Locuspoint Networks, LLC v., Case No. 14-cv-01278-JSC

Decision Date25 August 2015
Docket NumberCase No. 14-cv-01278-JSC
CourtU.S. District Court — Northern District of California
PartiesLOCUSPOINT NETWORKS, LLC, Plaintiff, v. D.T.V. LLC, Defendant.
ORDER RE: MOTIONS FOR SUMMARY JUDGMENT
Re: Dkt. Nos. 88, 94

This action arises out of the written agreement of Defendant D.T.V., LLC ("DTV") to sell its television station in Philadelphia, Pennsylvania to Plaintiff LocusPoint Network ("Plaintiff"). Now pending before the Court are the parties' motions for summary judgment. (Dkt. Nos. 88, 94.) Plaintiff seeks summary judgment on its breach of contract and breach of implied covenant causes of action. It insists that on the record before the Court a trier of fact must find that DTV breached its written warranties, that its breach delayed approval by the Federal Communication Commission ("FCC") of the transfer of the station to LocusPoint Network, and that the delay allowed DTV to terminate the agreement before closing (and after the value of the station increased beyond the sale price). Plaintiff also contends that under these circumstances, the Court must order DTV to sell the station to Plaintiff at the contract price. (Dkt. No. 94.) DTV, on the other hand, seeks summary judgment in its favor on all causes of action. The gravamen of its argument is that any breach of warranty was immaterial, and DTV properly exercised its right to terminate the agreement. (Dkt. No. 88.) Having considered the parties' submissions, and having had the benefit of oral argument on August 6, 2015, the Court GRANTS IN PART Plaintiff's motion for summary judgment and DENIES DTV's motion for summary judgment as set forth below.

SUMMARY JUDGMENT EVIDENCE

Plaintiff acquires television stations "for the purpose of maximizing the spectrum assets values of these stations which could eventually involve selling those stations at the FCC spectrum auction."1 (Dkt. No. 92 ¶ 1.) Defendant DTV is a limited liability company that owns and operates eight television stations, including WPHA in Philadelphia ("WPHA" or "the Station"). Randolph Weigner is DTV's owner. (Dkt. No. 96-3 ¶ 1.)

In 2012, DTV offered nine television stations for sale, including WPHA. (See Dkt. No. 90-5 at 15.)2 DTV initially negotiated a deal to sell WPHA to a different entity for $4.9 million. (Dkt. No. 90-5 at 17.) But by July 2012, once that deal had fallen through, Plaintiff and DTV were in talks regarding the purchase of WPHA, and Plaintiff had begun its due diligence of the station. (See id. at 23-24.) Both parties retained counsel to represent them in the course of the diligence process and sale transaction: Plaintiff retained Wilkinson Barker Knauer, chiefly Jonathan Cohen (Dkt. No. 92 ¶ 3), while DTV engaged the counsel of Peter Tannenwald (Dkt. No. 88-3 ¶ 1.)

A. DTV's Pre-Agreement Federal Communication Commission Contacts

No television broadcast station, such as WPHA, may operate without a license granted by the Federal Communications Commission ("FCC"). 47 U.S.C. § 301; FCC v. Nat'l Citizens for Broad., 436 U.S. 775, 780 (1978). Pursuant to that licensing authority, the FCC has enacted numerous rules and regulations for such stations. Several of those regulations, and whether DTV complied with them, are at issue in the pending motions.

1. Main Studio Rule

FCC regulations require that all broadcast television stations maintain a main studio. 47 C.F.R. § 73.1125(a). The FCC imposes certain staffing and access requirements on these main studios; specifically, there is a two-employee rule that requires a station's main studio to have "management and staff presence on a full-time basis during normal business hours[.]" Alpine Broad. Ltd P'ship, 21 FCC Rcd. 3077, 3079 (2006) (internal quotation marks and citation omitted); Jones Eastern of the Outer Banks, Inc., 6 FCC Rcd. 3615, 3616 n.2 (1991), clarified at 7 FCC Rcd 6800 (1992).

During the summer and fall of 2011, DTV hired William West as WPHA's manager responsible for staffing the Station and granting access to members of the public and FCC inspectors. (See Dkt. No. 90-6 at 9-10; Dkt. No. 88-1 at 96.) The "main studio" was located at West's home production studio adjacent to West's home behind a locked gate with a buzzer marked with the Station's name. (Dkt. No. 90-6 at 11, Dkt. No. 88-1 at 97.) As West put it, his role was "[holding] the public file"i.e., keeping the Station's records open for access. (See Dkt. No. 88-1 at 96.) West received an hourly wage for his role as manager, and he did not employ any other individuals to work on DTV's behalf. (Dkt. No. 90-6 at 12-13.) However, West would sometimes call upon a "second employee" to fill in for him as backup if he had to leave the studio. (Id.) These backup employees would have been paid by DTV, not West. (Id. at 13-14.) Weigner testified that there were other individuals working at WPHA during that time period, but noted that he did not pay a second employee at the Station's main studio until 2012. (Id. at 23- 24.)

