Mega Media Holdings, Inc. v. Aerco Broad. Corp.

852 F.Supp.2d 189

MEGA MEDIA HOLDINGS, INC., Plaintiff,

v.AERCO BROADCASTING CORP., Defendant.

Civil No. 10–1279 (ADC).

United States District Court, D. Puerto Rico.

March 30, 2012.

James W. McCartney, Cancio, Nadal, Rivera & Diaz, San Juan, PR, for Plaintiff.

Alejandro J. Cepeda–Diaz, Dora M. Penagaricano–Suarez, Richard M. Graffam–Rodriguez, McConnell Valdes, San Juan, PR, for Defendant.

OPINION AND ORDER

AIDA M. DELGADO–COLÓN, Chief Judge.

Mega Media Holdings, Inc. (“Mega” or “plaintiff”) brings suit against Aerco Broadcasting Corp. (“Aerco” or “defendant”), alleging breach of two contracts: (1) a Programming Agreement (the “Programming Agreement”) and (2) an Exclusivity and Option Agreement (“the Option Agreement”). ECF No. 1. Plaintiff alleges that such breaches stem from defendant's failure to comply with the terms of the Programming Agreement, and from defendant's refusal to refund plaintiff $2,000,000 as required by the Option Agreement in the event of a breach of the Programming Agreement. Id. Presently before the court are defendant's motion for judgment on the pleadings (ECF No. 32), plaintiff's opposition thereto (ECF No. 38), and defendant's reply (ECF No. 42).

Defendant urges the Court to dismiss plaintiff's complaint, arguing that plaintiff is not legally entitled to the return of the $2,000,000 consideration for the Option Agreement because the clauses conditioning defendant's retention of the consideration on its performance under the Programming Agreement are void and unenforceable under Puerto Rico law. ECF No. 32 at 2, 8–11.

After a review of the parties' submissions and the applicable law, the court DENIES defendant's motion for judgment on the pleadings (ECF No. 32).

I. Factual Background

The Court derives the following factual background from plaintiff's complaint (ECF No. 1) and all materials attached and fairly incorporated therein. ¹Gagliardi v. Sullivan, 513 F.3d 301, 305–06 (1st Cir.2008) (noting that in considering a Rule 12(c) motion, courts “may augment the facts in the complaint by reference to (i) documents annexed [to the complaint] or fairly incorporated into it, and (ii) matters susceptible to judicial notice”) (citations and internal quotations omitted); seeFed.R.Civ.P. 12(d).

On or about April 22, 2008, the parties executed the Programming Agreement that stipulated the terms and conditions under which Mega would provide Aerco with Spanish-language programming. ECF No. 1 at ¶ 5; ECF No. 1–2. Mega would do so by retransmitting the content of WSBS Channel 22 (“Mega–TV” or “Mega–TV Programming”) to be aired on Aerco-owned WSJU–TV Channel 30 (“Channel 30”) in the San Juan metropolitan area. ECF No. 1–2 at 2. The Programming Agreement became effective on August 1, 2008 for a term of 24 months, ending on July 31, 2010. Id. at 3. Upon the effective date of the Programming Agreement, Aerco would broadcast Mega–TV during the Agreement's term in exchange for certain retransmission fees that Mega would pay to Aerco.²Id. at 2, 20. The Programming Agreement also placed specific obligations on Aerco as conditions of receiving Mega–TV.³Id. at 2–4, 6, 9, 11–12.

Article 7.1.1 of the Programming Agreement provided that either party, at its discretion, could terminate the Agreement at any time (i) after the breach of any representation, warranty, or covenant made in the Agreement; or (ii) after a party's failure to perform any material obligation in the Agreement that was either not cured within 30 days after receiving written notice of said failure from the other party or as to which the party had not begun, within 30 days, reasonable steps to cure. Id. at 10; seeECF No. 1 at ¶ 6(k).

Contemporaneous with the execution of the Programming Agreement, the parties executed the Option Agreement. ECF No. 1 at ¶ 7; ECF No. 1–3. The Option Agreement provided Mega with both an exclusive option to purchase certain assets owned by Aerco (the “Option”) and a period of exclusivity during which Mega could exercise the Option (the “Exclusivity Period”). ECF No. 1–3 at 1. The Option assets included Aerco's FCC License; all equipment for transmission of broadcasts used in the operation of Channel 30; the hardware and software used in the operation of Channel 30; and the transmitter of digital equipment. Id. at 12. The Option Agreement also contemplated an Additional Option. See id. at 2, 3. The “Additional Option” clause stated that the eponymous option was a “mobile truck unit used in the operation of the Station.” Id. at 3.

