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TELEWIZJA POLSKA USA, INC. v. ECHOSTAR SATELLITE CORP.

TELEWIZJA POLSKA USA, INC., an Illinois corporation, Plaintiff,
v.
ECHOSTAR SATELLITE CORPORATION, a Colorado corporation, Defendant.



The opinion of the court was delivered by: RONALD GUZMAN, District Judge

MEMORANDUM OPINION AND ORDER

Telewizja Polska USA, Inc. ("Polska") has sued EchoStar Satellite Corp. ("EchoStar") for breach of contract (Count I) or, in the alternative, for unjust enrichment (Count II). Defendant EchoStar raised fifteen affirmative defenses and four counterclaims. Before the Court is Polska's motion to strike EchoStar's affirmative defenses pursuant to Federal Rule of Civil Procedure ("Rule") 12(f) and to dismiss EchoStar's four counterclaims pursuant to Rule 12(b)(6). Polska later moved to withdraw its motion to strike as to eight of the affirmative defenses. In a Minute Order of 7/1/04, the Court granted the motion to withdraw in part as to the Second through Fourth, Sixth, and Seventh Affirmative Defenses and asked for further briefing as to the Eighth through Tenth Affirmative Defenses. For the reasons provided in this Memorandum Opinion and Order, the Court grants Polska's motion to strike EchoStar's Eighth, Ninth, Tenth, Twelfth, Thirteenth, and Fifteenth Affirmative Defenses, grants the motion to dismiss EchoStar's Third and Fourth Counterclaims, and denies the motion as to all other defenses and counterclaims. Accordingly, the Court denies Polska's motion to withdraw its motion to strike the Eighth through Tenth Affirmative Defenses. BACKGROUND

Polska is a Delaware corporation engaged in the distribution of Polish language television and radio programming for the public, with its principal place of business in Illinois. (Am. Compl. ¶ 1.) EchoStar is a Colorado corporation that operates a Direct Broadcast Satellite service under the trade name "Dish Network." (Second Am. Answer Pt. III ¶¶ 1-3.) On or about April 30, 1998, EchoStar and Polska entered into an Affiliation Agreement ("Agreement") for Polska to provide Polish language television programming ("Programming Service") to EchoStar. (Id. Pt. III ¶ 6.) Pursuant to the Agreement, Polska granted EchoStar a license to sell subscriptions for Polska's Programming Service. (Agreement ¶ 1.2.1.) The Agreement provides for a "Shared Revenue Arrangement," in which Polska is entitled to thirty percent of the first $199,800.00 paid to EchoStar by subscribers for Polska's Programming Service, and fifty percent thereafter. (Id. ¶ 3.1.1.) Polska's portion of the shared revenue for a given month was to be paid within thirty days of the end of the month. (Id. ¶ 3.2.) The Agreement also provided that within thirty days after the end of each month, EchoStar must report to Polska the total number of subscribers as of the last day of the billing cycle of the immediately preceding month. (Id. ¶ 4.1.) The Agreement was for a contract term of three years, ending on April 30, 2001. (Second Am. Answer Pt. III ¶ 7.) Paragraph Two of the Agreement entitled "TERM" provides that:

  upon the expiration or earlier termination of the Agreement, if EchoStar has already launched the Programming Service on its Satellite, it shall continue to provide EchoStar the Programming Service under the terms and conditions outlined herein for a period of time that is the shorter of twelve (12) months or that number of months necessary for EchoStar to provide the Programming Service to service Subscribers who bought a multi-month subscription to the Programming Service prior to the receipt by EchoStar of notice of termination of the Agreement. (Agreement ¶ 2.) Polska continued to provide EchoStar its Programming Service for sale to EchoStar's T.V. Polonia customers through April 30, 2002. (Am. Compl. ¶ 13.) EchoStar continued to broadcast the Programming Service until May 2002. (Second Am. Answer Pt. III ¶ 15.)