2. FCC Inspection Rule

FCC regulations also require "[t]he licensee of a broadcast station [to] make the station available for inspection by representatives of the FCC during the station's business hours, or at any time it is in operation." 47 C.F.R. § 73.1225(a).

On August 17, 2011, an FCC field agent inspector came to the Station to request access. (Dkt. No. 88-1 at 97.) West came to the gate to speak with the inspector. (Id.) According to West, he was suffering from an extremely high fever and was leaving to seek emergency medical treatment and told the FCC inspectors as much and, accordingly, could not allow them into thestudio. (Id. at 98.) To the best of West's recollection, the FCC inspectors agreed to come back—either the following day or some other time. (Id.; Dkt. No. 90-6 at 17.) On September 30, 2011, FCC agents returned to the Station to request access. (Dkt. No. 88-1 at 100.) West testified that the inspectors arrived before business hours, so he asked them to wait 15 to 20 minutes for him to come down and open the gate for access and inspection of the Station, but when West returned to the gate at 9:00 am, the inspectors had left. (Id. at 100-101.) On each of these two occasions, the FCC inspector called Weigner after the failed inspection and left a message requesting a call back to discuss the failed inspections. (Dkt. No. 88-2 ¶ 6.) Weigner did not call back. (Id.) Instead, his attorney, Tannenwald, emailed the inspector after the second visit. (Id. ¶¶ 6-7; Dkt. No. 88-1 at 116). Tannenwald never received a response to his email. (Dkt. No. 88-1 at 116.)

3. Operation per Station Authorization Rule

The FCC requires all stations to operate from an authorized antenna structure "and in accordance with the terms of the station authorization." 47 C.F.R. § 73.1350(a). FCC inspectors used direction-finding equipment "to locate the source of the transmissions" from WPHA, and determined that the Station's broadcast antenna was two tenths of a mile away from its authorized location within the same large cluster of transmission towers. (Dkt. No. 90-2 at 3-4.) When DTV learned of this discrepancy in March 2012, it filed an application to change the license consistent with the current antenna location. (Dkt. No. 88-2 ¶¶ 9-10.) The FCC approved the application within two weeks. (Id. ¶ 10.)

4. Rule Requiring Timely Filing of Children's Programming

FCC regulations also require television broadcast stations to submit and make publicly available standardized reports each quarter documenting the station's children's programming. 47 C.F.R. § 73.3526(e)(11)(iii). In 2012, the FCC raised an issue with DTV regarding the filing of WPHA's children's programming reports. (Dkt. No. 88-2 ¶ 11.)

B. The Parties' Purchase Agreement

On October 26, 2012, the parties executed an agreement (the "Purchase Agreement") whereby DTV would sell the principal assets of the Station on the closing date in exchange for $6.4 million. (Dkt. No. 90-1 at 2-25 (hereinafter "Purchase Agreement").) Plaintiff would alsopay DTV a $5,000 signing bonus. (See id. § 1.3(c).) The Purchase Agreement was based on a contract that DTV had used in another transaction, and DTV drafted its provisions. (Dkt. No. 91 ¶ 18; Dkt. No. 92 ¶ 12; see also Dkt. No. 90-2 at 11 (DTV's other purchase agreement).)

Under the Purchase Agreement's terms, the parties agreed to file an application to seek FCC consent to the transfer of the Station to Plaintiff within five business days of signing. (Id. § 5.1.) The sale of the Station would occur within 10 business days after the FCC grant of its consent to assignment of the Class A license to Plaintiff. (Id. § 4.)

1. Provisions Regarding FCC Consent

In the Purchase Agreement, the parties made representations regarding their responsibilities for obtaining that consent. Specifically, both parties agreed to "diligently prosecute the FCC Application and otherwise use their best efforts to obtain the FCC Consent as soon as practicable, provided, however, that neither party shall be required to participate in a trial-type hearing or judicial appeal." (Id. § 5.1.) The parties contracted to "cooperate with the FCC in connection with obtaining the FCC Consent," and agreed to "promptly provide all information and documents requested by the FCC in connection therewith." (Id. § 5.2.) Likewise, both parties agreed to "cooperate fully with the other in taking any commercially reasonable actions (including to obtain the required consent of any governmental instrumentality or any third party) necessary to accomplish the transactions contemplated by this Agreement, including, but not limited to, the prompt satisfaction of any condition to the Closing set forth herein." (Id. § 9.1.)

2. DTV's Representations and Warranties

The FCC will not consent to a license assignment if the Station is the subject of ongoing enforcement proceedings arising from regulatory violations. See Expanding the Economic & Innovation Opportunities of Spectrum Through Incentive Auctions, 29 FCC Rcd....

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