as indicated in the Kagan financial data book was fourteen, the highest cash-flow multiplier reported in 1998. This data was published by the time of the events in question. 27. Although it came to light only during discovery herein, a pre-transaction due diligence study prepared privately for Mr. Allen showed the same conclusions. It stated that the price for CCI was “above the high end” of the range of prices of comparable cable systems and that the purchase price per subscriber for the CCI/Allen transaction was the highest purchase price of any cable transaction in 1998, and one of the highest ever. It placed the cash-flow multiplier at fourteen as well. This study was done by Nations-Banc Montgomery Securities and will be referred to herein as the NMS report (TX 65). 28. Up to a point it would have been reasonable, therefore, to wonder, based on reliable industry sources, whether Mr. Allen was paying somewhat more than market value for the national cable system. It is true that a counter argument can be made, as Charter does, that Mr. Allen paid substantially less for the Charter subpart of the acquired enterprise (TX 55). Still, it was not unreasonable for the County to rely on the Kagan data. Whether, however, that concern should have translated into the far-ranging investigation that developed is a different question. The Demand for a Due Diligence Study 29. Under FCC regulations, the Form 394 submission was “complete” as filed and the County has never contended otherwise. And, the Form 394 submission was thorough compared to the general practice in the cable industry. The FCC Form 394 materials submitted for the CCI/Allen transaction specifically informed the County that it had 120 days under FCC regulations (47 C.F.R. 76.502) to take action on the transfer application (TX 10). . 30. The first response by the County occurred on August 26, 1998, as part of a group response by six LFAs. On that date, the County’s special counsel, Mr. Marti-corena, met with Charter on behalf of the County and five other franchising authorities in California represented by him. No other County representative was present. Charter was represented by Ms. Foushee. 31. It must be emphasized that this meeting and subsequent negotiations until December 1998 proceeded on a “group LFA” basis, ie., Mr. Marticorena acted for six California local franchising authorities with respect to the parallel ehange-of-con-trol requests pending before each on the acquisition. At no time before December 1998 were there any specific communications limited to Santa Cruz County (except, of course, the initial Form 394 filing). Neither party ever objected to proceeding in this manner. Both sides evidently felt it was more efficient to proceed on a “group LFA” basis. For this reason, plaintiffs’ argument that the County should have, on its own, pored over the earlier Charter/Sonic transaction filings in order to find answers to its CCI/Allen questions is simply unfair. Mr. Marticore-na was acting for a group of LFAs. The entire group did not have the Charter/Sonic information. Prior to December, Charter never made reference to any Sonic filings as having the information requested. 32. During the August 26 meeting, Ms. Foushee explained the CCI/Allen transaction. She asserted that the CCI/Allen transaction would not affect rates. She further explained that, unlike many other transactions, because the transaction was required to close by year-end 1998, Charter and CCI could not agree to extensions of the time for the franchising authorities to complete their review of the consent requests. She stated that the Form 394 was complete and provided more than sufficient information. 33. During the meeting, Mr. Marticore-na requested that Charter and Mr. Allen agree to pre-fund (ie., pay in advance) the costs of a “due diligence study” to be performed by a consultant hired by him to address the financial feasibility of the proposed transaction and the impact of the transaction on future rates. The consultant was William Morgan of Diehl, Evans & Co., LLP. He had performed at least one prior due diligence study for Mr. Mar-ticorena. 34. At no time did Charter ever affirmatively agree, either at the meeting or thereafter, to provide or to fund such a report, or that it would be necessary, reasonable or lawful to require Charter to perform or fund such a report as a condition for its consent. Ms. Foushee, however, said she would “consider” the request. In follow-up conversations, Ms. Foushee equivocated. Although she told Mr. Mar-ticorena that such a study was unnecessary, she also said that if one was going to be done, it should be done by someone other than Mr. Morgan, who she said was biased in favor of Mr. Marticorena. Asked to submit the resume of an alternate candidate, she said she would but never did. 35. Prior to Mr. Marticorena’s request, neither Charter nor CCI had ever been asked to pay for a consultant to review its books and business plan to see if a transaction was economically viable, or even to participate in or cooperate with such a study. Such a request was inconsistent with the practice and custom in the cable industry for transfers or changes of control. 