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USA NETWORK v. JONES INTERCABLE

January 18, 1990

USA NETWORK, PLAINTIFF,
v.
JONES INTERCABLE, INC., AND JONES SPACELINK, LTD., DEFENDANTS.



The opinion of the court was delivered by: Conboy, District Judge:

OPINION AND ORDER

BACKGROUND

Plaintiff USA Network ("USA") commenced this action against Jones Intercable, Inc. ("Jones") on September 29, 1988, by filing a contemporaneous motion for an order temporarily restraining and ultimately enjoining Jones from terminating its contract, the "Affiliation Agreement,"*fn1 with USA pending the outcome of the action. We denied USA's request for a temporary restraining order. After further submission of memoranda and affidavits, we conducted a preliminary injunction hearing on November 18, 1988, and issued an opinion and order on January 19, 1989, denying USA's motion for a preliminary injunction. USA Network v. Jones Intercable, Inc., 704 F. Supp. 488 (S.D.N.Y. 1989). This prior opinion, familiarity with which is presumed, sets forth fully the background of this case.

Following our denial of USA's motion for a preliminary injunction, the parties conducted extensive discovery. On May 1, 1989, USA sought leave to serve and file a Second Amended Complaint (a) specifying certain additional categories of damages; (b) adding new claims for relief premised upon common law fraud, violation of 18 U.S.C. § 1961, et seq. ("RICO"), and tortious interference with contract; and (c) adding Jones Spacelink, Inc. ("Spacelink") as a defendant. Jones simultaneously opposed the motion for leave to amend and moved for summary judgment on the question of liability in the breach of contract claims in the First Amended Complaint and in Jones' Second Counterclaim, that USA breached Paragraph 16 of the Affiliation Agreement by communicating with municipalities within Jones' service areas. USA cross-moved for summary judgment on the issue of liability in its breach of contract, contractual indemnification, and tortious interference claims, and on Jones' counterclaim. On October 10, 1989, we held oral argument on these motions.

For the reasons given below, we grant USA's motion for leave to amend the complaint, and treat Jones' opposition to that motion as a motion to dismiss, for failure to state a claim upon which relief can be granted, Counts Four (Common Law Fraud), Five (RICO), and Six (Tortious Interference with Contract) of the Second Amended Complaint. We deny Jones' motion to dismiss Counts Four and Six, but grant it with respect to the RICO claim, Count Five. On the cross-motions for summary judgment, we grant USA's motion in part and deny it in part, and Jones' motion for summary judgment is on the whole denied.

DISCUSSION

I. BREACH OF CONTRACT CLAIMS

Both parties have moved for summary judgment on their respective breach of contract claims.*fn2 Summary judgment may be granted only when the moving party can establish, based on "the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits . . . 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." Fed.R.Civ.P. 56(c). The Court must first look to the substantive law of the case to determine which facts are material. Only disputes over material facts will preclude the entry of summary judgment. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 2510, 91 L.Ed.2d 202 (1986). The moving party bears the initial burden of establishing that no genuine dispute as to material facts exists. See Celotex Corp. v. Catrett, 477 U.S. 317, 323, 106 S.Ct. 2548, 2552, 91 L.Ed.2d 265 (1986). The burden then shifts to the opposing party to show that a genuine issue of fact exists. See Matsushita Electric Industrial Co. v. Zenith Radio Corp., 475 U.S. 574, 585-86, 106 S.Ct. 1348, 1355-56, 89 L.Ed.2d 538 (1986). Ultimately, "[i]n considering the motion, the court's responsibility is not to resolve disputed issues of fact but to assess whether there are any factual issues to be tried, while resolving ambiguities and drawing reasonable inferences against the moving party." Knight v. U.S. Fire Ins. Co., 804 F.2d 9, 11 (2d Cir. 1986) (citing Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247-50, 106 S.Ct. 2505, 2509-511, 91 L.Ed.2d 202 (1986)), cert. denied, 480 U.S. 932, 107 S.Ct. 1570, 94 L.Ed.2d 762 (1987).

USA alleges that Jones breached its contract with USA by terminating USA from two-thirds of its systems on October 3, 1988, and from the remainder of its systems by the beginning of 1989. Whether Jones breached the contract by cancelling USA from cable systems constituting two-thirds (65%) of Jones' subscribers on October 3, 1988, the first day of the fall television season, depends on the meaning of the letter amendment to the Affiliation Agreement, dated September 1, 1986 ("Side Letter"),*fn3 which was signed contemporaneously with the Affiliation Agreement.

