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America's Collectibles Network, Inc. v. MIG Broadcast Group

March 27, 2008

AMERICA'S COLLECTIBLES NETWORK, INC., PLAINTIFF,
v.
MIG BROADCAST GROUP, INC., AND GUENTER MARKSTEINER, DEFENDANTS.



The opinion of the court was delivered by: Thomas A. Varlan United States District Judge

VARLAN/SHIRLEY

MEMORANDUM OPINION

In this diversity action, plaintiff America's Collectibles Network, Inc., d/b/a Jewelry Television ("ACN" or "Jewelry Television"), seeks compensatory damages against defendant MIG Broadcast Group, Inc. ("MIG"), for breach of a written contract [see Doc. 22]. ACN also seeks treble damages against defendant Guenter Marksteiner ("Marksteiner") for his role in interfering with that contract and for procuring that breach of contract [see id.]. Finally, ACN seeks prejudgment interest, costs, and attorney fees against both defendants [see id.]. In their answers, defendants contend that they have no liability whatsoever to ACN [see Docs. 29 and 30].*fn1

This matter came before the Court on September 11 and 12, 2007, for a bench trial [see Docs. 63-64]. After giving careful consideration to the testimony of the witnesses, the exhibits introduced at trial, the transcripts of the proceedings [see Docs. 66-67], the proposed findings of fact and conclusions of law, as amended [see Docs. 51, 54, 70, and 71], the post-trial briefs [see Docs. 72, 74, 79, and 80], and the applicable law, the Court makes the following findings of fact and conclusions of law as required by Fed. R. Civ. P. 52(a).*fn2

Findings of Fact

1. ACN, a Tennessee corporation, is headquartered in Knox County, Tennessee, and is in the business of selling jewelry, precious gemstones, and related items through various venues, including television programming [see Doc. 66 at 6].*fn3 ACN produces its television programming in Knoxville, Tennessee [see id.]. Harris Bagley,*fn4 an executive with ACN, is responsible for distribution of ACN's programming through broadcast, cable, or direct-to-home affiliates [see id.].

2. Marksteiner, a resident of New Hampshire, holds the broadcast license for television station WHDT in Stuart, Florida [see id. at 174]. Marksteiner is the President and CEO of MIG, a New Hampshire corporation, which operates WHDT in the West Palm Beach television market [see id. at 175; see also Doc. 67 at 42]. MIG maintains a 24-hour broadcast schedule [see Doc. 66 at 176].

3. WHDT was the first high definition television station ("HDTV") station in the United States [see id. at 175]. As a pioneer, WHDT fought for "must-carry" status on cable television [see id. at 177-78]. Consequently, cable companies must now carry WHDT along with other broadcast stations that customers typically lose when they "hook[] up" to cable [see id. at 190].

4. According to Harris Bagley, ACN contracts with affiliates nationwide for airtime for Jewelry Television [see id. at 17]. Typically, ACN pays affiliates based on the amount of time Jewelry Television is aired [see id.]. ACN enjoys a gross profit of about forty-five to fifty percent on the goods it sells [see id. at 42].

5. Sometime around early 2002, ACN wanted access to cable television in West Palm Beach [see id. at 9]. Through a broker, ACN contacted WHDT [see id. at 178]. At the time, ACN was, according to Marksteiner, "an emerging small company" [see id. at 180]. MIG agreed to air ACN's shopping service on WHDT as an "experiment." [See id. at 185-86].

6. As a result of those successful negotiations, the parties began doing business under a basic broker agreement dated August 21, 2002 (the "2002 Agreement") [see id. at 180; see also Jt. Tr. Ex. 16]. The 2002 Agreement provided for a one-year term [see Jt. Tr. Ex. 16 at 2].

7. Under the 2002 Agreement, ACN agreed to compensate MIG based on the number of cable subscribers WHDT reached, or based on fifteen percent of ACN's net sales attributed to WHDT, whichever amount was greater [see id.]. Under the "Cancellation" provision, the 2002 Agreement provided that both parties "have the right to terminate" at any time upon thirty days prior written notice sent by certified mail [see id.; see also Doc. 66 at 180]. Neither party sent a written notice of termination of the 2002 Agreement before its one-year termination date [see Doc. 66 at 181]. The 2002 Agreement was replaced during its term by a second agreement signed in April 2003 (the "2003 Agreement") [see id. at 45; see also Jt. Tr. Ex. 17].