36. Under the terms of its franchise, Charter was (and remains) required to pay a five-percent franchise fee to the County, the maximum fee permitted by federal law (TX 3 at 1798). The County could have used the franchise fee paid by Charter to fund a due diligence study if it had chosen to do so. 37. These findings will return to the story of the proposed due diligence study but, to maintain events in approximate chronological order, we must now turn to the so-called first information request. The First Information Request (September 1) 38. On September 1, Mr. Marticorena mailed Ms. Foushee a massive information request, sometimes referred to herein and by all parties as the “first information request” (TX 8). 39. The letter was nine pages long, single spaced. It requested seventy items, including subparts. The specifics show that Mr. Marticorena spent little or no time actually reviewing the Form 394 submissions before sending the letter (TX 6) or trying to determine the applicability of the questions to the actual deal. Instead, he printed out admittedly boiler-plate information demands. For instance: (a) The first fifteen standardized questions (TX 8 at ¶¶ 2-5) related to the impact of the transaction on future cable rates and whether plaintiffs would seek to use the acquisition costs to justify future rate increases ... Even the County concedes these were form inquiries with little or no application to the problem at hand. (b) Many of the other questions referred to “lenders” and “credit facilities” despite the fact that the Form 394 submissions and Ms. Foushee’s August 26 meeting with the County’s special counsel made clear that no such loan agreements were to be employed. 40. Beyond this, the request was broad and burdensome, asking, for example, for “any and all agreements ... or any other document which exists in the hands of Charter, Paul Allen, or any related entity, or both, regarding the System or Transfer” (TX 8 at 6), ie., asking for every sliver of data on the deal. The letter stated that the LFAs were “concerned whether the Transfer, considering its totality of its economic impacts, will preclude or impede Charter from realizing a reasonable return ...” (TX 8 at 1). Charter’s Supplemental Information 41. On September 17, 1998, Charter responded with a two-inch thick, written response with back-up documents (TX 10). These materials included financial statements, ten-year projected income statements, information on the cable systems in which Mr. Allen then owned a controlling interest, an explanation of Mr. Allen’s anticipated role in the company, and information on the calculation of the acquisition price (TX 10). These materials included, among other things, (a) further assurance that no new debt would be incurred by the Charter corporate entities in order to finance the transaction, (b) information that Charter’s debt would, in fact, be reduced by approximately $38 million, and (c) a reassurance that the purchase price would not and could not, under federal rate regulations, be used to justify a later increase in regulated rates. Regarding the latter, the submission stated: Finally, as noted above, as Charter understands the applicable FCC rules, the recording of acquisition-related intangible assets for accounting purposes in connection with the pending acquisition will not have any impact whatsoever on the Form 1220 maximum permitted rate for the franchises at issue here, for the simple reason that the pending acquisition is taking place after May 1994. (TX 10 at 1147.) 42. During the trial, plaintiffs further contended that the County should not have been concerned over rate increases because of the rate order (from the Sonic deal). During the communications at issue, however, plaintiffs never so asserted. The reason seems clear. As stated, the parties proceeded to deal with one another on a “group LFA” basis. It would have been pointless to refer the other LFAs to information solely in the files of Santa Cruz County. Nonetheless, as stated, Charter and CCI did make clear that they viewed the FCC regulations as proscribing any attempt to pass on acquisition costs in excess of the net asset value to consumers in the form of rate increases. Mr. Marticorena’s Written Proposal for a Due Diligence Study 43. Meanwhile, on September 9, Mr. Marticorena sent to Charter a proposal for a due diligence study by Mr. Morgan (TX 12). The study was to be performed for the group of LFAs, including Santa Cruz County. The proposal detailed categories for analysis and investigation, including inquiries into comparable industry transactions. The alleged need for the study was that Mr. Allen had proposed acquiring Charter at 14 times 1999 estimated operating cash flows. Conceding that there might have been valid business reasons for this purchase price, the proposal professed worry that it might lead to pressure on Charter to push cable rates up to justify the price paid for the company (TX 23 at 1114). The proposal would have required making ten-year financial projections with two weeks of on-site field work at CCI’s St. Louis headquarters and Mr. Allen’s Bellevue offices, in part to assess their “business plans,” followed eventually by draft and final reports. The estimated fee was $39,000 (TX 23). 