<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 8-K/A
Amendment No. 2
Current Report
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): November 19, 1999
PEGASUS COMMUNICATIONS CORPORATION
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(Exact Name of Registrant as Specified in Charter)
Delaware 0-21389 51-0374669
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(State or Other (Commission (IRS Employer
Jurisdiction of File Number) Identification No.)
Incorporation)
c/o Pegasus Communications Management Company, 225 City Line Avenue,
Suite 200, Bala Cynwyd, Pennsylvania 19004
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 888-438-7488
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(Former Name or Former Address, if Changed Since Last Report)
<PAGE>
This Amendment No. 2 amends the current report on Form 8-K dated
November 19, 1999 and originally filed on January 12, 2000, as amended by
Amendment No. 1 filed on February 2, 2000, by (i) amending and replacing in its
entirety the section entitled "DIRECTV Litigation" under Item 5 and (ii)
amending and replacing Item 7 (c) with the filing of a new exhibit Exhibit 99.3.
Item 5. Other Events.
DIRECTV Litigation
On June 3, 1999, the National Rural Telecommunications Cooperative
filed a lawsuit in federal court against DIRECTV seeking a court order to
enforce the National Rural Telecommunications Cooperative's contractual rights
to obtain from DIRECTV certain premium programming formerly distributed by
United States Satellite Broadcasting Company, Inc. for exclusive distribution by
the National Rural Telecommunications Cooperative's members and affiliates in
their rural markets. The National Rural Telecommunications Cooperative also
sought a temporary restraining order preventing DIRECTV from marketing the
premium programming in such markets and requiring DIRECTV to provide the
National Rural Telecommunications Cooperative with the premium programming for
exclusive distribution in those areas. The court, in an order dated June 17,
1999, denied the National Rural Telecommunications Cooperative a preliminary
injunction on such matters, without deciding the underlying claims. On July 22,
1999, DIRECTV responded to the National Rural Telecommunications Cooperative's
continuing lawsuit by rejecting the National Rural Telecommunications
Cooperative's claims to exclusive distribution rights and by filing a
counterclaim seeking judicial clarification of certain provisions of DIRECTV's
contract with the National Rural Telecommunications Cooperative. In particular,
DIRECTV contends in its counterclaim that the term of DIRECTV's contract with
the National Rural Telecommunications Cooperative is measured solely by the
orbital life of DBS-1, the first DIRECTV satellite launched into orbit at the
101(degree) W orbital location, without regard to the orbital lives of the other
DIRECTV satellites at the 101(degree) W orbital location. DIRECTV also alleges
in its counterclaim that the National Rural Telecommunications Cooperative's
right of first refusal, which is effective at the end of the term of DIRECTV's
contract with the National Rural Telecommunications Cooperative, does not
provide for certain programming and other rights comparable to those now
provided under the contract. On September 8, 1999, the court denied a motion by
DIRECTV to dismiss certain of the National Rural Telecommunications
Cooperative's claims, leaving all of the causes of action asserted by the
National Rural Telecommunications Cooperative at issue.
On September 9, 1999, the National Rural Telecommunications Cooperative
filed a response to DIRECTV's counterclaim contesting DIRECTV's interpretations
of the end of term and right of first refusal provisions. On August 26, 1999,
the National Rural Telecommunications Cooperative filed a separate lawsuit in
federal court against DIRECTV claiming that DIRECTV had failed to provide to the
National Rural Telecommunications Cooperative its share of launch fees and other
benefits that DIRECTV and its affiliates have received relating to programming
and other services. On November 15, 1999, the court granted a motion by DIRECTV
and dismissed a portion of the National Rural Telecommunications Cooperative's
lawsuit regarding launch fees and other benefits. In particular, the court
dismissed the tort claim asserted by the National Rural Telecommunications
Cooperative, but left in place the remaining claims asserted by the National
Rural Telecommunications Cooperative. The court also consolidated that lawsuit
with the other pending National Rural Telecommunications Cooperative/DIRECTV
lawsuit. The court set various discovery and motion deadlines for the Spring and
Summer of 2000 but did not set a trial date.
<PAGE>
On December 29, 1999, DIRECTV filed a motion for partial summary
judgment. The motion seeks a court order that National Rural Telecommunications
Cooperative's right of first refusal, effective at the termination of DIRECTV's
contract with National Rural Telecommunications Cooperative does not include
programming services and is limited to 20 program channels of transponder
capacity. The hearing date on DIRECTV's motion was vacated by the court pending
resolution of certain procedural issues raised by a new lawsuit Pegasus and
Golden Sky Systems, Inc. filed against DIRECTV, discussed below. The court has
not yet set a trial date on the merits of the claims.
On January 10, 2000, Pegasus and Golden Sky Systems, Inc. filed a class
action lawsuit in federal court in Los Angeles against DIRECTV as
representatives of a proposed class that would include all members and
affiliates of National Rural Telecommunications Cooperative that are
distributors of DIRECTV. The complaint contains causes of action for various
torts, common counts and declaratory relief based on DIRECTV's failure to
provide National Rural Telecommunications Cooperative with premium programming,
thereby preventing National Rural Telecommunications Cooperative from providing
the programming to the class members. The claims are also based on DIRECTV's
position with respect to launch fees and other benefits, term and rights of
first refusal. The complaint seeks monetary damages and a court order regarding
the rights of National Rural Telecommunications Cooperative and its members and
affiliates.
On February 10, 2000, Pegasus and Golden Sky Systems, Inc. filed an
amended complaint which added new tort claims against DIRECTV for interference
with plaintiffs' relationships with manufacturers, distributors and dealers of
direct broadcast satellite equipment. Pegasus and Golden Sky also withdrew the
class action allegations to allow a new class action to be filed on behalf of
the members and affiliates of the National Rural Telecommunications Cooperative.
The outcome of this litigation and the litigation filed by National Rural
Telecommunications Cooperative could have a material adverse effect on Pegasus'
direct broadcast satellite business because Pegasus is an associate of the
National Rural Telecommunications Cooperative with contract rights that are
affected by the contractual relationship between the National Rural
Telecommunications Cooperative and DIRECTV.
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits.
(c) Exhibits.
99.1 Press Release dated January 20, 2000 (which is incorporated by
reference to Amendment No. 1, filed February 2, 2000, to Pegasus'
Current Report on Form 8-K, dated November 19, 1999 and filed January
12, 2000 (File No. 0-21389)).
99.2 Press Release dated January 26, 2000 (which is incorporated by
reference to Amendment No. 1, filed February 2, 2000, to Pegasus'
Current Report on Form 8-K, dated November 19, 1999 and filed January
12, 2000 (File No. 0-21389)).
99.3* First Amended Complaint filed February 10, 2000 in the United States
District Court, Central District of California, by Pegasus Satellite
Television, Inc. and Golden Sky Systems, Inc, as plaintiffs, against
DIRECTV, Inc. and Hughes Communications Galaxy, Inc., as defendants.
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* Filed herewith.
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PEGASUS COMMUNICATIONS CORPORATION
By: /s/ Scott A. Blank
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Scott A. Blank
Vice President
February 16, 2000
<PAGE>
Exhibit Index
Exhibit No. Description
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99.3 First Amended Complaint filed February 10, 2000 in the United
States District Court, Central District of California, by
Pegasus Satellite Television, Inc. and Golden Sky Systems,
Inc, as plaintiffs, against DIRECTV, Inc. and Hughes
Communications Galaxy, Inc., as defendants.
<PAGE>
ARNOLD AND PORTER
JOHN J. QUINN State Bar No. 029588
DAVID S. EISEN State Bar No. 100623
SHARON L. DOUGLASS State Bar No. 150469
777 South Figueroa St., 44th Floor
Los Angeles, California 90017-2513
Telephone: (213) 243-4000 Fax: (213) 243-4199
FOGEL, FELDMAN, OSTROV, RINGLER & KLEVENS
A LAW CORPORATION
LARRY R. FELDMAN State Bar No. 45126
JOEL N. KLEVENS State Bar No. 45446
1620 26th Street, Suite 100 South
Santa Monica, California 90404
Telephone: (310) 453-6711 Fax: (310) 828-2191
Attorneys for Plaintiff Pegasus Satellite Television, Inc.
MCDERMOTT, WILL & EMERY
ELIZABETH D. MANN State Bar No. 106524
2049 Century Park East
Los Angeles, California 90067-3208
Telephone: (310) 277-4110
Fax: (310) 277-4730
Attorneys for Plaintiff Golden Sky Systems, Inc.
UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA
<TABLE>
<CAPTION>
<S> <C> <C>
PEGASUS SATELLITE TELEVISION, INC., a Delaware ) Case No. CV 00-00368 LGB (CWx)
corporation, and GOLDEN SKY SYSTEMS, INC., a )
Delaware corporation, ) FIRST AMENDED COMPLAINT FOR:
)
Plaintiffs, ) (1) INTENTIONAL INTERFERENCE WITH CONTRACTUAL RELATIONS;
) (2) INTENTIONAL INTERFERENCE WITH PROSPECTIVE ECONOMIC
) ADVANTAGE; (3) INTENTIONAL INTERFERENCE WITH CONTRACTUAL
v. ) RELATIONS; (4) INTENTIONAL INTERFERENCE WITH PROSPECTIVE
) ECONOMIC ADVANTAGE; (5) UNFAIR BUSINESS PRACTICES IN VIOLATION
) OF CALIFORNIA BUSINESS AND PROFESSIONS CODE SECTION 17200;
DIRECTV, INC., a California corporation, and HUGHES ) (6) MISAPPROPRIATION OF TRADE SECRETS; (7) DECLARATORY RELIEF;
COMMUNICATIONS GALAXY, INC., a California ) (8) DECLARATORY RELIEF; AND (9) DECLARATORY RELIEF
corporation, )
) [DEMAND FOR JURY TRIAL]
Defendants. )
)
)
- -----------------------------------------------------)
</TABLE>
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Plaintiffs Pegasus Satellite Television, Inc. ("Pegasus") and Golden Sky
Systems, Inc. ("GSS") ("collectively, "Plaintiffs"), allege upon knowledge with
respect to the acts of Pegasus and GSS, and upon information and belief as to
all other matters, the following:
SUMMARY OF ALLEGATIONS
1. Plaintiffs are in the business of distributing direct broadcast
satellite television service ("DBS service") to approximately 1.1 million
households across America, primarily in rural areas. Pegasus and GSS have paid
nearly one billion dollars to acquire the rights to distribute DBS service to
their subscribers.
2. Pegasus and GSS are affiliates of the National Rural Telecommunications
Cooperative ("NRTC"). The NRTC is a not-for-profit cooperative corporation,
incorporated under the laws of the District of Columbia. NRTC's members and
affiliates are nearly nine hundred rural electric cooperatives, telephone
utilities and media and communications companies located throughout forty-eight
states of the United States, serving about thirty million rural Americans.
3. Plaintiffs (and their predecessors in interest) have entered into
"NRTC/Member Agreements for Marketing and Distribution of Direct Broadcast
Service" with the NRTC, as amended, authorizing Plaintiffs to distribute DBS
service within a specified territory ("Member Agreement"). Plaintiffs (and their
predecessors in interest) paid substantial fees to defendant DirecTv, Inc.,
primarily in the form of "Committed Member Payments" to obtain those valuable
distribution rights.
4. Defendant Hughes Communications Galaxy, Inc. ("HCG") and its affiliate
defendant DirecTv, Inc. ("DIRECTV") are also in the DBS business.(1) In 1994,
DIRECTV entered into a written distribution agreement with the NRTC ("1994 NRTC
Agreement"), which sets forth the programming and distribution services that
DIRECTV agreed the
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(1) In or about March 1996, HCG transferred to DIRECTV its rights and
obligations under the contracts at issue in this action. Both HCG and
DIRECTV remained fully liable for all obligations under the parties'
agreements. Unless otherwise noted, all references to DIRECTV in this
Complaint refer to both HCG and DIRECTV.
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NRTC could sell to its members and approved affiliates for exclusive
distribution within their territories.(2) Paragraph 1 of the 1994 NRTC Agreement
provides:
"If [DIRECTV] acquires the rights, in its sole
discretion, to distribute HBO, Showtime, The Movie
Channel or Cinemax [hereinafter, "Premium Services"],
NRTC shall have the option, in its sole discretion, to
substitute such programming for any one of the services
listed on Exhibit A on a service by service basis."
In turn, and as contemplated by the 1994 NRTC Agreement, the NRTC conveyed this
and related valuable distribution rights to its members and affiliates
participating in the NRTC's DBS project (hereinafter, "Members and Affiliates")
by contracts containing terms approved by DIRECTV.
5. In May, 1999 DIRECTV acquired the rights to distribute the Premium
Services identified in the 1994 NRTC Agreement. Despite the clear and
unambiguous language of that Agreement, however, DIRECTV refuses to allow the
NRTC to substitute these Premium Services for existing programming distributed
by Plaintiffs to their subscribers. Instead, DIRECTV is itself distributing this
programming directly to Plaintiffs' subscribers, thereby interfering with
Plaintiffs' contractual relationships with the NRTC and Plaintiffs' subscribers;
usurping the economic advantage Plaintiffs would otherwise gain from the
exclusive distribution of this programming; and gaining access to Plaintiffs'
valuable and confidential subscriber information.
6. In addition to reneging on its Agreement to allow Plaintiffs to
distribute the Premium Services, DIRECTV has embarked on an orchestrated
campaign to impair the value of Plaintiffs' distribution rights and drive
Plaintiffs out of the DBS business altogether. This campaign to destroy
Plaintiffs' business has several fronts, including the
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(2) A true and correct copy of the 1994 NRTC Agreement, with some provisions
redacted, is attached hereto as Exhibit A and is incorporated herein by
reference. The original DBS distribution agreement between the NRTC and
DIRECTV was entered into on or about April 10, 1992 (the "1992 NRTC
Agreement"). A true and correct copy of the 1992 NRTC Agreement with some
provisions redacted and without many of its exhibits is attached hereto as
Exhibit B and is incorporated herein by reference.
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following. First, DIRECTV refuses to provide tens of millions of dollars of
revenues, cost savings, discounts, volume price breaks and financial and other
benefits that have been received by DIRECTV from third parties and are
attributable to Plaintiffs' subscriber base. Second, DIRECTV has deliberately
misinterpreted the termination and right of first refusal provisions in its
agreements with the NRTC in an attempt to accelerate the termination of those
agreements and to impair Plaintiffs' rights to continue distributing DBS
services to their subscribers. Third, DIRECTV is attempting to cut off
Plaintiffs' access to the equipment necessary to provide DBS service to their
subscribers, by threatening and/or coercing manufacturers, distributors and
dealers who provide equipment to be used in the geographical territories served
by Plaintiffs. Fourth, DIRECTV is misusing the database of Plaintiffs'
subscriber information (a) to market DIRECTV programming and services to
Plaintiffs' subscribers in Plaintiffs' exclusive territories; and (b) to
determine which satellite equipment distributors and dealers are selling
equipment for use in Plaintiffs' territories, so that those equipment
distributors and dealers may be targeted for threats and/or coercion.
7. DIRECTV's goal in undertaking these illicit acts is to impair
Plaintiffs' businesses and to so frustrate Plaintiffs that they are pressured to
sell their businesses to DIRECTV at prices that are far below their real worth.
This concerted action by DIRECTV is designed not only to regain control of
Plaintiffs' DIRECTV distribution business as inexpensively as possible, but also
to gain ready access to a large, well-developed rural distribution network and
subscriber base. Damages, restitution and declaratory and injunctive relief are
necessary to put a stop to this illegal conduct and to restore the Plaintiffs to
their status as exclusive DIRECTV distributors within their territories.
PARTIES
8. Pegasus Satellite Television, Inc. ("Pegasus") is and was at all times
mentioned herein a corporation, incorporated under the laws of Delaware, with
its principal headquarters located in Marlborough, Massachusetts. Pegasus brings
certain claims of its subsidiaries by assignment. In particular, Pegasus
subsidiaries Pegasus Satellite Television
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of Virginia, Inc., and Pegasus Satellite Television of Ohio, Inc., both Delaware
corporations, have assigned to Pegasus in writing all of their claims relating
to the above described Member Agreements to which they are a party or in which
they have an interest, and Pegasus brings those claims by assignment. In
addition, Pegasus subsidiary Henry County MRTV, Inc., an Ohio Corporation, has
assigned to Pegasus in writing all of its claims relating to the below described
Member Agreements to which it is a party or in which it has an interest, and
Pegasus brings those claims by assignment. Further, Pegasus subsidiaries DTS
Management, LLC and Digital Television Services of Indiana, LLC, both Georgia
LLCs, have assigned to Pegasus in writing all of their claims relating to the
below described Member Agreements to which they are a party or in which they
have an interest, and Pegasus brings those claims by assignment. Finally, Car
Rural TV, Inc., a Michigan corporation, has assigned to Pegasus in writing all
of its claims relating to the below described Member Agreements to which it is a
party or in which it has an interest, and Pegasus brings those claims by
assignment.
