Russian Media Group v. Shai Harmelech ( 2010 )

In the
United States Court of Appeals
For the Seventh Circuit
Nos. 09-1554 & 09-2903
R USSIAN M EDIA G ROUP, LLC,
Plaintiff-Appellee,
v.
C ABLE A MERICA, INC. AND S HAI H ARMELECH,
Defendants-Appellants,
and
USA S ATELLITE & C ABLE, INC.,
Intervenor-Defendant-Appellant.
Appeals from the United States District Court
for the Northern District of Illinois, Eastern Division.
No. 1:06-cv-03578—John W. Darrah, Judge.
A RGUED JANUARY 14, 2010—D ECIDED M ARCH 10, 2010
Before F LAUM, R OVNER, and H AMILTON, Circuit Judges.
H AMILTON, Circuit Judge. For nearly ten years, plaintiff
Russian Media Group, LLC has battled in court with
defendant Shai Harmelech and his companies, charging
that Harmelech pirated Russian-language satellite televi-
2 Nos. 09-1554 & 09-2903
sion programming to enable him to compete unfairly
against RMG’s legitimate business. The district court
found RMG’s complaints justified and enjoined
Harmelech and the other defendants from distributing
Russian-language television programs to twenty specific
apartment houses where they had been operating ille-
gally. Harmelech and his companies appeal both the
preliminary injunction and an emergency motions judge’s
denial of their motion to modify the preliminary injunc-
tion. We affirm in both cases.
I. Background
The district court’s factual findings, which defendants
do not contest, were unfavorable to Harmelech and his
companies. At each of the twenty properties at issue
in this case, defendant Cable America, Inc. connected an
individual subscriber’s DIRECTV- or DishNetwork-issued
satellite receiver to the property’s master antenna system,
allowing Cable America to distribute Russian-language
programming throughout the building without the
many other customers having to pay DIRECTV or
DishNetwork. Instead, Russian-speaking customers in
those properties paid Cable America a monthly fee of
$25 to $30. Cable America kept this arrangement secret
from DIRECTV and DishNetwork, whose signals it
was pirating, and shared none of the fees it collected
with those providers. In essence, Cable America was
defrauding DIRECTV and DishNetwork by having one
customer pretend that he or she was merely an individ-
ual subscriber, and then using that customer’s subscrip-
tion to resell the programming for Cable America’s benefit.
Nos. 09-1554 & 09-2903 3
Just as a fence can sell stolen watches for less than a
jewelry store charges for legitimate goods, this dishonest
business model allowed Cable America to compete
unfairly against RMG, which also sells Russian-language
programming to residential customers. RMG competes
with DIRECTV and DishNetwork to provide that program-
ming in many of the same buildings where Cable
America set up this scam. RMG receives $39.99 a month
from each person subscribing to its Russian programming
package, but it must pay the costs of legally obtaining
that programming and maintaining the hardware to
transmit it to subscribers. Cable America, by obtaining
the programming by fraud, incurred fewer costs and
pocketed a larger portion of its monthly fee than RMG
could. It also induced RMG’s subscribers to switch
away from RMG because of the lower fee.
RMG filed this suit against Harmelech and Cable Amer-
ica on June 30, 2006. After discovery had proceeded and
the court had denied Cable America’s motion for
summary judgment and motion to dismiss, RMG
moved for a preliminary injunction on March 7, 2008. In a
June 26, 2008 hearing on the motion for preliminary
injunction, RMG presented evidence that it was likely to
succeed on its claim under the Illinois Cable Piracy Act.
See 720 Ill. Comp. Stat. § 5/16-18 et seq. Harmelech testi-
fied in defense of himself and Cable America. (At the
time of the hearing, defendant USA Satellite & Cable, Inc.
was not a party to the suit. In his deposition testimony
before the hearing, Harmelech had falsely denied that he
controlled USA Satellite, a lie that was discovered later.)
Harmelech testified first that Cable America merely
charged for maintenance services that it provided in the
4 Nos. 09-1554 & 09-2903
subject properties. Later, he changed course and admitted
that Cable America distributed the programming itself,
but he claimed falsely that its distribution was
authorized by the content owners. The district judge
wrote that Harmelech’s contradictory explanations for
Cable America’s conduct were “unsupported and con-
trary to the evidence,” and that his testimony was “unper-
suasive and completely lacking in credibility.”
On February 19, 2009, the district court issued the
requested preliminary injunction. Although RMG had
alleged three separate theories of liability, the district
court relied only on the Illinois Cable Piracy Act, which
allows an “aggrieved” party to sue those who pirate
the communications services of others and thereby
injure the plaintiff. See 720 Ill. Comp. Stat. § 5/16-21.
