Multi-Channel TV Cable Co. v. Charlottesville Quality Cable Operating Co.

• Decision Date: 14 April 1994
• Docket Number: MULTI-CHANNEL,No. 94-1082,94-1082
• Citation: 22 F.3d 546
• Parties: TV CABLE COMPANY, d/b/a Adelphia Cable Communications, Plaintiff-Appellee, v. CHARLOTTESVILLE QUALITY CABLE OPERATING COMPANY, a Virginia Corporation; Rivanna Partnership, a Virginia general partnership; Alcova Realty & Management Company, Defendants-Appellants, and Fountain Court Limited Partnership, a Virginia limited partnership; John A. Schwab, Jr.; Bernard A. Schwab; C. Stuart Raynor, Jr., Intervenors.
• Court: U.S. Court of Appeals — Fourth Circuit

Page 546

22 F.3d 546

28 Fed.R.Serv.3d 1059

MULTI-CHANNEL TV CABLE COMPANY, d/b/a Adelphia Cable Communications, Plaintiff-Appellee, v. CHARLOTTESVILLE QUALITY CABLE OPERATING COMPANY, a Virginia Corporation; Rivanna Partnership, a Virginia general partnership; Alcova Realty &amp Management Company Defendants-Appellants and Fountain Court Limited Partnership, a Virginia limited partnership; John A. Schwab, Jr.; Bernard A Schwab; C. Stuart Raynor, Jr., Intervenors.

No. 94-1082.

United States Court of Appeals, Fourth Circuit.

Argued March 9, 1994.

Decided April 14, 1994.

ARGUED: Deborah Colleen Costlow, Winston & Strawn, Washington, DC, for appellants. John Douglas McKay, Barrick & McKay, Charlottesville, VA, for appellee. ON BRIEF: Thomas C. Power, Winston & Strawn, Washington, DC, for appellants. Franklyn F. Bergland, David C. Wagoner, Barrick & McKay, Charlottesville, VA; Philip J. Kantor, Bienstock & Clark, Miami, FL; Randall D. Fisher, John B. Glicksman, Adelphia Cable Communications, Coudersport, PA, for appellee.

Before WILKINSON, HAMILTON, and MICHAEL, Circuit Judges.

Affirmed as modified by published opinion. Judge HAMILTON wrote the opinion, in which Judge WILKINSON and Judge MICHAEL joined.

OPINION

HAMILTON, Circuit Judge:

This appeal challenges the propriety of a preliminary injunction which prohibits the Appellants--a cable television provider and four residential apartment complexes--from operating under cable provider agreements to the exclusion of a competing cable provider--Multi-Channel TV Cable Co., d/b/a Adelphia Cable Communications (Adelphia). ¹ For the reasons stated herein, we affirm the preliminary injunction as modified.

I

Adelphia and CQC are competing cable television providers in Charlottesville, Virginia. In 1981, Adelphia installed a cable distribution system in three multi-dwelling units (MDUs) in Charlottesville at the request of the MDU owners. ² Adelphia installed these systems at its own expense. These distribution systems, known as "home run" systems, allowed Adelphia to provide cable television service to those individual tenants desiring such service. The home run system eliminated the previous "bulk service" in which the landlords subscribed to the cable television services in bulk, paid Adelphia one monthly fee, and provided cable television as part of its lease obligations to the tenants. After installation of the home run system, each tenant within the MDUs had the capacity to negotiate individual contracts with Adelphia for the provision of cable television, without any involvement by the MDU owners or the landlord. Adelphia maintained its home run systems at these MDUs at its own expense.

In 1990, Adelphia installed its home run system in another MDU in Charlottesville, Rivanna Terrace. Unlike the prior installations, the installation at Rivanna Terrace was a "pre-wire" project, meaning that Adelphia installed the system during construction of this MDU. Adelphia installed its system at the request of Beacon Construction Co., the general contractor in charge of building Rivanna Terrace, who served as agent for the MDU owner, Rivanna Pa., for purposes of procuring cable television equipment. Although a subcontractor actually installed the wiring within the walls, Adelphia provided the wiring free of charge. Following this installation, Rivanna Pa. allowed Adelphia to enter the complex and install its wall plates and other equipment necessary to complete the home run system and thereby provide cable service to tenants. Adelphia installed this equipment and subsequently maintained the entire cable system at its own expense. In the summer of 1993, Adelphia began offering cable service to the tenants within the four MDUs on an a la carte basis. The a la carte service allowed each tenant to customize the package of cable program services that he or she received.

