Opinion
06-CV-339 (ERK) (RER).
May 16, 2006
REPORT AND RECOMMENDATION
Plaintiff, JJ Sports Productions, Inc. ("JJ Sports"), brings this action against defendants, Gerard J. Louisias, Jr. and X-Clusive Hair Cutters (collectively "defendants" or the "barber shop"), alleging that they violated the Federal Communications Act of 1934, codified as amended at 47 U.S.C. §§ 553 and 605. Compl. ¶¶ 1, 19-36. More specifically, plaintiff alleges that defendants engaged in the unlawful interception and exhibition of the Hopkins/Taylor pay-per-view boxing event on July 16, 2005 (the "Event"). Compl. ¶ 19.
Upon plaintiff's application and in light of defendants' failure to appear in or otherwise defend this action, on April 12, 2006 the Clerk of the Court noted defendants' default pursuant to Fed.R.Civ.P. 55(a). Docket Entry 8. The Honorable Edward R. Korman then referred this case to me for a report and recommendation on the issue of damages. Docket Entry 9. In support of its default motion and application for damages plaintiff has submitted, inter alia, the affidavits of its President, Joseph Gagliardi, dated April 6, 2006, 2006 ("Pl. Aff."), and its counsel, Julie Cohen Lonstein, dated March 13, 2006 ("Lonstein Aff."), and a memorandum of law, dated April 6, 2006 ("Pl. Memo"). See Docket Entry 7. Following this Court's opinion denying plaintiff's motion for reconsideration in a very similar case, plaintiff submitted a supplemental memorandum of law, dated May 11, 2006 ("Suppl. Memo"), in this case. See Docket Entry 12.
Pursuant to this Court's May 11, 2006 order, plaintiff submitted copies of three unreported cases upon which it relied in its supplemental memorandum of law. See Docket Entry 13.
Facts
Plaintiff was granted the rights to distribute the Event, including all undercard bouts and the entire television broadcast via closed circuit television and encrypted satellite signal. Compl. ¶ 15. Plaintiff entered into agreements with various entities in the State of New York allowing them to publicly exhibit the Event to their patrons. Compl. ¶ 16. Defendants did not contract with plaintiff for the rights to exhibit the Event. Pl. Aff. ¶ 6.The satellite signal that transmitted the Event was encrypted to protect its access from those who did not contract with plaintiff to lawfully broadcast the Event. Plaintiff claims that defendants would not have the ability to receive the signal without: 1) the use of a "black box" which is purchased for a fee and when installed on a cable TV line will descramble reception of pay-per-view broadcasts; 2) misrepresenting their commercial nature of their establishment to the cable company in order to purchase the broadcast at the residential price of $54.95; or 3) the use of an illegal cable drop or splice from an adjacent apartment or home that had already purchased the broadcast at the residential price. Id. ¶ 10.
Plaintiff hired independent auditors to identify establishments that were unlawfully exhibiting the Event. Id. ¶ 4. Prior to visiting the establishments, the auditors were given a list of the locations that were authorized to exhibit the Event. Id. ¶ 5. On July 16, 2005, defendants intercepted and received the signal for the Event without authorization. Id. ¶ 7; Compl. ¶ 19. Defendants then broadcast the Event to the patrons within the barber shop located at 1030 Union Street, Brooklyn, New York 11225-1205. Id.
The auditor who visited the barber shop on the night of the Event submitted an affidavit dated July 7, 2005 ("Piracy Aff.") stating that during his visit he observed the exhibition of a portion of the undercard of the Event at the barber shop. Piracy Aff. at 1. According to the auditor, there was one television set and five people in the barber shop, which had an estimated capacity of 15. Id.
Plaintiff filed this action on January 23, 2006. Docket Entry 1. Defendants were served on February 9, 2006. Docket Entry 3. Defendants failed to appear or otherwise move with respect to the complaint. Plaintiffs then moved for default judgment on April 6, 2006. On April 26, 2006, Your Honor granted plaintiff's motion for default judgment, and referred this matter to me for an inquest on damages. By Order dated April 27, 2006, plaintiff was directed to submit papers in support or of its damages claims. Docket Entry 11.
