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Southern Walk at Broadlands Homeowner's Association, Inc. v. Openband at Broadlands, LLC

United States District Court, E.D. Virginia, Alexandria Division

May 13, 2014

SOUTHERN WALK AT BROADLANDS HOMEOWNER'S ASSOCIATION, INC., Plaintiff,
v.
OPENBAND AT BROADLANDS, LLC, et al., Defendants.

MEMORANDUM OPINION AND ORDER

GERALD BRUCE LEE, District Judge.

THIS MATTER is before the Court on two Motions to Dismiss for Lack of Jurisdiction and Failure to State a Claim. The first is filed by Defendants Broadlands Associates and Broadlands Communications, LLC (collectively "Broadlands") (Doc. 10). The second is filed by Defendants OpenBand Multimedia, LLC, OpenBand at Broadlands, LLC, and OpenBand of Virginia, LLC (collectively "OpenBand") (Doc. 14). This case involves a series of contracts which collectively grant OpenBand the exclusive right to provide internet, video, and phone services to Plaintiff Southern Walk at Broadlands Homeowner's Association, Inc. ("Southern Walk"). Southern Walk is the homeowners' association for a real estate development located in Loudoun County, Virginia. Southern Walk seeks to invalidate the contracts on the ground that they violate a federal regulation proscribing video-exclusivity clauses and on numerous state-law grounds, including unconscionability and cessation of purpose. While the federal-law claim (Count I) seeks only to invalidate OpenBand's video-exclusivity rights, the state-law claims (Counts II to VII) seek to invalidate the contracts as a whole, reaching phone-and internet-exclusivity rights as well as video-exclusivity rights.

There are three issues before the Court. The first issue is whether an Article III case or controversy exists between Southern Walk and Broadlands where Broadlands is not the beneficiary of the utility-exclusivity rights conferred by contract but where Broadlands, as the real estate developer, was an interested party to the contracts. The Court GRANTS Broadlands' Motion to Dismiss as to Count I because Broadlands cannot enforce utility-exclusivity rights it does not possess and because it is the enforcement of those rights by OpenBand, not Broadlands, which has allegedly harmed Southern Walk.

The second issue is whether OpenBand's voluntary relinquishment of its video-exclusivity rights moots the case against OpenBand where the relinquishment was spurred not by a desire to evade judicial review but by recognition that the Fourth Circuit's invalidation of video-exclusivity rights over another real estate development applied to OpenBand's video-exclusivity rights over Southern Walk. The Court GRANTS OpenBand's Motion to Dismiss as to Count I because OpenBand's reasons for relinquishing its rights and its admission that the Fourth Circuit's ruling applies to its rights over Southern Walk are persuasive evidence that the "allegedly wrongful behavior could not reasonably be expected to recur, " Friends of Earth, Inc. v. Laidlaw Envt'l Servs. (TOC), Inc., 528 U.S. 167, 189 (2000) (internal quotation marks and citation omitted). As such, the case or controversy over video exclusivity is moot, and the Court lacks subject matter jurisdiction over Count I.

The third issue is whether the Court should exercise supplemental jurisdiction over Southern Walk's remaining state-law claims where it is unclear whether Virginia law recognizes freestanding claims for unconscionability and unenforceable servitudes and where the state-law claims are based primarily on state common-law contract doctrine. The Court GRANTS Broadlands' and OpenBand's Motions to Dismiss the remaining state-law claims (Counts II, HI, IV, V, VI, and VII) and REMANDS the claims to the Circuit Court for Loudoun County because resolution of the claims would not implicate questions of federal law or policy and because, as a matter of federalism, Virginia courts should be allowed to decide potentially novel issues of Virginia law.

I. BACKGROUND

Plaintiff Southern Walk at Broadlands Homeowner's Association, Inc. ("Southern Walk") is the homeowners' association for 1, 117 individually-owned residential properties comprising the Southern Walk at Broadlands real estate development. (Doc. 1, ¶ 13.) Southern Walk is suing two sets of defendants, the Broadlands Defendants and the OpenBand Defendants. The Broadlands Defendants consist of Broadlands Associates LLP, the developer of Southern Walk, and its affiliated entity Broadlands Communications, LLC (collectively "Broadlands"). The OpenBand Defendants consist of three interlocking entities-OpenBand at Broadlands, LLC, OpenBand Multimedia LLC, and OpenBand of Virginia, LLC (collectively "OpenBand")-which provide video, internet, and phone services to Southern Walk.

