EXPLAINER: Legal points in Calida's quo warranto vs ABS-CBN

MANILA, Philippines – Solicitor General Jose Calida will once again try his quo warranto luck as he tries to revoke ABS-CBN's franchise through the Supreme Court, filing a 63-page petition before the High Court on Monday, February 10.

The petition accuses ABS-CBN of unlawfully exercising its franchise, by allegedly offering paid broadcast without government approval, and by allegedly allowing foreign ownership of the corporation.

Section 1(c), Rule 66 of the Rules of Court says a quo warranto petition can be filed against "an association which acts as a corporation within the Philippines without being legally incorporated or without lawful authority so to act."

Is Supreme Court the proper venue?

Time and time again, the Supreme Court has reiterated that it is not a trier of facts, dismissing big cases on grounds that it violated the hierarchy of courts.

In the landmark ruling Gios-Samar vs DOTC in March 2019, the Supreme Court said it would no longer tolerate cases that invoke "transcendental importance."

"Direct resort to the Honorable Court is justified as this case is of transcendental importance and of first impression," Calida said in the petition.

Law Professor Ted Te said Calida cannot go straight to the Supreme Court for the ABS-CBN case, citing the Gios Samar decision, particularly the part where the High Court said:

"When a question before the Court involves determinaion of a factual issue indispensable to the resolution of the legal issue, the Court will refuse to resolve the question....Such question must first be brought before the proper trial courts or the Court of Appeals, both of which are specially equipped to try and resolve factual questions."

One of the factual issues in the petition is whether ABS-CBN violated its franchise terms when it sold its product ABS-CBN TV Plus, under which subscribers can pay another fee on top to be able to watch movies for a week through the Kapamilya Box Office (KBO) channel.

Calida said ABS-CBN did not secure the necessary permits from the National Telecommunications Commission (NTC), citing an order from the NTC in 2019 that supposedly orders the network to "refrain from offering any pay television service."

ABS-CBN, in a statement, said "all our broadcast offerings, including KBO, have received the necessary government and regulatory approvals and are not prohibited by our franchise."

Te said that to resolve this, Calida could have gone to the NTC and launched an administrative action against ABS-CBN.

It's similar to what Calida did when he initiated an investigation against Rappler before the Securities and Exchange Commission (SEC), which is a quasi-judicial body.

Calida cited the 2009 Supreme Court decision Divinagracia vs Consolidated Broadcasting System (CBS), where the petitioner asked the NTC to revoke the license of CBS.

The Supreme Court ruled in that case that there is no law that allows an administrative agency such as the NTC to take away CBS' legislative franchise. The ruling contemplated a quo warranto petition as an alternative mode.

What does this mean for PDRs?

Calida also hit ABS-CBN for alleged foreign ownership, comparing the case to Rappler which is facing an SEC shutdown order because of its Philippine Depositary Receipts (PDRs).

PDRs are financial instruments used by media entities to allow foreign investments without violating the constitutional rule that media companies should be 100% Filipino-owned. PDRs are a common, lawful practice, and their legality has been upheld by the SC. (READ: Misconceptions on PDRs) 

But unlike Rappler, Calida seems to be implying that the mere issuance of a PDR to a foreign company is illegal.

"I think that is his working theory," said Te.

In the Rappler case, the SEC found questionable the terms that Rappler entered into with foreign investor Omidyar, particularly the provision where Rappler commits to having a prior good faith discussion before changing anything in its articles of incorporation.

In ABS-CBN's case, Calida's petition makes no mention of such similar terms.

Calida just listed the foreign companies that have been issued PDRs by ABS-CBN, saying the scheme has allowed "foreigners to influence and participate in the mass media enterprise of the Philippines through the PDRs."

"This scheme is not only prohibited by the 1987 Constitution but criminal liability is also imposed on those who violate foreign equity restrictions and evade nationalization laws of the Philippines through various modes of proxy arrangement, making it appear as legal, but the entirety of the arrangement is to accomplish a transaction not allowed under Philippine laws," said the petition.

Calida's holistic attack on ABS-CBN's PDR may have implications on the mechanism of PDRs in general, especially since other broadcast companies issue the same to raise capital.

"ABS-CBN Holdings’ Philippine Deposit Receipts or PDRs were evaluated and approved by the Securities and Exchange Commission and the Philippine Stock Exchange prior to its public offering," said ABS-CBN.

Constitutional law professor Tony La Viña said this theory implies "that all PDRs are not constitutional for industries that have nationality requirements."

"If accepted by the Supreme Court, the economic implications not only to media companies but to many other industries are enormous. Capital will quickly dry up and foreign direct investment will go down dramatically," said La Viña.

What will happen now?

Section 8 of Rule 66 allows the court to reduce the normal period for resolving the case and says quo warranto actions "may be given precedence over any other civil matter pending in the court."

Meanwhile, ABS-CBN's franchise is set to expire on March 30.

Te said the quo warranto petition cannot stop the House of Representatives from deliberating on the bills to renew ABS-CBN's franchise. 

"If franchise is granted the petition is moot. If Calida airs his arguments in Congress, if summoned, it will be moot because he has now shown that there is a viable forum outside the Supreme Court," said Te.

"If the SC grants the quo warranto petition before the Congress renews the franchise, Congress can still grant the franchise because it’s a separate power in itself," said Te.

Justice Secretary Menardo Guevarra said as much.

"The filing of the petition for quo warranto seeking the forfeiture of ABS-CBN's franchise is independent of and separate from the legislative process of granting the renewal of the said franchise upon expiration of its term in March," said Guevarra. – Rappler.com

Lian Buan

Lian Buan covers justice and corruption for Rappler. She is interested in decisions, pleadings, audits, contracts, and other documents that establish a trail. If you have leads, email lian.buan@rappler.com or tweet @lianbuan.

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