Discussion
A. Liability
Once a default judgment is entered, a defendant is deemed to have admitted all of the well-pleaded allegations in the complaint pertaining to liability. See Greyhound Exhibitgroup, Inc. v. E.L.U.L. Realty Corp., 973 F.2d 155, 158 (2d Cir. 1992); Montcalm Pub. Corp. v. Ryan, 807 F. Supp. 975, 977 (S.D.N.Y. 1992).
The allegations in the complaint establish defendants' liability under § 605. Section 605(a) provides that "[n]o person not being authorized by the sender shall intercept any radio communication and divulge or publish the . . . contents . . . of such intercepted communication to any person." 47 U.S.C. § 605(a). Section 605(a) has been held to apply to the interception of cable communications originating as a satellite or radio transmission. See Int'l Cablevision, Inc. v. Sykes, 75 F.3d 123 (2d Cir.), cert. denied, 519 U.S. 929 (1996). Plaintiff alleges that defendants unlawfully intercepted plaintiff's satellite signal and then broadcast the Event without authorization. Compl. ¶¶ 19-20. Defendants' alleged conduct constitutes a violation of 47 U.S.C. § 605.
It is well-settled case law that a claimant who establishes liability under both 47 U.S.C. § 553 and § 605 may only recover damages under one section. See Am. Cablevision of Queens v. McGinn, 817 F. Supp. 317, 320 (E.D.N.Y. 1993). Plaintiff, therefore, elects to recover damages under § 605. Pl. Memo at 4.
B. Damages
Although the allegations of a complaint pertaining to liability are deemed admitted upon entry of a default judgment, allegations relating to damages are not. See Greyhound Exhibitgroup, 973 F.2d at 158. Rather, claims for damages must generally be established in an evidentiary proceeding at which the defendant is afforded the opportunity to contest the amount claimed. Id. An evidentiary presentation is required so that the court may ensure that there is a basis for the damages sought before entering judgment in the amount demanded. Fustok v. Conticommodity Servs., Inc., 873 F.2d 38, 40 (2d Cir. 1989). A court may make this determination based upon evidence presented at a hearing or upon a review of detailed affidavits and documentary evidence. See FED. R. CIV. P. 55(b)(2); Action S.A. v. Marc Rich Co., Inc., 951 F.2d 504, 508 (2d Cir. 1991); Fustok, 873 F.2d at 40. Plaintiff in this case seeks an award of statutory and enhanced damages, and investigative and attorney's fees and costs. Pl. Memo at 4. Defendant has not submitted any opposition to the papers submitted by plaintiff. Accordingly, a hearing is not warranted.
A claimant who has established liability under Section 605(a) may recover an award of statutory damages of not less than $1,000 or more than $10,000, as the court considers just, for each violation of the Section. See 47 U.S.C. § 605(e)(3)(C)(i)(II). The court may consider such factors as "the pecuniary loss sustained by the victim as a result of the offense, the financial resources of the defendant, . . . the financial needs and earning ability of the defendant . . . as well as the burden that a damage award would impose on the defendant relative to the burden alternative relief would impose." Cablevision Sys. Corp. v. De Palma, No. 87-CV-3528, 1989 WL 8165, at *6 (E.D.N.Y. Jan. 17, 1989) (quoting Cablevision Sys. Dev. Co. v. Cohen, No. 84-CV-1155, slip. op. at 4-5 (E.D.N.Y. May 20, 1988).
Some courts have awarded flat damages amounts when calculating damages. See Home Box Office v. Champs of New Haven, 837 F. Supp. 480, 484 (D. Conn. 1993) (awarding $10,000 in statutory damages); Kingvision Pay-Per-View Ltd. v. Brito, No. 05 Civ. 1042, 2006 WL 728408, at *2 (S.D.N.Y. Mar. 20, 2006) (awarding $5,000 in statutory damages); Kingvision Pay-Per-View, Ltd. v. Ruiz, No. 04 Civ. 6566, 2005 WL589403, at *2-3 (S.D.N.Y. Mar. 9, 2005) (awarding $5,000 in statutory damages). Other courts have assessed damages by multiplying the number of patrons by the amount an individual would pay to view the program at home on a pay-per-view channel. See Garden City Boxing Club v. Bello, No. 05-CV-1300, 2005 WL 2496062, at * 2 (E.D.N.Y. Sept. 20, 2005) (awarding statutory damages of $54.95 per patron); Time Warner Cable of New York City v. Taco Rapido Rest., 988 F. Supp. 107, 111 (E.D.N.Y. 1997) (awarding statutory damages of $50 per patron); Cablevision Systems Corp. v. 45 Midland Enterprises, 858 F. Supp. 42, 45 (S.D.N.Y. 1994) (same).
