Sky Angel U.S., LLC v. Discovery Commc'ns, LLC

• Decision Date: 30 June 2014
• Docket Number: Civil Action No. DKC 13–0031.
• Citation: 28 F.Supp.3d 465
• Court: U.S. District Court — District of Maryland
• Parties: SKY ANGEL U.S., LLC v. DISCOVERY COMMUNICATIONS, LLC, et al.

28 F.Supp.3d 465

SKY ANGEL U.S., LLC

v.DISCOVERY COMMUNICATIONS, LLC, et al.

Civil Action No. DKC 13–0031.

United States District Court, D. Maryland.

Filed June 30, 2014.

Cheryl Feeley, Lynn Estes Calkins, Matthew James Maddox, Holland and Knight LLP, Washington, DC, for Sky Angel U.S., LLC.

David L. Yohai, David Yolkut, Theodore E. Tsekerides, Weil Gotshal and Manges LLP, New York, NY, Peter D. Isakoff, Sarah Sophie Blanchard, Weil Gotshal and Manges LLP, Washington, DC, for Discovery Communications, LLC.

MEMORANDUM OPINION

DEBORAH K. CHASANOW, District Judge.

Presently pending and ready for resolution in this breach of contract case are objections to the March 14, 2014 discovery ruling by Magistrate Judge Charles Day filed by Plaintiff Sky Angel U.S., LLC (“Sky Angel”) (ECF No. 150), and a motion for a jury trial filed by Defendants Discovery Communications, LLC (“Discovery”), and Animal Planet L.C.C. (“Animal Planet”) (ECF No. 108). Also pending is a motion to seal the motion for a jury trial filed by Defendants. (ECF No. 109). The issues have been fully briefed, and the court now rules pursuant to Local Rule 105.6, no hearing being deemed necessary. For the reasons that follow, the objections will be overruled, and the motion to seal will be denied. The motion for a jury trial will be denied.¹

I. Background

A. Factual Background

Sky Angel alleges the following facts in its complaint. (ECF No. 5). Sky Angel operates a subscription-based, multichannel video programming distribution service that delivers family-oriented video programming directly to the television sets of subscribers. Sky Angel enters into contracts with content providers to receive their programming via satellite earth stations and fiber optic connections. Sky Angel then formats the programming using Internet Protocol (“IP”) technology; securely encrypts the programming; and ultimately transmits the programming via broadband Internet connections to the proprietary set-top boxes owned or leased by Sky Angel subscribers. The set-top boxes, which are secured by “industry standard encryption and conditional access technologies,” decode the programming and send it to the subscriber's television set.

On October 3, 2007, Sky Angel entered into a contract with Discovery and Animal Planet (“the Agreement”). (ECF No. 5–1). Pursuant to the Agreement, Discovery and Animal Planet agreed to provide Sky Angel a non-exclusive license and right to distribute five channels via its “Affiliate Systems”: Discovery Channel, Discovery Kids Channel, Discovery Home Channel, Military Channel, and Animal Planet (together, “the Services”). In exchange for this license and the right to distribute the Services, Sky Angel agreed to pay Discovery and Animal Planet monthly licensing fees on a per-subscriber basis.

Section 7 of the Agreement establishes certain requirements for Sky Angel's distribution of the Services. For example, Sky Angel must: (1) “distribute each Service in its entirety, without delay, interruption, alteration, addition, deletion or editing of any portion thereof”; (2) “encrypt each of the Service signals or use a substantially similar method of security to secure each of the Service signals from [Sky Angel's] point of receipt of the Service signals through the points of reception by the Service Subscribers”; and (3) “take all necessary precautions with respect to Affiliate Systems to ensure that the Services are received only by parties who are Service Subscribers.” (ECF No. 5–1 §§ 7.1, 7.2). Sky Angel also agreed to conduct an audit to reveal unauthorized recipients of the Services upon Defendants' request. (Id. § 7.3).

The Agreement provided that it would expire on December 31, 2014. (Id. § 1.11). Section 12.1 of the Agreement, titled “Default and Termination,” provides as follows:

Due and timely performance by [Sky Angel] is of the essence hereof. If [Sky Angel] defaults in the (a) making of any payments hereunder or (b) performance of any of its material obligations hereunder, including its obligations to maintain the security of a Service signal which failure to maintain the security of a signal results in a theft of such Service in an amount equal to or greater than ten percent (10%) of [Sky Angel's] then current base of Subscribers to that Service, and such default shall not be cured within five (5) days after written notice thereof to [Sky Angel], or if [Sky Angel] becomes insolvent, or if a petition under any bankruptcy act shall be filed by or against [Sky Angel] (which petition, if filed against [Sky Angel], shall not have been dismissed within thirty (30) days thereafter), or if [Sky Angel] executes an assignment for the benefit of creditors, or if a receiver is appointed for the assets of [Sky Angel], or if [Sky Angel] takes advantage of any insolvency or any other like statute (any of the above acts are hereinafter called “Event of Default”), then [Discovery and Animal Planet] may, in addition to any and all other rights which [Discovery and Animal Planet] may have against [Sky Angel], terminate this Agreement by giving written notice to [Sky Angel] at any time after the occurrence of an Event of Default.... Notwithstanding anything to the contrary herein, in the event [Discovery and Animal Planet] determine[ ] that the Service signal integrity or the Service signal security measures or distribution methodology used by or on behalf of [Sky Angel] are not satisfactory, [Discovery and Animal Planet] shall have the right to terminate this Agreement.

The Agreement also contains a choice-of-law provision establishing that the parties' rights and obligations should be governed by and construed according to the laws of the State of Maryland, without regard to conflict-of-laws principles. (ECF No. 5–1 § 13.8).

According to the complaint, Sky Angel performed all of its obligations under the Agreement between October 2007 and April 2010. Sky Angel did not make any changes to its signal integrity, signal security, or distribution methodology during this time period. Sky Angel further alleges that, for the first two years of the Agreement, neither Discovery nor Animal Planet complained about any aspect of Sky Angel's performance or its distribution methodology. Discovery and Animal Planet also did not exercise their rights under Section 7 of the Agreement to request an audit of Sky Angel's subscribers. In fact, in August and September 2009, Discovery encouraged Sky Angel to add additional Discovery programming channels to its offerings.

Nonetheless, on January 22, 2010, Discovery sent a letter to Sky Angel on behalf of itself and Animal Planet stating that:

We have determined that the distribution methodology used by and on behalf of [Sky Angel] is not satisfactory. Accordingly, pursuant to Section 12.1 of the Agreement, we hereby elect to terminate the Agreement. In order to provide for an orderly transition process, including notification to your subscribers, we will provide you with a three (3) month transition period; accordingly, the Agreement will terminate effective on April 22, 2010.

(ECF No. 5 ¶ 31). Sky Angel's response, dated March 4, 2010, stated that “Discovery has no reasonable basis for its belief that th[e] IP distribution methodology [used by Sky Angel for more than two years without objection] is in any way unsatisfactory” and also offered “to cooperate in establishing the security of its system to Discovery's reasonable satisfaction.” (Id. ¶ 32). On March 19, 2010, Defendants responded but did not provide any additional details regarding their purported dissatisfaction with Sky Angel's distribution methodology.

In an effort to avert termination, Sky Angel filed an emergency petition with the Federal Communications Commission seeking to halt any disruption in programming signals. According to Sky Angel, Discovery and Animal Planet's opposition to this request stated that:

Discovery has concluded that there is a substantial legal risk that licensors of its programming will view the transportable Sky Angel distribution methodology as exceeding the distribution rights Discovery has. Discovery has further identified a serious and irreparable business risk in the form of damaged relations with its distributors, who might view [Discovery] as having granted Sky Angel rights that it refused them and that Discovery claimed not to grant anyone. Discovery also could face additional and substantial legal, business and financial risks if any of its distributors view that Sky Angel distribution methodology as having triggered [Most Favored Nation] obligations in their own Agreements.

(ECF No. 5 ¶ 37) (second alteration in original). Thus, according to Sky Angel, Defendants “admitted” that “their termination of the Agreement was unrelated to Sky Angel's performance.” (Id. ). On April 22, 2010, Discovery and Animal Plan severed their programming connections with Sky Angel. As a result of this termination, Sky Angel asserts that it suffered substantial business losses, including costs associated with altering its promotional materials to reflect the discontinuation of the Services and a decrease in current and future subscribers.

B. Procedural Background

On January 3, 2013, Sky Angel filed a complaint in this court asserting that Defendants' termination of the Agreement constituted a breach of contract. (ECF Nos. 1 & 5).² Specifically, Sky Angel alleges that Section 12.1 “did not permit [Discovery or Animal Planet] to terminate the Agreement at any time without cause,” but instead required Defendants to make a determination that the “distribution methodology criteria” established by Section 7 was not satisfactory. (ECF No. 5 ¶¶ 50, 66). Sky Angel further asserts that Defendants did not make, and could not have made, such a determination, but instead “terminated the Agreement for other reasons including [Defendants'] extra-contractual legal and business concerns about maintaining the contract with Sky Angel”—a rationale that “was not sufficient under the Agreement and...