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Usa Satellite & Cable, Inc v. North American Cable

January 18, 2012


The opinion of the court was delivered by: Judge Ronald A. Guzman


Before the Court is the final chapter in an ongoing contract dispute between plaintiff and defendant. The ultimate issue in this trial is whether plaintiff, USA Satellite & Cable, Inc. ("USA Satellite"), is entitled to compensation from North American Cable Equipment, Inc. ("NACE") under either of two theories, unjust enrichment or oral agreement, for ninety-five properties under Satellite Master Antenna Television ("SMATV") agreements.*fn1 NACE is considered a dealer of record or affiliate of the program provider DirecTV. USA Satellite is considered a contractor, subcontractor or dealer. The product that both plaintiff and defendant sell is DirecTV's programming. The two types of programming packages provided by DirecTV that are involved in this case are MDU and SMATV programming. The properties are the end users of and subscribers to the programming that is received from DirecTV. Typical properties are nursing homes, hospitals and apartment buildings. (Tr. 18.) Properties have agreements with DirecTV to receive and watch the satellite programming in exchange for a monthly fee. DirecTV, however, does not directly install or maintain the necessary satellite equipment at these properties. DirecTV typically contracts with dealers of record, such as NACE, to accomplish this task. (Id.) The dealer of record may, in turn, hire a contractor or subcontractor to do all or part of the actual work in installing and/or maintaining the equipment. In this case, NACE, which is based in Pennsylvania, relies in part upon contractors such as USA Satellite to find and register the properties, install the equipment for the satellite programming at those properties, perform maintenance and respond to service calls for equipment malfunctions. NACE receives a commission from DirecTV for originating and servicing properties which subscribe to DirecTV's SMATV and/or MDU programming. (Tr. 19.)

The actual servicing of the equipment is not performed by NACE. NACE, in fact, has no permanent physical presence in Illinois. For the most part, it relies upon dealers or subcontractors like USA Satellite to install much of the equipment and to maintain and otherwise service the equipment that delivers DirecTV's programming to the property. The basic issue in this case is whether NACE properly compensated USA Satellite for its work in obtaining clients and installing and servicing equipment for some ninety-five SMATV properties. USA Satellite maintains it was entitled to and never received a commission for SMATV properties it obtained for NACE, a discount on equipment installed and maintained and a fee for maintaining the equipment. NACE, on the other hand, denies that USA Satellite is entitled to any commission, or that NACE failed to provide the promised discounts or that it failed to compensate USA Satellite for its maintenance work.

Originally, USA Satellite was doing business through a different dealer of record or affiliate - Pace. Because Pace was having financial difficulties meeting its financial obligations, USA Satellite decided to take its business elsewhere and transferred its MDU accounts to NACE. Then, in 2004 or 2005, USA Satellite started converting properties from MDU to the SMATV subscriptions because it was much cheaper for the client. (Tr. 24.) This process required that the client/property sign a new agreement for SMATV programming with DirecTV and that USA Satellite terminate the receivers which were used under the MDU agreement and install new receivers. DIRECTV would have to turn off the MDU programming for these buildings and reinstate service under a new SMATV subscription agreement. (Tr. 26.) Under an SMATV agreement, DirecTV charges the property a much lower rate because it is selling a set package of programs to the entire building. Generally, under SMATV agreements, one dish services the whole building and each unit within the building gets only the channels/programs the package calls for, although in a hybrid system it is also possible for a unit to get its own receiver and get more channels than the package allows. The building, in turn, sends out the same package of DirecTV programs to every unit in the building. (Tr. 35.) For MDU subscriptions, the commissions DirecTV pays to NACE are shared with USA Satellite. SMATV commissions are much lower. In MDU agreements, NACE is considered a dealer of record. In the SMATV agreements, NACE is what is called an affiliate of DirecTV. According to Shai Harmelech, Vice President of USA Satellite, the introduction of SMATV programming requires the installation of a "head end." Head ends can cost from $5,000.00-$30,000.00 to design and build.

Harmelechtestified that he operates USA Satellite from his home with his wife and a part-time assistant who help keep the books and records. The company uses three to fifteen subcontractors, i.e., technicians. In general, Harmelech alleges that when USA Satellite acts as a subcontractor for a dealer under the SMATV agreement, USA Satellite is supposed to get a commission, equipment and a finder's fee. (Tr. 23.)