9. Golden Sky Systems, Inc. ("GSS") is and was at all times mentioned
herein a corporation, incorporated under the laws of Delaware, with its
principal headquarters located in Kansas City, Missouri. GSS brings certain
claims of its subsidiaries by assignment. In particular, GSS subsidiary DCE
Satellite LLC, a Wisconsin LLC, has assigned to GSS in writing all of its claims
relating to the below described Member Agreements to which it is a party or in
which it has an interest, and GSS brings those claims by assignment. Further,
GSS subsidiary Southplains DBS LP, a Texas limited partnership, has assigned to
GSS in writing all of its claims relating to the below described Member
Agreements to which it is a party or in which it has an interest, and GSS brings
those claims by assignment. Further, GSS subsidiary Primewatch, Inc., a North
Carolina corporation, has assigned to GSS in writing all of its claims relating
to the below described Member Agreements to which it is a party or in which it
has an interest, and GSS brings those claims by assignment. Finally, Argos
Support Services Co., a Texas corporation, has assigned to
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GSS in writing all of its claims relating to the below described Member
Agreements to which it is a party or in which it has an interest, and GSS brings
those claims by assignment.
10. Defendant Hughes Communications Galaxy, Inc. ("HCG"), a California
corporation with its principal place of business in El Segundo, California,
among other things, designs, constructs and operates satellites and provides
transponder capacity thereon.
11. Defendant DIRECTV, Inc. ("DIRECTV"), a California corporation with its
principal place of business in El Segundo, California, provides DBS services to
homes and businesses equipped with home receiving units.
I.
JURISDICTION AND VENUE
12. This Court has subject matter jurisdiction over this action pursuant to
28 U.S.C. ss.1332(a) because the controversy is between citizens of different
states. More specifically, Pegasus is incorporated under the laws of Delaware,
with its principal place of business in Marlborough, Massachusetts; GSS is
incorporated under the laws of Delaware, with its principal place of business in
Kansas City, Missouri. HCG and DIRECTV are California corporations, with their
principal place of business in California. The amount in controversy with
respect to the claims of each plaintiff exceeds $75,000, exclusive of interest
and costs.
13. Venue is proper in this District under 28 U.S.C. ss.1391(a) because
both HCG and DIRECTV reside in the Central District of California.
II.
FACTS COMMON TO ALL CLAIMS FOR RELIEF
A. THE NATURE OF DIRECTV'S BUSINESS
14. In the early 1990s, during the infancy of the direct broadcast
satellite television business, DIRECTV obtained Federal Communications
Commission ("FCC") approval to construct, launch and operate a total of three
DBS satellites with transponders
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operating on 27 assigned frequencies in the Ku band at the 101(degree) West
Longitude ("W.L.") orbital location.(3) NRTC Members provided in excess of $100
million to help DIRECTV finance its direct broadcast satellite venture and
establish a new industry, in exchange for rights to distribute programming to
subscribers in certain territories defined in the Member Agreements and the
agreements between DIRECTV and the NRTC (hereinafter, "NRTC Territory").
15. United States Satellite Broadcasting Company, Inc. ("USSB") had also
obtained authority from the FCC to transmit DBS programming over five
frequencies at the same location. Rather than launch its own satellite, USSB
purchased from DIRECTV five transponders on DIRECTV's first satellite at the
101(DEGREE) location so that USSB could distribute its own programming services
nationwide to its own subscribers. Thus, there were three satellites at the
101(degree) W.L. orbital location, with DIRECTV transmitting programming over 27
frequencies and USSB transmitting programming over 5 frequencies.
16. The NRTC's Members and Affiliates have been distributing programming
over DIRECTV's 27 frequencies from the inception of DIRECTV service. Currently,
of the roughly 9 million households in NRTC Territory, approximately 1.5 million
rural Americans (approximately 16% of the NRTC Territory) in approximately 45
states subscribe to DIRECTV through NRTC Members and Affiliates. Subscribers in
NRTC Territory represent approximately 21% of all of the 6.7 million subscribers
receiving DIRECTV's high power service, even though the NRTC Territory
constitutes only approximately 9% of the United States television households. In
contrast to the pentration rate of approximately 16% in the NRTC Territory,
DIRECTV's penetration rate for its territories is approximately 6%.
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(3) DIRECTV launched DBS-1 in December 1993, DBS-2 in August 1994, and DBS-3 in
June 1995. DIRECTV subsequently obtained FCC approval to launch a fourth
satellite to operate at the 101(degree) W.L. orbital position. In August
1999, DIRECTV launched DIRECTV-1R.
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B. THE 1994 AGREEMENT BETWEEN THE NRTC AND DIRECTV
17. Pursuant to the 1992 NRTC Agreement (discussed more fully below),
DIRECTV committed to provide NRTC Members and Affiliates the exclusive right to
distribute a minimum package of "Programming Services", defined as "HCG's
provision of Cable Programming for transmission over the Transponder Capacity to
NRTC Subscribers." "Cable Programming" means "a package of 20 program services
selected from Exhibit 7.07" to the 1992 NRTC Agreement. Within that package of
20 program services, DIRECTV was obligated to provide at least three of the
following premium movie services: The Disney Channel, HBO, Showtime, Cinemax and
The Movie Channel.
18. Before any Programming Services were actually distributed to NRTC
Members and Affiliates, DIRECTV discovered that it could not comply with its
promise to provide at least three of the Premium Services, fundamental rights
that the NRTC had bargained for on behalf of its Members and Affiliates, because
USSB had successfully negotiated with Viacom and HBO to obtain the exclusive
right to distribute those Premium Services from the 101(degree) W.L. orbital
position.
19. The NRTC and its Members and Affiliates considered then, and still
consider, the distribution rights to the Premium Services to be very valuable
and were keenly interested in obtaining the rights to distribute said
programming within the NRTC Territory, if DIRECTV subsequently acquired, by any
means, the distribution rights to some or all of the Premium Services then under
USSB's exclusive control.
20. DIRECTV's inability to provide the required premium movie services
resulted in negotiations leading to a new agreement between the NRTC and DIRECTV
(the "1994 NRTC Agreement") (the 1992 NRTC Agreement and the 1994 NRTC Agreement
are collectively referred to as "the NRTC Agreement") which contained
fundamental changes from the parties' prior agreement and significantly expanded
the scope of the Members' and Affiliates exclusive rights.
21. First, in exchange for accepting from DIRECTV on a going-forward basis
a core package of programming which did not include the Premium Services, the
NRTC
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specifically negotiated with DIRECTV for a provision that allowed the NRTC an
expanded package of 22 Programming Services. In addition, the NRTC obtained the
exclusive right to distribute the Premium Services in NRTC Territory should
DIRECTV obtain those rights in the future. Paragraph 1 of the 1994 NRTC
Agreement specifically provides:
The Programming Services defined in Section 2.07 of the [1992]
Agreement shall become the twenty-two (22) channels of programming
services listed on Exhibit A hereto. . . . IF [DIRECTV] ACQUIRES
THE RIGHTS, IN ITS SOLE DISCRETION, TO DISTRIBUTE HBO, SHOWTIME,
THE MOVIE CHANNEL OR CINEMAX, NRTC SHALL HAVE THE OPTION, IN ITS
SOLE DISCRETION, TO SUBSTITUTE SUCH PROGRAMMING FOR ANY ONE OF THE
SERVICES LISTED ON EXHIBIT A ON A SERVICE BY SERVICE BASIS.
(Emphasis added).
22. Hence, if DIRECTV acquired the rights to distribute the Premium
Services, the NRTC had the option to change the composition of the Programming
Services by substituting the Premium Services for four other services listed on
Exhibit A to the 1994 Agreement. Once the NRTC exercised its option to
substitute, the Premium Services would become a part of the "Programming
Services" [defined in Paragraph 1], which NRTC Members have the exclusive right
to distribute in NRTC Territory.
23. The NRTC Agreement further provided that DIRECTV is prohibited from
selling, leasing or otherwise conveying use of transponder capacity on any 101
Satellite to anyone (including DIRECTV) other than the NRTC for delivery of
Programming Services (as constituted and substituted by the NRTC at the time of
such transponder capacity arrangements) to the subscribers of Members and
Affiliates.
24. As a separate inducement to inaugurate distribution of DIRECTV service
in rural America without the Premium Services, the 1994 Agreement also gave NRTC
Members and Affiliates the exclusive right to distribute all other video, audio
data and other services transmitted over the 27 frequencies not being used by
USSB ("HCG Frequencies"), which under the 1992 NRTC Agreement had been included
among the NRTC's non-exclusive rights. In particular, Paragraph 2 of the 1994
NRTC Agreement provides:
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NRTC shall become the exclusive direct-to-home distributor . . .