44. On September 15, Mr. Marticorena met with Ms. Foushee to discuss, among other things, the Allen transaction (as well as a separate pending cable acquisition). During the meeting, Mr. Marticorena again brought up his request for Charter to pre-fund a “due diligence study.” He also provided Ms. Foushee with an additional copy of Mr. Morgan’s proposal. She said she would get back to him. Mr. Marticorena’s FollowUp Letter (October 5) 45. By October 5, Mr. Marticorena had not heard back from Ms. Foushee on the due diligence study. On that day, therefore, Mr. Marticorena sent another letter to Charter (TX 25). It reiterated a desire for plaintiffs to pre-fund a due diligence study. The letter warned that Charter’s equivocation in addressing the due diligence issue could cause delays or an adverse decision. This was a threat, in effect, to refuse to process the FCC Form 394 applications. 46. Ms. Foushee received the letter. Busy with the overall deal, she did not consider it a “priority.” She did not respond to the letter until November 3. In her written reply of that date (TX 24), she asserted that, although Mr. Marticorena could request information beyond that specified in the Form 394, such requests could not toll the 120-day deadline for action on the transfer application. She further stated that, on October 1, she had faxed the resume of Louis Karrison, whom she proposed to perform any due diligence study, and complained that Mr. Marticore-na had not responded to the information. Through inadvertence, Ms. Foushee had not, in fact, caused the resume of Mr. Karrison to be faxed. Plaintiffs have been unable to locate any documentation confirming that the resume was faxed. Plaintiffs failed to produce any witness to confirm that the resume was ever faxed. Mr. Marticorena’s November 2 Correspondence 47. On November 2, Mr. Marticorena sent Charter two separate, detailed and lengthy demands. Both .are centerpieces of the case. One concerned a demand for further additional information and will be described below. The other concerned the due diligence study. Mr. Marticorena mailed these information demands before receiving Ms. Foushee’s November 3 letter. Ms. Foushee mailed her November 3 letter before receiving Mr. Marticorena’s November 2 information demands. The letters crossed in the mail. 48. As to the due diligence study letter, Mr. Marticorena had no agreement to pre-fund a “due diligence study” as of November 2. To reframe his position, his letter demanded that Charter directly.retain an “independent” financial consultant at its own cost to review and to opine on the company’s business plans and the ability of Mr. Allen to “secure a reasonable return of and on its investment,” and to generate a set of ten-year projection revenues and costs in a detailed prescribed format (TX 12 at 1194). The letter stated in part: [Although even market rate acquisitions present serious issues to Franchising Authorities and subscribers regarding the potential impact of those acquisitions upon subscriber rates, a transaction which appears to be priced at levels significantly exceeding those otherwise obtainable in the marketplace produces magnified concerns regarding how the Buyer will be able to secure a reasonable return of and on its investment in Charter [footnote omitted]. * * * Hs * Hi In order for the Franchising Authorities to properly analyze the economic and operational viability of the Transfer, the Franchising Authorities hereby respectfully request that the Seller and the Buyer, either individually or collectively, submit a report of an independent financial consultant (the “Independent Financial Consultant”), as defined below, which shall be prepared at the sole cost and expense of the Seller and the Buyer, which discusses, analyzes, and provides an opinion as to the reasonableness and fairness of the transaction to the parties and to consumers based on the criteria set forth below. The “independence” of the consultant was to be measured by six stated criteria. The consultant was to perform 25 specified calculations in conjunction with a ten-year projection of revenues and costs. The letter was eight pages long, single-spaced. 