Cable companies must provide pro-rata refunds when people quit, 1st Circuit rules

BOSTON (CN) — A popular Maine law that forces cable companies to give a pro-rata refund to TV customers who quit in the middle of a month was upheld Tuesday by the First Circuit.

Although the 1984 federal Cable Act prohibits states from regulating cable rates, the Maine law doesn’t regulate rates or tell companies how much they can charge for service, the court said. It merely requires a refund after the consumer quits and is no longer receiving any service.

“It is difficult to conclude that Maine's termination rebate law regulates the rates for the provision of cable service," wrote U.S. Circuit Judge Timothy Dyk, a Clinton appointee on the Federal Circuit sitting by designation, in a 39-page opinion.

The victory for Maine is the latest tussle in the activist state’s ongoing battle to rein in cable companies, which includes a state law mandating a rebate if service goes out for more than six hours even if the outage isn’t the cable company’s fault.

A year ago the First Circuit struck down a different Maine law that required cable companies to “unbundle” their services and allow customers to sign up for individual channels if they don’t want to buy a whole package, saying the law violated the First Amendment.

The pro-rata refund law was a response to Charter Communications’ decision to stop offering pro-rata refunds in June 2019. The bill was introduced in January 2020 and within two months it passed the Maine Senate unanimously and the Maine House by a vote of 131–6. The governor signed it in March 2020, and it went into effect in June of that year.

But a federal court struck down the law four months later, saying it violated the 1984 Cable Act. The First Circuit decision unanimously reversed the lower court.

At oral argument, Matthew Hellman, a Washington attorney with Jenner & Block, had argued for the cable companies that if they can force customers to sign up for a package of stations, they should also be able to charge them by the month. He framed it as an area of competitive advantage.

“But what exactly is the competitive advantage, other than you get to keep people’s money even after they quit?” asked a skeptical U.S. Circuit Judge David Barron.

Hellman replied that not allowing pro-rata refunds made billing predictable.

“But allowing pro-rata refunds would be just as predictable,” Barron countered.

U.S. Circuit Judge O. Rogeriee Thompson, who like Barron was appointed by President Obama, stopped Hellman in his tracks by asking if the cable companies could have a yearly rate and charge people for a full year even if they quit after a week. Hellman had no ready answer.

In the end, Dyk concluded that the Maine law didn’t regulate rates but was an old-fashioned consumer protection law. “It has the plain purpose of protecting consumers from paying for cable after termination of service,” he said.

He also noted that the law fosters a competitive marketplace: “If anything, Maine's Pro Rata Act encourages competition by prohibiting cable companies from creating artificial barriers to switching between competitors.”

Similar laws have gotten mixed results in other courts, with a federal judge in New Jersey issuing a preliminary injunction against that state’s pro-rata law and a Nebraska state trial judge finding that such a law conflicted with other state statutes. Back in 1992, however, the Second Circuit said the Cable Act didn’t prevent a state consumer protection law that prohibited excessive “downgrade fees” when a customer switched to a less expensive package.

Interestingly, the First Circuit had invited the Federal Communications Commission to weigh in with an amicus brief, but it refused to do so.

"After due consideration, we have determined that we do not have anything material to add,” the agency said, punting the matter to the court to decide.

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