Comcast of Illinois v. Multi-Vision , 491 F.3d 938 ( 2007 )

United States Court of Appeals
FOR THE EIGHTH CIRCUIT
___________
No. 06-3765
___________
Comcast of Illinois X, An Illinois *
Limited Liability Company, *
*
Plaintiff - Appellee, *
*
v. * Appeal from the United States
* District Court for the District of
Multi-Vision Electronics, Inc., a * Nebraska.
dissolved Nebraska corporation doing *
business as Cable Network Company, *
also known as Cable Network; Ronald *
J. Abboud, Individually, *
*
Defendants - Appellants. *
___________
Submitted: May 14, 2007
Filed: June 29, 2007 (Corrected: 07/03/2007)
___________
Before MURPHY, HANSEN, and COLLOTON, Circuit Judges.
___________
MURPHY, Circuit Judge.
Comcast of Illinois initiated this action against Multivision Electronics1 and its
sole officer and shareholder, Ronald J. Abboud, alleging that they had violated the
Cable Communications Policy Act and injured Comcast by illegally distributing cable
1
The official caption refers to this appellant as Multi-Vision, but the parties and
most of the record use Multivision as will we.
descramblers. The district court2 granted Comcast’s motion for summary judgment.
After a hearing on damages, it awarded Comcast $2,188,115 in damages for which
Multivision and Abboud were held to be jointly and severally liable. They appeal,
arguing that the district court erred by granting summary judgment to Comcast,
abused its discretion in awarding damages and denying a continuance, and should not
have imposed individual liability on Abboud. We affirm.
I.
Comcast owns and operates a cable television system and provides cable
services to paying subscribers. The system's signals are transmitted from their point
of origin to Comcast's reception facilities and then retransmitted to subscribers' homes
through Comcast's cable network. To prevent subscribers from receiving services
they have not paid for, Comcast encodes or "scrambles" its signals. A subscriber must
have a converter box or "descrambler" connected to a television in order to receive the
transmitted signals, because scrambled signals are not viewable. As part of its service,
Comcast offers its subscribers a descrambler for which they pay a small rental fee.
Comcast's cable system is "addressable," meaning that Comcast programs each
subscriber's converter to receive only purchased services. It is possible, however, for
an individual to circumvent Comcast's encoding system by installing an unauthorized
descrambler which decodes the signals and receives programming the individual has
not purchased.
In February 2003 Comcast began to investigate the cable descrambler sales of
Platinum Electronics, Inc. and Steven Abboud (Ronald Abboud's brother) and shortly
thereafter initiated an action against them alleging illegal distribution of cable
descramblers. In June 2003 while that litigation was ongoing, federal marshals raided
2
The Honorable Joseph F. Bataillon, Chief Judge, United States District Court
for the District of Nebraska.
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the offices of Platinum Electronics in Omaha. Some of the documents seized during
this raid related to sales of cable descramblers by Multivision, which had operated
from the same location as Platinum Electronics.3
Based on the information contained in the seized documents, Comcast
commenced this action against Multivision and Ronald Abboud. The complaint
alleged that the defendants’ distribution of cable descramblers between 1991 and 1999
violated the Cable Communications Policy Act, 47 U.S.C. § 553(a)(1), which provides
that no one “shall intercept or receive or assist in intercepting or receiving any
communication service offered over a cable system, unless specifically authorized to
do so by a cable operator or as may otherwise be specifically authorized by law.”
Assisting in interception includes "the manufacture or distribution of equipment
intended by the manufacturer or distributor . . . for unauthorized reception" of cable
services. Id. § 553(a)(2). Comcast alleged that by selling cable descramblers the
defendants had assisted in the unauthorized interception of cable services.
Evidence was presented to the district court relating to Multivision's sales of
cable descramblers. It is not disputed that the descramblers sold by appellants are
capable of decoding cable television signals or that Comcast had not authorized any
identified customer to use a descrambler sold by Multivision. The descramblers
Multivision sold typically cost customers well over $100, and at least three models
cost $318. Invoices for the descramblers included a statement reading, "Do not hook
up your descrambler until you have received authorization from your cable company
or local officials. By opening and hooking up this equipment you agree to be fully
responsible for using this equipment in a legal manner." Multivision also gave a
return form to purchasers of cable descramblers. Customers could fill it out and give
it to Multivision to identify the specific problem they were having with a descrambler.