Pursuant to 47 U.S.C. § 605(e)(C)(3)(i)(II), plaintiff seeks a minimum statutory award of $824.25 or $54.95, the residential price of the event on pay-per-view, times 15, the capacity of the establishment. Pl. Memo at 6. This Court feels that the per patron analysis in the instant case will result in too low of an award and instead recommends a flat damages amount of $2,500. This amount is over three times the minimum amount plaintiff requested, and nearly three times the amount that plaintiff would have received from defendants for legitimately exhibiting the Event — $1,000. In its discretion, this Court believes that an award of $2,500 adequately compensates plaintiff, as it is more than the amount plaintiff would have received from defendants were they to have legitimately shown the Event. Further, and perhaps moreover, a $2,500 award will deter defendants, and other small businesses such as defendants, from illegally intercepting and exhibiting pay-per-view broadcasts in the future. See Kingvision Pay-Per-View, Ltd. v. Olivares, No. 02 Civ. 6588, 2004 WL 744226, at *4 (S.D.N.Y. Apr. 5, 2004) (holding that damages should be proportional to the size of the establishment and noting that small businesses need less monetary deterrence to prevent theft). It cannot be overlooked that defendants operate a small barber shop, and there were only 5 people, one of whom must have been the proprietor or an employee, who were present when the Event was shown. The Court recognizes that the recommended award is lower than what courts in this district and others have awarded in similar cases. Nevertheless, the Court remains convinced that the award is just and appropriate under the facts and law of this case. An award greater than $2,500 would, in this Court's view, be disproportionate to the violation of Section 605 involved here.
Of course, plaintiff's requested minimum award is below the $1000 statutory minimum set by 47 U.S.C. § 605(e)(3)(C)(i)(II).
See Supplemental Attorney Affidavit, dated May 15, 2006, at ¶ 3. Plaintiff's counsel incorrectly states that "[d]efendants would have been required to pay one thousand two hundred ($1,200.00) to legally purchase the Hopkins/Taylor boxing event." Id. (emphasis added). As counsel states in the succeeding sentence, "[t]his price includes the eight hundred dollar ($800.00) rate and the two hundred dollar ($200.00) activation fee." Id.; see also Exhibit A to Supplemental Attorney Affidavit. Eight hundred dollars plus two hundred dollars equals one thousand dollars ($1,000), not one thousand two hundred dollars ($1,200).
In its supplemental memorandum of law, dated May 11, 2006, plaintiff incorrectly states that defendants were "exhibiting the event to 15 patrons." Suppl. Memo at 4 (emphasis added). That simply is not the case. Piracy Aff. at 2 (noting that there were five people in the barber shop each of the three times the investigator counted within a two minute span).
Pursuant to 47 U.S.C. 605(e)(3)(C)(ii), plaintiff also seeks enhanced statutory damages of up to $100,000, contending that defendants wilfully violated the statute for commercial advantage. Pl. Memo at 6. Section 605(e)(3)(C)(ii) provides:
In any case in which the court finds that the violation was committed willfully and for purposes of direct or indirect commercial advantage or private financial gain, the court in its discretion may increase the award of damages, whether actual or statutory, by an amount of not more than $100,000 for each violation of subsection (a) of this section.