[in the NRTC Territory] of, and shall retain all subscriber
revenues . . . from: All video, audio, data packages, "a la carte"
programming services and other services which are transmitted over
the HCG Frequencies. . .[hereinafter referred to as "NRTC
Programming Services"].
25. The NRTC, as a non-profit cooperative, holds the rights it receives for
the benefit of Members and Affiliates participating in the NRTC's DBS project.
Terms reflecting the 1994 NRTC Agreement were incorporated into the Member
Agreements in amendments signed in 1994. DIRECTV approved the changes in the
Member Agreements before the amended contracts were sent to the Members and
Affiliates for signature. Regarding Programming Services, the NRTC and its
Members and Affiliates intended to amend the Member Agreement, and so amended
the contract, to convey to the Members and Affiliates rights the NRTC received
under the NRTC Agreement, including the exclusive right to distribute the
Premium Services within their territories should DIRECTV acquire the rights to
such programming and the NRTC exercise its substitution rights for the Premium
Services.
C. DIRECTV'S BREACH OF THE 1994 AGREEMENT REGARDING PREMIUM SERVICES
26. In December 1998, Hughes Electronics Corporation (the ultimate parent
company of DIRECTV) ("Hughes") announced its intention to merge USSB's business
and assets into Hughes or its subsidiary (the "Merger"). The Merger closed on or
about May 22, 1999.(4)
27. As mentioned above, USSB had negotiated agreements with both Viacom and
HBO to be the exclusive distributors, over five frequencies at the 101(degree)
W.L. orbital location, of the Premium Services. With the Merger, DIRECTV
acquired the rights to distribute the Premium Services. Instead of honoring its
obligations set forth in the 1994 NRTC
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(4) In January 1999, Hughes announced its acquisition of Primestar, Inc., a DBS
medium-power business with approximately 2.3 million subscribers, along with
its high-power satellite assets.
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<PAGE>
Agreement, DIRECTV announced that it intended to sell the Premium Services
directly to the Members' and Affiliates' subscribers.
28. By letter dated May 3, 1999, the NRTC notified DIRECTV that the NRTC
was exercising its option under Paragraph 1 of the 1994 NRTC Agreement to change
the composition of the Programming Services by substituting the Premium Services
for four of the NRTC's existing Programming Services. Hence, upon the closing of
the Merger, the Members and Affiliates were entitled to the exclusive right to
distribute the Premium Services in NRTC Territory.
29. DIRECTV, however, expressly rejected the NRTC's election to substitute.
DIRECTV refuses to allow the NRTC and its Members and Affiliates to distribute
such programming on an exclusive basis.
30. DIRECTV is now selling the Premium Services to the Plaintiffs'
subscribers in NRTC Territory, thus causing the NRTC to breach the Member
Agreements, and usurping the economic benefits Plaintiffs would receive if
DIRECTV honored its obligations under the NRTC Agreement. DIRECTV is receiving
approximately 150 million dollars annually from sales of Premium Services in
NRTC Territory.
31. On or about June 17, 1999, the NRTC brought suit against DIRECTV (Case
No. CV99-5666-LGB (CWx)) seeking damages and declaratory and injunctive relief
relating to DIRECTV's refusal to allow the NRTC and its Members and Affiliates
to distribute the Premium Services. In the instant action, Plaintiffs seek
damages for DIRECTV's tortious interference with Plaintiffs' Member Agreements
with the NRTC by refusing to make the Premium Services available for
distribution by the NRTC and its Members and Affiliates.
D. DIRECTV'S BREACH OF ITS OBLIGATION TO PAY LAUNCH FEES
32. The NRTC Agreement requires DIRECTV to provide the NRTC with its
proportionate share of various revenues, cost savings, discounts, volume price
breaks and financial or other benefits that DIRECTV has received or will receive
for transmitting DBS
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programming and other services ("Launch Fees"). Through the Member Agreements,
approved by DIRECTV, Plaintiffs are entitled to their proportionate share of the
various Launch Fees that DIRECTV has received or will receive for transmitting
direct broadcast satellite programming and other services. These Launch Fees
include the following:
o payments or credits that the owner of a television or cable programming
service ("programmers") or other third parties (e.g., America Online,
Inc., TiVo, Inc., Wink Communications) provides to DIRECTV so that
DIRECTV will transmit programming or other services over DIRECTV's
satellites;
o discounts, volume price breaks, and other financial benefits which
programmers have provided to DIRECTV (either directly or through joint
programming arrangements);
o "marketing" funds paid to DIRECTV by programmers and other third
parties;
o advertising revenues, less marketing expenses;
o various cost savings for shared use of DIRECTV's satellites,
transmission and other facilities; and o financial or other benefits
DIRECTV obtains in contracting with programmers and other third
parties.
33. On information and belief, DIRECTV has received and continues to
receive such Launch Fees from third parties, but is wrongfully withholding from
the NRTC its proportionate share (which payments would then be passed through to
the Plaintiffs under the terms of the Member Agreements). In addition,
Plaintiffs are informed and believe that DIRECTV has negotiated and drafted
contracts with third parties in such a way as to attempt to evade, eliminate or
minimize the NRTC's (and thus the Plaintiffs') rights to the aforementioned
Launch Fees.
34. On or about August 26, 1999, the NRTC brought suit against DIRECTV
(Case No. CV99-8672-LGB (CWx), the "Launch Fee Case") seeking to recover the
Launch Fees. In the instant action, Plaintiffs seek a judicial declaration of
DIRECTV's obligations to make payment to the NRTC for the Launch Fees.
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E. DIRECTV'S INTERFERENCE WITH PLAINTIFFS' RELATIONSHIPS WITH THE NRTC
35. Under their Member Agreements with the NRTC, Members and Affiliates are
entitled to the exclusive right to distribute the Premium Services in NRTC
Territory. By refusing to accept the NRTC's election to substitute the Premium
Services for four of the NRTC's existing Programming Services, DIRECTV is
interfering with Plaintiffs' contractual relationships with the NRTC.
36. DIRECTV has also interfered with Plaintiffs' contractual relationships
with the NRTC by its refusal to pay Launch Fees, which the NRTC is obligated
under the Member Agreements to pass through to Plaintiffs.
F. DIRECTV'S INTERFERENCE WITH PLAINTIFFS' SUBSCRIBER RELATIONSHIPS AND
MISAPPROPRIATION OF PLAINTIFFS' SUBSCRIBER INFORMATION
37. Pegasus and GSS have paid nearly one billion dollars to purchase the
rights under the Member Agreements they acquired. Much of the value of these
acquired rights derives from the exclusive distribution rights as defined by the
NRTC Agreement and the Member Agreements.
38. In reliance on these rights, Pegasus and GSS have each invested
substantial time, money, and effort to build up their brands within their
respective territories, and have advertised heavily and undertaken a large
number of other promotional activities to make sure that subscribers understand
that Pegasus and/or GSS is the exclusive provider of DIRECTV services within
their respective territories. In addition, Pegasus and GSS have spent
substantial sums on customer service, which include signing up new subscribers,
answering all subscriber inquiries, aiding in satellite dish installation,
billing subscribers and receiving payment. Pegasus and GSS have also spent
substantial sums to develop additional services to market to existing and
prospective subscribers, including internet and other video, audio, voice and
data services.
39. In the course and scope of their businesses, Plaintiffs have developed
a substantial database of information regarding their subscribers. This
subscriber information
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was developed over a substantial period of time, and required a significant
amount of money and effort to compile. This information is unavailable to the
public or to others, and derives independent economic value from not being
readily ascertainable by other multi-channel video providers. Plaintiffs have
made reasonable efforts to maintain the secrecy of their subscriber information.
Indeed, in the 1992 NRTC Agreement, DIRECTV and the NRTC covenant that "under no
circumstances will [they] use or allow others to use the other party's
subscriber information for any reason . . . ."
40. Prior to the merger of DIRECTV and USSB, DIRECTV and USSB used separate
and distinct billing and authorization systems. After completion of the merger,
DIRECTV determined to use its billing and authorization system ("BAS") for
processing the Premium Services, which are received by many of Plaintiffs'
subscribers. The NRTC's Members and Affiliates also use the BAS pursuant to a
fees-for-services arrangement under which subscriber information of the Members
and Affiliates is separately maintained and restricted from DIRECTV's access.
DIRECTV is now using the subscriber information of the Plaintiffs to sell
Premium Services to the Plaintiffs' subscribers in the Plaintiffs' exclusive
territories, thus usurping the economic benefits to which Plaintiffs are
entitled under the NRTC Agreement and Member Agreement.