The form provided check boxes, three of which were labeled "premium stations are
3
Multivision was dissolved for nonpayment of taxes on April 19, 1999.
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scrambled," "basic stations are scrambled," and "some premium stations come in,
others do not."
Comcast also found a classified advertisement Multivision had placed in Nuts
& Volts magazine in February, March, and April 1993, stating that it sold cable
descramblers. Richard Killian, an investigator for Comcast, found Multivision listed
along with other distributors of cable descrambling equipment on a Swedish website
under the heading "Cable Descrambler Ordering List." Two of the other listed
distributors (Modern Electronics and TKA Electronics) have been sued in Nebraska
for illegal distribution of cable descrambling equipment, and we recently affirmed a
grant of summary judgment against TKA Electronics in an unpublished opinion.
Comcast of Ill. X, L.L.C. v. TKA Elecs., Inc., 211 F. App'x 536 (8th Cir. 2007).
Both sides filed motions for summary judgment. Comcast argued that there was
no genuine issue of fact as to whether the defendants intended to help their customers
illegally obtain cable programming. Multivision and Abboud argued that a 1994
decision of the Nebraska Supreme Court involving Abboud and the distribution of
cable descramblers, Imperial Empire Trading Corp. v. City of Omaha, 524 N.W.2d
314 (Neb. 1994), put Comcast on notice of the defendants' activities in 1994.
Claiming that a three year statute of limitations governs actions under 47 U.S.C. §
553, the defendants argued that the action was time barred because Comcast did not
sue until 2003.
The district court granted Comcast's summary judgment motion and denied that
of the defendants. It concluded that Comcast's action was not barred by the statute of
limitations because there was nothing to put Comcast on notice of the defendants'
actions before February 2003. It further concluded that there was no genuine issue of
fact as to whether the defendants intended to assist their customers in illegally
intercepting cable television because the defendants were involved in distributing
cable descramblers, whose only intended use was the unauthorized reception of cable
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services. It also held that the disclaimers included with the invoices were insufficient
to shield the defendants from liability.
The district court initially set a hearing on damages for October 13, 2005. On
October 4 defendants moved for a continuance based on an affidavit averring that
Ronald Abboud had admitted himself to a "health rehabilitation facility" outside
Nebraska for treatment three days before, that he would be unavailable on October 13,
and that his treatment would last for 28 days or possibly longer. The court granted a
continuance to November 21, 2005. At the November 21 hearing neither Abboud nor
any of the defendants' witnesses were present. Based on a letter written by Abboud's
psychotherapist, counsel for defendants requested a further continuance. After the
district court denied the oral motion, the hearing proceeded. Comcast submitted
defendants' tax returns for the years 1992 through 1997 as evidence of defendants'
gross revenues and requested damages equal to the gross revenue reported on the tax
returns ($8,555,246).
On September 28, 2006, the district court awarded Comcast damages. To find
the amount of actual damages, it accepted the amount of gross revenue reported on
Multivision’s tax returns, rejected the deductions defendants had claimed on them, and
deducted 75% from defendants’ gross profits to reach $2,138,115, the actual damages
awarded. The statute authorizes a district court to increase damages by up to $50,000
if it finds that a violation was committed willfully and for purposes of commercial
advantage or private financial gain. See 47 U.S.C. § 553(c)(3)(B). The court found
that defendants’ violations met these requirements and added $50,000 for a total
award of $2,188,115. It also found that plaintiff was entitled to recover reasonable
attorney fees in the amount of $26,315 and ordered judgment entered in the total
amount of $2,214,430. Ronald Abboud and Multivision were made jointly and
severally liable for the judgment.
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Abboud and Multivision appeal the summary judgment and the award of
damages. In their view summary judgment was inappropriate not only because
Comcast's claims are barred by the statute of limitations, but also because there is a
dispute of material fact as to whether Abboud and Multivision intended the
descramblers to be used for the unauthorized reception of cable programming. They
further assert that the district court abused its discretion by denying their second
motion for a continuance. The award of damages was itself an abuse of discretion
they say, because Comcast failed to meet its burden of proving the amount of their
profits, and the district court erred by finding the violation willful and Abboud
personally liable.
