United States District Court, D. Minnesota
Heather M. McElroy, Esq., Jan M. Conlin, Esq., Michael V. Ciresi, Esq., William Bornstein, Esq., Laura E. Nelson, Esq., Ochen D. Kaylan, Esq., and Thomas L. Hamlin, Esq., Robins Kaplan Miller & Ciresi LLP; and Joseph W. Anthony, Esq., and Daniel R. Hall, Esq., Anthony Ostlund Baer & Louwagie PA, counsel for Plaintiff.
Benjamin W. Hulse, Esq., and Jerry W. Blackwell, Esq., Blackwell Burke PA; and Melissa D. Ingalls, Esq., Michael E. Baumann, Esq., and Robyn E. Bladow, Esq., Kirkland & Ellis LLP, counsel for Defendant.
MEMORANDUM OPINION AND ORDER
DONOVAN W. FRANK, District Judge.
This matter is before the Court on a Motion for Partial Summary Judgment brought by Plaintiff Hubbard Broadcasting, Inc. ("HBI" or "Hubbard") (Doc. No. 99); a Motion to Stay Proceedings Pending Arbitration and to Compel Arbitration of Hubbard's Breach Claims Related to REELZ brought by Defendant DIRECTV, Inc. ("DIRECTV") (Doc. No. 52); a Motion to Dismiss Hubbard's First Amended Complaint brought by DIRECTV (Doc. No. 82); and a Motion for Summary Judgment on Hubbard's Breach of Contract and Declaratory Relief Claims brought by DIRECTV (Doc. No. 90). For the reasons set forth below, the Court grants HBI's motion for partial summary judgment, denies DIRECTV's motion for summary judgment, and declines, at the present time, to rule on DIRECTV's motions to stay and dismiss.
HBI is a family-owned television and radio broadcasting corporation with its headquarters in St. Paul, Minnesota. (Doc. No.119 ("McElroy Decl. II") ¶ 4, Ex. 2 ("S.E. Hubbard Dep.") at 15.) Stanley S. Hubbard is HBI's president, chairman, and CEO. ( Id. at 8-9.) In 1981, Stanley S. Hubbard founded satellite television company United States Broadcasting, Inc. ("USSB"). (Doc. No. 102 ("McElroy Decl. I") ¶ 4, Ex. 2 ("S.E. Hubbard Decl.") ¶ 3.) USSB was the first Federal Communications Commission ("FCC") permittee authorized to build and operate a direct broadcast satellite ("DBS") television business. ( Id. ) Roughly a decade after USSB was first awarded its FCC license, USSB and DIRECTV entered into a partnership to jointly build and launch a high-power direct broadcast satellite and operating system. (S.E. Hubbard Dep. at 15; McElroy Decl. ¶ 5, Ex. 3 ("Hartenstein Dep.") at 11.) The satellite became operational in 1994, and USSB and DIRECTV began broadcasting in the United States. (Hartenstein Dep. at 11.)
In 1998, USSB and Hughes Electronic Corporation ("Hughes") entered into merger discussions. (Doc. No. 74, First Am. Compl. ("FAC") ¶ 21.) The idea of a merger was raised by DIRECTV and Hughes. (S.E. Hubbard Dep. at 11, 183-84; Hartenstein Dep. at 17.) At the time, HBI was the majority shareholder of USSB and DIRECTV was a subsidiary of Hughes. (FAC ¶¶ 18, 19.) Also at the time, USSB had exclusive distribution arrangements with premium movie channel packages, HBO and Showtime. (FAC ¶ 21; Hartenstein Dep. at 17-18, 22-25.) DIRECTV did not have such distribution agreements and could not offer its customers access to such premium channels via its satellite network. (Hartenstein Dep. at 12-13, 17-18.) DIRECTV felt access to HBO and Showtime was necessary to compete. ( Id. )
The negotiations leading up to the merger were primarily between S.E. Hubbard and DIRECTV's former president Eddy W. Hartenstein ("Hartenstein"). (S.E. Hubbard Dep. at 10-11; Hartenstein Dep. at 58-59.) The parties also negotiated a long-term programming development agreement for carriage on DIRECTV. (Doc No. 94 ("Campbell Decl.") ¶ 3 (May 20, 1999 Agreement (the "Preferred Programming Agreement" or "PPA"); FAC ¶ 1, Ex. A ("PPA"); see also S.E. Hubbard Dep. at 25-26.)
