Opinion
Civil Action No. CCB-07-1001.
January 29, 2008
MEMORANDUM
Now pending before the court is a motion for summary judgment filed by plaintiffs Sinclair Television Group, Inc. ("Sinclair") and Second Generation of Iowa, Ltd. ("Second Generation") against defendant Mediacom Communications Corp. ("Mediacom"). Sinclair and Second Generation are suing Mediacom for breach of contract. The agreement at issue is the Retransmission Consent Agreement dated February 2, 2007 (the "RCA"), which was entered into by Sinclair and Mediacom to resolve a lawsuit brought by Mediacom against Sinclair in the U.S. District Court for the Southern District of Iowa (the "Iowa litigation"). See Mediacom Comm. Corp. v. Sinclair Broadcast Group, Inc., 460 F. Supp. 2d 1012 (S.D. Iowa 2006). The issues in this motion have been fully briefed and a hearing was held on January 25, 2008. For the reasons stated below, the plaintiffs' motion will be denied.
In the Iowa litigation, Mediacom sued Sinclair for violations of the Sherman Act, tortious interference with contracts and business expectations, and unfair competition. The district court denied Mediacom's motion for a preliminary injunction on the antitrust claims, and the parties agreed to the RCA soon thereafter, resulting in dismissal of the suit with prejudice.
BACKGROUND
As general background to this lawsuit, until 1992, cable operators were not required to compensate local broadcast stations for retransmitting local broadcasts on their cable networks. Congress's Cable Television Consumer Protection and Competition Act of 1992, however, mandated that no cable system or multichannel video programming distributor ("MVPD") could retransmit the signal of a broadcasting station without the express authority of the originating station. 47 U.S.C. § 325(b)(1)(A). The local broadcaster was left the option of either requiring the local cable provider to retransmit the signal without a fee (the "must-carry right"), or negotiating a fee to be paid by the cable provider to the broadcaster for retransmitting the signal (the negotiated "retransmission consent right"). The risk to the local broadcaster with the second option, of course, is that the cable provider is not required to accept the fee arrangement and is then not required to retransmit the local broadcaster's signal. Under federal law, an agreement between the local broadcaster and the cable provider pursuant to either of the two options is valid for three years, and then subject to reconsideration. Id. at § 325(b)(3)(B).
At issue in this suit is section 8(b) of the RCA, which provides that:
If, while this Agreement is in effect, Sinclair (directly or indirectly and regardless of the form of transaction) acquires a controlling interest in, or the right to program or grant retransmission consent for, any broadcast television station that immediately prior to the acquisition was retransmitted by any cable television system in which Operator has (directly or indirectly) a controlling interest , or broadcasts within the DMA of any such system or is "significantly viewed" (as defined in the rules of the Federal Communications Commission) within any part of the area served by any System, Sinclair shall have the option, exercisable within thirty days after such acquisition to require Operator to carry the signals of such station in accordance with this Agreement, in which case such station shall be a "Station" for purposes of this Agreement as of the date such election is made by Sinclair and shall be subject to all terms and conditions of this Agreement throughout the term hereof, except that the payments due from Operator shall be adjusted on the basis set forth on Schedule C to this Agreement. . . . (emphasis added).
According to Sinclair, this provision of the RCA clearly trumps or supplants any preexisting arrangement between Mediacom and any local broadcaster that subsequently assigns to Sinclair its right to grant its retransmission consent rights. With this contract interpretation in mind, Sinclair, the owner of Iowa CBS affiliate KGAN, entered into an agreement with Second Generation, the broadcast license owner of Iowa FOX affiliate KFXA, that enabled Sinclair to acquire the right to grant the retransmission consent rights of the KFXA station. ( See Pl.'s Mem. at Ex. 2, Amendment No. 1.) Second Generation, however, had a preexisting retransmission consent agreement with Mediacom for a negotiated fee and a three-year term, ending on December 31, 2008. Sinclair now argues that section 8(b) of the RCA requires Mediacom to replace its Second Generation retransmission consent agreement with a new consent agreement with Sinclair at a fee rate dictated by the RCA. According to Sinclair, the RCA arrangement levels the playing field between local broadcasters and cable providers, which historically held significant leverage in negotiating retransmission fees. Arguing that section 8(b) of the RCA is clear and unambiguous, Sinclair suggests that it is entitled to summary judgment on its breach of contract claim without the need for further discovery.