  Polska alleges that EchoStar breached the Agreement in the following ways: (1) by failing to pay Polska any subscription revenue subsequent to December 2001; (2) by failing to report subscriptions sold after April 30, 2001 and the revenue derived from them; (3) by refusing Polska's request for an audit as provided in the Agreement; (4) by broadcasting another Polish language Programming Service in violation of the one-year exclusivity granted to Polska in the Agreement; (5) by failing to return Polska's receivers as provided in the Agreement; (6) by failing to include access and service fees charged to subscribers in the calculation of shared revenue; and (7) by paying less than the agreed percentages for shared revenue. (Am. Compl. ¶ 14.)*fn1 In the alternative, Polska alleges that EchoStar has been unjustly enriched by its wrongful conduct to Polska's detriment. (Id. Count II ¶ 15.)

  EchoStar raises the following affirmative defenses: (1) statute of frauds; (2) Polska waived any rights by its actions; (3) laches; (4) estoppel; (5) statute of limitations; (6) Polska ratified EchoStar's alleged conduct; (7) failure to mitigate damages; (8) Polska's claims are barred by applicable agreements and/or law; (9) unclean hands; (10) assumption of risk; (11) Polska accepted payment from EchoStar; (12) to the extent that Polska seeks damages that may be considered a penalty, such claims are unenforceable; (13) the parties' rights and obligations were ambiguous; (14) mistake of fact; and (15) rescission. (Second Am. Answer at 7-11.) EchoStar also makes the following counterclaims: (1) Polska made false and defamatory statements about EchoStar to EchoStar's customers and potential customers and to other programmers who had negotiated with EchoStar; (2) Polska tortiously interfered with EchoStar's prospective economic advantage by making false and misleading statements to individuals with whom Polska knew that EchoStar had reasonable expectation of entering into a business relationship; (3) Polska committed trade libel or product disparagement by making false statements and allegations about the Dish Network service with the intent to cause injury to EchoStar; and (4) Polska violated the Illinois Uniform Deceptive Trade Practices Act, 815 Ill. Comp. Stat. § 510/1-7 (2004), by its unauthorized use of the name "Dish Network" to make false and misleading statements that have substantially harmed EchoStar. (Id. Pt. III ¶¶ 25-53.)

  DISCUSSION

  A. Polska's Motion to Strike EchoStar's Affirmative Defenses

  In a motion to strike pursuant to Rule 12(f), "the court may order stricken from the pleading any insufficient defense or any redundant, immaterial, impertinent, or scandalous matter." FED. R. CIV. P. 12(f). Courts in this district, following Bobbitt v. Victorian House, Inc., have traditionally used a three-part inquiry when examining affirmative defenses subject to a motion to strike: (1) whether the matter is appropriately pleaded as a defense; (2) whether it is adequately pleaded under the requirements of Rules 8 and 9; and (3) whether it meets the standard for Rule 12(b)(6) motions. 532 F. Supp. 734, 737 (N.D. Ill. 1982); see Ocean Atl. Woodland Corp. v. DRH Cambridge Homes, Inc., No. 02 C 2523, 2003 WL 1720073, at *2 (N.D. Ill. Mar. 31, 2003); H.R.R. Zimmerman Co. v. Tecumseh Prods. Co., No. 99 C 5437, 2002 WL 31018302, at *2-3 (N.D. Ill. Sep. 9, 2002); Ocean Atl. Dev. Corp. v. Willow Tree Farm, L.L.C., No. 01 C 5014, 2002 WL 485387, at *2-3 (N.D. Ill. Mar. 29, 2002).

  However, motions to strike defenses are disfavored and are not ordinarily granted. Lirtzman v. Spiegel, Inc., 493 F. Supp. 1029, 1031 (N.D. Ill. 1980). A defense will be stricken only if it is insufficient on the face of the pleadings. Heller Fin., Inc. v. Midwhey Powder Co., 883 F.2d 1286, 1294 (7th Cir. 1989). A movant bears the burden of demonstrating that the challenged allegations are so unrelated to plaintiff's claim as to be devoid of merit, unworthy of consideration and unduly prejudicial. Ocean Atl. Woodland Corp., 2003 WL 1720073, at *2. The pleadings under consideration in a motion to strike must be viewed in the light most favorable to the pleader. Lirtzman, 493 F. Supp. at 1031 n. 1. Where both parties have failed adequately to address substantive legal questions underlying the motion to strike, a defense that is at least pertinent and material will be allowed to stand Donovan v. Robbins, 99 F.R.D. 593, 596 (N.D. Ill. 1983).