In November 1993, the property manager for these four MDUs, Alcova, executed an exclusive cable television provider agreement with CQC. This agreement gave CQC the exclusive right to provide cable television services to the tenants within the four MDUs. The agreement allowed CQC to install its cable distribution equipment at the MDUs and provided that "[t]itle to and in the Equipment shall, at all times, remain with [CQC] ..., and no portion of the Equipment will be deemed a fixture of the Properties notwithstanding any affixation to the Properties." (J.A. 408). The agreement also provided that CQC would pay Alcova a "consultant fee" in exchange for "advice in connection with establishing and maintaining optimal service at your units." (J.A. 406). The "consultant fee" equalled twelve percent of CQC's cable service revenues from the tenants within each MDU. Alcova signed the written agreement as "agent" for the MDU owners, and the writing identified the rights and obligations of the MDU owners, rather than Alcova.

After executing this agreement, CQC began installing its cable distribution system at the four MDUs. CQC's cable distribution system uses a microwave transmitter to transmit its signal from a central transmitting location to its subscribers, who receive the signal via special microwave antennas. Providing service to the MDUs under CQC's system requires both a central reception antenna at each MDU, as well as a cable distribution system, such as that installed by Adelphia, to carry the signal from the central reception point to each subscriber's television. Thus, to install the distribution system, CQC erected its microwave antennas at each MDU and connected the antenna to Adelphia's existing distribution system leading to the individual apartments. ³

CQC's actions abruptly terminated Adelphia's service to its subscribers within the MDUs without the prior consent of either the tenants or Adelphia. Thereafter, Adelphia filed suit in the United States District Court for the Western District of Virginia. The complaint named CQC, Alcova, and Rivanna Pa. as defendants and alleged various claims, including: interference with an easement or irrevocable license; conversion of Adelphia's cable distribution system; tortious interference with Adelphia's contractual relationships; common law and statutory conspiracy; and a violation of the Virginia Residential Landlord and Tenant Act, Va.Code Ann. Sec. 55-248.2, et seq. The complaint did not name the other three MDUs or their owners.

On December 3, 1993, Adelphia filed a motion requesting a preliminary injunction to prohibit the named defendants from operating under the exclusive provider agreement and to allow Adelphia to continue providing cable service to the MDU tenants pending the litigation. On December 7, 1993, Adelphia served an amended notice of hearing on its motion for preliminary injunction. In this notice, Adelphia indicated that it intended to move for a preliminary injunction against Rivanna Terrace, as well as the other three MDUs under the common management of Alcova.

On December 15, 1993, a magistrate judge conducted a hearing on Adelphia's motion for preliminary relief with the consent of the parties. 28 U.S.C. Sec. 636(c). John A Schwab, Jr., the president and part owner of Alcova and a general partner in the four partnerships owning the four MDUs, attended the hearing and testified on behalf of the Appellants. At the conclusion of this hearing, the magistrate judge concluded that preliminary relief was appropriate. In reaching this conclusion, the magistrate judge found that, under the facts as currently developed, Adelphia established a strong likelihood of succeeding on the merits of some of its claims, reasoning that: (1) the "consultant fee" under the exclusive provider agreement amounted to an illegal kickback in violation of the Virginia Landlord Tenant Act; (2) the exclusive provider agreement and the subsequent interruption of Adelphia's service to the tenants of the MDUs amounted to tortious interference with Adelphia's contractual relations; (3) CQC's use of Adelphia's distribution system within the MDUs constituted conversion of Adelphia's equipment; and (4) the Appellants' actions supported a claim for both statutory and common law conspiracy. With respect to the tortious interference claim, the magistrate judge opined that, by allowing Adelphia to negotiate cable service contracts directly with the individual tenants of the MDUs, the MDU owners "gave [Adelphia] a business expectancy with those tenants" for the duration of the tenants' leases at the respective MDUs. (J.A. 335).

The magistrate judge also found that, without a preliminary injunction, Adelphia would suffer irreparable harm. The magistrate judge reasoned that, without the preliminary injunction, "the damages suffered by [Adelphia] are incapable of calculation, not simply difficult to calculate, because the service to customers varied." (J.A. 380). In other words, because Adelphia allowed each tenant to fashion the type of cable service desired, i.e., a la carte service, the magistrate judge found that Adelphia's damages would be incalculable because "there is no way of determining what menu services will satisfy the appetite of any particular subscriber whose appetite even may change during the subscription period." Id. The magistrate judge also found that Adelphia would suffer a loss of goodwill from its customers absent the preliminary injunction.

The magistrate judge then concluded that the potential irreparable harm to Adelphia outweighed the harm to the Appellants resulting from the preliminary relief. The magistrate judge reasoned that, by only preventing the Appellants from operating under the exclusive provider agreements, the preliminary injunction allowed CQC and Adelphia to compete for tenants within the MDUs on equal terms. Finally, the magistrate judge found that the public interest favored granting a preliminary injunction since the injunction would "stabilize" the delivery of cable services. (J.A. 382).

On December 16, 1993, the...