41. DIRECTV is also using Plaintiffs subscriber information to (a)
advertise the Premium Services to all of Plaintiffs' subscribers (including
those who do not currently receive Premium Services) by activating an onscreen
television programming guide which displays the Premium Services offered by
DIRECTV; and (b) activate so-called "barker channels" which advertise DIRECTV's
services directly to Plaintiffs' subscribers. This advertising is conducted over
addressable receivers, which enable the service provider (in this case DIRECTV)
to determine which programming services to deliver to subscribers on a
subscriber-by-subscriber basis. By advertising the Premium Services over the
addressable receivers of Plaintiffs' subscribers, DIRECTV is using Plaintiffs'
subscriber information to promote its illicit sale of Premium Services,
resulting in harm to Plaintiffs.
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42. As a result of DIRECTV's conduct, Plaintiffs' businesses have been
damaged in that, among other things, they have lost profits wrongfully diverted
by DIRECTV.
G. DIRECTV'S INTERFERENCE WITH PLAINTIFFS' RELATIONSHIPS WITH EQUIPMENT
DISTRIBUTORS AND DEALERS AND MISUSE OF PLAINTIFFS' SUBSCRIBER INFORMATION
43. In order to distribute programming services to their subscribers,
Plaintiffs depend upon the availability of DIRECTV-compatible satellite antenna
dishes, receivers and related equipment ("Equipment") from manufacturers,
distributors and dealers of such Equipment. The principal Equipment
manufacturers are Hughes Network Systems (a subsidiary of DIRECTV's parent,
Hughes Electronics Corporation), and Thomson Consumer Electronics Corporation (a
minority interest of which is owned by a subsidiary of Hughes Electronics
Corporation).(5) DIRECTV has caused Equipment manufacturers and distributors to
refuse to provide Equipment to or for the benefit of Plaintiffs or their
affiliated dealer networks for sale, installation and use anywhere in their NRTC
Territory.
44. Specifically, DIRECTV has (a) coerced agreements to supply Equipment
exclusively to DIRECTV's own dealer network for sale, installation and use
within areas other than NRTC Territory; (b) manipulated the terms and conditions
of DIRECTV's various distributor and dealer compensation programs in ways that
make it financially impossible for distributors and dealers to provide equipment
to or for the benefit of Plaintiffs; (c) threatened to terminate participation
in those compensation programs by any distributor or dealer selling Equipment
for installation and use in NRTC Territory; and (d) threatened to terminate
dealings altogether with any distributor or dealer selling Equipment for
installation and use in NRTC Territory.
45. In addition, DIRECTV has misused Plaintiffs' subscriber information to
carry out its "NO NRTC SALES" policy against distributors and dealers who sell
equipment to or for the benefit of Plaintiffs. By accessing Plaintiffs'
subscriber information database,
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(5) Hughes Network Systems is licensed by Thomson Consumer Electronics
Corporation to make and market DIRECTV-compatible Equipment.
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DIRECTV is able to determine which Equipment dealers and distributors activate
new subscriber accounts in NRTC Territory, allowing DIRECTV to identify and
target those Equipment dealers and distributors for the aforementioned threats.
DIRECTV's wrongful conduct has both interfered with Plaintiffs' economic
relationships with Equipment dealers and distributors, and has impeded
Plaintiffs' ability to sign up new subscribers in NRTC Territory.
H. DIRECTV'S ATTEMPTS TO FORCE THE EARLY TERMINATION OF THE DIRECTV AND NRTC
AGREEMENTS
46. After entering into the 1992 NRTC Agreement, the NRTC executed
approximately 250 separate, but substantially identical contracts with Members
and Affiliates, the form of which DIRECTV approved, which provided to NRTC
Members and Affiliates rights that the NRTC obtained from DIRECTV to distribute
DBS programming and services within NRTC Territory. A true and correct copy of a
representative GSS Member Agreement is attached hereto as Exhibit C and
incorporated herein by reference. These agreements were modified by
substantially identical amendments in 1994. A true and correct copy of the 1994
amendment to the Member Agreement is attached hereto as Exhibit D and
incorporated herein by reference.
47. Section 4.06(a) of the NRTC Agreement provides that DIRECTV "shall
provide the DBS Distribution Services until the Satellite Expiration Date",
including transponder capacity used to transmit Programming Services. "Satellite
Expiration Date" is defined as the date on which DIRECTV "removes the Satellite
from its assigned orbital location" after the occurrence of one of two
conditions: either the remaining fuel on board the Satellite is less than 6% of
the initial fuel mass prior to launch, or there are fewer than eight functional
transponders. In turn, "Satellite" is defined in the 1992 Agreement as "the 101
Satellite(s) on which the Transponder Capacity is located." The term "101
Satellite(s)" is defined as "one or more satellite(s) containing Ku-band DBS
Transponder capacity at the 101 W.L. orbital location."
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48. Upon the Satellite Expiration Date, DIRECTV is to provide the NRTC with
the Right of First Refusal discussed below.
49. DIRECTV has seriously threatened Plaintiffs' businesses by asserting
that the life of the NRTC Agreement is tied to the life of DBS-1, the first DBS
satellite launched by DIRECTV in 1993. The DBS-1 satellite has suffered a
failure of one of its spacecraft control processors, and is currently operating
on another processor using planned redundancy. Nevertheless, DIRECTV has moved
DBS-1 out of the 101(degree) W.L. orbital location to the 110(degree) W.L.
orbital location, although neither of the two conditions set forth in Section
4.06(a) has occurred.
50. When the NRTC Agreement was entered into, the NRTC and DIRECTV clearly
contemplated providing services using more than one satellite at the 101(degree)
W.L. orbital position, as demonstrated by the definitions of "Satellite" and
"101 Satellite(s)" set forth above. Indeed, since 1993 when DIRECTV launched
DBS-1, DIRECTV has put three additional satellites into service in the
101(degree) orbital location, DBS-2, DBS-3 and now DIRECTV-1R.
51. By measuring the life of the Agreements according to a single
satellite, DIRECTV is seeking to force the premature termination of the Member
Agreements. In furtherance of this goal, on or about July 22, 1999, DIRECTV
filed a counter-claim against the NRTC in Case No. 99-5666 LGB (CWx). For its
first cause of action (Count I) DIRECTV sought a declaratory judgment seeking a
judicial declaration that: "the term of the Agreement is measured by the life of
the DBS-1 satellite, and that DBS-1 provides the basis for the Satellite
Expiration Date in the Agreement."
52. On or about September 9, 1999, the NRTC answered DIRECTV's
counter-claim, in particular Count I, by answering and denying DIRECTV's
allegations and by denying that the issue of the proper measure of the term of
the NRTC Agreement is ripe for a judicial declaration.
53. Plaintiffs depend on the continued provision of DBS services as set
forth in the NRTC Agreement between DIRECTV and NRTC and as further provided for
in the
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Member Agreements. To the extent that the issue of the Satellite Expiration Date
is determined to be ripe, Plaintiffs seek a declaration that the DBS-1 satellite
is not the "Satellite" for purposes of the Satellite Expiration Date in the NRTC
Agreement.
I. DIRECTV'S ATTEMPTS TO UNFAIRLY RESTRICT NRTC'S RIGHT OF FIRST REFUSAL
54. Upon the occurrence of the Satellite Expiration Date, section 15.01 of
the NRTC Agreement provides that, if DIRECTV launches "Successor Satellite(s)"
to the "Satellite(s)", the NRTC may exercise a Right of First Refusal to have
DIRECTV continue to provide "DBS Distribution Services (excluding Programming
Services) in substantially the same form as they are provided hereunder."
55. DIRECTV seeks to restrict the NRTC's Right of First Refusal (and thus
Plaintiffs' derivative rights thereunder) so severely as to impair Plaintiffs'
DBS business.
56. By seeking to limit the DBS services it is obligated to provide to the
NRTC upon the occurrence of the Satellite Expiration Date, and thus limiting the
services which Plaintiffs will be able to market to their subscribers, DIRECTV
is attempting to severely impair the businesses of Plaintiffs and to obtain
inexpensive access to the subscriber base and distribution channels so
successfully developed by Plaintiffs.
57. In furtherance of this goal, on or about July 22, 1999, DIRECTV filed a
counter-claim against the NRTC in Case No. 99-5666 LGB (CWx). For its second
cause of action (Count II), DIRECTV sought a declaratory judgment seeking a
judicial declaration that: "DIRECTV-1R is a Successor Satellite, as defined in
the Agreement, that the NRTC's right of first refusal under the Agreement will
be based on the Satellite Expiration Date of DBS-1, and that, when and if NRTC's
right of first refusal is triggered, NRTC and its Members and Affiliates will
not have rights sufficient to continue their business as presently conducted,
but will be limited to twenty (20) Program Channels of Transponder Capacity, and
will not receive Programming Services."