Courts use a variety of factors in determining whether a defendant's conduct is subject to enhanced damages for willfulness pursuant to Section 605(e)(3)(C)(ii). These factors include: repeated violations over an extended period of time; substantial unlawful monetary gains; significant actual damages to plaintiff; defendant's advertising for the intended broadcast of the event; defendant's charging a cover charge or premiums for food and drinks. See, e.g., Kingvision Pay-Per-View, Ltd. v. El Rey Del Bistec Y Caridad, Inc., No. 01 Civ. 6562 (SHS), 2001 WL 1586667, at * 2 (S.D.N.Y. Dec. 12, 2001). In any event, a court must find that a defendant's conduct was both willful and for commercial advantage before awarding enhanced damages under Section 605(e)(3)(C)(ii).
Wilfulness is defined as "disregard for the governing statute and an indifference for its requirements." Trans World Airlines, Inc. v. Thurston, 469 U.S. 111, 126-27 (1985). Plaintiff contends that defendants intercepted and broadcast the program without authorization, and moreover that defendants could not have done so without using an illegal device or misrepresenting the nature of their commercial establishment. Pl. Aff. ¶ 10; see also Time Warner Cable of New York City v. Googies Luncheonette, Inc., 77 F. Supp. 2d 485 (S.D.N.Y. 1999) ("Signals do not descramble spontaneously, nor do television sets connect themselves to cable distributions systems."). In the context of this default, plaintiff's allegations of willfulness need not be accepted as true because they go to the issue of damages, not liability. While plaintiff alleges that defendants could only receive the Event through illegal means, this Court is not so convinced. In other cases involving this plaintiff and others, counsel has admitted that, not infrequently, cable and satellite television providers knowingly connect commercial establishments to cable service and then bill them at residential rates without any affirmatively misleading conduct from the establishments themselves. Thus, it is quite possible that these defendants signed up for cable television legitimately, and through no fault of their own, were charged a residential, as opposed to commercial, rate. In any event, it is not necessary to reach the issue of willfulness as plaintiff has failed to sustain its burden to prove by a preponderance of the evidence that defendants committed a willful violation for Section 605 for commercial advantage.
See, e.g., Greyhound Exhibitgroup, 973 F.2d at 158 (defendant's default is only deemed an admission of the facts alleged in the complaint as to liability). Whether a defendant has illegally shown a cable program willfully and for commercial advantage are questions of fact as to damages, not liability. Indeed, the statutory provision upon which plaintiff relies in seeking enhanced damages — Section 605 (e) — is entitled " Penalties; civil actions; remedies; attorney's fees and costs; computation of damages . . .") (emphasis added). Additionally, the specific subsection begins, " Damages awarded by any court under this section shall be computed, at the election of the aggrieved party, in accordance with either of the following subclauses . . ." 47 U.S.C. § 605(e)(3) (emphasis added).
If defendants believed they were paying the appropriate rate for cable or satellite television service, and they then purchased the Event from their cable/satellite television provider, they would be subject to a maximum damage award of $250. 47 U.S.C. § 605(e)(3)(C)(iii) ("In any case where the court finds that the violator was not aware and had no reason to believe that his acts constituted a violation of this section, the court in its discretion may reduce the award of damages to a sum of not less than $250.").
Plaintiff's auditor observed a portion of the Event in defendants' barber shop at 9:32 p.m. Piracy Aff. at 1. This Court notes that there is no evidence that defendants were conducting business during the night of the broadcast or making any money as a result of broadcasting the Event. There is no indication that any of the five "patrons" were getting hair cuts, shaves, or purchasing hair care products. The auditor did not pay a cover charge nor were there any food or beverages sold, or available for sale. Piracy Aff. at 1. Furthermore, there is nothing in plaintiff's memoranda of law or affidavits that establishes as a matter of fact that the unlawful interception and exhibition of the Event resulted in commercial advantage to the defendants. It is unlikely that patrons would return to the barber shop for services simply because the barber shop exhibited a boxing match the night before. Finally, there is no proof of any of the factors courts have traditionally relied upon in awarding enhanced damages in cable theft cases, see El Rey Del Bistec Y Caridad, Inc., 2001 WL 1586667, at *2, and therefore such damages are not warranted.