49.The letter further requested documents such as: (a) Copies of any and all internal memoranda, reports, analyses, correspondence, financial projections or other documents prepared by the seller, or any agent thereof, relating to the determination, calculation, negotiation or method of determining the acquisition price. (b) Copies of any and all internal memoranda, reports, analyses, correspondence, financial projections or other documents prepared by the buyer, or any agent thereof, relating to the determination, calculation, negotiation or method of determining the acquisition price. (c) Copies of any reports, studies, opinions, opinion letters or other documents prepared by independent parties, including but not limited to any “fairness opinions” relating to the transfer, presented to, considered by, or available to the board of directors of the seller and buyer, or any affiliate or subsidiary thereof, concerning the economic viability of the transfer, the fairness of the transfer or which will be used, in whole or in part, as a basis for any recommendation to the owners of the seller and the buyer, or any affiliate or subsidiary thereof, concerning a proposed action or vote upon the transfer. The letter asked for the documents to be produced within ten days (TX 12 at 8). The Second Information Request 50. The second November 2 letter was a further information request. It was eight pages long, single-spaced. It included 31 paragraphs of inquiry. It asked that Charter, among other things, justify the financial pro formas submitted earlier by Charter on September 17. In doing so, Charter was told to provide “extrinsic sources” to support its projections, to provide a discussion of Charter’s business plan and approach for maintaining its subscriber base against competitors, and to develop a new set of pro formas showing projected capital expenditures and projected income tax payments over the next ten years (TX 11). 51. The first seven interrogatories of the letter were expressly grounded on supposed aggressive projections set forth in Charter’s pro forma submissions served on September 17. These had allegedly been projecting growth at rates in excess of supposed industry trends. Paragraph 2 of Mr. Marticorena’s letter, for example, stated that Charter’s earlier submission had showed average annual increases of eight percent with respect to Expanded Basic Service Revenue (TX 11 at 2458). In fact, all now concede herein that annual increases had only been shown at 6.5 percent. Mr. Marticorena simply misread or mis-analyzed the data. The same was true for six other questions in this vein. Thus, the average growth in basic service revenue was not 10%, it was 7.4%; average annual growth in expanded basic revenue was not 8%, it was 6.5%; average annual growth in a la carte service revenue was not 240%, it was 41.4%; average annual growth in ancillary revenue was not 22%, it was 12.8; average annual growth in advertising revenue was not 26%, it was 14.7%; and average annual growth in total revenues was not 11%, it was 8%. No credible excuse was given by Mr. Marticorena for these material errors. 52. For the first time, the letter also requested evidence of the long-term commitment of existing management to stay with the venture subsequent to closing, as well as evidence that some portion of the acquisition price would inure to the benefit of the new company and subscribers by way of long-term retention of existing management (TX 11 at ¶¶ 6-7). The November 2 letter also sought clarification as to how the overall price had been allocated between Charter and the other acquired entities (TX 11 at ¶¶ 7-8). Charter’s Decision to Cease Providing Information 53. In mid to late November 1998, Ms. Foushee and Mr. Marticorena had a telephone conversation in which Ms. Foushee stated that Charter believed the information requested in the County’s two November 2, 1998, letters was unreasonable, that Charter would not be providing further responses, that Charter believed the County had sufficient information to act on the consent request, and that, while Charter was willing to schedule a meeting with the County and other franchising authorities represented by him to work through certain issues, the CCI/Allen transaction would close by year-end and Charter could and would not agree to extend the 120-day review period. 54. On December 1, 1998, Charter sent Mr. Marticorena two letters declining to go forward with any “due diligence study” (TX 26) and declining to provide the additional requested information (TX 13). In her letter on the information requests, she said (TX 13): Secondly, as we have indicated, both orally and in writing, the projections that have been provided to you are the projections which Charter had prepared prior to the Allen acquisition. The Allen acquisition will have no effect on the projected income, and only a positive effect on the debt and debt levels. To repeat, there will be no increase in debt levels in this transaction. Allen is simply purchasing all outstanding equity. No additional debt is being added to any franchise, indeed, because of Mr. Allen’s