HBI was open to the idea of a merger, so long as it could retain a substantial role in the DBS business. (S.E. Hubbard Dep. at 186; Hartenstein Dep. at 22, 31-32; S.E. Hubbard Decl. ¶ 52.) S.E. Hubbard testified that HBI would not have agreed to the merger without a long-term programming agreement. (S.E. Hubbard Dep. at 37.) HBI has submitted evidence that the reason HBI entered into the PPA was to ensure that the Hubbard Family would be able to invest in the business for "generations." (S.E. Hubbard at 23.) Hartenstein testified that he understood that HBI was a family business and that HBI wanted it to continue as a family business on the programming side. (Hartenstein Dep. at 31.) Indeed, Hartenstein testified that he was told that HBI would only agree to a merger if HBI was able to remain in the programming business "in some capacity." ( Id. at 32.)
Representatives of Hughes and USSB met at the Chicago O'Hare Hilton in November 1998 to discuss possible terms of the merger and a long-term programming agreement. (McElroy Decl. I ¶ 7, Ex. 5 at DTV000020.) The parties agreed that DIRECTV would give HBI a distribution right for up to three networks on DIRECTV's platform. (S.E. Hubbard at 23.) The length of HBI's distribution rights, however, remained in dispute and was given significant consideration. (McElroy Decl. I ¶ 7, Ex. 5 at DTV000022-27.) HBI proposed that the right to distribute should last in "perpetuity." ( Id. at DTV000026.) DIRECTV proposed that HBI's right to distribute be limited to seven years, but indicated that it was "willing to give something more." ( Id.; McElroy Decl. II ¶ 6, Ex. 4 at DTV000013.)
Subsequent drafts of the PPA show that DIRECTV initially proposed that HBI's distribution rights be limited to seven years (McElroy Decl. II ¶ 8, Ex. 6 at HB0017269), and that HBI countered with a proposal that eliminated the seven-year term and, instead, suggested that the rights be granted "on an ongoing basis." (McElroy II ¶ 9, Ex. 7 at DTV000037.) A draft dated December 8, 1998, includes no provision for a seven-year period; rather, the draft proposes that HBI have a "right to distribute" three channels "owned and controlled" by the Hubbard family. ( Id. ¶ 10, Ex. 8 at HB0015447-48.) Finally, a draft sent to HBI from DIRECTV on December 11, 1998, similarly does not contain a seven-year term provision, and grants HBI a "right to distribute" three channels that meet certain criteria and that are "owned and controlled" by the Hubbard family and their "lineal descendants." ( Id. ¶ 11, Ex. 9.)
USSB and Hughes completed the merger in 1999. (S.E. Hubbard Decl. ¶ 5; PPA at 1.) The negotiations regarding a long-term programming agreement were reduced to writing in the PPA, which provides, in relevant part:
Concurrent with the execution of this [PPA], [Hughes] and [USSB] have executed an Agreement and Plan of Merger (the "Merger Agreement") which provides for the merger of USSB into Hughes, subject to the terms and conditions of the Merger Agreement.
In connection with the parties' discussions and negotiations relative to the Merger Agreement, it was agreed that, concurrent with the consummation of the Merger Agreement (the "Closing"), [Hubbard] would be a "Preferred Programming Provider" to [DIRECTV]. The purpose of this letter is to set forth the parties' understandings relative to Hubbard's status as a Preferred Programming Provider, and the parties' rights and obligations attendant thereto.