Section 1 of the Option Agreement, titled “EXCLUSIVITY; OPTION TO PURCHASE ASSETS,” stipulated that Aerco would “cause its affiliates, directors, officers, employees, stockholders, representatives and agents not to, directly or indirectly, solicit or entertain” any transaction involving Channel 30 or related assets. Id. Aerco agreed to these restraints. Id. This Exclusivity Period began on April 22, 2008 and ended on August 1, 2008. Id. The Option's term was two years, beginning on August 1, 2008 and expiring on July 31, 2010. Id.

Additionally, Article 1.3 of the Option Agreement, the “Method of Exercise” clause, prescribed the method by which Mega could exercise the Option. Id. Specifically, Mega could exercise the Option at its sole discretion, at any time during the Option term, by delivering written notice to Aerco communicating its election to exercise the Option. Id. The “Additional Option” clause proscribed the same method and further stipulated that if Mega chose to exercise the Additional Option “at its sole discretion,” it had to pay $200,000 to Aerco in either a lump sum or in monthly installments. Id.

In exchange for these rights and as additional consideration for entering into the Programming Agreement, the Option Agreement stipulated two payments totaling $2,000,000: $1,000,000 as consideration for the Option ⁴ and $1,000,000 as consideration for the Exclusivity Period (collectively the “Exclusivity and Option Payments”). Id. at 1–2. The Option Agreement expressly provided that the Exclusivity and Option Payments were generally non-refundable, but would be refundable to Mega if Aerco breached either the Option Agreement or the Programming Agreement.⁵Id. at 1, 3. The Option Agreement was silent as to whether the return of the Exclusivity or Option Payments would terminate the contract. See id.

On February 11, 2009, Mega sent Aerco a letter that described Aerco's alleged breaches of the Programming Agreement and failure to perform in accordance with the terms of the same. ECF No. 1–4. Specifically, Mega informed Aerco of the following breaches, among others: (i) Channel 30 was frequently off the air (i.e., Channel 30 frequently experienced “outages”); (ii) Channel 30's signal was often weak, fuzzy, or not viewable; (iii) Aerco's employees, over whom it maintained sole control, were insubordinate, unreliable, unsupervised and generally incapable of performing their duties, leading to the Mega–TV Programming being aired at incorrect times or not at all; (iv) Aerco's overall lack of responsiveness was resulting in the unprofessional and untimely broadcast of the Mega–TV Programming; and (v) Aerco was wrongfully and unilaterally preempting Mega's commercial spots. ECF No. 1 at ¶ 19. The letter expressly stated that Aerco's acts and omissions caused Mega to suffer both monetary damages and damages to its reputation and good will. ECF No. 1–4 at 2–4, 6. Accordingly, Mega demanded that Aerco immediately resolve all of its deficiencies and requested that Aerco respond to its letter in writing. Id. at 6. Aerco never responded. ECF No. 1 at ¶ 23.

Subsequently, on July 20, 2009, Mega sent another letter to Aerco, detailing Aerco's alleged ongoing and additional breaches of the Programming Agreement. ECF No. 1–5. As examples of the breaches listed in its July 20, 2009 letter, Mega specifically alleges the following:

(i) Channel 30's continued outages, signal problems, audio problems, and overall poor transmission;

(ii) that Channel 30's substandard broadcasts had resulted in a stream of advertiser complaints and cancelled advertisements;

(iii) that Defendant's failure to transmit digitally (as called for by the Programming Agreement) constitutes a material breach of the Programming Agreement;

(iv) that Channel 30's failure/inability to operate at full power (as called for by the Programming Agreement) constitutes a breach of the Programming Agreement;

(v) that the Defendant was required to make all of the repairs or replacements so as to enable Channel 30 to operate at full power; and

(vi) that the Defendant's back-up generators were deficient and unreliable, thereby leading to a commercially unreasonable number of outages.

ECF No. 1 at ¶ 25. As in its prior letter, Mega stated that Aerco's breaches were causing it to suffer substantial monetary damages and damages to its reputation and good will. ECF No. 1–5 at 3–4. Moreover, Mega again demanded that defendant respond in writing within 7 days, providing a detailed action plan addressing the rectification of each problem specified in the February 11, 2009 and July 20, 2009 letters. Id. at 5. However, Aerco did not respond. ECF No. 1 at ¶ 29.

On November 29, 2009, Mega hand-delivered a letter to Aerco, communicating that it was terminating the Programming Agreement because of Aerco's uncured and continuing breaches of the Programming Agreement. ECF No. 1–6 at 3. Mega further demanded that Aerco refund the Exclusivity and Option Payments within 30 days as stipulated in the Option Agreement.⁶Id. Aerco has refused to refund the payments as requested. ECF No.1 ¶ 32.

On April 4, 2010, Mega filed suit against Aerco pursuant to this Court's diversity jurisdiction, alleging that Aerco breached the terms of the Programming Agreement ⁷ and the Option Agreement. Id. at ¶¶ 34, 35. Mega avers that Aerco has breached the Option Agreement by failing to timely return the Exclusivity and Option Payments following the alleged breach...