The question of interpretation is one of law to be answered by the court, and summary judgment is appropriate "`[w]here the language of the contract is unambiguous, and reasonable persons could not differ as to its meaning.'" Hunt Ltd. v. Lifschultz Fast Freight, Inc., 889 F.2d 1274, 1277 (2d Cir. 1989) (quoting Rothenberg v. Lincoln Farm Camp, Inc., 755 F.2d 1017, 1019 (2d Cir. 1985)); see United States v. 0.35 of an Acre of Land, More or Less, Situated in Westchester County, State of New York, 706 F. Supp. 1064, 1070 (S.D.N.Y. 1988); West, Weir & Bartel, Inc. v. Mary Carter Paint Co., 25 N.Y.2d 535, 540, 307 N.Y.S.2d 449, 452, 255 N.E.2d 709, 711 (1969); 3 A. Corbin, Corbin on Contracts § 554, at 222 (1960).*fn4 The determination of whether a contract or contract term is ambiguous is a threshold question of law for the court. See Tokio Marine & Fire Ins. Co. v. McDonnell Douglas Corp., 617 F.2d 936, 940 (2d Cir. 1980); 0.35 of an Acre of Land, 706 F. Supp. at 1070. "It is axiomatic that if the language of an agreement is explicit and unambiguous the courts must give it its plain meaning." 0.35 of an Acre of Land, 706 F. Supp. at 1071 (citing Omaha Indem. Co. v. Johnson & Towers, Inc., 599 F. Supp. 215, 218 (E.D.N Y 1984)). "Contract language is not ambiguous if it has `a definite and precise meaning, unattended by danger of misconception in the purport of the [contract] itself, and concerning which there is no reasonable basis for a difference of opinion.'" Hunt, Ltd. v. Lifschultz Fast Freight, Inc., 889 F.2d at 1277 (quoting Breed v. Insurance Company of North America, 46 N.Y.2d 351, 355, 413 N.Y.S.2d 352, 355, 385 N.E.2d 1280, 1282 (1978)). "Language whose meaning is otherwise plain does not become ambiguous merely because the parties urge different interpretations in the litigation." Hunt, Ltd. v. Lifschultz Fast Freight, Inc., 889 F.2d at 1277. "[O]ur goal must be to accord the words of the contract their `fair and reasonable meaning.'" Sutton v. East River Sav. Bank, 55 N.Y.2d 550, 555, 450 N.Y.S.2d 460, 463, 435 N.E.2d 1075, 1078 (1982) (quoting Heller v. Pope, 250 N.Y. 132, 135, 164 N.E. 881 (1928)).

Turning to the present case, the first question to be determined is whether the meaning of the Side Letter, i.e., its effect on the Affiliation Agreement, is ambiguous. We must determine "whether the agreement is so beset by ambiguity that the determination of the intent of the parties requires a trial at which a jury or other fact finder could clear up the ambiguity by passing on the credibility of the extrinsic evidence and whatever inferences reasonably could be drawn therefrom." 0.35 of an Acre of Land, 706 F. Supp. at 1071. Applying the foregoing principles, we find as a matter of law that the Side Letter is unambiguous in its effect on Paragraph 4(d) of the Affiliation Agreement: the Side Letter does not alter Jones' obligation, outlined in Paragraph 4(d), to provide the USA Network to at least 75% of its aggregate subscribers.

Paragraph 1 of the Side Letter provides:

  With respect to subscribers receiving the USA
  program service as either a basic or tiered cable
  service in [Jones'] CATV [Cable Television]
  Systems . . . [Jones] shall make payments to USA
  in accordance with the USA Network Basic Service
  Schedule . . . then in effect. Such rate is
  contingent upon the delivery of the USA program
  service as a basic cable service*fn5 to at least
  75 percent of the total number of subscribers to
  those CATV Systems owned or controlled by [Jones]
  as of September 1, 1986. In the event that
  [Jones] fails at any time during the term hereof
  to deliver the USA program service as a basic
  cable service to at least 75 percent of such
  total number of subscribers, [Jones] shall
  thereafter make payments to USA, with respect to
  its tiered USA subscribers only, in accordance
  with the

  USA Network Tiered Service Schedule . . . then in
  effect.

