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Sky Angel U.S., LLC v. Discovery Communs., LLC

United States District Court, D. Maryland

March 24, 2015

SKY ANGEL U.S., LLC,
v.
DISCOVERY COMMUNICATIONS, LLC, ET AL

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For Sky Angel U.S., LLC, Plaintiff: Cheryl Feeley, Lynn Estes Calkins, LEAD ATTORNEYS, Holland and Knight LLP, Washington, DC.

For Discovery Communications, LLC, Animal Planet, L.C.C., Defendants: Anthony T Pierce, LEAD ATTORNEY, Akin Gump Strauss Hauer and Feld LLP, Washington, DC.

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MEMORANDUM OPINION

DEBORAH K. CHASANOW, United States District Judge.

Several motions are presently pending and ready for review in this breach of contract case: (1) a motion for partial summary judgment (ECF No. 177), filed by Plaintiff Sky Angel U.S., LLC (" Sky Angel" ); (2) a cross-motion for summary judgment (ECF No. 186), filed by Defendants Discovery Communications, LLC, and Animal Planet, L.L.C. (collectively, " Defendants" or " Discovery" ); and (3) motions to seal and unseal certain documents filed by both parties (ECF Nos. 179, 180, 181, and 189). The issues have been fully briefed, and the court now rules, no hearing being deemed necessary. Local Rule 105.6. For the following reasons, the parties' cross motions for summary judgment will be denied. Sky Angel's motion to seal will be granted and its motion to unseal will be granted in part and denied in part. Discovery's motion to seal will be granted.

I. Background

A. Factual Background[1]

Sky Angel operates a national subscription-based, multichannel video distribution service that operates using Internet protocol technology (" IPTV" ). Sky Angel delivers faith-based and family-friendly television channels to its subscribers. Sky Angel enters into contracts with individual content providers to receive their programming. Defendants, Discovery Communications, LLC and Animal Planet, L.L.C., are program content providers who offer family-friendly television programming.

On October 3, 2007, Sky Angel entered into an Affiliation Agreement with Defendants (" the Agreement" ) that was to expire on December 31, 2014. (ECF No. 177-3). Pursuant to the Agreement, Defendants agreed to provide Sky Angel a nonexclusive license and right to distribute five channels via its " Affiliate Systems" : Discovery Channel, Discovery Kids Channel, Discovery Home Channel, Military Channel, and Animal Planet (together, " the Services" ). In exchange for this license and the right to distribute the Services,

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Sky Angel agreed to pay Defendants monthly licensing fees on a per-subscriber basis. The contract provisions that are at issue in this dispute are discussed more fully below in the analysis section.

The Agreement between the parties was negotiated primarily by Elisa Freeman and Stephen Kaminski from Discovery, and Kathy Johnson and Thomas Scott from Sky Angel. Prior to entering into the Agreement, Discovery had Charles Myers conduct due diligence into Sky Angel's IPTV system. Mr. Myers sought information from both Sky Angel and NeuLion, Inc. (" NeuLion" ). NeuLion, Sky Angel's third-party technology vendor, assisted Sky Angel in using IPTV to deliver multiple video programming services on a subscription basis to proprietary set-top boxes. During his due diligence review, Mr. Myers sent Sky Angel a written questionnaire regarding its system, which Mr. Myers discussed orally with Raymond LaRue, Sky Angel's engineer. Mr. Myers also spoke with NeuLion personnel regarding its technology platform to get a more complete picture of how Sky Angel's system worked. Because IPTV was new to Sky Angel in 2007, some of its personnel were not familiar with how Sky Angel's IPTV system operated and often directed Mr. Myers to NeuLion to answer technical questions. (ECF No. 186-3). Mr. Myers learned during his due diligence review that Sky Angel's System, which used NeuLion's technology, could either use the Internet or a private fiber optic circuit to transmit the programming signal from NeuLion's centralized location to subscriber's set-top boxes. (ECF No. 177-28, at 6-9). Mr. Myers informed Ms. Freeman and Mr. Kaminski that he was uncertain of exactly how Sky Angel's System would be transmitting its programming, but that he had concerns that it may be using the public Internet which could implicate " rights issues" for Discovery. (ECF No. 177-28, at 9-11, 13-15, 27-30; ECF No. 177-30, at 19-20). As discussed in the analysis below, although the parties had several discussions concerning Sky Angel's technology and Discovery performed some due diligence into this issue, the parties dispute what representations were made and what understanding was reached prior to execution of the Agreement.

In February 2008, several months after the Agreement was executed, Sky Angel launched its services to Sky Angel subscribers. (ECF No. 177-40 ¶ 5). Sky Angel's system used IPTV to deliver video programming services over a closed and encrypted path to NeuLion's central location for subsequent distribution over the Internet to proprietary set-top boxes provided by NeuLion. The NeuLion set-top boxes, which were owned or leased by Sky Angel subscribers, received the programming signals in order for the subscriber to view the Services on their televisions. From February 2008 through mid-December 2009, Sky Angel received no complaints from Discovery regarding its distribution methods, and believed it was in compliance with the parties' Agreement.