58. On or about September 9, 1999, the NRTC answered DIRECTV's
counter-claim, in particular Count II, by answering and denying DIRECTV's
allegations and by
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denying that the issue of the scope of the Right of First Refusal is ripe for a
judicial declaration.
59. Plaintiffs depend on the continued provision of DBS Distribution
Services as set forth in the NRTC Agreements between DIRECTV and NRTC and as
further provided for in the Member Agreements. To the extent that the issue of
the Satellite Expiration Date is determined to be ripe, Plaintiffs seek a
declaration that DIRECTV's interpretation of the Right of First Refusal is
incorrect.
III.
FIRST CLAIM FOR RELIEF
INTENTIONAL INTERFERENCE WITH CONTRACTUAL RELATIONS
(INTERFERENCE WITH THE MEMBER AGREEMENTS) AGAINST DIRECTV AND HCG
60. Plaintiffs reallege, and incorporate by this reference, each and every
allegation set forth in paragraphs 1 through 59, inclusive.
61. In 1992 and 1993, the Members and Affiliates (including Plaintiffs or
their predecessors in interest) entered into the Member Agreements with the
NRTC. The Member Agreements are separate, virtually identical written agreements
whereby NRTC conveyed to the Members and Affiliates the exclusive right to
distribute Programming Services within NRTC Territory. In or about 1994 the
Member Agreements were amended to provide the Members and Affiliates with
exclusive rights to distribute expanded and substituted Programming Services and
NRTC Programming Services within the NRTC Territory.
62. The rights set forth in the Member Agreements are derivative of the
rights DIRECTV conveyed to the NRTC pursuant to the NRTC Agreement. To enjoy
their rights, the Plaintiffs are dependent on DIRECTV's honoring of its
obligations under the NRTC Agreement.
63. At all times material herein, DIRECTV knew that the NRTC entered into
the Member Agreements with Plaintiffs and was aware of each of the material
terms of these
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agreements. The NRTC Agreement (to which DIRECTV is a party) gives DIRECTV the
right to approve the terms of the Member Agreement before the NRTC offers it to
Plaintiffs for signature. DIRECTV exercised these approval rights regarding the
Member Agreement and all significant amendments thereto. Additionally, the
Member Agreement provides that DIRECTV is a third party beneficiary of the
Member Agreement and gives DIRECTV rights to approve changes to the form of the
Member Agreement. In addition, DIRECTV also approved each and every transfer of
approximately 140 Member Agreements to Plaintiffs, for which Plaintiffs paid
transferring NRTC Members in excess of one billion dollars.
64. Once the NRTC designated the Premium Services as Programming Services
under the NRTC Agreement (giving the NRTC the exclusive right to distribute the
Premium Services within NRTC territory), the NRTC became obligated under the
Member Agreement to make such programming available to the Plaintiffs on an
exclusive basis.
65. DIRECTV's intentional breach of the NRTC Agreement by its refusal to
provide NRTC with the Premium Services as required under the terms of the NRTC
Agreement caused the NRTC to breach its obligation under the Member Agreements
to make this programming available to the Plaintiffs. By its acts alleged herein
DIRECTV intentionally and improperly interfered with the NRTC's performance of
its contracts with the Plaintiffs by causing the NRTC to breach the Member
Agreement and by depriving the NRTC of the means of performing its obligation to
make the Premium Services available to the Plaintiffs for exclusive distribution
in their territories.
66. Additionally, while refusing to make the Premium Services available to
the NRTC on an exclusive basis, DIRECTV has, in fact, sold the Premium Services
to Plaintiffs' subscribers within their exclusive territories, depriving
Plaintiffs of the enjoyment of their rights under the Member Agreements, thereby
intentionally and improperly interfering with Plaintiffs' contractual relations
with the NRTC under the Member Agreements.
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67. DIRECTV's intentional breach of the NRTC Agreement by its refusal to
provide NRTC with its proportionate share of Launch Fees as required under the
terms of the NRTC Agreement caused the NRTC to breach its obligation under the
Member Agreements to pass these Launch Fees through to Plaintiffs. By its acts
alleged herein, DIRECTV intentionally and improperly interfered with the NRTC's
performance of its contracts with Plaintiffs by causing the NRTC to breach the
NRTC Agreement and by depriving the NRTC of the means of performing its
obligation to pass through to its Members and Affiliates their proportionate
share of Launch Fees.
68. DIRECTV and HCG are, and at all times material herein have been,
entirely separate entities from the NRTC. DIRECTV and HCG bargained for the
terms of the NRTC Agreement as amended at arms length.
69. As a proximate result of DIRECTV's wrongful conduct as alleged herein,
Plaintiffs have suffered damages in excess of the jurisdictional minimum of this
Court, to be proven at trial.
70. The aforementioned acts of DIRECTV were willful, malicious and
oppressive and undertaken with the intent to injure Plaintiffs. Plaintiffs are
therefore entitled to punitive damages.
IV.
SECOND CLAIM FOR RELIEF
INTENTIONAL INTERFERENCE WITH PROSPECTIVE ECONOMIC ADVANTAGE
(BETWEEN PLAINTIFFS AND EXISTING AND FUTURE SUBSCRIBERS)
AGAINST DIRECTV AND HCG
71. Plaintiffs reallege, and incorporate by this reference, each and every
allegation set forth in paragraphs 1 through 70, inclusive.
72. From 1994 to the present Plaintiffs and their predecessors in interest
have made substantial investments to develop a robust subscriber population. In
fact, due in large measure to Plaintiffs' successful marketing efforts and
customer service efforts, the rate of
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subscriber penetration (percentage of subscriber households within the
territory) in Plaintiffs' territories is significantly higher than DIRECTV's
subscriber penetration rates in its territory, as more fully described in
paragraph 16, above.
73. Plaintiffs have entered into agreements with existing subscribers, and
reasonably expect to enter into agreements with future subscribers, to provide
such subscribers with DBS Distribution Services within the NRTC Territory.
Plaintiffs have economic relationships with more than 1.1 million subscribers in
the NRTC Territory.
74. At all times material herein, DIRECTV knew of the above described
relationships existing between Plaintiffs and their subscribers. Plaintiffs'
relationships with their subscribers contained a probability of future economic
benefit.
75. DIRECTV's refusal to provide NRTC with the Premium Programming NRTC had
contracted for with DIRECTV under the NRTC Agreement (which then prevented the
NRTC from making this programming available to Plaintiffs under the Member
Agreements), coupled with DIRECTV's sale of the Premium Services into
Plaintiffs' exclusive territory and DIRECTV's misappropriation and misuse of
Plaintiffs' subscriber information, were intentionally designed to interfere
with the prospective economic advantage that would inure to Plaintiffs from
selling Premium Programming and other services to their existing and future
subscribers.
76. Plaintiffs have invested substantial sums to develop relationships with
their subscribers. The subscribers in NRTC Territory who desire Premium Services
would have purchased such programming from Plaintiffs, had DIRECTV not refused
to make Premium Services available to Plaintiffs while itself selling such
programming directly to Plaintiffs' subscribers and future subscribers.
77. Furthermore, DIRECTV's threats and coercion directed to Plaintiffs'
Equipment distributors and dealers were made for the purpose of limiting
Plaintiffs' access to the Equipment necessary to provide DBS service to
Plaintiffs' existing and future subscribers. DIRECTV's threats and coercion were
intentionally designed to interfere with
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the prospective economic advantage that would inure to Plaintiffs' from having
Equipment available to provide to Plaintiffs' subscribers.
78. DIRECTV's interference with the Plaintiffs' ability to market Premium
Programming in NRTC Territories, its marketing of such Premium Programming
directly to Plaintiffs' subscribers, its attempts to limit Plaintiffs' access to
Equipment, and its other wrongful conduct as alleged herein is unfair and
wrongful in that, INTER ALIA, it constitutes unfair trade practices in violation
of California Business and Professions Code Section 17200 ET SEQ. and otherwise
constitutes unlawful conduct.
79. As a proximate result of DIRECTV's conduct and the disruption of the
economic relationship between Plaintiffs and their subscribers as alleged
herein, Plaintiffs have suffered damages in excess of the jurisdictional minimum
of this court, to be proven at trial.
80. The aforementioned acts of DIRECTV were willful, malicious and
oppressive and undertaken with the intent to injure Plaintiffs. Plaintiffs are
therefore entitled to punitive damages.
V.
