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Clubcom, LLC v. Captive Media

September 20, 2010

CLUBCOM, LLC F/K/A CLUBCOM, INC., PLAINTIFF,
v.
CAPTIVE MEDIA, INC., D/B/A HEALTH CLUB PANEL NETWORK, DEFENDANT.
CM SHARHOLDER HOLDINGS, INC., F/K/A CAPTIVE MEDIA, INC., D/B/A HEALTH CLUB PANEL NETWORK, A CALIFORNIA CORPORATION, COUNTERCLAIM PLAINTIFF,
v.
CLUBCOM, LLC F/K/A CLUBCOM, INC., A DELAWARE CORPORATION, COUNTERCLAIM DEFENDANT.



The opinion of the court was delivered by: Terrence F. McVerry United States District Court Judge

MEMORANDUM OPINION AND ORDER OF COURT

Presently pending before the Court for disposition are the following:

* MOTION FOR SUMMARY JUDGMENT, AND, IN THE ALTERNATIVE, FOR SUMMARY ADJUDICATION OF ISSUES, with brief in support, filed by CM Shareholder Holdings, Inc., f/k/a Captive Media, Inc. d/b/a Health Club Panel Network ("CM") CM (Sealed Document Nos. 171 and 172); the OPPOSITION to CM's Motion for Summary Judgment filed by ClubCom, LLC f/k/a ClubCom, Inc. ("ClubCom") (Sealed Document No. 188); and the REPLY BRIEF filed by CM (Sealed Document No. 196); and

* MOTION FOR SUMMARY JUDGMENT, with brief in support, filed by ClubCom, in which ClubCom seeks summary judgment on its breach of contract claims and dismissal of the counterclaims for breach of contract and breach of implied duty of good faith (Sealed Document Nos. 175 and 176); the OPPOSITION to Clubcom's Motion for Summary Judgment filed by CM (Sealed Document No. 185); and the REPLY MEMORANDUM OF LAW filed by ClubCom (Sealed Document No. 197).

The issues have been fully briefed and the factual record has also been thoroughly developed via CM'S CONCISE STATEMENT OF MATERIAL FACTS IN SUPPORT OF ITS MOTION FOR SUMMARY JUDGMENT, AND, IN THE ALTERNATIVE, FOR SUMMARY ADJUDICATION OF ISSUES (Sealed Document No. 173), CM'S APPENDIX IN SUPPORT OF ITS MOTION FOR SUMMARY JUDGMENT (Sealed Document No. 174), THE RESPONSIVE CONCISE STATEMENT OF UNDISPUTED MATERIALS FACTS filed by CLUBCOM (Sealed Document No. 189), APPENDIX OF DOCUMENTS REFERENCED IN CLUBCOM'S RESPONSIVE CONCISE STATEMENT OF UNDISPUTED MATERIAL FACTS, VOL. I (Sealed Document No. 190); APPENDIX OF DOCUMENTS REFERENCED IN CLUBCOM'S RESPONSIVE CONCISE STATEMENT OF UNDISPUTED MATERIAL FACTS, VOL. II (Sealed Document No. 191), CLUBCOM'S STATEMENT OF UNDISPUTED MATERIAL FACTS (Sealed Document No. 177), APPENDIX OF DOCUMENTS REFERENCED IN CLUBCOM'S STATEMENT OF UNDISPUTED MATERIAL FACTS VOL. I and VOL. II (Sealed Document No. 178), CM'S STATEMENT OF MATERIAL FACTS IN OPPOSITION TO CLUBCOM'S MOTION FOR SUMMARY JUDGMENT (Sealed Document No. 186), and CM'S APPENDIX IN SUPPORT OF OPPOSITION TO CLUBCOM'S MOTION FOR SUMMARY JUDGMENT (Sealed Document No. 187).

After an indepth and careful consideration of the motions, the filings in support and opposition thereto, the memoranda of the parties, the relevant case law, and the record as a whole, the Court finds that due to the prevalence of disputed issues of material fact, the breach of contract claims advanced by both parties must be submitted to the fact finder for final determination. However, the Court finds that the gist of the action doctrine bars ClubCom's claims for tortious interference with contractual relations and tortious interference with a valid business expectancy and, thus, CM's motion for summary judgment will be granted in part.

PROCEDURAL BACKGROUND

All of the claims and counterclaims, and the basic issues of this lawsuit, flow from the parties' March 7, 2006 Advertising License Agreement, together with a supplemental Letter Agreement.

ClubCom initiated this lawsuit on November 14, 2007, by the filing of a four-count Complaint against CM in which it alleges that CM breached the long term License Agreement between the parties which gave CM the exclusive right to place national advertising on the digital entertainment network developed and operated by ClubCom.*fn1 Distilled to its essence, ClubCom alleges that during the long term license relationship, CM was selling a "competing" network and that, as a result, it failed to use its "best efforts" to perform its responsibilities under the License Agreement.