The parties have not submitted the RCA in its entirety, but it is clear from the pleadings that the new retransmission consent fee schedule for KFXA would be higher than the original fee rate paid to Second Generation. In fact, it appears that Mediacom would be required to pay retransmission fees equivalent to the amount being paid to Sinclair for retransmitting its CBS affiliate on the Mediacom network.
Mediacom responds by arguing that Sinclair's motion for summary judgment is premature, because Mediacom is entitled to a reasonable period of discovery. Mediacom notes that in August 2007 the parties agreed to a discovery period of eight months, ending on May 1, 2008. Thus, Mediacom first argues that granting summary judgment would be improper until it has had a reasonable chance to develop the facts necessary for its defenses and counterclaims. In support of this argument, Mediacom has filed a detailed and specific Rule 56(f) affidavit. Second, Mediacom argues that section 8(b) of the RCA does not unambiguously give Sinclair the right to supplant Mediacom's existing retransmission consent agreements and that extrinsic evidence will reveal that Mediacom did not intend to give Sinclair such a right. Third, Mediacom suggests that Sinclair's interpretation and/or application of section 8(b) is contrary to antitrust and communications laws and would render the provision void. Finally, Mediacom continues to assert that its additional contract defenses of mistake, unconscionability, and economic duress will be more fully developed following discovery.
ANALYSIS
Rule 56(c) of the Federal Rules of Civil Procedure provides that summary judgment: shall be rendered forthwith if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law.
The Supreme Court has clarified this does not mean that any factual dispute will defeat the motion:
By its very terms, this standard provides that the mere existence of some alleged factual dispute between the parties will not defeat an otherwise properly supported motion for summary judgment; the requirement is that there be no genuine issue of material fact.Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247-48 (1986) (emphasis in original).
"The party opposing a properly supported motion for summary judgment `may not rest upon the mere allegations or denials of [his] pleadings,' but rather must `set forth specific facts showing that there is a genuine issue for trial.'" Bouchat v. Baltimore Ravens Football Club, Inc., 346 F.3d 514, 525 (4th Cir. 2003) (alteration in original) (quoting Fed.R.Civ.P. 56(e)). The court must "view the evidence in the light most favorable to . . . the nonmovant, and draw all reasonable inferences in her favor without weighing the evidence or assessing the witnesses' credibility," Dennis v. Columbia Colleton Med. Ctr., Inc., 290 F.3d 639, 644-45 (4th Cir. 2002), but the court also must abide by the "affirmative obligation of the trial judge to prevent factually unsupported claims and defenses from proceeding to trial." Bouchat, 346 F.3d at 526 (internal quotation marks omitted) (quoting Drewitt v. Pratt, 999 F.2d 774, 778-79 (4th Cir. 1993), and citing Celotex Corp. v. Catrett, 477 U.S. 317, 323-24 (1986)).
As a threshold matter, Sinclair argues that the RCA is clear and unambiguous, thereby precluding the court's consideration of extrinsic evidence. See ThoughtWorks, Inc. v. SV Investment Partners, LLC, 902 A.2d 745, 752 (Del.Ch. 2006) (noting that "[i]f a contract is unambiguous, extrinsic evidence may not be used to interpret the intent of the parties, to vary the terms of the contract, or to create an ambiguity") (quoting Eagle Indus., Inc. v. DeVilbiss Health Care, Inc., 702 A.2d 1228, 1232 (Del. 1997)). Mediacom responds that section 8(b) of the RCA is not unambiguous because the provision must be interpreted within the broader regulatory context that governs broadcast retransmissions. Furthermore, Mediacom offers an alternative interpretation of section 8(b) that would allow Sinclair to enforce the RCA agreement only when an existing station's retransmission consent agreement with Mediacom expired. In other words, because Second Generation had already granted its KFXA retransmission rights to Mediacom through December 2008, it had nothing left to give to Sinclair. Finally, Mediacom argues that even if section 8(b) were clear and subject to Sinclair's interpretation, summary judgment would still be improper before Mediacom had a reasonable period to conduct discovery on possible antitrust violations or its contract defenses of mistake, economic duress, and unconscionability.