Comcast responds that the issuance of the Imperial Empire decision and its
availability in the public record was insufficient to put it on notice of appellants’
activities, that the evidence of their intent and willfulness is overwhelming, and that
there was sufficient basis to impose personal liability against Abboud. It also argues
that the denial of a continuance did not cause appellants any prejudice and that the
court's award of damages is supported by the evidence.
II.
Appellants contend that the district court erred by granting summary judgment
to Comcast. They argue first that the statute of limitations barred Comcast’s claims,
asserting that because the 1994 decision of the Nebraska Supreme Court in Imperial
Empire Trading was in the public record and involved the sale of cable descramblers
by a company which Ronald Abboud owned, Comcast was put on notice of appellants'
actions in 1994. Appellants claim that Comcast should have been aware of the case
and under an obligation to investigate. Such an investigation would have revealed that
the Imperial Empire Trading company was owned by Ronald Abboud, that Ronald
Abboud also owned Multivision, and that Multivision was engaged in the allegedly
unlawful practices for which Comcast seeks relief in this case. Comcast responds that
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merely because Imperial Empire was in the public record beginning in 1994, that does
not mean it should have been aware of it. We review a grant of summary judgment
de novo, using the same standard as the district court and construing the facts in the
light most favorable to the nonmoving parties. Iowa Network Servs., Inc. v. Qwest
Corp., 466 F.3d 1091, 1094 (8th Cir. 2006). Summary judgment is appropriate only
if the evidence establishes that there is no genuine issue of material fact and the
moving party is entitled to judgment as a matter of law. Id.The parties have proceeded on the assumption that the timeliness of this suit is
governed by a three year statute of limitations borrowed from the Copyright Act, 17
U.S.C. § 507(b). The Cable Communications Policy Act lacks its own statute of
limitations and courts are in disagreement on the applicable statute. Compare Prostar
v. Massachi, 239 F.3d 669, 677-78 (5th Cir. 2001) (borrowing three year limitation
from Copyright Act), with Kingvision Pay-Per-View, Corp. v. 898 Belmont, Inc., 366
F.3d 217, 223-25 (3d Cir. 2004) (borrowing two year limitation from state antipiracy
statute). We assume without deciding that the three year limitation applies. In this
case we need not choose between the federal copyright law or state law because
Nebraska's antipiracy statute, Neb. Rev. Stat. § 28-515.01, has a limitations period of
eighteen months and we conclude that Comcast should have first been aware of
appellants' activities in February 2003, six months before the complaint was filed on
August 8, 2003.
In Imperial Empire, the case on which appellants rely for their statute of
limitations argument, a former employee of the company which appellants claim was
owned by Ronald Abboud,4 notified Omaha police that Imperial possessed illegal
cable descramblers which it had been selling. The police obtained a warrant and
seized the property. Imperial was charged with theft of services and moved to
4
The Nebraska Supreme Court's published decision in that case does not
mention Abboud or state that he owned Imperial Empire Trading.
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suppress the seized property. The motion was granted and the charges later dismissed.
Meanwhile, the police had decided that the property was contraband and destroyed it
without obtaining court approval. Imperial sued Omaha for conversion and wrongful
destruction of property, and the district court held the city liable. Since no lawful
market was found to exist for the destroyed property, it awarded only nominal
damages. On appeal the Nebraska Supreme Court concluded that "the district court's
factual determination that no lawful market existed was clearly wrong," 524 N.W.2d
at 315, and remanded for further proceedings.
In federal question cases, the discovery rule applies "in the absence of a
contrary directive from Congress." Union Pac. R.R. Co. v. Beckham, 138 F.3d 325,
330 (8th Cir. 1998). Under this rule, a cause of action accrues and the statute of
limitations begins to run when the plaintiff discovers, or with due diligence should
have discovered, the injury which is the basis of the litigation. See id. The pertinent
issue here is whether the publication of the Imperial Empire decision would have led
a reasonable person in Comcast's position to investigate the possibility that its rights
were being violated. See CSC Holdings, Inc. v. Redisi, 309 F.3d 988, 992 (7th Cir.