favorable economic condition, all existing debt can be refinanced at more favorable rates. What this means, as you “analyze” the transaction is that in order to question the viability of Charter post-Allen, you must question the viability of Charter pre-Allen, a proposition which is ludicrous at best and totally unsustainable on any legal or factual grounds. With respect to the interrogatories that had been premised on faulty homework by Mr. Marticorena, she said (TX 13): Third, your questions suggest that you have already reached conclusion that Charter would have to accept in order to respond. We do not accept your blanket assertions, for instance, that revenues will increase at an annual average rate of ten percent (10%). Because we cannot accept your conclusions, we can form no meaningful response. Likewise, your inquiry into the disposition of the proceeds of closing is not relevant to your disposition of our submission. 55.In her separate letter of the same date (TX 26), Ms. Foushee explained why there was no need for a due diligence study: Further, that portion of your footnote which ends on Page 4 strongly suggests that the concern is with increased debt used to finance these transactions. The footnote further suggests that rate increases are needed to service the debt. It is convenient for you to dismiss, but the fact of the matter is that there is no new debt involved in this transaction. The absence of debt renders your basic premise faulty and just plain wrong. For these reasons, Charter is unwilling to fund a Study to determine that the debt levels can be sustained because there is no new debt to the franchise operating entities in this transaction. The Study, likewise, is unnecessary because the financial plan that Allen/Charter presented in the pro formas provided to you is basically the same financial plan employed prior to the acquisition. I use the term basically, because one effect of the Allen acquisition is to give Charter more favorable borrowing terms. Additionally, some preferred equity will be paid out. As stated in previous correspondence and communications, the acquisition is an assumption of current debt and an infusion of equity. When Charter has used debt to finance an acquisition in the past, you have complained that there is not enough equity. Here we have a transaction totally funded with equity and you make the same complaint. The two positions cannot be reconciled. I am unaware of a company being able to possess too high an equity ratio. But this is exactly what your arguments and your inquiry would suggest. 56.This was the first time that a reference was made to the projections given to Mr. Marticorena before the CCI/Allen transaction. The point made in Ms. Foushee’s letters was that the company projections now being criticized were the same as the projections provided to Mr. Marticorena and found adequate before the CCI/Allen deal, ie., in the Charter/Sonic transaction. At trial, Mr. Marti-corena tried to discredit Ms. Foushee on this point but wound up, in the Court’s view, discrediting only himself. Mr. Mar-ticorena testified that, after receiving the letters, he looked to see if the CCI/Allen projections were, in fact, similar to those previously submitted in the Sonic transfer a few months earlier, as suggested by Ms. Foushee’s letter. He found, he said, that they were materially different. Taken at face value, this undermined Ms. Foushee. On closer questioning, however, Mr. Marti-corena stated that the projections he compared were merely at the local Santa Cruz level rather than at the combined company-wide level. Specifically, he claimed to have compared the one-page multi-year income projection for the Allen transaction (TX 56) with the one-page multi-year income projection for the Sonic projection (TX 58), both limited to a Santa Cruz allocation only. These do differ somewhat (but only because of the method, noted on each, used to allocate line items from the combined numbers). 57. Ms. Foushee was, however, correct after all. Mr. Marticorena himself had originally raised the projection issue at the combined company level, not at the local level. Specifically, Mr. Marticorena’s own November 2 letter had listed “Questions Relating to Document Entitled ‘Charter Communications Properties LLC Projected Income Statement’ dated September 14, 1998” (TX 11). This undisputedly had been a reference to a spreadsheet bearing that exact title and date, prepared as a combined company-wide projection (TX. 57). In turn, Charter’s December 1 letter (TX 26) had responded at the combined company-wide level, stating that the projections were the same as those previously provided. 