Concluding that the Illinois Cable Piracy Act was suf-
ficient to support the injunction, the district court
declined to consider RMG’s other legal theories. After
finding that Cable America had violated the Cable
Piracy Act and that RMG was an aggrieved party, the
court ordered Harmelech and Cable America to cease
all distribution and transmission of Russian-language
television to the twenty subject properties, and to dis-
connect any receivers they had set up to distribute
Russian television in those properties.1
1
The injunction reads in full:
It is therefore ordered that Defendants Shai Harmelech;
Cable America, Inc.; Defendants’ owners, officers, directors,
agents, employees, successors, and assigns; and all individ-
(continued...)
Nos. 09-1554 & 09-2903 5
Harmelech and Cable America appealed the injunction
to this court on March 2, 2009, but they did not comply
with the injunction. To begin with, they did not discon-
nect the illegally configured receivers. Further, in his
response to RMG’s request for contempt of court
sanctions, Harmelech claimed falsely that it was USA
Satellite, not Cable America, that controlled the
receivers, and he claimed falsely that he was powerless
to comply with the injunction. After the defendants
retained new attorneys, Harmelech conceded that he
was in fact in control of USA Satellite, but he claimed
through his new attorneys that he had “believed that he
could take the position that he could not force USA to
disconnect the Russian television service” because “USA
1
(...continued)
uals or entities controlled by Defendants or in active
concert or participation with Defendants are preliminarily
enjoined and restrained from distributing, transmitting,
causing the distribution or transmission of, or maintaining
any system that distributes or transmits Russian-language
television programming to any of the tenants residing in
the Subject Properties.
It is further ordered that Defendants Shai Harmelech and
Cable America, Inc. shall disconnect any receivers in the
Subject Properties that distribute or transmit Russian-
language television programming that were installed or
are maintained by Defendants Shai Harmelech; Cable
America, Inc.; Defendants’ owners, officers, directors,
agents, employees, successors, and assigns; and any indiv-
iduals and entities controlled by Defendants or in active
concert or participation with Defendants.
6 Nos. 09-1554 & 09-2903
is a separate legal entity and a non-party to this case.”
The district court then held Harmelech and Cable
America in contempt on May 5, 2009, but even six days
after that, on May 11, 2009, RMG complained that
almost all of the receivers were still connected. Faced
with this obstinate refusal to comply with the
injunction, the district court finally issued another order
authorizing RMG itself to disconnect the defendants’
receivers so that the preliminary injunction could have
the intended effect.
USA Satellite intervened as a defendant in May 2009.
Two months later, on a day when the assigned district
judge was not available, the defendants filed an “emer-
gency” motion to modify the injunction. The motion was
based in part on a new defense of federal copyright
preemption. The emergency judge denied the motion to
modify for three reasons: it was untimely, it was not a
genuine emergency motion, and the district court lacked
jurisdiction to modify an injunction that was already
pending before the court of appeals. The defendants
appealed that order on July 28, 2009.
II. The Scope of the Injunction
The defendants first contend that the district court’s
injunction is too broad because it enjoins any transmis-
sion of Russian-language programming to the subject
properties, including legal transmissions. In light of the
extensive evidence of the defendants’ misconduct, we
conclude that the district court did not abuse its discre-
tion in writing the injunction as it did: targeted at the
wrongdoing, but broad enough to be effective.
Nos. 09-1554 & 09-2903 7
A preliminary injunction order must state the reasons
why it issued, state its terms specifically, and describe
in reasonable detail without referring to any other docu-
ment the acts that are prohibited or required. Fed. R. Civ.
P. 65(d). But the injunction must also be broad enough
to be effective, and the appropriate scope of the
injunction is left to the district court’s sound discretion.
See PepsiCo, Inc. v. Redmond, 54 F.3d 1262, 1272 (7th Cir.
1995) (affirming scope of injunction).
In particular, the district court has the discretion to
issue a broad injunction in cases where “a proclivity
for unlawful conduct has been shown.” See McComb v.
