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Texas Cities Sue Netflix, Hulu, Disney+ Over Municipal Franchise Fees

A group of Texas cities is again trying to collect allegedly unpaid “municipal franchise fees” from streaming services Netflix, Disney+ and Hulu dating back as far as 2007.

The cities, which include Rowlett and Abilene, Allen, Amarillo, Arlington, Austin, Beaumont, Carrollton, Dallas, Denton, Frisco, Fort Worth, Garland, Grand Prairie, Houston, Irving, Lewisville, McKinney, Mesquite, Nacogdoches, Pearland, Plano, Sugar Land, Tyler and Waco, claim the annual franchise fees are required by the Texas Public Utility Regulatory Act (PURA) and used to fund basic city services.

“With this lawsuit, we hope to ensure streaming video companies’ compliance with their PURA obligations moving forward and also recoup unpaid franchise fees from the Disney, Hulu, and Netflix streaming services as follow-on relief,” Blake Margolis, mayor of Rowlett, said in a statement. “Franchise fees are an important source of city revenue. We have an obligation to our residents to ensure that these companies comply with state law and pay what is owed to the City of Rowlett.”

Under the PURA, a video service provider must pay a Texas municipality a 5% franchise fee, if a video service’s programming is delivered via wireline facilities located at least in part in the public right of way, such as utility poles over the streets or sidewalks or beneath the roads. Franchise fees help fund city services including public safety and road repairs.

“Disney, Hulu and Netflix have long withheld statutorily required payments to cities throughout Texas, depriving them of fees that help fund essential city services,” said Steven Wolens, a principal with the Dallas-based McKool Smith law firm, which filed the suit on behalf of the cities.

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Rowlett is seeking the reimbursement of annual franchise fees, as well as interest, since Disney, Hulu, and Netflix began streaming their platforms in Texas in 2007, 2011, and 2019, respectively.

McKool Smith is co-counsel on the lawsuit with Austin-based Ashcroft Sutton Reyes and St. Louis-based Korein Tillery. Additional cities are expected to join the lawsuit.

The lawsuit was filed despite a judge’s rejection of a similar complaint filed against Netflix and other streamers last October. Motions have also been filed against Netflix by cities in California, Illinois, Indiana and New Jersey with no success.

Netflix & Co. were able to successfully argue that they held no specific “certificate of franchise authority” within the plaintiff cities.

Judge Robert W. Schroeder, III sided with the defendants, finding the language of the Texas Utilities Code unequivocal.

“It is not the province of this court, or courts anywhere, to read words out of a statute,” Judge Schroeder said, as reported by LawStreet.com.

Judge Schroeder dismissed the complaint “without prejudice” subject to refiling “should the defendants become holders of state-issued certificates of franchise authority.”

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