USA argues that this Side Letter deals only with when Jones had to pay the higher tier rate, as opposed to the basic rate, and not with market penetration, or the percentage of Jones' aggregate subscribers who, under the Affiliation Agreement, were to receive USA Network programming.

We agree. We conclude, as we have before, USA Network v. Jones Intercable, 704 F. Supp. at 489-90, that the Side Letter only deals with the circumstances in which Jones would have to pay USA according to the higher tier rate. Thus, if Jones provided USA as a basic service to at least 75% of its aggregate subscribers, then it would pay USA according to the basic rate for all of its subscribers. On the other hand, if Jones provided USA as a basic service to less than 75% of its aggregate subscribers, then it would pay USA according to the tier rate for its tiered subscribers. In other words, Paragraph 1 of the Side Letter provides an incentive, based on a fee reduction, for Jones to carry USA as a basic service to at least 75% of its total subscribers.

Jones contends that the Side Letter deals with both rates and market penetration, so that the Side Letter altered Jones' obligation, outlined in Paragraph 4(d) of the Affiliation Agreement, to "distribute the USA Network Service to at least seventy-five percent of the aggregate number of subscribers . . . to its systems." Paragraph 1 of the Side Letter, however, does not contemplate Jones' cancelling USA from more than 75% of its total subscribers, whether basic or tiered; rather, it considers Jones' providing USA as a basic service to less than 75% of its subscribers, in exchange for paying the tiered rate for its tiered subscribers.

Thus, Jones did not have the option, as Jones now claims, of cancelling USA from more than 25% of all of its subscribers, in exchange for paying higher fees. Such an interpretation of the contract would lead to the absurd result that Jones could reduce its carriage of the USA Network to only 1% of its aggregate subscribers (or even cancel USA altogether, in effect terminating the contract), as long as Jones paid USA at the tiered rate for those subscribers still receiving USA programming. We decline to reach such a result, which is clearly contrary to the plain and unambiguous language of the Affiliation Agreement and Paragraph 1 of the Side Letter, which only gave Jones the right to provide USA as a basic service to less than 75% of its aggregate subscribers, and pay the higher tier rates as a result. Accordingly, Jones breached its contract with USA when it cancelled USA from two-thirds of its subscribers on October 3, 1988.

A more difficult question is presented by USA's claim that Jones breached the Affiliation Agreement by terminating USA from the rest of its systems by January 1, 1989. As we explained in our earlier decision, USA informed Jones on June 28, 1988, that its rates would be increased by $.05 as of January 1, 1989, and by an additional $.05 as of January 1, 1990.*fn6 By letter backdated (on the letter itself and on the postage meter) to August 1, 1988, but actually drafted August 9 (see USA Exhibits, Exs. 6 and 8), mailed on August 10, and received by USA on August 16, Jones informed USA of its desire to terminate the Affiliation Agreement as of January 1, 1989.*fn7 Pursuant to Paragraph 6(d) of that Agreement, however, Jones only had thirty days, from USA's notice of a rate increase, to notify USA that it regarded the rate increase as unacceptable, and that it intended to terminate the agreement.

Paragraph 6(d) of the Affiliation Agreement sets forth the mechanism for increasing rates, subject to Jones' right to terminate if dissatisfied with the increase. Paragraph 6(d) provides:

  On three (3) months' advance written notice, USA
  may change the rates, if any, set forth on the
  Basic Service Schedule or Tiered Service
  Schedule, as the case may be. If such change
  increases the rate payable by Affiliate [Jones]
  with respect to subscribers in a CATV System,
  then Affiliate may notify USA, within thirty (30)
  days of the giving of such notice, that Affiliate
  regards such change as unacceptable and wishes to
  terminate this Agreement solely with respect to
  any CATV System as to which such increase is
  applicable. In the event that Affiliate so
  notifies USA that such change is unacceptable
  under the provisions of this Section 6(d), this
  Agreement shall terminate on the date such
  proposed change becomes effective, unless within
  thirty (30) days of receiving Affiliate's notice,
  USA notifies Affiliate that USA has decided not
  to make such proposed change.

Paragraph 9 prescribes the manner in which notices under the Affiliation Agreement are to be given:

  Notices: Except as set forth below, all notices
  hereunder shall be in writing and delivered by hand
  or sent by certified mail return receipt requested,
  telegram or private wire to the receiving party at
  its address set forth above. . . . Notice given by
  mail shall be ...

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