2002).
Imperial Empire did not suggest that Comcast's services were being used
without authorization, and Comcast is not mentioned. The only cable service provider
mentioned in the opinion is Cox Cable Omaha. Appellants assert that because
Comcast later purchased Cox, Comcast should have investigated further when it
bought Cox. Appellants have not pointed to anything in the record on appeal which
contains information about any transaction between Comcast and Cox or that Imperial
Empire applied in any way to Comcast. We conclude that issuance of the Imperial
Empire decision was not enough to put Comcast on notice that its own rights were
being violated. Because appellants do not argue that anything other than Imperial
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Empire could have caused Comcast's claim to accrue before February 2003,5 we
conclude that Comcast's action is not time barred.
Appellants next argue that the district court erred in concluding that there was
no genuine issue of fact as to whether they possessed the requisite intent. They
contend that simply because the descramblers were capable of illegal use does not
demonstrate that they were intended to be used in this way. The cases on which
Comcast relies are distinguishable say appellants, because in them the district court
was either acting as a trier or fact or examining the likelihood of success on the merits.
Nor are the disclaimers evidence of their unlawful intent, for a reasonable jury could
find that the descramblers were intended to be used legally. They point to evidence
of legitimate uses for the converter boxes and the finding in Imperial Empire that a
lawful market existed for the descramblers. Comcast counters that cable customers
had no reason to purchase a descrambler from appellants except for illegal uses, and
that appellants were aware of this fact. It also asserts that the disclaimers were clearly
intended to shield appellants from liability and as such are evidence of unlawful
intent. Finally, it contends that Imperial Empire is readily distinguishable from the
present case and the district court did not err by declining to defer to it.
Intent has traditionally meant not only desire to bring about the consequences
of an act, but also knowledge that certain consequences are substantially certain to
result from it. See Restatement (Second) of Torts § 8A cmt. b (1965); William L.
Prosser, The Law of Torts § 8 at 31-32 (4th ed. 1971); see also, e.g., First Nat'l Bank
of Omaha v. Acceptance Ins. Cos., 675 N.W.2d 689, 704 (Neb. Ct. App. 2004);
Bradley v. Am. Smelting & Ref. Co., 709 P.2d 782, 785-86 (Wash. 1985). If there
was no genuine issue of fact as to whether appellants knew that it was substantially
certain that their sales of cable descramblers would result in the unauthorized
5
We reject a brief suggestion that three small advertisements in the classified
section of an electronics hobby magazine should have put Comcast on notice of
appellants’ activities.
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interception of cable services, the district court's grant of summary judgment should
be affirmed.
Because it is undisputed that Comcast's subscribers were able to rent a cable
descrambler from Comcast for substantially less than the cost to purchase a
comparable product from Multivision, there is little reason a paying customer would
spend a considerable sum of money to purchase Multivision's product. See Intermedia
Partners Se., G.P. v. QB Distribs. L.L.C., 999 F. Supp. 1274, 1281 (D. Minn. 1998);
Time Warner Cable of N.Y. City v. Cable Box Wholesalers, Inc., 920 F. Supp. 1048,
1053 (D. Ariz. 1996). At oral argument counsel for appellants suggested that a
customer might wish to purchase a descrambler with a remote volume control or
channel changing feature or might want an additional device for another television in
the home. Appellants urge us to infer that customers would pay hundreds of dollars
for better volume control or channel changing capability but that would be mere
speculation on this record. See Twymon v. Wells Fargo & Co., 462 F.3d 925, 934
(8th Cir. 2006).
On the return form appellants gave purchasers, three of the check boxes
describing problems a customer might experience are labeled "premium stations are
scrambled," "basic stations are scrambled," and "some premium stations come in,
others do not." If Multivision gave the form to its customers for them to report a
defective product, it would not likely expect a customer to complain only that
some stations were scrambled and others were not. If the customer simply had not
obtained Comcast's permission to use an additional cable converter, the customer
would be expected to speak to Comcast rather than to Multivision. The fact that
appellants had a preprinted return form to allow customers to complain about
scrambled stations suggests they knew with substantial certainty that their customers
were using the products to intercept cable programming illegally.
