Sportschannel Assoc. v Sterling Mets, L.P.
Annotate this CaseDecided on December 16, 2004
Supreme Court, New York County
Sportschannel Associates, Plaintiff,
against
Sterling Mets, L.P., Defendant.
603548/04
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 motion by plaintiff SportsChannel Associates ("SportsChannel") for preliminary injunctive relief is denied for the reasons set forth below.
Background This lawsuit concerns television broadcast rights for baseball games played by the New York Mets (the "Mets"), a Major League Baseball team owned by defendant Sterling Mets L.P. ("Sterling"). SportsChannel currently holds the exclusive rights to televise regular season Mets games on "pay television", which includes cable television, pay-per-view television, and satellite television, pursuant to a License Agreement dated December 31, 1996 ("the License Agreement" or the "Contract"). The License Agreement replaced an earlier agreement that the parties had executed in 1982 and amended in 1991, which like the present Contract granted SportsChannel a license term through the end of the 2011 baseball season. However, the current License Agreement adds a provision (section 7.4, hereafter the "Buyout Provision") giving each party the option to terminate the Contract earlier by notifying the other and paying it a substantial buyout fee within two specified window periods.
On May 27, 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 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 publicly confirming that Sterling had exercised its Option.
Claims SportsChannel commenced this lawsuit soon after Sterling, Time Warner Cable ("Time Warner") and Comcast Corporation ("Comcast") jointly announced plans to launch a regional sports network that, starting in 2006, would broadcast up to 125 regular season Mets games per year. Plaintiff claims that the License Agreement requires Sterling to wait until November 1, 20005, when the Contract terminates and SportsChannel's license ends, before negotiating a new television rights deal with any third party. SportsChannel alleges that Sterling has violated "first negotiation/first refusal" provisions in the License Agreement (section 13.1 [*2]and 13.2, hereafter the "FN/FR Provisions"), which in certain circumstances require Sterling (1) for a set period of time, to negotiate exclusively with SportsChannel for a license extension past the Contract termination date, (2) to thereafter make an offer to SportsChannel, and (3) if SportsChannel 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 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 the FN/FR Provisions still bar Sterling from negotiating with any party except SportsChannel about future broadcast rights until November 1, 2005, about seventeen months after Sterling exercised the Option and about four or five months before the Mets' 2006 baseball season will begin.
Sterling responds that the Contract permits its post-Option negotiations and that SportsChannel misreads it. According to Sterling, SportsChannel's rights under the FN/FR Provisions ceased when Sterling exercised the Option in May 2004. It notes that the FN/FR Provisions provide that they will "immediately" cease to be effective if the Contract is "terminated through exercise" of the Option, and states that SportsChannel's interpretation of the License Agreement would render the word "immediately" superfluous. Sterling adds that it defies common sense and the parties' "obvious" intent to construe the Contract as requiring Sterling, after paying SportsChannel $ 54 million to buy it out, to be forced to wait until four months before the 2006 season begins before it can seek a new broadcasting arrangement.
SportsChannel also claims that Sterling has breached its covenant in the Contract that it will not grant any rights to televise Mets games to third parties or "otherwise exploit or use" those rights during the term of the Licensing Agreement (section 2.4, hereafter the "Covenant"). Sterling argues that it complied because it has not entered into a license agreement for post-2005 broadcasts, but instead has agreed in principle to license those rights, under contracts that Sterling will not execute until after the Contract terminates. Sterling also claims that the Buyout Provision contemplates that Sterling will negotiate new licensing deals with third parties after it exercises the Option, and that if the Buyout Provision and the Covenant conflict, under principles of contract interpretation the terms of the Buyout Provision prevail.
Finally, SportsChannel claims breach of a contractual representation that it had not granted any pay television rights for Mets games other than its license (section 8.1.2, hereafter the "Representation"). Sterling responds that (1) the Representation pertains only to the day that Sterling made it upon executing the Contract, namely December 31, and (2) if the Buyout Provision and the Representation conflict, the Buyout Provision controls.
Lawsuit On October 27, 2004, SportsChannel filed this lawsuit alleging that Sterling breached the License Agreement. For its ultimate relief, SportsChannel seeks an order (1) permanently enjoining Sterling from negotiating with third parties, (2) rescinding any 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 [*3]judgment was entered in this lawsuit. As an alternative to this equitable relief, SportsChannel seeks money damages.