58. Having now seen the spreadsheets, the Court is certain that Ms. Foushee was correct that at the combined company-wide level, the projections were the same, that there was no inconsistency between them, and that Mr. Marticorena had had both had sets of identical projections all along (TX 57 and TX 60). Not only was Ms. Foushee correct on this point but it is disappointing that Mr. Marticorena resorted to a phony comparison to try to evade this fact. The Denial Resolution 59. Mr. Marticorena and Mr. Busch decided then to recommend a denial of the request for approval of change in control. On December 4, 1998, Mr. Busch personally sent a fax to Ms. Foushee in St. Louis. The fax stated that a resolution denying the change in control would come before the board of supervisors on December 8. As at least Mr. Marticorena knew, however, Ms. Foushee was on vacation in Australia. Mr. Marticorena knew that Ms. Celeste Vossmeyer, a vice president of Charter, was supposed to be covering for Ms. Foushee. The fax, however, was not sent to Ms. Vossmeyer. It was sent to Ms. Foushee’s attention. Although Mr. Busch testified that he faxed a copy of the staff report and proposed denial resolution to Ms. Foushee on December 4, 1998, the fax transmittal report indicates it was not sent to Charter until after the close of business on Friday, December 4 in St. Louis (Court Exh. 1). Mr. Busch never tried to notify anyone else at Charter. 60. On December 8, 1998, Charter’s proposed transfer application came before the County board of supervisors. The board adopted a resolution denying plaintiffs’ application “without prejudice.” No representatives of Charter were present at the December 8 meeting of the County’s board of supervisors or had actual knowledge of the meeting. The action was part of the board of supervisors’ consent calendar. The information presented to the board for its consideration was slanted heavily against Charter and Mr. Allen, neither of whom had fair and reasonable notice of the proceeding or opportunity to present their side of the issue. 61. The denial resolution based its action on the supposed fear of an excessive purchase price and the alleged failure of the applicants to cooperate in providing information (TX 15). A whereas clause recited that the “County requested certain information ... relating to ... the financial ability of the Buyer to generate sufficient cash flow to meet debt and obligations, satisfy capital expenditure obligations, and provide a reasonable return of and on its investment.” The same recital referred to and incorporated by reference the same November 2 letter quoted above concerning the due diligence study demanding that Charter supply a due diligence study “at the sole cost and expense of the Seller and the Buyer,” which letter was appended physically to the resolution. The next recital then stated that the applicants had “unreasonably delayed or refused or failed to provide a material portion of the requested additional information.” Following the recitals, the action resolved specifically that the applicants had failed or refused to cooperate with “County Staff, Special Counsel and outside consultants retained by the County in undertaking the due diligence investigation of the Transfer.” Presumably the “outside consultant” was Mr. Morgan. It further resolved that' the applicant had failed to supply all necessary information requested by the County and had “failed to provide any independent corroboration or justification for its income projections.” The resolution was permeated with references to rafe of return and the financial projections. The Clift Hotel Meeting 62.When Ms. Vossmeyer, Charter’s vice president of government and community relations, learned of the County’s denial, she contacted Mr. Richard Patch, an attorney in San Francisco (and trial counsel herein), to see if he could set up a meeting with the County. Mr. Patch had had a professional but adversarial relationship with the County and Mr. Marti-corena going back to the 1980’s, and was already engaged in a mediation with the County regarding a different dispute. Mr. Patch asked Mr. Marticorena to solicit the board of supervisors as to what would satisfy the concerns of the County regarding the CCI/AUen transfer assuming Charter would not provide any of the information requested by the County on November 2, 1998. Mr. Patch made his request so that Charter might receive the County’s consent and close the transaction prior to year’s end and thereby avoid any problem of the $100 million penalty. When he spoke with Mr. Marticorena, Mr. Patch indicated that (a) Charter was absolutely firm in its decision not to provide additional information or further justify the economic viability of the CCI/Allen transaction; (b) Charter would close the transaction before the end of the year; and (c) a failure of the parties to reach a mutually-acceptable resolution • of the matter would result in a “big fight.” Mr. Patch asked what conditions could be imposed upon the transaction to allow the County to give its consent. 