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Disclaimers on cable converters are not necessarily evidence of intent, but they
also cannot by themselves provide a defense to Comcast’s claims. See Intermedia
Partners, 999 F. Supp. at 1282; Cable Box Wholesalers, 920 F. Supp. at 1053; Time
Warner Cable of N.Y. City v. Freedom Elecs., Inc., 897 F. Supp. 1454, 1459 (S.D.
Fla. 1995); Subscription Television of Greater Wash. v. Kaufmann, 606 F. Supp.
1540, 1542-43 (D.D.C. 1985). Moreover, the fact that the descramblers conceivably
had some legal uses does not negate the strong evidence of intent. See Cont'l
Cablevision, Inc. v. Poll, 124 F.3d 1044, 1048 (9th Cir. 1997).
Finally, appellants argue that the district court erroneously ignored Imperial
Empire where the Nebraska Supreme Court reversed the trial court for its factual
findings, which it found clearly erroneous. See 524 N.W.2d at 315-16. Appellants
have produced no evidence to show that the facts here are similar to those in Imperial
Empire, and have cited no authority for the proposition that we must follow the factual
findings of a state court in this situation. We conclude that the district court did not
err by granting summary judgment to Comcast.
III.
Appellants argue that the district court abused its discretion when it denied their
renewed motion for a continuance at the November 21, 2005 damages hearing. They
argue that they had been diligent in following the district court's deadlines and made
no other requests for continuance, that the basis of the motion should not have come
as an unfair surprise to Comcast, that given the delay in filing this action, any further
delay would not have been prejudicial, and the health of Abboud was a compelling
reason for continuance. They also rely heavily on a Third Circuit decision, Gaspar v.
Kassm, 493 F.2d 964 (3d Cir. 1974). Comcast contends that the district court's denial
of a continuance did not prejudice appellants.
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In order for the denial of a continuance to be grounds for reversal, appellants
must show that they were prejudiced as a result. United States v. Cotroneo, 89 F.3d
510, 514 (8th Cir. 1996), citing Souder v. Owens-Corning Fiberglas Corp., 939 F.2d
647, 651 (8th Cir. 1991). Here, appellants have failed to articulate why Abboud's
absence from the hearing on damages deprived them of an opportunity to present
evidence in their defense. They do not say what evidence Abboud intended to
introduce through oral testimony if he had been present.6 Their reliance on Gaspar v.
Kassm is misplaced. There, the Third Circuit reversed a district court for denying a
motion to continue, but that ruling was based on the fact that Kassm's eyewitness
testimony was "necessary for the defense of his case," 493 F.2d at 969, and his being
"gravely prejudiced by the fact that he was not present." Id. at 968. Because
appellants have not explained why Abboud's testimony was necessary, they have not
shown they were prejudiced by the denial of a continuance.
Appellants also contend that the way in which the district court calculated
actual damages was erroneous. They argue that the tax returns submitted by Comcast
demonstrated Multivision's gross revenues as a whole, not the revenue from the sale
of cable descramblers. Only the latter kind of revenue is recoverable under the Cable
Communications Policy Act they urge. In addition, they believe that the district court
arbitrarily ignored the deductions Multivision claimed on its tax returns while
accepting the gross income reported there and that the district court's own deductions
were capricious guesswork. Comcast asserts that appellants have the burden of
proving the deductions were justified, and that the district court's deductions were
reasonable under the circumstances. We review the district court's calculation of
damages for an abuse of discretion. Lester E. Cox Med. Ctr. v. Huntsman, 408 F.3d
989, 993 (8th Cir. 2005).
6
Appellants' other witnesses, who presumably could have presented evidence
on damages, also did not appear at the hearing. We do not understand appellants to
argue that the district court should have continued the hearing due to their absence.