1. Preferred Programming Provider Status.
(a) The Hubbard Channels. In respect of Hubbard's status as a Preferred Programming Provider, [DIRECTV] hereby grants to Hubbard (subject to the terms and conditions of the affiliation agreements to be negotiated in accordance with the provisions hereof) the right to distribute via the high-power direct broadcast satellite platform owned and operated by Distributor in the United States ("Distributor's Platform"), three distinct television networks ... which meet the criteria ("Hubbard Channel Programming Criteria") set forth in subsections (i) and (ii) below (the "Hubbard Channels") on a Preferred Programming Provider basis, all as more fully discussed herein.
(i) Except as may be otherwise agreed between the parties, it is agreed that each Hubbard Channel must at all times during the term of the respective affiliation agreements be Owned and Controlled by the Hubbard Family, which includes ... their current and future immediate family members (i.e., children and spouses) and lineal descendants. ...; and
(ii) Except as may be otherwise agreed between the parties, it is fully agreed (A) that the Hubbard Channels must be compatible with the other television networks and program offerings available via Distributor's Platform in Distributor's reasonable and good faith judgment at the time of launch and negotiation of any renewal or extension of the subject affiliation agreement(s); (B) that all affiliation agreements relative to distribution of the Hubbard Channels shall in all cases reflect terms and conditions (including, e.g., license fees, duration, marketing, packaging and promotion) that are commercially reasonable...; (C) that all affiliation agreements relative to the Hubbard Channels shall in all cases reflect terms and conditions comparable to the terms and conditions for that of comparable cable networks distributed via Distributor's Platform; (D) that all affiliation agreements relative to the Hubbard Channels shall provide for marketing, packaging and positioning as favorable as that for comparable cable networks distributed via Distributor's Platform....
(PPA §§ 1(a)(i) & (ii) (emphasis added).) In addition, the PPA provides that "[t]his Agreement is for the benefit of the Hubbard Family and not for the benefit of any third party and the parties expressly agree that there are no express or implied third party beneficiaries to [the PPA]... and the rights and obligations embodied herein... are not assignable by Hubbard." ( Id. at § 3(c).)
The PPA also contemplates that the affiliation agreements should include a provision regarding their possible extension or renewal:
[A]ll affiliation agreements relative to the Hubbard Channels shall include a provision for possible extension and/or renewal such that, for a period no less than six months before the expiration of the term of such agreement(s), the parties shall negotiate in good faith for a mutually agreeable extension and/or renewal of the term for the continued distribution of the Hubbard Channels or possible replacement channels meeting the criteria set forth in this Section 1(a), and that if, in the reasonable business judgment of Distributor, at the end of the term of any affiliation agreement, such Hubbard Channel being so distributed does not satisfy the Hubbard Channel Programming Criteria, then, at Hubbard's option, the parties shall negotiate for distribution of a new channel that meets the Hubbard Channel Programming Criteria.
(PPA § 1(a)(ii)(E) (emphasis added).) The PPA sets forth standards for negotiating renewal, extension, or replacement of existing HBI channels via the affiliation agreements. ( Id. § 1(a)(ii).) For example, the PPA provides that the affiliation agreements are to "reflect terms and conditions (including, e.g., license fees, duration, marketing, packaging and promotion) that are commercially reasonable" and to "reflect terms and conditions comparable to the terms and conditions for that of comparable cable networks distributed via [DIRECTV's] Platform." ( Id. § 1(a)(ii)(B)-(C).) The PPA also requires that DIRECTV consider in good faith, on an ongoing basis, any "additional program offerings (e.g. channels, series, events and specials)" that HBI might present for potential carriage. ( Id. § 1(b).)
Finally, in the PPA, the parties agreed that "no terms of any executed affiliation agreement contemplated by [the PPA] shall be deemed to be an amendment of [the PPA] unless expressly stated in a ...