Multi-Channel Tv Cable Company, D/B/A Adelphia Cable Communications v. Charlottesville Quality Cable Operating Company, a Virginia Corporation Rivanna Partnership, a Virginia General Partnership Alcova Realty & Management Company, and Fountain Court Limited Partnership, a Virginia Limited Partnership John A. Schwab, Jr. Bernard A. Schwab C. Stuart Raynor, Jr., Intervenors

Citations: 22 F.3d 546; 28 Fed. R. Serv. 3d 1059; 1994 U.S. App. LEXIS 7404Docket: 94-1082

Court: Court of Appeals for the Fourth Circuit; April 14, 1994; Federal Appellate Court

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The case involves Multi-Channel TV Cable Company, doing business as Adelphia Cable Communications, as the plaintiff-appellee against several defendants, including Charlottesville Quality Cable Operating Company and Rivanna Partnership. The United States Court of Appeals for the Fourth Circuit upheld a preliminary injunction preventing the defendants, who are cable television providers and associated residential apartment complexes, from excluding Adelphia from operating under cable provider agreements.

Adelphia and the defendants compete in Charlottesville, Virginia. In 1981, Adelphia installed "home run" cable systems in three multi-dwelling units (MDUs) at the request of the owners, allowing tenants to negotiate individual contracts with Adelphia, moving away from the previous bulk service model. Adelphia maintained these systems at its own expense.

In 1990, Adelphia installed a "pre-wire" system in another MDU, Rivanna Terrace, during construction, at the request of the general contractor. Although a subcontractor did the actual wiring, Adelphia provided the materials at no cost and maintained the system. By summer 1993, Adelphia began offering customized a la carte cable services to tenants in the four MDUs, enabling them to select their desired programming packages. The court's decision affirmed the preliminary injunction while modifying certain aspects, emphasizing the competitive landscape and the significance of Adelphia's investments in the cable infrastructure.

In November 1993, Alcova, the property manager for four multi-dwelling units (MDUs), entered into an exclusive agreement with CQC, granting CQC the sole right to provide cable television services to the tenants. This agreement stipulated that CQC retained ownership of its cable distribution equipment, which would not be considered fixtures of the properties. CQC was required to pay Alcova a consultant fee of twelve percent of its cable service revenues from the tenants in exchange for assistance in maintaining service. Following the agreement, CQC installed its cable distribution system, which utilized a microwave transmitter and required both a central reception antenna and a connection to Adelphia's distribution system. CQC's installation led to the abrupt termination of Adelphia's existing service to the tenants without prior consent from either the tenants or Adelphia. In response, Adelphia initiated legal action in the U.S. District Court for the Western District of Virginia against CQC, Alcova, and Rivanna Pa., alleging claims related to interference with easements, conversion of its distribution system, tortious interference, conspiracy, and violations of the Virginia Residential Landlord and Tenant Act. On December 3, 1993, Adelphia sought a preliminary injunction to prevent the defendants from operating under the exclusive agreement, intending to continue its service to the MDU tenants. An amended notice on December 7, 1993, indicated that Adelphia also aimed to seek a preliminary injunction against Rivanna Terrace and the other MDUs managed by Alcova.

On December 15, 1993, a magistrate judge held a hearing regarding Adelphia's motion for preliminary relief, attended by John A. Schwab, Jr., president and part owner of Alcova, who testified for the Appellants. The magistrate judge determined that preliminary relief was warranted, finding that Adelphia demonstrated a strong likelihood of success on several claims. These claims included: 1) the consultant fee constituted an illegal kickback under the Virginia Landlord Tenant Act; 2) the exclusive provider agreement and the resultant service interruption amounted to tortious interference with Adelphia's contracts; 3) CQC's use of Adelphia's distribution system involved conversion of Adelphia's equipment; and 4) the Appellants’ actions supported claims of statutory and common law conspiracy. The judge noted that the MDU owners’ actions allowed Adelphia to negotiate directly with tenants, thus granting it a business expectancy during their leases.

The magistrate judge also found that Adelphia would face irreparable harm without a preliminary injunction, as its damages were incalculable due to the varying nature of service preferences among tenants. Furthermore, the potential loss of goodwill from customers was highlighted. Weighing the potential irreparable harm to Adelphia against the harm to the Appellants, the magistrate judge concluded the former outweighed the latter, as the injunction would enable fair competition between CQC and Adelphia. The public interest was deemed to favor the injunction, which would stabilize cable service delivery.

On December 16, 1993, a preliminary injunction was issued, contingent upon Adelphia posting a $20,000 bond. This injunction prohibited the Appellants from enforcing the exclusive provider agreements and restricted MDU owners or Alcova from showing preferences for cable providers to tenants. It also permitted Adelphia to reconnect service to tenants whose leases had not expired by December 13, 1993, and who wished to reconnect. Additionally, if tenants chose CQC for cable services, CQC could not use any of Adelphia's equipment. The Appellants subsequently filed a notice of appeal, challenging the validity of the injunction on the grounds that it affected MDU owners not named in Adelphia's complaint. However, the judge found no merit in this assertion.