63. Mr. Marticorena indicated to Mr. Patch that he had not been authorized by the board of supervisors to enter into negotiations. Approval by the board prior to year’s end was unlikely, he said, given the fact'that the board only met one more time, on December 15, before year’s end. Mr. Patch asked Mr. Marticorena to attempt to get delegated authority from the board at its December 15 meeting, so that the parties could engage in meaningful discussions and, if mutual agreement could be obtained, County approval could be provided prior to the closing of the transaction. Mr. Marticorena agreed to try. 64. Mr. Marticorena then discussed the matter with the board, and on December 15, 1998, received in conjunction with the county administrative office board authorization to approve a transfer agreement, subject to ratification at the first meeting of the board in January 1999 (TX 16). They were authorized by the board to negotiate an approval if Charter would agree to a further freeze and paid the County $500,000 (TX 16). The Board’s authorization stated the requirements as follows: 1. Extend the freeze period for the rate upon completion of the rebuild to two years and improve the indexing method for rate increases. 2. Provide the County with a mitigation payment equal to approximately 5% of the difference between the per subscriber purchase price of Sonic and the sale price to Paul Allen multiplied times the number of subscribers. 65. The combatants met on December 17 at the Clift Hotel in San Francisco. Mr. Busch provided Charter with a copy of the board’s conditions for approval (TX 16), and stated that the County would give its consent to the change of control prior to the close of the CCI/Allen transaction only if Charter agreed to a further rate freeze, agreed to improve the indexing method for future rate increases, and agreed to' make a payment to the County of approximately $500,000. Plaintiffs were told that the County’s proposal was essentially a take-it-or-leave-it proposition if they wanted consent prior to the close of the transaction. Plaintiffs refused these conditions. 66. Contrary to the County’s contention, there was no verbal agreement that the discussion was “confidential” or “off the record.” Mr. Marticorena had normally been expert in well documenting such agreements in the past. There was, however, no such documentation on this occasion. Nor had Mr. Marticorena’s or Mr. Busch’s written submission to the board referred to any confidential or off-the-record status of the proposal (TX 16). 67. On December 23, 1998, the acquisition closed without the County’s approval. Of the more than 470 local franchising authorities whose consent to the ultimate change of control that would result from the transaction was requested, only four (including the County and three other communities also represented by Mr. Mar-ticorena) refused to give their consent by the December 23,1998, closing date. 68. On March 9, 1999, the County issued a preliminary notice that the franchisee had violated the franchise agreement by closing without the County’s consent. The notice threatened to terminate or revoke the franchise agreement and/or seek liquidated damages (TX 17). Plaintiffs then commenced this action. ANALYSIS AND CONCLUSIONS OF LAW The ultimate question is whether the refusal by Santa Cruz County to consent to Paul Allen’s acquisition of the outstanding shares of Charter Communications, Inc. (“CCI”) was reasonable and lawful. The franchise agreement incorporated the terms of the local cable ordinance under which the County’s consent was required for the transfer but could not be “unreasonably withheld.” The denial was based upon plaintiffs’ refusal to comply with the County’s information requests, its demand for an independent financial study to be financed by Charter, its demand for cash payment of $500,000 and its demand for a further rate freeze. Whether consent was “unreasonably withheld” turns upon whether those demands were reasonable. Information requests that exceeded the County’s authority to request information under Section 617 of the Cable Act and the FCC regulations promulgated thereunder would not have been reasonable. The same is true of information requests that violated plaintiffs’ First Amendment rights. To deny consent based on plaintiffs’ failure to provide any such information would, in turn, be unreasonable. And, to deny consent merely for refusing to pay unlawful fees or for refusing to acquiesce in an unlawful rate freeze would be unreasonable. The parties sharply disagree on the law governing each of these considerations. The FCC 120-Day Rule With respect to the FCC’s 120-day regulation, the Court concludes, for the reasons set out at length hereinafter, that the FCC’s 120-day rule is purely procedural. All substantive limits on the power of local franchising authorities to regulate cable transfers must flow from the First Amendment, other federal law, or local law or agreement. As to the procedural aspects, however, the rule must be construed to impose certain outer limits on LFAs’ power to