Plaintiff argues that the mere fact that the auditor was able to enter the barber shop on the night in question, and that there were purported patrons inside at the time, as opposed to employees or friends of the owner, proves that defendants were exhibiting the Event for commercial advantage. Suppl. Memo at 4. Plaintiff also argues that commercial advantage is established here because "[b]arber shops also sell atmosphere and entertainment . . . [and] have become social clubs whose ours [sic] are not a typical 9 to 5, but often open all hours in the evening." Putting aside the fact that there are no affidavits to support the contention that barber shops "sell atmosphere and entertainment . . . [and] have become social clubs," plaintiff's arguments are unconvincing. The presence of four to five purported patrons inside a barber shop at 9:30 p.m. does not prove by a preponderance of the evidence that the barber shop was conducting business at that time. Proof that the barber shop was conducting business at such an hour would come in the form of observations that patrons were having their hair cut, beards or mustaches shaved or trimmed, or that they were purchasing hair care products. In sum, services needed to have been provided and money needed to change hands for the exhibition of the Event to have been for commercial advantage. Plaintiff's investigator did not indicate in his affidavit that he observed any such activity, thereby undercutting plaintiff's claims.
Equally unavailing is plaintiff's argument that because defendants defaulted it "was unable to obtain financial records of the Defendants," in the form of "receipts from the nights [sic] business," thereby making it impossible to prove financial gain from the exhibition of the boxing event. Suppl. Memo at 5. The form "piracy affidavit" that plaintiff's investigator completed had pre-printed spaces for the investigator to indicate whether he paid a cover charge to enter the barber shop, and whether he ordered and paid for any drinks. Similarly, there is a space on the form for the investigator to describe what he observed inside the establishment. It would have been very simple for the investigator to indicate on the form whether he observed any of the patrons getting haircuts, shaves, or purchasing hair care products on the night in question or whether any other commercial activity took place. Further, plaintiff could have sought post-default discovery on the issue of commercial advantage pursuant to Rules 26 or 69 of the Federal Rules of Civil Procedure, but did not do so.
In its supplemental memorandum, plaintiff cites four unreported cable theft cases from the Southern District of New York, all of which involve barber shops, for the contention that the denial of enhanced damages in such cases "is not inline with other similarly decided cases." Suppl. Memo at 3 (citing Garden City Boxing Club v. Diaz, et al., No. 05 Civ. 7209 (DC) (S.D.N.Y. Mar. 27, 2006); Garden City Boxing Club, Inc. v. Castillo, et al., No. 05 Civ. 7387 (DC) (S.D.N.Y. Mar. 27, 2006); Kingvision Pay-Per-View, Ltd. v. Medrano, et al., No. 01 Civ. 5035 (KMW) (KNF), 2004 U.S. Dist. LEXIS 13282 (S.D.N.Y. July 14, 2004); Entm't by J J, Inc. v. AJ's Barber Shop, et al., No. 01 Civ. 7596 (DAB) (KNF), 2003 U.S. Dist. LEXIS 22492 (S.D.N.Y. Dec. 11, 2003)). Initially, these cases are not binding on this Court. Further, the assessment of damages in a cable theft case is a fact-sensitive inquiry, and not merely an exercise in determining what other courts have done in similar cases, and then doing the same. Moreover, none of the decisions plaintiff cites contains an in depth analysis of the issue of enhanced damages in cable theft cases involving barber shops. Indeed, the district court awarded enhanced damages in Diaz and Castillo merely by making handwritten notations on the default judgment orders the plaintiffs proposed. Additionally, in both Medrano and AJ's Barber Shop, the magistrate judge recommended an enhanced damages award because plaintiff's "submissions establish[ed] that defendants' display of the boxing match was likely to have resulted in an increase in the number of patrons at its establishment, as well as an increase in sales of food and beverages." AJ's Barber Shop, 2003 U.S. Dist. LEXIS 22492, at *12 (emphasis added); see also Medrano, 2004 U.S. Dist. LEXIS 13282, at *18. Here, of course, there is no proof in any of plaintiff's submissions that the display of the Event resulted in an increase in the number of patrons at the establishment, or that food or beverages were sold or offered for sale on the night in question. Thus, these cases are inapposite.
