Loading...
3. Adopt Resolution Authorizing Executing an Agreement with Mediacom0 CITY OF CHANHASSEN 7700 Market Boulevard PO Box 147 Chanhassen, MN 55317 Administration Phone: 952.227.1100 Fax: 952.227.1110 Building Inspections Phone: 952.227.1180 Fax: 952.227.1190 Engineering Phone: 952.227.1160 Fax: 952.227.1170 Finance Phone: 952.227.1140 Fax: 952.227.1110 Park & Recreation Phone: 952.227.1120 Fax: 952.227.1110 Recreation Center 2310 Coulter Boulevard Phone: 952.227.1400 Fax: 952.227.1404 Planning & Natural Resources Phone: 952.227.1130 Fax: 952.227.1110 Public Works 7901 Park Place Phone: 952.227.1300 Fax: 952.227.1310 Senior Center Phone: 952.227.1125 Fax: 952.227.1110 Web Site www.ci.chanhassen.mn.us MEMORANDUM TO: Mayor & City Council FROM: Greg Sticha, Finance Director (�'y DATE: January 9, 2012 06 SUBJ: Adoption of Resolution Authorizing Execution of an Agreement with Mediacom PROPOSED MOTION Staff recommends the City Council adopt the following motion: "The City Council adopts a resolution authorizing execution of an agreement with Mediacom for unpaid franchise and PEG fees due to inadvertent accounting errors." Approval of this item requires a simple majority vote of the City Council. BACKGROUND Following an audit of Mediacom, the city's cable television service provider, an inadvertent accounting error was found that resulted in underpayment of the franchise and PEG fees owed to the city. Attached is a memo from Brian Grogan of Moss & Barnett, the city's cable television legal counsel, which explains in detail the entire proceedings that have occurred to get us to the point of having an agreement in place for these unpaid fees. Also in the memo is an explanation of each of the fees in the city's franchise agreement. Mr. Grogan will be at the meeting to answer any additional questions the city council may have. RECOMMENDATION Staff recommends that the City Council adopt the attached Resolution Authorizing Execution of an Agreement with Mediacom Minnesota, LLC and Amendment of Cable Television Franchise Agreement." ATTACHMENTS: 1. Resolution Authorizing Execution of Agreement 2. Settlement Agreement 3. Memo from Brian Grogan of Moss & Barnett dated December 29, 2011 f:\gregs \mediacom audit 201 I \city council memo 1- 9- 12.docx Chanhassen is a Community for Life - Providing for Today and Planning for Tomorrow 3 RESOLUTION NO. AUTHORIZING EXECUTION OF AN AGREEMENT WITH MEDIACOM MINNESOTA, LLC AND AMENDMENT OF CABLE TELEVISION FRANCHISE AGREEMENT WHEREAS, Mediacom Minnesota, LLC ( "Mediacom ") operates a cable system in the City of Chanhassen, Minnesota ( "City ") and pays franchise fees and PEG access fees (collectively "Fees ") pursuant to a Cable Television Franchise Agreement adopted by the City on May 26, 1998 pursuant to Chapter 7.5 of the City's Code of Ordinances ( "Franchise "); and WHEREAS, the City and Mediacom have identified inadvertent accounting errors with respect to Mediacom's payment bf the Fees under the Franchise which Mediacom and the City wish to correct; and WHEREAS, the City and Mediacom now desire to conclude, settle, release and discharge once and forever, all rights, claims, causes of actions, liabilities, disputes and demands arising out of or in any way relating to the Fees due and owing to the City pursuant to the Franchise; and WHEREAS, the City and Mediacom have also agreed to amend the Franchise to clarify how certain Fee payments will be calculated going forward. WHEREAS, the City and Mediacom have mutually agreed to the terms of the Agreement attached hereto as Exhibit A ( "Agreement "); and WHEREAS, the City Council has received and reviewed the Agreement. NOW, THEREFORE, BE IT HEREBY RESOLVED BY THE CITY COUNCIL OF THE CITY OF CHANHASSEN, MINNESOTA: 1. The Agreement is hereby determined to be acceptable and the City Manager is authorized to execute the Agreement. 2. The Franchise is hereby amended as set forth in the Agreement. Adopted by the City Council for the City of Chanhassen, Minnesota this 9th day of January, 2012. CITY OF CHANHASSEN, MINNESOTA By: Its: ATTEST: By: Its: 1909162v1 Todd Gerhardt, City Manager AGREEMENT This Agreement (the "Agreement ") is made this 9th day of January, 2012 ( "Effective Date "), by the City of Chanhassen, Minnesota (the "City ") and Mediacom Minnesota, LLC ( "Mediacom "). REC'.TTAI N WHEREAS, Mediacom operates a cable system in the City and pays franchise fees and PEG access fees (collectively "Fees ") pursuant to a Cable Television Franchise Agreement adopted by the City on May 26, 1998 pursuant to Chapter 7.5 of the City's Code of Ordinances ( "Franchise "); and WHEREAS, Mediacom and City have identified inadvertent accounting errors which they wish to correct for the time period beginning with the effective date of the Franchise, May 26, 1998 until the Effective Date of this Agreement ( "Accounting Period "); and WHEREAS, Mediacom and the City now desire to conclude, settle, release and discharge once and forever, all rights, claims, causes of actions, liabilities, disputes and demands arising out of or in any way relating to the Fees during the Accounting Period ( "Claims "); and WHEREAS, the City and Mediacom have also agreed to amend the Franchise to clarify how certain fee payments will be calculated going forward. NOW THEREFORE, in consideration of the foregoing, and in consideration of the mutual promises and obligations hereinafter set forth, and for good and valuable mutual consideration, the receipt and sufficiency of which is hereby acknowledged, the parties to this Agreement hereto agree as follows: AGREEMENTS 1. AMOUNT Within thirty (30) days after the Effective Date of this Agreement, Mediacom shall submit payment to the City in the amount of Six Hundred Twenty Five Thousand Dollars ($625,000.00) ( "Payment "). It is expressly understood and agreed that the Payment represents full and complete satisfaction and compromise of any and all Claims. It is further understood that the Payment shall not constitute "Gross Revenue" in whole or in part as that term is defined in the Franchise. 