Sportschannel Assoc. v Sterling Mets, L.P.
Annotate this CaseDecided on April 7, 2005
Supreme Court, New York County
SPORTSCHANNEL ASSOCIATES, Plaintiff,
against
STERLING METS, L.P., Defendant.
603548/04
Appearances
Attorneys for Plaintiff Sportschannel Associates
Sidley Austin Brown & Wood LLP
787 Seventh Avenue
New York, New York 10019
(212) 839-5300
By:John G. Hutchinson
Elizabeth M. Zito
Isaac Greaney
Attorneys for Defendant Sterling Mets, L.P.
Davis Polk & Wardwell
450 Lexington Avenue
New York, New York 10017
(212) 450-4090
By:Robert B. Fiske, Jr.
Eric F. Grossman
Brian S. Weinstein
Helen E. Freedman, J.
This lawsuit concerns broadcast rights for games played by the New York Mets (the "Mets"), a Major League Baseball team. Plaintiff SportsChannel Associates ("SportsChannel"), which operates two television networks and which presently holds "pay television" rights for the Mets' regular-season games, sued the team's owner, defendant Sterling Mets, L.P. ("Sterling"), for breach of their licensing agreement after Sterling terminated SportsChannel's license in May 2004, as of the end of the 2005 baseball season. Then in October 2004 Sterling announced a joint venture among an affiliate of Sterling, non-party Time Warner Cable Inc. ("Time Warner"), and non-party Comcast Corporation ("Comcast") to launch a new sports network to telecast Mets games and related programming starting with the 2006 season (the "Mets Network"). Sterling now moves pursuant to CPLR 3211 for an order dismissing the complaint on the ground that none of the actions it took violated the parties' written contract.
For the reasons set forth below, the motion is granted to the extent that two of SportsChannel's four claims are dismissed. With respect to the remaining claims, this Court will pursuant to CPLR 3211(c) convert the motion to dismiss into a motion for summary judgment, and defer its decision until the parties make the appropriate record
Background Pursuant to a License Agreement between SportsChannel and Sterling dated December 31, 1996 ("the License Agreement" or the "Contract"), SportsChannel currently holds the exclusive rights for its affiliated networks to televise regular-season Mets games on "pay television", which includes cable television, pay-per-view television, and satellite television. The License Agreement replaced an earlier agreement that the parties had executed in 1982 and amended in 1991 (the "Prior Contract"), which granted SportsChannel a license term through the end of the 2011 baseball season. The current License Agreement also extends through 2011, but includes a provision (section 7.4, hereafter the "Buyout Provision") which under certain conditions allows either party to terminate the Contract early by notifying the other and paying it a substantial buyout fee.
In May 2004, Sterling exercised its option under subsection 7.4.1 of the Buyout Provision (the "Option") to shorten SportsChannel's license term to the end of the 2005 season, for which it [*2]paid SportsChannel a fee of more than $ 54 million, representing 115% of the annual rights fee that SportsChannel would have owed Sterling for the 2006 season. In early June 2004, both Sterling and SportsChannel issued press releases confirming that Sterling had exercised its Option and shortened the license term. In October 2004, Sterling's affiliate, Time Warner, and Comcast jointly announced their agreement to launch the Mets Network, to which Sterling would license its media rights in the Mets beginning with the 2006 season.
Complaint Soon after the joint venture was announced, SportsChannel commenced this lawsuit. The gist of SportsChannel's claims is that, while the License Agreement may have allowed Sterling to buy out SportsChannel and terminate the Contract early, and at some point form the Mets Network, the License Agreement barred Sterling from negotiating or otherwise arranging for post-2005 Mets broadcasts with anyone except SportsChannel until November 2005. That would be seventeen months after Sterling had bought out SportsChannel and only a few months before the 2006 baseball season would begin. The Complaint sets forth three counts of breach of contract and a fourth seeking indemnification for Sterling's alleged breaches. In its first count, SportsChannel claims that Sterling breached section 2.4 of the Contract (the "Covenant"), which in relevant part provides that Sterling shall not "grant, transfer, license, sell, produce, distribute or otherwise exploit or use" pay television rights to any future Mets games to third parties until "the termination of this [License] Agreement pursuant to [the Buyout Provision]." According to the Complaint, Sterling is breaching the Covenant because it is "exploiting and/or using" its media rights to the Mets games by planning to license them to the Mets Network. Sterling further argues that the License Agreement has not yet terminated pursuant to the Buyout Provision, which states that termination thereunder "[is] to be effective on November 1, 2005."