Harmelech testified that under many SMATV agreements USA Satellite does all required maintenance to the equipment after it is installed. Such service calls can come to USA Satellite in different ways. The client may call NACE which may send an e-mail or make a phone call to USA Satellite. Clients also sometimes call DirecTV which, in turn, sends them to NACE. Harmelech gave several specific examples of maintenance jobs USA Satellite would do for which NACE never reimbursed or paid it. On the whole, however, his testimony in this, as in other respects, was confusing and inconsistent. Harmelech insists that he was supposed to be paid a percentage of NACE's commission for servicing the SMATV clients. Asked if he received commissions in order to service the properties he responded: "That's the whole idea." But, he also testified that subcontractors in the industry are generally paid $79.00 to go to a location and approximately $125.00 for the first hour and $75.00 for any time thereafter to fix the problem. This would imply piece-rate compensation and not a fixed commission arrangement. In addition, on cross-examination, plaintiff admitted that it was part of his business model to enter into service agreements with the properties he signs up and that the fees he charges the properties for the use or service agreements is, at least in part, how he makes his money. As plaintiff explains it, because servicing the accounts is a part of NACE's responsibility under the commission agreement between NACE and DirecTV, NACE must find someone to actually do the service work because NACE does not have a presence in Illinois. NACE often will turn to the initial installer of the equipment when contacted by a property or by DirecTV to respond to the service call. As a practical matter, one wonders why, if plaintiff already has a separate service agreement with the client/property, why the client would be calling DirecTV or NACE for service in the first place? In addition, according to Harmelech, it appears there are three possible sources of payment for USA Satellite on any given service call: the percent commission he insists he is entitled to under an oral contract, a combination flat fee and hourly fee (the customary payment for contractors on service calls to which he testified) and the fee from the property under his service agreement with the property. When asked if USA Satellite was sometimes paid both a commission and a flat fee for servicing properties, he responded that it depends on the situation, but he never explained under what circumstances or for what specific properties he would be paid a commission, a flat fee, an hourly rate or a combination thereof. (Tr. 17, 22.) Asked if he sometimes gets paid both by the client and NACE, he responded that he does. How all of this works is a mystery.

Harmelech also complained that NACE promised to give USA Satellite "free receivers or free other equipment, like dishes and other equipment" which he needed to install in order to bring DirecTV's programming to the building, but instead ended up charging him for the equipment. (Tr. 19.) Harmelech, however, never accurately or concisely itemized the equipment for the ninety-five properties at issue for which he was improperly charged or the ultimate cost to him of NACE's failure to keep its promise to provide the equipment free of charge.

In 2005, USA Satellite was working not only with NACE, but also with DirecTV authorized dealers Skynet, Pace and Perfect 10. In that year, because he was receiving no payments from Pace, he asked DirecTV to transfer all of his MDU properties to NACE. He claims one of their salesman named Ozer told him that they would like to get MDU contracts. (Tr. 24.) So DirecTV made Pace sign an agreement to transfer the properties.

Harmelech testified that Joint Trial Exhibit 63 contains the SMATV contracts for the ninety-five SMATV properties that are at issue in this lawsuit. The Lodging and Institutions SMATV Viewing Agreement found in Tab 4628666 of that exhibit is identified as an example of a typical SMATV agreement between DirecTV and a customer. This particular customer is located at 2121 Ridge in Evanston Illinois. It appears that the agreement is signed by Shai Harmelech as authorized agent for the customer, i.e., property. There appears to be some confusion however as Harmelech designates himself "President" of the customer rather than as merely an agent on a line labeled "name of authorized officer/agent & title." Indeed, on cross-examination, Harmelech appears to assert that he is a party to the agreement between the customer and DirecTV because of his signature on the SMATV Viewing Agreement. The agreement and attached information sheets were all filled out by Harmelech and contain detailed information about the customer, the number of units, the DirecTV account number, the equipment and the programming which will be delivered. NACE is designated as the "direct affiliate."

In late 2005, Harmelech decided to deactivate some properties which were under the MDU program and reactivate them under the SMATV program in order to save clients money. He caused USA Satellite to switch from twenty to thirty buildings from the MDU to SMATV program. He described the property of Park Evanston, a 280-unit building, as an example of such a change. According to Harmelech, Park Evanston paid $6,751.00 to DirecTV for programming under the MDU agreement. Of this amount, NACE received $1,211.00 from DirecTV and NACE gave USA Satellite 15% or 17% of that. When switched to the SMATV program, the same client paid only $2,512.00 to DirecTV for the programming. NACE received a commission of $215.00. The interesting part is that Harmelech acknowledged that under the SMATV program, USA Satellite got no commission whatsoever.

Q. So when you dropped or changed from MDU to the SMATV, you basically gave up $1,020?

A. Correct.

Q. Why did you choose to do that?

A. So I wouldn't have too much expenses because the $1,000 didn't cover all this back and forth.

Q. Did it also help the buildings?

A. Oh, tremendous. As you can see, it's like a $4,000 difference.

(Tr. 34.) In his response, Harmelech appears to acknowledge that under the SMATV agreement, he was not entitled to any portion of NACE's much reduced commission. He expressly states that he chose to give up the commission and even explains why - apparently the amount of the commission he was receiving under the MDU agreement was insufficient for all of the work he was doing to maintain the equipment in the building. He claims, however, that NACE orally agreed to pay him a finder's fee, a percentage, free equipment and to build the head ends for him for the properties he was converting. (Tr. 37.)

Well like in the beginning like I said when I moved the MDU over there and I started actually in 2004 building -building equipment for SMATV, they made agreement and said we'll give you a percentage and equipment for free and we'll put the head ends together for you So if I'm not mistaken I did about 10 to 15 properties in '04

(Tr. 37-38.) What is unclear here is the timing. It is unclear whether plaintiff is talking about his agreement when he began to move the MDU properties over from Pace to NACE or an agreement relating to switching from MDU to SMATV.

Although plaintiff refers to 2004, his attorney seems to assume that plaintiff is referring to conversations in 2005 because he then asks:

You're jumping ahead. All I want to know is talk about in late 2005. That's when you started ...

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