2. USE OF AMOUNT The Payment shall not be restricted in any manner and may be used by the City for any lawful purpose which the City may designate and on a time frame within the City's discretion. 1908957v2 For the consideration set forth in this Agreement, the City does hereby release and forever discharge Mediacom, its parents, subsidiaries, officers, directors, shareholders, employees, predecessors, successors and assigns of and from any and all Claims. 4. AMENDMENT Within sixty (60) days of the execution of this Agreement, the City and Mediacom shall amend the Franchise to address the calculation of franchise fees. Mediacom shall be held harmless from any claims regarding franchise fees arising from or related to the amended language below from and after the Accounting Period until such time as this amended language is effective. Proposed Franchise Amendment - Chapter 7.5, Section 1.2 (n), is amended to add a sentence: "Gross Revenue shall not include PEG fees, tower rent, network capacity and facilities rent for the provision of non -cable voice service or non -cable data services, nor the amount of any other fee, tax, assessment, or charge of any kind imposed by any governmental authority on the transaction between the Grantee and the Subscriber." 5. VOLUNTARY AGREEMENT/NO WAIVER OF RIGHTS This Agreement is freely and voluntarily given by each party, without any duress or coercion, and after.each party has consulted with its counsel. Each party has carefully and completely read all of the terms and provisions of this Agreement. It is understood and agreed by the City and Mediacom that nothing herein shall be deemed to be an admission of liability by Mediacom with respect to the matter of this Agreement. Nothing herein shall be deemed to be a waiver of any rights or obligations that City and Mediacom have that are not otherwise specifically addressed in this Agreement. 6. CONFIDENTIALITY The City and Mediacom worked cooperatively to identify the inadvertent accounting errors which they addressed in this Agreement and shared confidential data and documents that would normally not be provided. The City agrees to keep confidential any proprietary or confidential books or records to the extent permitted by applicable local, state and federal law ( "Applicable Law "). If the City receives a request to disclose such information under the Minnesota Data Practices Act or other Applicable Law, the City shall promptly inform Mediacom prior to disclosing such information and give Mediacom an opportunity to object and seek relief at its own expense before a court of competent jurisdiction. 7. BINDING EFFECT This Agreement will inure to the benefit of and be binding upon the parties and their respective successors and assigns. The parties for themselves and their respective successors, assigns and 1908957v2 legatees agree to join in or execute any instruments and to do any other act or thing necessary or proper to carry into effect this or any part of this Agreement. 8. GOVERNING LAW This Agreement, and any controversies arising hereunder, shall be interpreted and adjudicated in accordance with the laws of the State of Minnesota and venue for any actions brought under this Agreement shall be located in state or federal court within the State of Minnesota. IN WITNESS WHEREOF, the parties have executed this Agreement as their free and voluntary acts and deeds, effective as of the date first above written. CITY OF CHANHASSEN, MINNESOTA MEDIACOM MINNESOTA, LLC I: C By: Mayor Its: City Clerk 1908957v2 Moss & Barnett A Professional Association MEMORANDUM To: Todd Gerhardt From: Brian T. Grogan Client: 27981.1 Date: December 29, 2011 Re: Franchise Fee and PEG Fee Settlement Agreement - City of Chanhassen 1. What happened? The City of Chanhassen ("City'D has two key documents that govern the relationship between the City and its cable operator. The first is a Regulatory Ordinance which is included as part of the City's Code of Ordinances. This Regulatory Ordinance includes standard provisions which apply to any company seeking to provide cable services in the City. This Regulatory Ordinance also authorizes the City to grant cable television franchises to one or more qualified cable operators. Mediacom was granted such a franchise on May 26, 1998 ("Franchise') in the form of a renewal of a pre- existing franchise which had been operated by Triax Cable. Among the many provisions contained within the Franchise, Section 3.2 requires Mediacom to remit to the City a five percent (5 %) franchise fee based on its gross revenues from the provision of cable services in the City. In addition, Section 6.2 and Exhibit E, paragraph 6, of the Franchise require Mediacom to remit payment in the form of $.84 per subscriber per month to support local public, educational and governmental ("PEG'S programming in the City. These payments for both the franchise fees and the PEG fees are to be made on a quarterly