In its second count, SportsChannel claims that Sterling breached a representation in the License Agreement that it had not granted any pay television rights to third parties (section 8.1.2, hereafter the "Representation"). SportsChannel claims that the Representation prohibits Sterling from transferring rights to third parties until the Contract terminates, because another provision, section 8.3, states that all representations "shall survive and continue in full force and effect" until then.
The third count alleges that Sterling's plan to launch the Mets Network with Time Warner and Comcast violates "first negotiation/first refusal" provisions in the License Agreement (section 13.1 and 13.2, hereafter the "FN/FR Provisions"), which in certain circumstances require Sterling (1) for a 60-day period, to negotiate exclusively with SportsChannel for a license extension past the Contract termination date, (2) to thereafter offer terms for an extension to SportsChannel, and (3) if SportsChannel then rejects Sterling's terms, to afford SportsChannel the opportunity to match later offers by third parties. Under the FN/FR Provisions, SportsChannel's "first negotiation/first refusal" rights cease when the Contract "is terminated . . . through the exercise by either party of the special termination right set forth set forth in [the Buyout Provision] . . . in . . . which instance [the FN/FR Provisions] shall immediately terminate and cease to be of any force or effect." As SportsChannel views it, Sterling has exercised the Option but the Contract has not been terminated, because, as noted above, subsection 7.4.1 of the Buyout Provision provides that termination thereunder shall be "effective" on November 1, 2005. It follows, SportsChannel argues, that the FN/FR Provisions still bar Sterling from [*3]negotiating with any party except SportsChannel about future broadcast rights until November 1, 2005.
In its final count, SportsChannel seeks contractual indemnification for its attorneys' fees and disbursements, based upon section 8.4 of the License Agreement, under which each party agrees to indemnify the other for losses arising from the indemnitor's breach of its representations or failure to perform its contractual obligations. For its ultimate relief, SportsChannel seeks an order (1) permanently enjoining Sterling from negotiating with third parties, (2) rescinding any existing agreements with them, and (3) voiding and permanently enjoining Sterling's exercise of the Option or declaring that the License Agreement would not terminate until seventeen months after judgment was entered in this lawsuit. As an alternative to this equitable relief, SportsChannel seeks money damages; it also seeks costs and attorneys' fees and disbursements.
When SportsChannel commenced this suit, it applied for a temporary restraining order and preliminary injunction (1) restraining Sterling from negotiating further with third parties, including Time Warner and Comcast, about new broadcast arrangements for Mets games, and (2) rescinding any existing agreements or arrangements with third parties. The application for a temporary restraining order was denied on October 28, 2004, and by decision and order dated December 16, 2004 (the "Prior Decision"), this Court denied the request for a preliminary injunction, ruling that SportsChannel had not demonstrated that it was likely to succeed on the merits, that it would not be irreparably harmed without an injunction, and that the equities did not weigh in SportsChannel's favor.
Motion Now moving for dismissal, Sterling alleges that the terms of the License Agreement validate Sterling's actions. While deciding a motion to dismiss a complaint, a court assumes that the plaintiff's factual allegations are true, as well as the reasonable inferences from those allegations. See Skillgames, LLC v. Brody, 1 AD3d 247, 251 (1st Dept. 2003). But allegations are discounted if they are "clearly contradicted by documentary evidence." Id. If a written agreement "unambiguously contradicts" a plaintiff's claim that the defendant breached it, the agreement constitutes "documentary evidence" that warrants dismissing the complaint under CPLR 3211(a)(1). 150 Broadway NY Assocs., L.P. v. Bodner, 14 AD3d 1, 5 (1st Dept. 2004). "This follows from the bedrock principle that it is a court's task to enforce a clear and complete written agreement according to the plain meaning of its terms." Id.