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Under the Cable Communications Policy Act, Comcast bore the burden of proof
to demonstrate the amount of Multivision's gross revenue, but appellants bore the
burden to prove Multivision's deductions were justified. See 47 U.S.C. §
553(c)(3)(A)(i) (actual damages provision). The statute also specifically provides that
"the party aggrieved shall be required to prove only the violator's gross revenue." Id.Thus, appellants are incorrect to assert that Comcast was required to separate the
revenue Multivision gained by selling cable descramblers from the rest of
Multivision's income. The statute's plain language only requires Comcast to show
Multivision's "gross revenue," its income as a whole.
The district court was entitled to find that by submitting Multivision's tax
returns as evidence of gross revenue, Comcast sustained its burden on that issue.
Taxpayers have an incentive to report a low figure for gross income in order for their
taxable income to be correspondingly lower. The district court also reasonably
rejected the deductions Multivision claimed on its tax returns since a taxpayer has an
incentive to report excessively high figures for deductions. Multivision submitted no
evidence justifying those deductions besides the returns themselves. The district court
was within its discretion to find that the claimed deductions left Multivision with an
implausibly low amount of taxable income over five years ($100,754 or 1.2% of
reported gross income). The deductions which the district court made were estimates,
but that does not make the award an abuse of discretion.
Damages "may not be determined by mere speculation or guess," but they may
be subject to "just and reasonable inference, although the result be only approximate."
Story Parchment Co. v. Paterson Parchment Paper Co., 282 U.S. 555, 563 (1931); see
also Bigelow v. RKO Radio Pictures, Inc., 327 U.S. 251, 264 (1946) ("just and
reasonable estimate" approved). Once liability has been established, "the risk of
uncertainty in calculating damages falls upon the wrongdoer." Yonkers Branch –
NAACP v. City of Yonkers, 251 F.3d 31, 40 (2d Cir. 2001). The district court stated
that overhead costs of 15% to 25% of gross receipts are ordinarily deemed reasonable,
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as is a deduction of 60% for the cost of goods. Because appellants failed to submit
any evidence besides the tax returns, the district court used the 15% figure for
overhead, added that to its cost of goods deduction, and so deducted 75% of
Multivision's gross income. Appellants have not presented any evidence that a
deduction of 75% is extraordinary, and we cannot say that such a deduction was
unjust and unreasonable. Thus, we conclude that the district court did not abuse its
discretion and affirm its award of actual damages.
Appellants also argue that the district court erroneously enhanced the award of
damages pursuant to 47 U.S.C. § 553(c)(3)(C), which permits a court "in its
discretion" to increase the damages award by not more than $50,000 if it "finds that
the violation was committed willfully and for purposes of commercial advantage or
private financial gain." They argue that there was insufficient evidence to support a
finding of willfulness. Willfulness is "disregard for the governing statute and an
indifference to its requirements." Trans World Airlines, Inc. v. Thurston, 469 U.S.
111, 127 (1985). For the purpose of enhancing damages, the district court was
entitled to infer from Abboud's knowledge of the cable industry and the presence of
disclaimers on the converter boxes, that the appellants were aware of the statute's
prohibitions but nevertheless sold the boxes to customers who they knew would steal
cable services. Such actions showed reckless disregard of the statutory requirements.
See Cable/Home Commc'n Corp. v. Network Prods., Inc., 902 F.2d 829, 851-52 (11th
Cir. 1990) (applying identically phrased provision in Communications Act). We
conclude that the enhancement of damages was not an abuse of discretion.
Finally, Abboud asserts that the Cable Communications Policy Act requires a
plaintiff to demonstrate that a defendant personally participated in a violation of the
Act before individual liability may be imposed, and that the undisputed evidence
demonstrates that he did not manufacture, sell, or distribute the descramblers. Abboud
was Multivision's only corporate officer and its sole owner, however. His deposition
testimony demonstrates that he knew of the uses and features of the cable boxes
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Multivision sold, was intimately familiar with how cable services function, and was
involved in setting company policy. Because the record shows no distinction between
Abboud's actions and Multivision's, the district court did not err in making Abboud
personally liable for the judgment. See CSC Holdings, Inc. v. J.R.C. Prods., Inc., 78
F. Supp. 2d 794, 801 (N.D. Ill. 1999), rev'd on other grounds, 309 F.3d 988 (7th Cir.
2002).
IV.
Accordingly, we affirm the judgment of the district court.
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