Under Fed. R. Civ. P. 65(d), an injunction binds the parties involved, their agents, and anyone who is in active concert with them upon receiving actual notice. Evidence indicates that the three other MDU owners acted in such concert with Alcova and Rivanna, as Alcova managed all four affected MDUs, and John A. Schwab, Jr., a general partner in the partnerships owning the MDUs, had notice of the injunction. Consequently, the preliminary injunction applies to all four MDUs and their owners.

The Appellants challenge the preliminary injunction on four grounds: 1) the magistrate judge incorrectly determined that Adelphia would face irreparable harm without the injunction; 2) the balance of harms favored Adelphia; 3) Adelphia had a strong likelihood of success on the merits; and 4) the public interest supported granting the injunction. The court found these claims unpersuasive and outlined the criteria for granting preliminary relief, which includes demonstrating irreparable harm, balancing harms, assessing the likelihood of success on the merits, and considering the public interest. The Appellants specifically argue that Adelphia would not suffer irreparable harm because its average revenue from the MDUs would adequately cover any losses; however, the court disagrees with this assertion.

Irreparable injury occurs when monetary damages are hard to quantify or insufficient, as established in Danielson v. Local 275. If a plaintiff's loss can be calculated easily, irreparable injury is not proven. However, potential permanent loss of customers or goodwill can satisfy this criterion, as noted in Merrill Lynch v. Bradley. Findings of irreparable harm are reviewed under the clearly erroneous standard. In this case, the magistrate judge determined that Adelphia would experience irreparable harm without a preliminary injunction because its damages from providing a la carte cable services were unquantifiable. This conclusion was supported by evidence that the novelty of the service made revenue loss difficult to measure, further indicating potential loss of goodwill and customers.

Adelphia's demonstration of irreparable harm necessitated a balance against any harm to the defendant from granting interim relief. The Appellants argued that the injunction's prohibition against Alcova and MDU owners communicating cable provider preferences constituted a First Amendment violation. The court concurred, stating that such injunctions infringe on the right to free speech, as highlighted in Consolidation Coal Co. v. Disabled Miners. However, the court concluded that the entire injunction need not be vacated; only the part restricting communication of preferences would be nullified, thus alleviating the identified harm to the Appellants.

The Appellants argue that the preliminary injunction preventing CQC from entering into exclusive provider agreements will harm CQC's potential revenue, equating this harm to that faced by Adelphia. The court disagrees, noting that the injunction permits CQC to pursue nonexclusive agreements, enabling competition in an open market without significant detriment to CQC. Furthermore, the Appellants claim that allowing Adelphia access to the wiring infringes on property owners' rights to exclude others. The court finds this inconvenience minimal compared to the potential irreparable harm to Adelphia, thus validating the magistrate judge's decision.

The court emphasizes that preliminary relief is warranted if Adelphia raises substantial questions regarding the merits of its case. Adelphia meets this burden concerning its conversion claim. The Appellants contend they did not convert Adelphia's cable distribution equipment, arguing it became a fixture owned by MDU owners. The court rejects this argument, stating that under Virginia law, the classification of a chattel as a fixture depends on three factors: the degree of annexation, the chattel’s adaptation to the property’s use, and the owner’s intent regarding permanence. Among these, the owner’s intent is of utmost importance.

While the parties dispute whether the cable wiring can be removed without damage to the property, this does not affect the determination of intent. The second factor indicates that the cable distribution systems were not essential to the MDUs' primary function of housing tenants, supporting the conclusion that the equipment remains personal property belonging to Adelphia rather than a fixture owned by MDU owners.

Adelphia is likely to succeed in its conversion claim regarding the cable distribution system equipment, as it was the original owner and intended to retain ownership, having installed and maintained the equipment at its own expense. The equipment does not qualify as a fixture, indicating it does not belong to the MDU owners. The MDU owners allowed Adelphia's competitor, CQC, to use this equipment, constituting a conversion of Adelphia's property. The magistrate judge's finding that the public interest favored a preliminary injunction was upheld, as the injunction would stabilize cable service delivery. The court affirmed the preliminary injunction with modifications, particularly removing restrictions on communication preferences for cable providers. Additionally, the exclusive provider agreement between CQC and the MDU property manager, Alcova, was found to likely violate the Virginia Landlord-Tenant Act due to improper payments in exchange for cable access. The court noted that Adelphia's claims were strong enough that it did not need to assess other claims of conspiracy and tortious interference. Finally, the preliminary injunction is not a permanent resolution and further trial proceedings are necessary.