request information over and above that required by Form 394 implementing the rule. Because this is an issue of first impression, this order will set forth the reasons in detail. Section 617 of the Cable Television Consumer Protection and Competition Act of 1992, 47 U.S.C. 537, established a 120-day timeline for local franchising authorities to act on reqúests for approval of “transfers” of cable franchises: A franchising authority shall, if the franchise requires franchising authority approval of a sale or transfer, have 120 days to act upon any request for approval of such sale or transfer that contains or is accompanied by such information as is required in accordance with Commission regulations and by the franchising authority. If the franchising authority fails to render a final decision on the request within 120 days, such request shall be deemed granted unless the requesting party and the franchising authority agree to an extension of time. Pursuant to this rulemaking authority, the FCC held rulemaking proceedings and promulgated the following rule in 1993, a rule whose interpretation is one of the core issues in this case: (a) A franchise authority shall have 120 days from the date of submission of a completed FCC Form 394, together with all exhibits, and any additional information required by the terms of the franchise agreement or applicable state or local law to act upon an application to sell, assign, or otherwise transfer controlling ownership of a cable system. (b) A franchise authority that questions the accuracy of the information provided under paragraph (a) must notify the cable operator within 30 days of the filing of such information, or such information shall be deemed accepted, unless the cable operator has failed to provide any additional information reasonably requested by the franchise authority within 10 days of such request. (c) If the franchise authority fails to act upon such transfer request within 120 days, such request shall be deemed granted unless the franchise authority and the requesting party otherwise agree to an extension of time. 58 Fed.Reg. 42019 (Aug. 6, 1993); 58 Fed. Reg. 45064 (Aug. 26, 1993). The rule remains codified at 47 C.F.R. 76.502 (1999). When the FCC issued the rule, it also issued a preamble explaining it. The preamble set forth the competing arguments of the industry versus the local franchising authorities concerning the desire of LFAs to seek information before giving approvals: 82. Comments. Most cable commenters request that the Commission establish uniform rules regarding the information required to commence the 120-day review period, and clarify that the 120-day period is not tolled by additional information requests, not otherwise required by Commission rules, the franchise, or applicable local law. Cable commenters argue that such a limitation is necessary to ensure the efficacy of the 120-day statutory limitation. Cable commenters argue that such information requirements should be limited to information necessary to establish the legal, technical and financial qualifications of the proposed transferee. Cable commen-ters also suggest that the Commission limit the ability of franchise authorities to request additional information, beyond the information required by Commission rules, the terms of the franchise, or applicable local law. 83. In contrast, franchise authorities argue that the FCC should confirm that local franchise authorities have broad authority to request all information necessary to determine whether a transfer is in the public interest. According to local authorities, the Commission’s statutory mandate is to develop regulations to ensure that the franchise authority receives all information necessary to “begin” an evaluation of a transfer request. As a consequence, franchise authorities insist that they should not be limited in the types of information they can request. Finally, franchise authorities argue that the 120-day period should begin to run only after the franchise authority notifies the cable operator that it has received all information necessary to evaluate the proposed transfer. In the Matter of Implementation of Sections 11 and 18 of the Cable Television Consumer Protection & Competition Act of 1992, FCC Report & Order at ¶¶ 82-83, FCC 93-332, MM Docket No. 92-264 (1993). The FCC balanced these competing concerns in light of congressional intent. The FCC held that the 120 days should begin as soon as the required information is submitted. The FCC rejected the argument that the 120-day period should commence only after all supplemental information is submitted: 85. The informational requirements we adopt in response to this provision are limited to the information necessary to establish the legal, technical and financial qualifications of the proposed transferee and any information required by the franchise or applicable local law. In developing these informational requirements, we loo