THIRD CLAIM FOR RELIEF
INTENTIONAL INTERFERENCE WITH CONTRACTUAL RELATIONS
(INTERFERENCE WITH PLAINTIFFS' AGREEMENTS WITH EQUIPMENT DEALERS)
AGAINST DIRECTV AND HCG
81. Plaintiffs reallege, and incorporate by this reference, each and every
allegation set forth in paragraphs 1 through 80, inclusive.
82. Plaintiffs have entered into contracts with satellite equipment dealers
to obtain the Equipment necessary to sign up new subscribers, and to expand
Plaintiffs' DBS business in NRTC Territory. These contracts obligate dealers,
among other things, to act in good faith or to use their best efforts to obtain
new subscribers for Plaintiffs in Plaintiffs'
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territories. Dealers receive commissions and/or other compensation from
Plaintiffs for each new subscriber obtained in Plaintiffs' territories.
83. At all times material herein, DIRECTV knew that Plaintiffs entered into
agreements with Equipment dealers, and was generally aware of the material terms
of these agreements.
84. DIRECTV's coercion and threats directed to Equipment distributors and
dealers were designed to induce a breach or disruption of Plaintiffs' contracts
with the Equipment dealers. By its acts alleged herein, DIRECTV intentionally
and improperly interfered with the Equipment dealers' performance of their
contracts with the Plaintiffs by causing certain Equipment dealers to refuse to
provide Equipment for sale or installation in Plaintiffs' territories, to refuse
to advertise or market Plaintiffs' DBS service in Plaintiffs' territories, and
to refuse to sign up new subscribers in Plaintiffs' territories.
85. As a proximate result of DIRECTV's wrongful conduct as alleged herein,
Plaintiffs have suffered damages in excess of the jurisdictional minimum of this
Court, to be proven at trial.
86. The aforementioned acts of DIRECTV were willful, malicious and
oppressive and undertaken with the intent to injure Plaintiffs. Plaintiffs are
therefore entitled to punitive damages.
VI.
FOURTH CLAIM FOR RELIEF
INTENTIONAL INTERFERENCE WITH PROSPECTIVE ECONOMIC ADVANTAGE
(BETWEEN PLAINTIFFS AND EQUIPMENT DISTRIBUTORS AND DEALERS)
AGAINST DIRECTV AND HCG
87. Plaintiffs reallege, and incorporate by this reference, each and every
allegation set forth in paragraphs 1 through 86, inclusive.
88. From 1994 to the present Plaintiffs and their predecessors in interest
have developed economic relationships with Equipment distributors and dealers to
provide the
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Equipment necessary to sign up new subscribers, and to expand Plaintiffs' DBS
business in NRTC Territory.
89. At all times material herein, DIRECTV knew of the above described
economic relationships existing between Plaintiffs and Equipment distributors
and dealers.
90. DIRECTV's coercion and threats directed at Equipment distributors and
dealers who provide Equipment for sale, installation and use in NRTC Territory,
coupled with DIRECTV's misuse of Plaintiffs' subscriber information to target
Equipment distributors and dealers for this wrongful conduct, was intentionally
designed (1) to interfere with the prospective economic advantage that would
inure to Plaintiffs from obtaining the Equipment necessary to serve their
existing and future subscribers, and (2) to prevent Equipment dealers from
signing up new subscribers in Plaintiffs' territories. Plaintiffs' relationships
with the Equipment distributors and dealers contained a probability of future
economic benefit.
91. Plaintiffs have invested substantial sums to develop economic
relationships with Equipment distributors and dealers in order to provide DBS
service to Plaintiffs' existing and future subscribers.
92. DIRECTV's interference with the Plaintiffs' relationship with Equipment
distributors and dealers, and its other wrongful conduct as alleged herein is
unfair and wrongful in that, INTER ALIA, it constitutes unfair trade practices
in violation of California Business and Professions Code Section 17200 ET SEQ.
and otherwise constitutes unlawful conduct.
93. As a proximate result of DIRECTV's conduct and the disruption of the
economic relationship between Plaintiffs and the Equipment distributors and
dealers as alleged herein, Plaintiffs have suffered damages in excess of the
jurisdictional minimum of this court, to be proven at trial.
94. The aforementioned acts of DIRECTV were willful, malicious and
oppressive and undertaken with the intent to injure Plaintiffs. Plaintiffs are
therefore entitled to punitive damages.
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VII.
FIFTH CLAIM FOR RELIEF
FOR VIOLATION OF CALIFORNIA BUSINESS AND PROFESSIONS CODE
SS.17200 ET SEQ. AGAINST DIRECTV AND HCG
95. Plaintiffs reallege, and incorporate by this reference, each and every
allegation set forth in paragraphs 1 through 94, inclusive.
96. DIRECTV has committed acts of unfair business practices, as defined by
California Business and Professions Code Section 17200 ET SEQ. DIRECTV's unfair
business practices are alleged more fully herein and include using Plaintiffs'
subscriber information and coercion to cause Equipment manufacturers,
distributors and dealers to refuse to provide Equipment to or for the benefit of
Plaintiffs or their affiliated dealer networks for sale, installation and use in
Plaintiffs' territories.
97. DIRECTV further engaged in unfair conduct when it failed to distribute
contracted for Premium Services to the NRTC and derivatively to Plaintiffs.
DIRECTV received millions of dollars in exchange for these rights. Rather than
provide them, DIRECTV marketed Premium Services directly to Plaintiffs'
subscribers in NRTC territories. Plaintiffs were led by DIRECTV's actions to
believe that they would face no competition from DIRECTV within the NRTC
Territories regarding Premium Programming, and in reliance on this promise made
their strategic and investment decisions accordingly.
98. DIRECTV undertook the acts alleged herein to force the Plaintiffs to
sell their rights to DIRECTV at an unfair and unreasonably low price, and/or to
wrongfully and unfairly recapture the rights it sold to the NRTC and
derivatively to the Plaintiffs under the NRTC Agreement and the Member
Agreements.
99. DIRECTV's acts, as described above, violate California Business and
Professions Code Section 17200 ET SEQ. because, among other things, DIRECTV's
actions likely caused public deception, threaten an incipient violation of the
antitrust laws, violate the policy and spirit of those laws (and may in fact
constitute actual violations of those
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laws), and significantly threaten or harm competition. The harm to Plaintiffs
from these practices outweighed the utility of DIRECTV's actions, and DIRECTV's
actions were unlawful as measured by the misappropriation and tortious
interference causes of action outlined herein.
100. As a direct and proximate cause of the aforementioned acts, DIRECTV
continues to hold the proceeds from selling Premium Services in NRTC Territory
that belong to Plaintiffs and has been unjustly enriched by its interference
with Plaintiffs' ability to procure new subscribers in their territories due to
DIRECTV's wrongful interference with Plaintiffs' relationships with Equipment
distributors and dealers. Plaintiffs are entitled to restitution of the funds
wrongfully obtained by DIRECTV and profits lost due to DIRECTV's wrongful acts.
101. Plaintiffs have sustained great and irreparable injury in that DIRECTV
has usurped and is usurping economic opportunities otherwise available to
Plaintiffs. DIRECTV threatens to, and unless restrained, will continue to
interfere with Plaintiffs' access to Equipment by conspiring with, coercing or
threatening Equipment manufacturers, distributors and dealers who provide
Equipment for use in Plaintiffs' territories. In addition, DIRECTV threatens to,
and unless restrained, will continue to refuse to provide exclusive rights to
market Premium Services to the NRTC, and thus derivatively to Plaintiffs, by
among other things, refusing to provide Premium Services to the NRTC and instead
marketing these Premium Services directly to Plaintiffs' subscribers in NRTC
Territories. Plaintiffs have no adequate remedy at law for these injuries, and
unless DIRECTV is restrained from usurping these economic opportunities in the
future, Plaintiffs' will be compelled to continue to bring suits to protect
their interests. Accordingly, Plaintiffs ask for an injunction enjoining DIRECTV
from (1) interfering with Plaintiffs' access to Equipment through manufacturers,
distributors and dealers; (2) marketing Premium Services to Plaintiffs'
subscribers and from refusing to supply Premium Services to the NRTC (and thus
to Plaintiffs), as described above; and (3) from misusing Plaintiffs subscriber
information.
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VIII.
SIXTH CLAIM FOR RELIEF
MISAPPROPRIATION OF TRADE SECRETS (CALIFORNIA CIVIL CODE SS.3426, ET SEQ.)
AGAINST DIRECTV AND HCG
102. Plaintiffs reallege, and incorporate by this reference, each and every
allegation set forth in paragraphs 1 through 101 inclusive.