On November 8, 2009, Discovery received a letter from DISH Network, one of its larger clients, informing it that it had " recently become aware of distribution [of Discovery's programming] by the IPTV distributor known as Sky Angel." (ECF No. 177-9). DISH requested, via the Most Favored Nation (" MFN" ) clause in its contract with Discovery, to be given the same " Internet Rights and Mobile Rights" that were given to Sky Angel. (ECF No. 178-4). Discovery responded on November 25, 2009, stating, inter alia, " Thank you for bringing the Sky Angel matter to our attention. We will review the matter and take appropriate action. . . . We trust that this is sufficient to resolve the matters

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raised in your letter[.]" (ECF No. 177-11).

On November 22, 2009, William Goodwyn, President of Discovery's Domestic Distribution group, wrote an email to Elisa Freeman asking:

When you have a moment, take a look at Sky Angel to see how they are positioning themselves in the marketplace, how they talk about their service, and also see what other cable nets are also on their platform, etc,. I want to see if there are any sensitivities around this for us.
Dish is making an issue around our granting IPTV rights to them so I would like to see what may be problematic for us.

(ECF No. 177-10, at 3). Ms. Freeman checked Sky Angel's website and wrote back the same day, stating:

On their website they market themselves as:

" Sky Angel is a revolutionary television that uses your high-speed Internet service to deliver over 70 faith and family channels -- not to your computer -- but directly to your TV. The service comes with the Sky Angel set-top box that delivers a digital-quality picture and does not require an outside dish, antenna, or professional installation."

( Id. at 2). Based on this information alone, Mr. Goodwyn decided to terminate the Agreement. (ECF No. 177-37, at 69-76).

In mid-December 2009, Elisa Freeman telephoned Tom Scott of Sky Angel to inform him that Discovery was terminating the Agreement. The only details she would provide Mr. Scott were that the decision was coming from senior management and because Discovery was uncomfortable with Sky Angel's distribution methodology it was exercising its right to terminate under § 12.1 of the Agreement. (ECF No. 177-27, at 45-51). Thereafter, Brian Collins, the Senior Vice President of Programming for Sky Angel, telephoned Ms. Freeman asking for additional information regarding the termination and inquiring whether there were any specific concerns Discovery had with Sky Angel's distribution methodology, but again was provided no additional information. (ECF No. 177-33, at 4-8). On January 22, 2010, Discovery sent Sky Angel a termination letter stating:

We have determined that the distribution methodology used by and on behalf of [Sky Angel] is not satisfactory. Accordingly, pursuant to Section 12.1 of the Agreement, we hereby elect to terminate the Agreement. In order to provide for an orderly transition process, including notification to your subscribers, we will provide you with a three (3) month transition period; accordingly, the Agreement will terminate effective on April 22, 2010.

(ECF No. 177-12). Sky Angel's response, dated March 4, 2010, stated that:

[D]iscovery has known that Sky Angel operates an IP System for its distribution of video programming, as provided for in [] the Affiliation Agreement. The IP System operated by Sky Angel has functioned flawlessly throughout the term of the Affiliation Agreement, Discovery did not object to it for more than two years, and Discovery has no reasonable basis for any belief that this IP distribution methodology is in any way unsatisfactory.

(ECF No. 177-13, at 2). In this letter, Sky Angel also offered to " cooperate in establishing the security of its system to Discovery's reasonable satisfaction." ( Id. at 3). On March 19, 2010, Defendants responded reiterating that Discovery's decision to terminate the Agreement was

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based on § 12.1 of the Agreement, but providing no additional details, and confirming that Sky Angel's access to Discovery's programming would cease on April 22, 2010. (ECF No. 177-14).

In an effort to avert termination, Sky Angel filed an emergency petition with the Federal Communications Commission (" FCC" ) seeking to halt any disruption in programming signals. (ECF No. 177-34, at 3-4). The FCC denied Sky Angel's request for a temporary injunction ( Id. at 4), but Discovery made several representations to the FCC that provide additional details regarding its termination decision. Discovery explained to the FCC that it had terminated its agreement with Sky Angel because it had identified " serious and irreparable business risk[s] in the form of damaged relations with its distributors, who might view [Discovery] as having granted Sky Angel rights that it refused them and that Discovery claimed not to grant anyone." (ECF No. 177-38, at 10). Discovery also stated that it could potentially face legal or business risks if any of its distributors viewed Sky Angel's distribution methodology as exceeding the distribution rights that Discovery itself has. ( Id. at 3-5). Discovery further represented that:

The extensive due diligence conducted by Discovery regarding the nature of Sky Angel's distribution network underlines the experimental nature of the affiliation. Sky Angel carefully parses that it does not make available programming via the Internet. But it does not deny that it uses the Internet to distribute its programming. No other distributor of Discovery's linear programming networks uses the Internet as the distribution path to end users, which was precisely why Discovery considered the affiliation to be an experiment.