Jacksonville Paper Co., 336 U.S. 187, 192 (1949) (finding
that injunction barring violations of Fair Labor Standards
Act was justified based on defendant’s “record of con-
tinuing and persistent violations” of law); accord,
Lineback v. Spurlino Materials, LLC, 546 F.3d 491, 506 (7th
Cir. 2008) (affirming injunction against specified viola-
tions of labor laws and against actions violating the law
“in any like manner”). The district court may even
enjoin certain otherwise lawful conduct when the defen-
dant’s conduct has demonstrated that prohibiting only
unlawful conduct would not effectively protect the plain-
tiff’s rights against future encroachment. See FTC v. Nat’l
Lead Co., 352 U.S. 419, 428-30 (1957) (affirming broad FTC
order because lawbreakers “must expect some fencing in”);
General Instrument Corp. of Delaware v. Nu-Tek Electronics &
Mfg., Inc., 197 F.3d 83, 89-91 (3d Cir. 1999) (where defen-
dant had shown persistent pattern of pirating cable
television signals, affirming injunction against distribu-
tion of devices that could be used to pirate cable
8 Nos. 09-1554 & 09-2903
television signals even where devices might have lawful
uses); Sasnett v. Sullivan, 91 F.3d 1018, 1021 (7th Cir. 1996)
(recognizing “the familiar principle of equitable remedies
that an injunction or other equitable decree may fence
the defendant in, forbidding lawful as well as unlawful
conduct in order to prevent the evasion of the core pro-
hibition in the decree and to extirpate any lingering effects
of the violation sought to be remedied”), vacated on
other grounds, 521 U.S. 1114 (1997).
The defendants’ objection that this injunction is too
broad rings hollow. The evidence shows that Harmelech’s
business model, at least for the last several years, has
been quite simply to steal television programming and
then to resell it at a discount. Harmelech has now
admitted the unlawful conduct that gave rise to the
preliminary injunction, but at the June 28, 2008 hearing, he
denied any wrongdoing and instead offered inconsistent,
incredible, and false explanations for his and his com-
pany’s conduct. Given the defendants’ pattern of miscon-
duct and the record of dishonesty in the district court,
the district judge did not abuse his discretion in framing
the injunction as he did.
Events after the issuance of the preliminary injunction
confirm the district judge’s belief that a broad injunction
was needed. After the district court ordered defendants
to disconnect their receivers and stop operations at the
subject properties, the defendants refused to do so. Then
they tried to conceal that refusal from the district court
by trying to blame USA Satellite, all the while sticking
to Harmelech’s false story that he had no control over
Nos. 09-1554 & 09-2903 9
USA Satellite. By the time the defendants finally con-
ceded that they were violating the injunction, they had
been concealing Harmelech’s control of USA Satellite for
more than two months as they evaded the court’s order.
This level of deception and obstinacy makes the district
court’s decision about the scope of the injunction look
downright prescient.
If the defendants can show that they have a plan to
compete legally for business in the twenty subject proper-
ties, they should seek a modification from the district
court that issued the injunction. That court is in the
best position to conduct the fact-finding needed to deter-
mine whether the injunction should be modified.2
III. Federal Copyright Preemption
The defendants argue next that the injunction is invalid
on the theory that federal copyright law preempts the
Illinois Cable Piracy Act on which the injunction is
based. The defendants raised this defense for the first
time in their motion to stay the preliminary injunction on
May 26, 2009, three years after the lawsuit was filed.
Neither the assigned judge nor the emergency motions
2
On November 10, 2009, while this appeal was pending, the
district court denied the defendants’ motion to clarify the
preliminary injunction. The denial appears to have been
without prejudice, so the defendants remain free to file a new
motion to modify with the district court. The existing injunc-
tion remains in effect pending any possible modification.
10 Nos. 09-1554 & 09-2903
judge considered or ruled on the preemption issue. Be-
cause the district court might have approached the
case very differently if defendants had raised their pre-
emption defense in a timely manner, it would be inap-
propriate for this court to vacate the injunction on the
basis of that defense.
In civil litigation, issues not presented to the district
court are normally forfeited on appeal. See Humphries v.
CBOCS West, Inc., 474 F.3d 387, 391 (7th Cir. 2007), aff’d, 553
U.S. 442 (2008). We may consider a forfeited argument
if the interests of justice require it, but it will be a “rare case
in which failure to present a ground to the district court
has caused no one—not the district judge, not us, not
the appellee—any harm of which the law ought to take
note.” Amcast Industrial Corp. v. Detrex Corp., 2 F.3d 746,
749-50 (7th Cir. 1993).