103. Plaintiffs have expended a significant amount of money and effort to
develop and compile information regarding their subscribers. This information is
unavailable to the public or to others, and would be of great value to other
multi-channel video providers. Plaintiffs have made reasonable efforts to
maintain the secrecy of their subscriber information.
104. DIRECTV is using Plaintiffs subscriber information, among other
things, to (a) advertise the Premium Services to all of Plaintiffs' subscribers
(including those who do not currently receive Premium Services) by activating an
onscreen television programming guide which displays the Premium Services
offered by DIRECTV; (b) activate so-called "barker channels" which advertise
DIRECTV's services directly to Plaintiffs' subscribers; and (c) identify
Equipment distributors and dealers who provide Equipment for use in Plaintiffs'
territories, in order to coerce those distributors and dealers to cease
providing Equipment to or for the benefit of Plaintiffs.
105. As a result of DIRECTV's conduct, Plaintiffs' businesses have been
damaged in that, among other things, they have lost profits wrongfully diverted
by DIRECTV, and DIRECTV has been unjustly enriched.
106. As an additional result of DIRECTV's misappropriation of this
subscriber information, Plaintiffs have sustained great and irreparable injury
in that DIRECTV has usurped and is usurping economic opportunities otherwise
available to Plaintiffs. Plaintiffs have no adequate remedy at law for these
injuries and unless DIRECTV is restrained from using Plaintiffs' subscriber
information in the future, Plaintiffs will be compelled to
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continue to bring suits to protect their interests. Accordingly, Plaintiffs ask
for an injunction enjoining DIRECTV from misappropriating and misusing
Plaintiffs subscriber information.
107. The aforementioned acts of DIRECTV were willful, malicious and
oppressive and undertaken with the intent to injure Plaintiffs. Plaintiffs are
therefore entitled to punitive damages.
IX.
SEVENTH CLAIM FOR RELIEF
DECLARATORY RELIEF AGAINST DIRECTV AND HCG REGARDING THE TERM
OF THE DBS DISTRIBUTION AGREEMENT
108. Plaintiffs reallege, and incorporate by this reference, each and every
allegation set forth in paragraphs 1 through 107, inclusive.
109. Plaintiffs allege that DIRECTV's request for declaratory relief in
Case No. 99-5666 (LGB) CWx is not yet ripe.
110. However, should this court determine that Count I in DIRECTV's
counter-claim pleads an actual controversy, then an actual controversy has
arisen and exists between Plaintiffs and DIRECTV. Specifically, DIRECTV
contends, and Plaintiffs dispute that DBS-1 is the Satellite (and only
satellite) for purposes of the Satellite Expiration Date [as that term is
defined in the NRTC Agreement] and determining the term of the NRTC Agreement
(and thus the Plaintiffs' rights under the Member Agreements).
111. To the extent that a judicial declaration is necessary to determine
DIRECTV and the NRTC's rights and duties as set forth in Count I of DIRECTV's
counter-claim, a judicial declaration is necessary for Plaintiffs to ascertain
their rights and duties under the Member Agreements and as Members and
Affiliates of the NRTC.
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X.
EIGHTH CLAIM FOR RELIEF
DECLARATORY RELIEF AGAINST DIRECTV AND HCG REGARDING
DIRECTV-1R'S STATUS AS A SUCCESSOR SATELLITE
AND NRTC'S RIGHT OF FIRST REFUSAL
112. Plaintiffs reallege, and incorporate by this reference, each and every
allegation set forth in paragraphs 1 through 111 inclusive.
113. Should this court determine that Count II in DIRECTV's counter-claim
in Case No. 99-5666 (LGB) CWx pleads an actual controversy, then an actual
controversy has arisen and exists between Plaintiffs and DIRECTV. Specifically,
DIRECTV contends, and Plaintiffs dispute (a) "that DIRECTV-1R is a Successor
Satellite to DBS-1, within the scope and meaning of the Agreement, and that
DIRECTV has appropriately and prudently exercised its discretion, including its
sole discretion to determine when and under what conditions a Successor
Satellite should be launched, given that DBS-1 is operating only on back-up and
its failure without warning could and would result in an interruption of DBS
services to subscribers" and (b) "that NRTC's right of first refusal under the
Agreement will be based on the Satellite Expiration Date of DBS-1, and that when
and if NRTC's right of first refusal is triggered, NRTC and its Members and
Affiliates will not have rights sufficient to continue their business as
presently conducted, but will be limited to twenty (20) Program Channels of
Transponder Capacity [as defined in the Agreement], and will not receive
Programming Services [as defined in the Agreement.]"
114. Plaintiffs allege that DIRECTV's request for declaratory relief is not
yet ripe.
115. To the extent that a judicial declaration is necessary to determine
DIRECTV's and the NRTC's rights and duties as set forth in Count II of DIRECTV's
counter-claim, a judicial declaration is necessary for Plaintiffs to ascertain
their rights and duties under the Member Agreements and as Members and
Affiliates of the NRTC.
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XI.
NINTH CLAIM FOR RELIEF
DECLARATORY RELIEF AGAINST DIRECTV AND HCG
FOR PLAINTIFFS' PROPORTIONATE SHARE
OF THE LAUNCH FEES NRTC RECEIVES FROM DIRECTV
116. Plaintiffs reallege, and incorporate by this reference, each and every
allegation set forth in paragraphs 1 through 115, inclusive.
117. An actual controversy has arisen and exists between Plaintiffs and
DIRECTV concerning DIRECTV's obligations to make payment and provide other
benefits to the NRTC for the Launch Fees (which payments and benefits would then
be passed on to Plaintiffs under the terms of the Member Agreements. DIRECTV
contends that no such fees are owed to the NRTC (and thus, derivatively, no such
fees are owed to the Plaintiffs.) Plaintiffs contend that fees are due and owing
the NRTC, which fees should be passed on to the Plaintiffs.
118. A judicial declaration is necessary for Plaintiffs to ascertain their
rights and duties with respect to the sums due to the NRTC as a result of the
matters alleged in the Launch Fee Case.
PRAYER
WHEREFORE, Plaintiffs respectfully request relief and judgment, against all
defendants as follows:
1. For damages according to proof at trial, including interest as allowed
by law;
2. For restitution of all amounts wrongfully obtained by DIRECTV by its
acts of unfair business practices set forth above;
3. For a declaratory judgment that satellite DBS-1 is not the Satellite
(and only satellite) for purposes of the Satellite Expiration Date and for
determining the term of the NRTC Agreement;
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4. For a declaratory judgment that satellite DIRECTV-1R is not a Successor
Satellite under the NRTC Agreement, and that the NRTC's Right of First Refusal
is not properly characterized by DIRECTV;
5. For a declaratory judgment that DIRECTV is obligated to make payment and
provide other benefits to the NRTC for its proportionate share of the Launch
Fees received by DIRECTV;
6. For preliminary and permanent injunctive relief restraining and
enjoining defendants from coercing Equipment distributors and dealers (1) to
refuse to provide Equipment in Plaintiffs' territories, and (2) to refuse to
sign up new subscribers in Plaintiffs' territories;
7. For preliminary and permanent injunctive relief restraining and
enjoining defendants from marketing Premium Services to Plaintiffs' subscribers,
and from refusing to supply Premium Services to the NRTC -- and thus to
Plaintiffs;
8. For preliminary and permanent injunctive relief restraining and
enjoining defendants from misappropriating and misusing Plaintiffs' subscriber
information;
9. For exemplary damages according to proof at trial;
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10. For an award of attorneys fees and costs of suit; and
11. For such other and further relief as the court deems just and proper.
Dated: February 10, 2000 ARNOLD & PORTER
JOHN J. QUINN
DAVID S. EISEN
SHARON L. DOUGLASS
FOGEL, FELDMAN, OSTROV,
RINGLER & KLEVENS
A LAW CORPORATION
LARRY R. FELDMAN
JOEL N. KLEVENS
MCDERMOTT, WILL & EMERY
ELIZABETH D. MANN
By: /s/ Sharon L. Douglass
--------------------------------
SHARON L. DOUGLASS
Attorneys for Plaintiffs
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REQUEST FOR JURY TRIAL
Plaintiffs request a trial by jury on all issues triable to a jury.
Dated: February 10, 2000 ARNOLD & PORTER
JOHN J. QUINN
DAVID S. EISEN
SHARON L. DOUGLASS
FOGEL, FELDMAN, OSTROV,
RINGLER & KLEVENS
A LAW CORPORATION
LARRY R. FELDMAN
JOEL N. KLEVENS
MCDERMOTT, WILL & EMERY
ELIZABETH D. MANN
By: /s/ Sharon L. Douglass
----------------------------------
SHARON L. DOUGLASS
Attorneys for Plaintiffs
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