8. Although the 2003 Agreement was executed on April 24, 2003, it was made effective on April 1, 2003 [see id. at 181; see also Jt. Tr. Ex. 17 at 1]. During the three-week delay, MIG continued to air Jewelry Television [see Doc. 66 at 181].

9. The 2003 Agreement provided for larger blocks of time on WHDT -- 17 hours per day during the week and 15 hours per day on the weekends [see Doc. 66 at 82; see also Jt. Tr. Ex. 17 at 1]. Like the 2002 Agreement, ACN again agreed to compensate MIG based on the number of WHDT cable subscribers, or fifteen percent of net sales, whichever was greater [see Jt. Tr. Ex. 17 at 2]. Under the "Terms" provision, the 2003 Agreement was "non-cancelable by either party." [See id. at 1]. Under the "Renewal" provision, the 2003 Agreement provided that the initial one-year term would automatically renew "unless either party terminates the Agreement in writing at least thirty (30) days prior to the end of any term." [See id. at 2; see also Doc. 66 at 183]. Thus, by its own terms, the 2003 Agreement ended March 31, 2004; however, the deadline for providing notice of termination by certified mail was March 1, 2004 [see Jt. Tr. Ex. 17]. Nevertheless, as of March 1, 2004, neither party had sent notice of termination by certified mail [see Doc. 66 at 184].

10. On March 9, 2004, Marksteiner e-mailed ACN regarding deal points which MIG wanted to address in a new contract [see id. at 48; see also Jt. Tr. Ex. 19]. Marksteiner addressed the e-mail to Harris Bagley, who oversaw affiliate contracts [see Jt. Tr. Ex. 19]. Marksteiner also copied Andy Caldwell ("Caldwell"), who managed affiliate contracts for ACN and therefore had responsibility for negotiating the MIG agreement [see id.; see also Doc. 66 at 160]. At that time, Caldwell was aware of the previous agreements between the parties [see Doc. 66 at 160].

11. In his March 9th e-mail, Marksteiner stated that "[d]ue to the large block of airtime involved, it is not feasible for WHDT to offer a comparable block of airtime past the 15th of this month." [Jt. Tr. Ex. 19]. Marksteiner further stated in that e-mail that "it appears that much of this time can be readily sold at prices appreciably higher than what is being offered [by] ACN ... . The cost of airtime on WHDT has increased by 16% ... ." [Id.].

12. Caldwell remembered seeing this e-mail [see Doc. 66 at 161]. A little more than an hour after receiving it, Caldwell responded to Marksteiner that ACN did not agree to all proposed terms but "would like to stay on the station and come to an agreement that is fair and acceptable for both parties." [See id. at 163; see also Jt. Tr. Ex. 20]. Caldwell copied Harris Bagley with that letter [Jt. Tr. Ex. 20].

13. On March 12th, Caldwell sent Marksteiner a second e-mail with a counter offer from Jewelry Television [Jt. Tr. Ex. 21]. The e-mail indicated that the parties had discussed the proposed deal that morning [id.].

14. On March 16th, Caldwell sent another e-mail to Marksteiner, stating that he had spoken with Jewelry Television's in-house attorney about "the new terms of the agreement." [Jt. Tr. Ex. 22]. In that e-mail, Caldwell maintained that "[t]hey have agreed to all the terms of the new deal but would like for the commission to be calculated and paid on a quarterly basis." [Id.]. Caldwell further stated that:

... Our in-house attorney will be out the rest of the week. Therefore, I will not be able to send the Agreement until next Monday afternoon. I know you were hoping to get this sooner. However, I can assure you that if we can agree on this last issue, we will have a Verbal Agreement. [Id.]. Caldwell testified that the parties were "actually in negotiations here and talking about points." [See Doc. 66 at 164].

15. Later that morning, Marksteiner responded that he had made enough concessions and that "this contract has been on the radar screen for some time and everyone knows the required dates." [Jt. Tr. Ex. 23]. Marksteiner also pointed out that the contract was supposed to be signed on the 15th and that the first check for the agreed to higher monthly payment of $51,000 was then due [id.].

16. On March 18th, Caldwell e-mailed Marksteiner that "everyone has agreed to move forward with the original terms ... . We do have a verbal agreement. We will send over a contract on Monday afternoon." [Jt. Tr. Ex. 24]. Caldwell testified that the parties in fact had a verbal agreement that was later memorialized in writing and became the agreement at issue in this case [see Doc. 66 at 165-66].