  Polska correctly points out that the Tenth Affirmative Defense, assumption of risk, is an improper defense to a breach of contract complaint. (Mot. Strike Affirmative Defenses ¶ 2.) Assumption of risk is a defense to negligence, and cannot be asserted as a defense to breach of contract or intentional torts. Chamberlain Mfg. Corp. v. Maremont Corp., No. 90 C 7127, 1993 WL 535420, at *6 (N.D. Ill. Dec. 19, 1993). Unjust enrichment is based on an implied or quasi-contract, People ex rel. Hartigan v. E. & E. Hauling, Inc., 607 N.E. 2d 165, 177 (Ill. 1992), the intentional breach of which is likewise not subject to an affirmative defense of assumption of risk. Where unjust enrichment occurs through mutual mistake, the negligence of the conferrer of the benefit does not preclude recovery. Bank of Naperville v. Catalano, 408 N.E.2d 441, 444 (Ill.App. Ct. 1980). Assumption of risk is not a proper affirmative defense to either of Polska's claims. It is true, as EchoStar contends, that parties to a contract agree to allocate risk, and must abide by that allocation. EchoStar is free to argue that it had the right to act as it did because the contract did not explicitly forbid its conduct. However, this is a denial of Polska's claims, not an affirmative defense. See Bobbitt, 532 F. Supp. at 736. EchoStar does not cite any case in which assumption of risk was asserted as an affirmative defense to breach of contract or unjust enrichment. The motion to strike EchoStar's Tenth Affirmative Defense is granted.

  Polska argues that EchoStar's First Defense, statute of frauds, should be stricken because Polska is not suing EchoStar for breach of any oral promise. (Reply Supp. Mot. Strike at 2.) EchoStar explains that it raises the defense because after the three-year term of the contract expired, "to the extent not already allowed by the contract, EchoStar and Polska modified the contract by conduct to allow EchoStar to sell new subscriptions and continue month-to-month subscriptions to Polska's programming through May 2002 while the parties negotiated a new agreement." (Opp'n Polska's Mot. Strike at 3.) It is EchoStar, not Polska, who argues that the terms of the written agreement do not govern certain of the parties' actions and suggests the existence of an unwritten agreement. Each of Polska's claims asserts that EchoStar acted in violation of a specified paragraph of the Agreement. (Am. Compl. ¶ 14.) EchoStar could simply have denied that its actions violated the Agreement, without raising statute of frauds.

  Nonetheless, because there is a question of material fact as to whether the Agreement governs some or all of the parties' actions after the expiration of the three-year term, and whether the parties may have modified their agreement through oral discussion or course of dealing, evidence on the statute of frauds issue may become relevant. Before a motion to strike can be granted, the Court must be convinced that there are no questions of fact or law in dispute, and the issue has no possible relation to the controversy. Lirtzman, 493 F. Supp. at 1031. The benefit of any doubt should be given to the pleader. Bobbitt, 532 F. Supp. at 736-37. Polska's motion to strike EchoStar's First Affirmative Defense is denied.

  Polska next challenges EchoStar's Fifteenth Affirmative Defense, rescission. EchoStar's pleading does not state grounds for rescission, but it is presumably related to the Fourteenth Defense, which suggests that "the Agreement by the parties may have been made under a misconception of a material fact concerning the parties' rights and obligations in the Post-Termination/Expiration period." (Second Am. Answer at 10.) A mistake of material fact is proper grounds for rescission. Real Estate Value Co. v. USAir, Inc., 979 F. Supp. 731, 740 (N.D. Ill. 1997). The ...


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