The License Agreement constitutes documentary evidence that defeats the second count for breach of the Representation, and the third count for breach of the FN/FR Provisions. Turning first to the FN/FR Provisions, Sterling complied with them because once it had exercised its Option, Sterling could immediately start negotiating with third parties. SportsChannel's exclusive negotiation rights were extinguished in May 2004 when Sterling delivered an early termination notice and paid SportsChannel $ 54 million. In its Prior Decision, this Court recognized the need to "harmonize the terms of the Buyout Provision, which indicates that the Contract termination becomes 'effective' some time after Sterling has exercised its option, with the terms of the FN/FR Provisions, which imply that Sterling's exercise of the Option 'immediately' terminates SportsChannel's rights." Those terms do not conflict. Section 13.1 of the FN/FR Provisions provides that "in the event the [License Agreement] is terminated through exercise by either party of the special termination right set forth in [the Buyout Provision,] . . . [these] FN/FR Provisions shall immediately terminate and cease to be of any [*4]force or effect." (emphasis supplied). The Buyout Provision states that the right to terminate the Contract is "exercised" by delivering written notice and paying the early termination fee. Read together, the two provisions mean that, by exercising the Option, Sterling immediately terminated SportsChannel's specific rights under the FN/FR Provisions, but caused the rights under its Contract as a whole to terminate on a future date. Accordingly, the third count fails.
The second count, for breach of the Representation, is also dismissed. The Representation pertains only to the day that Sterling executed the Contract, namely December 31, 1996. As of that date, Sterling represented that it had not licensed any "Pay TV Rights" with to respect to future Mets games to any person except SportsChannel. Sterling would not violate the Representation if it licensed to third parties on or after January 1, 1997. Section 8.3 of the License Agreement provides that the Representation "shall survive and shall continue in full force and effect during the [Contract term]," but that provision does not extend the scope of Sterling's representation. It but merely ensures that Sterling's liability for breaching the Representation will survive post-closing.
However, SportsChannel's first count for breach of the Covenant survives a dismissal motion. SportsChannel alleges that Sterling, as part of its plans for the Mets Network, has entered into a contract that obligates it to license its rights to the Mets Network after November 1, 2005. By that action, SportsChannel alleges, Sterling breached the Covenant by "using" and "exploiting" its rights to post-2005 Mets games. SportsChannel further claims that Sterling is presently breaching the Covenant by authorizing its co-venturers to use and exploit the future rights, and by announcing the forthcoming Mets Network to get "a head start in operating, and deriving a benefit from, [the Mets Network] before November 1, 2005."
Looking at the allegations in the complaint and the face of the Contract in the light most favorable to SportsChannel, an inference that Sterling may have "used"or "exploited" its rights within the meaning of the Covenant could be drawn. For that reason, the branch of the motion seeking to dismiss the first count will be treated as a motion for summary judgment, and decision on it will be deferred until issue is joined and a record is made. Limited discovery will be allowed on an accelerated schedule. Sterling has submitted a redacted copy of a Transaction Agreement dated October 11, 2004, which apparently embodies the joint-venturers' structure for the Mets Network, and refers to a number of other possibly relevant contracts, such as the post-2005 license agreement for the Mets games, and affiliation agreements among Sterling's affiliate, Time Warner and Comcast. Those agreements should be disclosed to SportsChannel after Sterling's concerns about confidentiality are addressed. Some other disclosure may be granted, along with briefing.
Sterling's contention that the Prior Decision disposed of the first count is wrong. Denying a preliminary injunction "does not constitute the law of the case or an adjudication on the merits, and the issues must be tried to the same extent as though no temporary injunction had been applied for." Walker Mem. Baptist Church, Inc. v. Saunders, 285 NY 462, 474 (1941); see also Lipsztein v. Donovan, 289 AD2d 51, 52 (1st Dept. 2001) . The Prior Decision did not determine whether Sterling had breached the Covenant, but only addressed the issue of whether SportsChannel had shown that it was likely to succeed on the merits. Moreover, the Court based its ruling in the Prior Decision on an affidavit that Sterling submitted to contradict SportsChannel's allegations, which affidavit cannot be considered in connection with this motion [*5]to dismiss the complaint. See Skillgames, 1 AD3d at 251 (1st Dept. 2003).
The fourth count of complaint, for indemnification of attorneys' fees and disbursements, shall remain only insofar as it pertains to the first count, and is otherwise dismissed.
ORDERED that the motion is granted in part and denied in part to the extent that it is
ORDERED that the second and third counts of the complaint are severed and dismissed, and it is further
ORDERED that the first count and the fourth count, insofar as it pertains to the first count, shall remain, and it is further
ORDERED that the parties are directed to appear before the Court on April 13, 2005 at 2:00 p.m. to address joinder of issue, discovery and briefing.
Dated: April 7, 2005
Enter:
Helen E. Freedman, J.S.C.
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