17. Marksteiner testified that he handled the Jewelry Television negotiations personally because of the sensitive nature of providing a live feed and the potential liability associated with that [see id. at 189]. Furthermore, Marksteiner was of the opinion that because he was the licensee, he was "a hundred percent accountable to the FCC for all Jewelry Television programming," pointing out that the FCC was constantly changing its interpretations about matters [see id.].

18. On March 25, 2004, Caldwell e-mailed a revised Affiliate Airtime Agreement (the "2004 Agreement") for Marksteiner's signature, asking him to return it by fax [Jt. Tr. Ex. 25]. Caldwell testified that the 2004 Agreement was ACN's "standard agreement" and was drafted by ACN [see Doc. 34-3 at 29]. Caldwell further testified that the 2004 Agreement was simply modified to reflect the sales base payment structure [see Doc. 66 at 167]. The 2004 Agreement was executed on March 25, 2004, by Charles A. Wagner, III, on behalf of ACN, and on March 27, 2004, by Marksteiner on behalf of MIG [see Jt. Tr. Ex. 1 at 4].

19. The 2004 Agreement, which lies at the very heart of this litigation, provided that ACN would pay MIG a Base Payment of $51,000 in advance on or before the 25th of each month and, if sales exceeded $280,000, an Adjusted Payment equal to sixteen percent of the Adjusted Gross Sales (gross sales less cancellations, returns, taxes and shipping) [Jt. Tr. Ex. 1 at 1]. The Adjusted Payment was to be made by the 25th of the following month [id.].

20. The term of the 2004 Agreement was one year, effective April 1, 2004, through March 31, 2005 [id.]. Like its predecessors, the 2004 Agreement required MIG to send ACN a Billing Affidavit by the 15th of each month [id.]. Like the 2003 Agreement, the 2004 Agreement provided that it would "renew automatically for one-year terms unless either party terminates the Agreement in writing at least thirty (30) days prior to the end of any term." [Id.]. Also, like the 2003 Agreement, the 2004 Agreement was "non-cancelable by either party." [Id.].

21. The notice provision of the 2004 Agreement, however, was somewhat modified from previous contracts, stating as follows:

Any notices contemplated by this Agreement shall be in writing, sent by certified mail, return receipt requested, hand delivery, or other delivery service that provides written delivery verification and shall be deemed received the earlier of either two business days after mailing or when actually confirmed by written verification. [Id. at 4 (emphasis added)]. Harris Bagley agreed that this notice provision added another way for sending notice [see Doc. 66 at 47]. Marksteiner also testified that MIG had "asked that the notice method be expanded to allow for e-mail, electronic notices, since we are doing nothing but faxes and telephone calls, anyways." [Id. at 194]. Although Marksteiner agreed with the statement that the notice provision of the 2004 Agreement was "specifically negotiated" [see Doc. 67 at 52], Marksteiner conceded that the notice provision of the 2004 Agreement as executed makes no reference to permitting notice by fax, telephone, or e-mail [see id. at 53].

22. Under the 2004 Agreement, MIG agreed to carry Jewelry Television's feed from 12:00 a.m. to 5:00 p.m. (17 hours a day), Monday through Friday, and then for 24 hours a day on Saturday and Sunday [see Jt. Tr. Ex. 1, p.1]. Nevertheless, at trial, Marksteiner testified that if he determined that he wished to run alternative programming during these hours, he could "make the determination that that's reasonably necessary and take Jewelry Television's feed off the air and put on whatever [he] want[s]." [See Doc. 67 at 50]. Marksteiner further testified that he could make that determination in his "sole, individual discretion." [Id.]. However, with reference to preemptions, the 2004 Agreement specified otherwise:

[MIG] shall have the right to preempt ACN's programming whenever such preemption is reasonably necessary to fulfill obligations of [MIG] under the Communications Act of 1934, as amended, and other applicable law and regulations. Except as herein specified, [MIG] agrees that ACN programming will not be preempted. [MIG] agrees to provide ACN with prompt written notice of any preemption and any maintenance or cable system failures which prevent ACN programming from being aired as specified in this Agreement. ACN shall not be responsible for payment for airtime during any time that its programming is not being aired on the Station or the Cable, and ACN's credit shall be at the rates as specified in attached Exhibit C. [Jt. Tr. Ex. 1 at 3].*fn5 Exhibit C of the Agreement provided as follows:

Based upon 627,700 subscribers, credits for preemption or for any failure of [MIG] or the cable to air ACN programming shall be as follows:

12a-6a $52.32 per hour 6a-12 noon $88.10 per hour 12noon-6p $103.82 per hour 6p-12mid $112.49 per hour These credit rates will adjust on a monthly basis based upon a pro rata adjustment for increases or decreases in subscriber count. [Id. at 9].