Motion for preliminary injunction SportsChannel now seeks a preliminary injunction pursuant to CPLR 6301 (1) restraining Sterling from negotiating any further with third parties, including Time Warner and Comcast, about "agreements or arrangements with any party other than [SportsChannel] to grant, transfer, license, sell, produce, distribute or otherwise exploit or use the pay television rights to Mets games, regardless of the date of those games" and (2) rescinding any existing agreements or arrangements with third parties.
To obtain a preliminary injunction, a plaintiff has the burden of showing that (1) it is likely to succeed on the merits, (2) it will be irreparably injured without an injunction, and (3) the equities weigh in its favor. See W.T. Grant Co. v. Srogi, 52 NY2d 496, 517 (1981). SportsChannel has not sustained its burden as to any of these three elements and accordingly is not entitled to the "drastic" remedy of a preliminary injunction before the merits of the lawsuit are determined. See Faberge Intl. v. Di Pino, 109 AD2d 235, 240 (1st Dept. 1985).
Discussion: likelihood of success To satisfy the first element of the test, a plaintiff must make a factual showing of a "strong likelihood of success on the merits of their causes of action." Rubinstein v. Bullard, 285 AD2d 366, 367 (1st Dept. 2001). SportsChannel has not met that burden because the Buyout Provision was intended to enable the parties to terminate the License Agreement early and end the parties' contractual relationship. While the Court must ultimately 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, its function here is only to determine whether SportsChannel has shown that it is likely to prevail.
As for SportsChannel's claims that Sterling breached the Covenant and the Representation, Sterling submits evidence by affidavit that it has not granted license rights to any third parties since it exercised its Option, which forecloses the possibility that it violated the Covenant. SportsChannel's argument that Sterling breached the Covenant merely by negotiating over future license deals is unpersuasive. The Representation only applies to the date that it was made.
Irreparable injury SportsChannel claims that, without a preliminary injunction, it will be irreparably harmed in three ways. First, SportsChannel alleges that it will lose its opportunity to obtain a new rights agreement "during an extended period" during the time that the Mets are barred from negotiating with third parties. Second, Sterling's announcement that it will start a network with Time Warner and Comcast has allegedly foreclosed any chance that SportsChannel's broadcast rights would extend past the 2005 baseball season, thus harming its bargaining position with its advertisers and sponsors. Third, allowing Time Warner, Comcast and Sterling to "market" future pay television rights while Sportschannel is marketing its present rights will injure SportsChannel by causing "substantial disruption to the marketplace."
The threatened harm that SportsChannel complains of is too speculative and tenuous to support a preliminary injunction. A plaintiff seeking a preliminary injunction must demonstrate that, without it, it faces immediate, real harm. See People v . Anderson, 137 AD2d 259, 271 (4th Dept. 1988). Conclusory allegations of injury do not suffice. See Genesis II Hair Replacement [*4]Studio, Ltd. v. Vallar, 251 AD2d 1082, 1083 (4th Dept. 1988). If SportsChannel prevails in this action, any lost opportunity to obtain a new license agreement can be redressed by enjoining further negotiations with third parties or rescinding existing agreements, and by affording SportsChannel exclusive negotiation and first refusal rights for an appropriate period. Moreover, a preliminary injunction is unlikely to help SportsChannel's bargaining position with advertisers and sponsors, given that the world already knows from SportsChannel's press release and other publicity that Sterling has paid SportsChannnel $ 54 million to terminate the License Agreement early. Finally, it is mere speculation to claim that marketplace "confusion" or "disruption" will ensue if the Mets' licensee for the 2006 season does business with advertisers and distributors while SportsChannel does business in connection with the 2005 season.
Equities Finally, the equities do not favor a grant of a preliminary injunction. SportsChannel contends that the License Agreement was intended to discourage Sterling from exercising the Option by making it difficult to find another licensee. However, it defies logic that Sterling would intentionally agree to a contract which called for it to pay $ 54 million for a termination right that would also prohibit it from arranging for a new broadcaster for Mets games until a few months before the next baseball season began. A preliminary injunction would prevent Sterling from making alternative broadcasting arrangements and deprive it of the benefit of exercising its termination rights under the Buyout Provision.
The motion is denied. This is the order of the Court.
Dated: December 16, 2004
Enter:
Helen E. Freedman, J.S.C.
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
[*5]
By:Robert B. Fiske, Jr.
Eric F. Grossman
Brian S. Weinstein
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