This is not such a rare case. RMG sued the defendants
under three Illinois statutes. The first, the Illinois Cable
Piracy Act, targets only theft of and interference with
communications services. The second, the Illinois Con-
sumer Fraud Act, is a broader statute targeting
fraud against consumers. The third, the Illinois Uniform
Deceptive Trade Practices Act, deals with trademark
infringement and passing-off. The preliminary injunction
order relied on RMG’s Illinois Cable Piracy Act claim
alone. The district court found it “unnecessary to
consider whether RMG could also prevail under the ICFA
or the IUDTPA.” If the defendants had raised their copy-
right preemption defense before the district court issued
its injunction, the court might have found that the
Nos. 09-1554 & 09-2903 11
defense applied and in that case could and would have
gone on to consider the claims under the other two stat-
utes. One of those claims, in turn, could well have been
the basis for a valid injunction even if the copyright
preemption defense has merit.3
The defendants did not raise the preemption defense
until after they had appealed the preliminary injunction,
and the district court has rightly refused to consider
modifying or vacating the injunction while it is pending
on appeal. It is not appropriate for this court to overturn
an injunction on the basis of a defense that the district
court had no opportunity to consider.
3
Even in the absence of a statutory claim, the common law of
tortious interference with business relationships may also
offer relief where one competitor breaks the law (as by stealing
the merchandise or pirating the programming) to enable it to
induce customers to shift their business from a legitimate
business. See Restatement (Second) of Torts § 766B (1979) (for
actor to be held liable, he must interfere “improperly”); § 767,
comment c (use of “wrongful means,” including fraudulent
misrepresentation, may be critical to tort claim), and § 768 and
comment e (in case of alleged interference by competitor,
whether the competitor employs “wrongful means” such as
fraudulent misrepresentation is critical to tort issue); see
generally Dowd & Dowd, Ltd. v. Gleason, 693 N.E.2d 358, 371 (Ill.
1998) (noting that plaintiff alleging tortious inducement of client
to terminate business relationship must show that defendant
“has committed some impropriety in doing so”); La Rocco v.
Bakwin, 439 N.E.2d 537, 542-43 (Ill. App. 1982) (Reinhard, J.)
(reversing summary judgment for defendant and citing
relevant Restatement sections).
12 Nos. 09-1554 & 09-2903
We express no opinion on whether the preemption
defense is preserved for further proceedings in the
district court. We have treated federal preemption as an
affirmative defense upon which the defendant bears the
burden of proof, Village of DePue v. Exxon Mobil Corp.,
537 F.3d 775, 786 (7th Cir. 2008), and presumably the
burden of persuasion, even if no additional facts must
be proven and the issue is only a question of law. Affirma-
tive defenses “must ordinarily be included in the defen-
dant’s answer, but ‘a delay in asserting an affirmative
defense waives the defense only if the plaintiff was
harmed as a result.’ ” Best v. City of Portland, 554 F.3d 698,
700 (7th Cir. 2009), quoting Curtis v. Timberlake, 436 F.3d
709, 711 (7th Cir. 2005). We leave it to the district court
to decide whether the defendants have permanently
waived the preemption defense by not raising it until
after the preliminary injunction was issued.
IV. RMG’s Status as an “Aggrieved Party”
Attacking the injunction from a third direction, the
defendants argue that RMG failed to prove that it is an
“aggrieved party” under the Illinois Cable Piracy Act and
therefore should be unable to sue under that statute. The
defendants’ objections are essentially evidentiary. They
contend that RMG deliberately falsified some business
forms that reported why subscribers ended their relation-
ship with RMG to make it look as if those subscribers
left RMG because of defendants’ misconduct. The
district court, they argue, improperly admitted and
relied on this evidence in concluding that RMG had lost
Nos. 09-1554 & 09-2903 13
business because of the defendants’ unfair competition,
then compounded this error by not giving the defendants
sufficient opportunity to challenge that evidence. These
objections are without merit.
The forms that RMG supposedly took pains to falsify
were introduced into evidence not by RMG but by the
defendants themselves. RMG had produced them in
discovery for the preliminary injunction hearing and even
included a few of the forms in its binder of potential
exhibits for the hearing, but RMG did not move for
their admission or question any witness about them
until after defendants offered them.
The defendants suggest in response that other evi-
dence—documents summarizing RMG’s lost business
and the testimony of an RMG witness—was tainted
because it was based on the allegedly falsified forms. But
even if there were some danger of deception in RMG’s
evidence, the district judge was aware of that possibility.
From the beginning of the preliminary injunction
hearing, he said he was open to evidence of “deceptive
practice.” Judge Darrah further made clear that if the
defendants could show that the disconnect forms had
been falsified, he would “entertain a motion to strike
any evidence that’s derivative of these documents.”
The defendants introduced the forms into evidence
and pointed out the discrepancies between the two
copies, but they did not move to strike. RMG, meanwhile,
elicited from its witness a plausible and uncontradicted
explanation for the discrepancy: RMG’s Chicago office
had followed up with former subscribers after mailing
14 Nos. 09-1554 & 09-2903
originals of the disconnect forms to its home office, so
that only the Chicago office’s copies had the additional
information obtained by telephone indicating that the
subscribers had left RMG for Cable America.