23. In early 2005, despite some percolating issues, MIG did not find it necessary to negotiate a new contract, and Marksteiner therefore did not notify ACN that MIG would not renew the 2004 Agreement [see Doc. 67 at 5]. Because ACN did not receive notice of termination from MIG more than thirty days prior to March 31, 2005, by any of the mechanisms identified in the 2004 Agreement, ACN considered that the 2004 Agreement had automatically renewed under the renewal provision for a first renewal term from April 1, 2005, through March 31, 2006 [see id. at 15-16].

24. One of the key percolating issues, at least from MIG's perspective, was the requirement that MIG report the number of cable subscribers each month [see Doc. 66 at 190]. This provision of the 2004 Agreement required extensive work because ACN would not accept the number of subscribers provided by the cable companies, considering that number "inflate[d]." [See id. at 190-91]. Consequently, to ensure the accuracy of the number of subscribers, MIG was compelled to send employees to each individual town to examine appropriate city records [see id. at 191-92].

25. Furthermore, pursuant to the 2004 Agreement, net sales typically remained at a level of $500,000 to $600,000, well above the $280,000 minimum [see Doc. 67 at 6]. In MIG's view, therefore, the number of cable subscribers became irrelevant and, after discussions with ACN, MIG quit providing such figures for purposes of the Billing Affidavits [see id. at 6-7].

26. In early January 2006, Patsy Harris,*fn6 the Affiliate Contracts Manager and Director of Distribution for ACN, noticed that there were gaps in sales attributable to WHDT during certain periods of time and e-mailed WHDT's Manager, Brian Content ("Content"), asking when preemption credits would be given by MIG to ACN [see Doc. 66 at 83 and 85-86; see also Jt. Tr. Ex. 26]. Ms. Harris's concern was that Jewelry Television's signal was not airing on WHDT during the times specified in the 2004 Agreement [see Doc. 66 at 85].

27. Ms. Harris's e-mail was brought to Marksteiner's attention [see Doc. 67 at 8]. Instead of having Content respond to that e-mail, Marksteiner personally called Ms. Harris [see id. at 9]. Marksteiner explained that MIG did not give preemption credits under the 2004 Agreement because this was not a typical affiliate airtime contract with payment based on time; rather, the only period of time in which credits had been given was when ACN's net sales had dropped below the $280,000 floor [see id. at 10]. Marksteiner testified that the only time ACN was entitled to preemption credits was when WHDT was "off the air during hurricanes for several weeks with no electricity and where sales went virtually to nothing ... ." [Id. at 8]. In Marksteiner's view, ACN was due that credit because the $51,000 Base Payment advanced MIG was not earned during the time in question [see id.].

28. Ms. Harris remembered talking with Marksteiner about preemption credits during this late January time frame; however, she could not remember any specific dates [see Doc. 66 at 93-94]. Furthermore, telephone records do not reflect this conversation, but the parties agree that this conversation occurred [see id. at 125].

29. Following their telephone conversation, Marksteiner sent Ms. Harris an e-mail dated January 25, 2006, with a detailed explanation of the parties' arrangement and why Jewelry Television was not, in his view, entitled to preemption credits [see Jt. Tr. Ex. 27]. More specifically, Marksteiner explained that as long as net sales are above the $280,000 floor, MIG is paid on a straight commission [see id.]. Therefore, if MIG preempts Jewelry Television's airtime, MIG reduces its own commission [see id.]. Moreover, if the net sales fall below $280,000, MIG will provide preemption credits according to the 2004 Agreement's specific mechanism [see id.].

30. Ms. Harris recalled receiving the January 25th e-mail in response to her inquiries about preemption [see Doc. 66 at 92]. Ms. Harris admits understanding what Marksteiner was saying, but she did not agree with him because "the ...


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