Ultimately, by the very terms of Section 605(e)(3)(C)(ii), the decision to recommend an award of enhanced damages is left to the sound discretion of the Court. See 47 U.S.C. § 605 (e)(3)(C)(ii) ("the court in its discretion may increase the award of damages") (emphasis added); see also Time Warner Cable of New York City v. Taco Rapido Rest., 988 F. Supp. 107, 110 (E.D.N.Y. 1997). Indeed, plaintiff explicitly recognized the discretionary nature of an award of damages in its papers in support of the default motion. Here there are simply no controlling decisions or established facts which compel this Court to exercise its discretion and recommend an enhanced damages award of any amount.
C. Costs and Fees
Plaintiff also seeks to recover $1,149.00 in attorney's fees. Lonstein Aff. ¶ 3(d). An award of fees, as well as costs, is mandatory pursuant to 47 U.S.C. § 605(e)(3)(B)(iii). As directed by the Second Circuit in New York State Ass'n for Retarded Children v. Carey, 711 F.2d 1136, 1148 (1983), plaintiff has submitted a declaration of its attorney and purported contemporaneous time records. Lonstein Aff. ¶ 3. In her affidavit, counsel sets forth a description of the billing rates of her firm which are as follows: $200.00 per hour for work performed by an attorney and $75.00 per hour for work performed by a paralegal. Id. ¶ 4. The rates charged by counsel and the hours expended on this case are reasonable. See Tokyo Electron Arizona, Inc. v. Discreet Indus. Corp., 215 F.R.D. 60, 64 (E.D.N.Y. 2003) (finding rates of $400 for a partner and $180 for a third-year associate reasonable); New Leadership Comm. v. Davidson, 23 F. Supp.2d 301, 310 (E.D.N.Y. 1998) (finding rates of $275 for a partner and $200 for an associate reasonable).
Counsel asserts it incurred $450.00 in costs which consists of filing fees and the cost of service of process, see Lonstein Aff. ¶ 3, which this Court finds reasonable.
Plaintiff also seeks reimbursement of auditing fees in the amount of $350.00. See Pl. Aff. ¶ 9, Ex. D; Lonstein Aff. ¶ 3©. The language of Section 605(e)(3)(B)(iii) does not explicitly provide for the recovery of investigative costs or auditing fees. There is legislative history for the statute, however, that does indicate that at least some members of Congress intended that such costs be recoverable. Kingvision Pay-Per-View Ltd. v. Autar, ___ F. Supp. 2d ___, 2006 WL 997243, *6 (E.D.N.Y. Apr. 13, 2006) (citing 1984 U.S.C.C.A.N. 4742, 4750, 1984 WL 37497 (Leg. Hist.) (1984)). Nevertheless, to be recoverable, such costs must be subjected to the same level of scrutiny to which requests for attorneys' fees are subjected:
Thus, a plaintiff must document: (1) the amount of time necessary for the investigation; (2) how much the investigators charged per hour; [and] 93) why the investigators are qualified to demand the requested price.Id. (citing Int'l Cablevision, Inc. v. Noel, 982 F. Supp. 904, 918 (W.D.N.Y. 1997). Here, plaintiff has not submitted any such proof. Accordingly, I respectfully recommend that plaintiff's request for auditor's fees be denied.
I therefore recommend that plaintiff be awarded $1,149.00 in fees and $450.00 in costs for a total of $1,599.00.
Conclusion
For the foregoing reasons, I respectfully recommend that default judgment be entered against defendants in the amount of $4,099.00, comprised of $2,500.00 in statutory damages and $1,599.00 in attorney's fees and. Any objections to the recommendations made in this Report must be filed with the Clerk of the Court and the Chambers of the Honorable Edward R. Korman within ten days of receiving this Report and Recommendation and, in any event, on or before May 31, 2006. Failure to file timely objections may waive the right to appeal the District Court's Order. See 28 U.S.C. § 636(b)(1); FED. R. CIV. P. 6(a), 6(e), 72; Small v. Secretary of Health Human Servs., 892 F.2d 15, 16 (2d Cir. 1989). Plaintiff is hereby directed to serve copies of this Report and Recommendation upon defendants at their last known addresses, and to file proof of service with the Clerk of the Court.