(ECF No. 177-17, at 6) (footnotes omitted).[2]

On April 22, 2010, Discovery ceased disseminating its programming to Sky Angel. (ECF No. 177-41 ¶ 18). During 2009 and early 2010, the five Discovery channels were among the most popular channels that Sky Angel carried. Upon Discovery's termination, many subscribers called and emailed Sky Angel to complain and cited the loss of Discovery programming as the reason they decided to terminate Sky Angel's services. (ECF Nos. 177-44 ¶ 7; 177-40, at 72-76; 177-32). Sky Angel asserts that it sustained financial losses of approximately $6.3 to $9.5 million due to this loss of subscribers. (ECF No. 176-48 and 177-46).

B. Procedural Background

On January 3, 2013, Sky Angel filed a complaint asserting that Defendants' termination of the Agreement constituted a breach of contract. (ECF Nos. 1 and 5). On March 1, 2013, Defendants filed their answer. (ECF No. 23). On July 9, 2013, Defendants' motion for judgment on the pleadings was denied (ECF No. 37), and discovery commenced. On February 18, 2014, discovery closed and Defendants filed a motion for a jury trial. (ECF No. 108). On June 30, 2014, the motion for a jury trial was denied.

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On July 21, 2014, Plaintiff filed a motion for partial summary judgment, seeking judgment against Defendants as to liability, along with a motion to seal. (ECF Nos. 177 and 179). The following day, Plaintiff filed a motion to un seal other unredacted documents.[3] (ECF No. 180). On August 11, 2014, Defendants opposed Plaintiff's motion for partial summary judgment and filed a cross-motion for summary judgment, along with a motion to seal.[4] (ECF Nos. 186 and 189). The parties' cross motions for summary judgment have been fully briefed. (ECF Nos. 194 and 196).

II. Cross Motions for Summary Judgment

Sky Angel argues that it is entitled to partial summary judgment against Defendants as to liability for breach of contract.[5] According to Sky Angel, Discovery breached the Agreement by prematurely terminating it without a valid justification. Sky Angel contends that the termination was a business decision made after DISH, who also does business with Discovery, demanded increased distribution rights based on Discovery's Agreement with Sky Angel. Sky Angel asserts that Discovery's termination was in breach of the Agreement because it was not related to Sky Angel's performance under the Agreement and was not consistent with Sky Angel's reasonable expectations based on the terms of the Agreement. Sky Angel argues that it has been injured because it lost existing and future subscribers and their subscription fees due to Discovery's early termination. (ECF No. 177-1, at 50).

In response, Discovery argues that, not only is Sky Angel not entitled to summary judgment, but instead summary judgment should be entered in its favor because the Agreement makes clear that Sky Angel's method of distributing Discovery's programming via the Internet violated the Agreement, specifically the Grant of Rights provision. Discovery contends that as soon as it learned of Sky Angel's improper distribution method, it exercised its rights in good faith, terminating the Agreement under § 12.1, the specifically-negotiated termination provision that permitted termination if at any time Discovery was " dissatisfied with Sky Angel's 'distribution methodology.'" (ECF No. 186-1, at 8).

A. Standard of Review

A court may enter summary judgment only if there is no genuine dispute as to any material fact and the moving party is entitled to judgment as a matter of law. Fed.R.Civ.P. 56(a); Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986); Emmett v. Johnson, 532 F.3d 291, 297 (4th Cir. 2008). Summary judgment is inappropriate if any material factual issue " may reasonably be resolved in favor of either party." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 250, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986); JKC Holding Co. LLC v. Wash. Sports Ventures, Inc.,

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264 F.3d 459, 465 (4th Cir. 2001).

" A 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. Balt. Ravens Football Club, Inc., 346 F.3d 514, 522 (4th Cir. 2003) ( quoting former Fed.R.Civ.P. 56(e)). " A mere scintilla of proof . . . will not suffice to prevent summary judgment." Peters v. Jenney, 327 F.3d 307, 314 (4th Cir. 2003). " If the evidence is merely colorable, or is not significantly probative, summary judgment may be granted." Liberty Lobby, 477 U.S. at 249--50 (citations omitted). At the same time, the court must construe the facts that are presented in the light most favorable to the party opposing the motion. Scott v. Harris, 550 U.S. 372, 378, 127 S.Ct. 1769, 167 L.Ed.2d 686 (2007); Emmett, 532 F.3d at 297.

" When cross-motions for summary judgment are before a court, the court examines each motion separately, employing the familiar standard under Rule 56 of the Federal Rules of Civil Procedure." Desmond v. PNGI Charles Town Gaming, LLC, 630 F.3d 351, 354 (4th Cir. 2011). The court must deny both motions if it finds there is a genuine dispute of material fact, " [b]ut if there is no genuine issue and one or the other party is entitled to prevail as a matter of law, the court will ...


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