Moreover, RMG introduced a great deal of other evi-
dence that defendants’ misconduct had hurt RMG’s
business. That evidence included summaries of the
large numbers of lost subscribers based on the original
disconnect forms, testimony that building owners had
completely excluded RMG from their buildings after
Cable America’s arrival, and circumstantial evidence of
causation based on the timing of RMG’s lost subscrip-
tions. Given the abundance of independent evidence
sustaining RMG’s claim, the district judge did not abuse
his discretion by cutting off further challenges to the
disconnect forms offered by defendants themselves.
V. Res Judicata or Claim Preclusion
The defendants also contend that this entire lawsuit is
barred by the doctrine of claim preclusion or res judicata
because of a 2001 settlement between the parties in an
Illinois state court. This diversity suit is barred only if it
would be barred under Illinois law. See 28 U.S.C. § 1738;
Marrese v. American Academy of Orthopaedic Surgeons, 470
U.S. 373, 380 (1985). In general, the doctrine of claim
preclusion or res judicata bars a party from asserting a
claim that has already been resolved in another
lawsuit between the same parties or those in privity
with them, and the doctrine reaches both claims that
were actually asserted in an earlier lawsuit and those
Nos. 09-1554 & 09-2903 15
that could have been asserted but were not. See Aaron v.
Mahl, 550 F.3d 659, 664 (7th Cir. 2008); Highway J
Citizens Group v. United States Department of Transporta-
tion, 456 F.3d 734, 741 (7th Cir. 2006).
In Illinois, res judicata applies if two claims “arise from
a single group of operative facts, regardless of whether
they assert different theories of relief.” River Park, Inc. v.
City of Highland Park, 703 N.E.2d 883, 893 (Ill. 1998). That
test is not met here because the claims resolved in the
2001 suit arose from a set of operative facts different
from those that support the claims in this suit. The
district court properly rejected the res judicata defense.
In 2001, RMG sued Cable America in Illinois state court
for misuse and damage of RMG’s equipment and for
pirating Russian-language programming owned by TV
Russian Network (TVR). That lawsuit was settled on
July 31, 2001, with the court retaining jurisdiction to
enforce the agreement.
Separately, at some point before RMG filed this suit on
June 30, 2006, defendant Harmelech and his companies
began pirating Russian-language programming from
DIRECTV and DishNetwork. This new scheme involved
some but not all of the buildings covered by the 2001
settlement.
The defendants cannot fit their theft of TVR’s program-
ming in 2001 and their theft of DIRECTV’s and
DishNetwork’s programming in 2006 into one set of
operative facts. Certainly there are similarities in terms
of modus operandi and the identity of the competitor-
victim. But the defendants’ argument is akin to saying
16 Nos. 09-1554 & 09-2903
that the theft of a victim’s car in 2001 and theft of the
same victim’s car in 2006 constitute only one set of opera-
tive facts, so that a lawsuit based on the earlier theft
would bar one based on the latter. Res judicata does not
preclude a suit arising from a completely different event,
no matter how similar the defendant’s misconduct. See
D’Last Corp. v. Ugent, 681 N.E.2d 12, 17 (Ill. App. 1997)
(“The doctrine of res judicata does not bar claims for
continuing conduct complained of in the second lawsuit
that occur after judgment has been entered in the first
lawsuit.”), citing Lawlor v. National Screen Service Corp.,
349 U.S. 322 (1955). In this suit, plaintiff RMG alleged
and proved events that had not yet occurred at the time
of the 2001 suit and violations of a statute that did not
even exist at the time of the 2001 suit. See City of
Chicago v. Midland Smelting Co., 896 N.E.2d 364, 379 (Ill.
App. 2008) (res judicata did not apply when second
suit was brought pursuant to an ordinance that did not
exist at the time of the first suit).
VI. Contempt
Defendants have also asked us to vacate the district
court’s finding of contempt, though the district court has
not yet imposed the specific sanctions that would be
needed to give us appellate jurisdiction over the con-
tempt finding. See United States v. Torres, 142 F.3d 962, 970
(7th Cir. 1998) (civil contempt order to pay a sum that had
not yet been determined by district court was not
appealable). Because we uphold the injunction, we
do not reach the validity of the contempt order. In
Nos. 09-1554 & 09-2903 17
future proceedings, the district court should not hesitate
to take the steps needed to ensure compliance with its
orders.
The orders of the district court in both appeals are
A FFIRMED.
3-10-10