A. Establishment of the Homeowners' Association

Prior to selling the residences, Broadlands Associates LLP ("Broadlands Associates") established a homeowners' association for the development. One purpose of the homeowners' association was to administer video, internet, and phone services on behalf of the residents. ( Id. ¶ 14.) The Articles of Incorporation state that the homeowners' association shall "provide, or cause to provide for, the installation and maintenance of an exclusive private utility system within the Property[.]" (Doc. 1-1, at 3.) Broadlands Associates remained in control of the homeowners' association from its creation in November 2001 until at least December 2009. (Doc. 1, ¶¶ 14-16.) While under the control of Broadlands Associates, the homeowners' association entered into various contracts with OpenBand. Collectively, these contracts gave OpenBand the exclusive right to provide video, internet, and phone services to the development. ( Id. ¶ 28.)

B. Utility-Exclusivity Scheme

Of the contracts forming the utility-exclusivity scheme, three hold special relevance to the present action: (i) the Telecommunications Services Agreement ("TSA"), (ii) the Declaration of Covenants, Conditions, and Restrictions ("CC&Rs"), and (iii) the Deed of Easement for Telecommunications Facilities ("Deed of Easement").

Southern Walk and OpenBand executed the first contract, the TSA, in November 2001. ( Id. ¶ 25.) The TSA gives OpenBand the exclusive right to provide video, internet, and phone services to Southern Walk and requires Southern Walk to pay OpenBand a flat monthly fee for the services. (Doc. 1-4, at 5.) Southern Walk received a minimum 10-percent discount on video and phone services and a time-staggered set of discounts on internet services, beginning with a minimum of fifty percent for the first year and stabilizing to a minimum of ten percent for the fifth year onward. ( Id. at 10.) The initial term of the TSA is twenty-five years with a right for OpenBand to extend the TSA for four additional ten-year periods. ( Id. at 11.)

Southern Walk and Broadlands executed the second contract, the CC&Rs, in October 2001.[1] (Doc. 1, ¶ 34; Doc. 1-6, at 1.) The CC&Rs declare Broadlands' easement over video, internet, and phone services. Specifically, the CC&Rs declare Broadlands' "blanket easement" for "constructing, operating, maintaining, adding to, altering or replacing... all above and below ground structures and appurtenances necessary for... video, telephonic, internet data services or other communications, data or media (collectively Utilities').]" (Doc. 1-6, at 13.) The CC&Rs state that Broadlands may "grant to a third party a transferable exclusive right to operate Utilities on the Property." ( Id. )

The third contract, the Deed of Easement, was executed in November 2001. (Doc. 1-8, at 1.) It transfers the utility easement from Broadlands to OpenBand. ( Id. at 3.) The Deed of Easement binds Southern Walk to the transfer, stating that Southern Walk "shall not take any action inconsistent with the terms of this Easement Deed and the rights herein granted." ( Id. at 7.)

C. OpenBand's Enforcement of the Video-Exclusivity Scheme

Southern Walk claims that the utility-exclusivity scheme created by the TSA and its ancillary contracts ("Ancillary Agreements") violates a final rule of the Federal Communications Commission ("FCC"). (Doc. 1, ¶¶ 122-126.) In March 2007, the FCC issued a Notice of Proposed Rulemaking seeking comments on the propriety of video "exclusivity clauses, " clauses which grant a cable operator the exclusive right to provide video services to a multiple dwelling unit ("MDU"). See Lansdowne on the Potomac Homeowners Ass'n, Inc. v. OpenBand at Lansdowne, LLC, 713 F.3d 187, 192 (4th Cir. 2013) (citation omitted). The FCC received several comments that video-exclusivity clauses "bar[] new entry into MDUs by wire-based" video providers and that use of such clauses was "widespread" and growing. In the Matter of Exclusive Service Contracts for Provision of Video Services in Multiple Dwelling Units and Other Real Estate Developments, 2007 WL 3353544, at *3, 22 FCC Red. 21828 (2007). Based on these comments, the FCC issued a final rule voiding video-exclusivity clauses. The FCC Final Rule states that "[n]o cable operator... shall enforce or execute any provision in a contract that grants to it the exclusive right to provide any video programming service (alone or in combination with other services) to a MDU. All such exclusivity clauses are null and void." 47 C.F.R. § 76.2000(a). Count I seeks a declaratory judgment that the FCC Final Rule voids the video-exclusivity provisions of the TSA and Ancillary Agreements. (Doc. 1, ¶¶ 122-126.) Additionally, the Complaint alleges that the video-exclusivity ...


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