On December 21, 2007, CM filed a Motion to Dismiss for Improper Venue Or, In The Alternative, to Transfer. Thereafter, the parties engaged in three months of discovery limited to matters relating only to the issue of whether CM was subject to personal jurisdiction in the Western District of Pennsylvania and whether the United States District Court for the Western District of Pennsylvania was the proper venue for the litigation.

By Memorandum Opinion and Order dated May 9, 2008, the Court denied CM's Motion. On May 22, 2008, CM filed its Answer to the Complaint and a ten-count Counterclaim against ClubCom, Amer Sports Oyj a/k/a Amer Sports Corporation; and Precor, a wholly owned subsidiary of AmerOyj. ClubCom is a wholly-owned subsidiary of Precor and, in turn, of AmerOyj.*fn2 Approximately one month later, CM filed a First Amended Counterclaim which named Amer Sports Co., another wholly-owned subsidiary of AmerOyj, as an additional counterclaim defendant. The counterclaim defendants thereafter filed Motions to Dismiss seeking to dismiss Claims Three through Ten of the First Amended Counterclaim. Counts I and II of the Amended Counterclaim, which were directed solely to ClubCom, were not the subject of the motions to dismiss. By Memorandum Opinion and Order filed January 31, 2009, the Court granted the Motions to Dismiss and dismissed Precor, Inc., Amer Sports Company, and Amer Sports OYJ a/k/a Amer Sports Corporation as counterclaim defendants in this action.

On March 3, 2009, CM filed a Second Amended Counterclaim in which it named only ClubCom as a counterclaim defendant and alleged the following two claims: Breach of Written Contract (First Claim), and Breach of Implied Covenant of Good Faith and Fair Dealing (Second Claim).

BACKGROUND

Plaintiff / Counterclaim Defendant ClubCom is engaged in the business of developing and operating customized digital entertainment networks, which it broadcasts in health clubs and bowling alleys throughout the United States, the United Kingdom, Germany, Japan, and Australia. ClubCom offers patrons of health clubs an ambient (i.e., using sound that fills the room) television entertainment network that operates on a programming schedule similar to conventional television, which includes permitted advertising for several minutes of each hour.

Defendant, Counterclaimant CM is an advertising company engaged in the business of selling advertising and promotional campaigns to health clubs and other entities within the fitness industry. The "cornerstone" of CM's business model has been its "static display platform, which involves the placement of attractively framed advertising posters in the highly-trafficked areas of clubs." See Exhibit 5 - Health Club Panel Network Information Memorandum at 5.

On March 7, 2006, following over a year of extensive negotiations, ClubCom and CM entered into a "License Agreement," pursuant to which ClubCom granted CM an exclusive license to sell national advertising over the ClubCom network*fn3 for ten and a half years, together with a right of first refusal to acquire ClubCom if it received a buyout offer. It also granted CM a non-exclusive license to introduce and promote the ClubCom Network to health clubs. In return, CM paid ClubCom a royalty advance of $1 million to be offset against ClubCom's future royalties, and agreed to pay additional capital expenses on an agreed schedule. CM further agreed to use its "best efforts" to "market, promote, commercialize and sell [advertisements] over the [ClubCom] Network" and "install, operate and commercialize the [ClubCom] Network in new facilities and in facilities with which CM had a pre-existing business relationship." The "best efforts" clause is a material provision of the License Agreement. Id. at § 10.

CM also agreed to "not directly or indirectly compete with ClubCom" in any health club and not to promote or recommend within the fitness industry*fn4 any network operation products that are competitive with or similar to the ClubCom Network. CM further agreed not to interfere in any way with ClubCom's relationship with any Facility and to keep confidential all of ClubCom's trade secrets and proprietary and confidential information.

Contemporaneously with the execution of the License Agreement, on March 7, 2006, CM and ClubCom also executed a separate "Letter Agreement Regarding [CM] Facilities," (the "Letter Agreement") which provides with respect to "Current [CM] Facilities," that:

During the Term [of the License Agreement] Captive will use best efforts to secure from Current Captive Facilities in the United States and Canada the right for ClubCom to install, operate and commercialize the Network, and Captive to receive broadcasting advertising rights pursuant to terms and conditions that are mutually acceptable to ClubCom and Captive . . . . Should ClubCom elect to install the Network, ClubCom shall use commercially reasonable efforts to install, operate and commercialize the Network in a manner comparable to operational standards applicable to [ClubCom] Facilities . . . .

Exhibit 8, Letter Agreement, § 1.

ClubCom contends that CM breached the License Agreement because CM was actively promoting a competing product; CM denies this contention and argues that CM never promoted a competing product and that it always used its best efforts to market, promote and sell advertisements on the ClubCom Network. CM argues that ClubCom's motion for summary judgment should be denied as no reasonable jury could determine that CM's solicitation of its VODS*fn5 product constituted a material breach. In the alternative, CM argues that if the solicitation of its VODS product constituted a breach, such breach was curable as CM could have withdrawn ...


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