The RCA apparently contains a choice of law provision specifying that the agreement is to be construed under Delaware law. (Def.'s Opp. Mem. at 15 n. 7.)
More specifically, Mediacom suggests that prevailing law does not allow Second Generation to assign its right to grant retransmission rights to Sinclair because doing so would result in an improper transfer of control. Mediacom thus argues that section 8(b) was intended as a hedge against a subsequent change in the law that would allow such transactions.
Although it is a close question, section 8(b) of the RCA is not so clear and unambiguous as to warrant summary judgment at this time. First, while Sinclair appears to offer the more compelling interpretation of section 8(b), Mediacom's interpretation is not wholly unreasonable. Section 8(b) arguably does not provide that a preexisting agreement between Mediacom and a local broadcaster must be supplanted or trumped by the RCA. Second, the RCA and its provisions must be considered within the regulatory context that governs these sophisticated parties. See Eagle Indus., 702 A.2d at 1232, n. 7 (noting that the standard of determining ambiguity is predicated upon "a reasonable person in the position of either party" and that "[t]here may be occasions where it is appropriate for the trial court to consider some undisputed background facts to place the contractual provision in its historical setting") (emphasis added). Sinclair argues that the FCC has previously approved similar outsourcing agreements between Sinclair and local broadcasters that allow Sinclair to "assist with the negotiation of retransmission consent." (Pl.'s Reply Mem. at 7, 11-12, Ex. 3 FCC Letter.) It is not clear, however, that allowing Sinclair to "assist" with negotiations is the same as allowing a local broadcaster to "assign" its right to grant retransmission consent. Such an agreement may contravene FCC rules on ownership and transfer of control. Therefore, the specific nature of the relationship between Sinclair and Second Generation is entitled to further discovery. The question of whether the communications laws permit the assignment of the right to grant retransmission consent may be reconsidered by the court after discovery, or referred to the FCC pursuant to the primary jurisdiction doctrine. See United States v. Radio Corp. of America, 358 U.S. 334, 346 n. 14 (1959); Ellis v. Tribune Television Co., 443 F.3d 71, 81 (2d Cir. 2006); MCI Telecomm., Inc. v. T.A. Comm., Inc., 40 F. Supp. 2d 728, 732 (D. Md. 1999).
Even if the RCA clearly and unambiguously grants Sinclair the right to supplant preexisting agreements between Mediacom and local broadcasters, Mediacom would still be entitled to further discovery on possible antitrust violations and its additional contract defenses. Mediacom has offered sufficient factual support to survive summary judgment on its antitrust claims at this early stage of the litigation. See United States v. Texas Television, Inc., 1996 WL 859988 (S.D. Tex. 1996) (indicating potential wrongdoing when local broadcasters collude before negotiating retransmission consent agreements with cable providers). Furthermore, although the RCA appears to have resulted from an arms-length negotiation between sophisticated parties, Mediacom has offered sufficient allegations to permit further fact development on its contract defenses of mistake, economic duress, and unconscionability.
While this opinion in no way indicates Mediacom's ultimate likelihood of prevailing on the merits, the court, quite simply, does not believe it would be prudent to grant summary judgment at this time. There are complicated issues in this case, and Mediacom has demonstrated credible reasons for permitting further discovery. Mediacom has filed a proper Rule 56(f) affidavit specifying the discovery its seeks, explaining how that discovery could contribute to its defenses and counterclaims, and certifying that it has not delayed in seeking discovery. The Fourth Circuit has noted "Rule 56(f)'s requirement that `summary judgment be refused where the nonmoving party has not had the opportunity to discover information that is essential to his opposition.'" Nguyen v. CNA Corp., 44 F.3d 234, 242 (4th Cir. 1995) (quoting Anderson, 477 U.S. at 250 n. 5). Heeding this prudential approach, the court will not grant summary judgment at this time.
A separate order follows.
ORDER
For the reasons stated in the accompanying Memorandum, it is hereby ORDERED that: the plaintiffs' motion for summary judgment (docket entry no. 25) is DENIED without prejudice, subject to renewal in connection with later motions.