basis to the City together with a brief description of how the fees were calculated. The franchise fees are calculated based on a definition of gross revenues that is contained in Section 1.2(n) of the Regulatory Ordinance. This definition covers the vast majority of revenue derived by Mediacom from the provision of cable services in the City. The PEG fees are calculated based on the number of basic cable subscribers in the City rather than on a percentage of revenue. In late 2010 the City determined to conduct an audit of Mediacom's payments to the City as a matter of routine Franchise compliance verification. The City investigated appropriate consultants to assist in this audit and in the spring of 2011 the City contracted with Scott Lewis, an accountant specializing in cable television franchise fee audits around the country. After discussions with Mr. Lewis regarding the timeline and the costs associated with the audit, the audit was commenced in June of 2011 and completed in late July 2011. Mr. Lewis submitted findings to the City upon completion of the audit and the City commenced negotiations with Mediacom in August of 2011. Significant information was exchanged between the City and Mediacom to verify the accuracy of the findings and Mr. Lewis was in direct contact 4800 WELLS FARGO CENTER 1 90 South Seventh Street Minneapolis, MN 55402 P:612- 877 -5000 F:612- 877 -5999 W:moss- barnett.com Todd Gerhardt December 29, 2011 Page 2 with Mediacom's financial representatives. In December of 2011 the City and Mediacom reached an agreement regarding the amount to be paid by Mediacom resulting from the audit findings. The settlement amount includes underpayments for both franchise fees and PEG fees over the course of the Franchise term. 2. What is the PEG fee? As described above, the PEG fee was an amount negotiated between Mediacom and the City in 1998 and added to the Franchise to provide a funding source to support PEG programming in the City. Throughout the Twin Cities Metropolitan Area many cable television franchises require cable operators to provide financial support for local PEG programming. Cities are free to use this funding for PEG programming purposes but these funds may not be allocated as part of a city's general funds. Federal law provides that if a city is collecting a five percent (5 %) franchise fee any fees collected for PEG financial support must be specifically designated for PEG programming. 3. Why were fee payments in error? The franchise fee and PEG fee amounts date back to the start of the Franchise in 1998. Certain errors appear to have occurred early on during the Franchise term and then simply compounded as the years went by with neither party aware . City received its only PEG payment from Mediacom in the fall of 2009 which included nine (9) months of back payments. Prior to that the City had never received any PEG payment from Mediacom under the Franchise. It was this payment that sparked the City's interest in conducting an audit of payments due under the Franchise. Issues related to underpaid franchise fees appear to result from some coding issues for various revenue categories and a difference of interpretation regarding the definition of gross revenues contained within the City's Regulatory Ordinance. These issues were resolved through settlement negotiations that culminated in December 2011. 4, How the City came to the settlement. After receiving the audit findings from Mr. Lewis the City first contacted Mediacom's general manager to inform him of the issue and forwarded draft documentation from Mr. Lewis which outlined the alleged discrepancies. Mediacom was cooperative during the process and directed its internal financial staff to work directly with Mr. Lewis and the City's finance director, Mr. Greg Sticha, to carefully review each item and determine if the parties were in agreement on the findings. Mediacom clarified certain issues which resulted in revised findings and disputed other findings which resulted in good faith negotiations between the City and Mediacom to resolve the issues. Mediacom was represented by legal counsel during the proceeding as was the City through my office. In the end, the parties reached a mutually acceptable agreement on a final settlement figure and memorialized this settlement in the Agreement now before the City Council for consideration. 5. Recommendation, I have assisted the City on this matter since the findings of Mr. Lewis were issued in the summer of 2011. Mediacom raised a number of arguments related to its obligation to remit Todd Gerhardt December 29, 2011 Page 3 payment to the City for fees that were due as far back as 1998. While the City did not accept or agree with these arguments, Mediacom certainly could have mounted a good faith challenge to any enforcement action brought by the City to enforce payment of the fees owed. The settlement figure arrived at between the City and Mediacom represents a fair and equitable resolution of this matter. I recommend that the City accept this settlement to resolve all issues related to franchise fee and PEG fee payments under the Franchise. I also recommend that the City agree to the proposed amendment to the Franchise which clarifies a disagreement between the parties regarding certain revenue categories included within the definition of gross revenues in the Regulatory Ordinance. If you should have any questions or if I can provide any additional information please feel free to contact me. 1909161v1