Neil Stokes v. DISH Network, L.L.C

United States Court of Appeals
For the Eighth Circuit
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No. 15-2901
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Neil Stokes; Craig Felzien
lllllllllllllllllllll Plaintiffs - Appellees
v.
DISH Network, L.L.C.
lllllllllllllllllllll Defendant - Appellant
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Appeal from United States District Court
for the Western District of Missouri - Jefferson City
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Submitted: April 14, 2016
Filed: October 4, 2016
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Before LOKEN, BEAM, and SMITH, Circuit Judges.
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LOKEN, Circuit Judge.
DISH Network, L.L.C. (“DISH”), is a Colorado corporation that sells satellite
television access packages nationwide. DISH’s “carriage” agreement with Turner
Network Sales, Inc., expired on October 21, 2014, and was not renewed until
November 20, 2014. DISH’s carriage agreement with FOX News Network L.L.C.
expired on December 21, 2014, and was not renewed until January 15, 2015. DISH
subscribers who had selected programming packages that included popular Turner
and FOX News channels did not have access to those channels during these
interruptions. Though DISH continued to provide hundreds of other channels, it did
not provide complaining subscribers any form of monetary relief for the Turner and
FOX News interruptions.
Neil Stokes and Craig Felzien, DISH subscribers since 2008 and 2000,
respectively, commenced this action on behalf of themselves and a putative
nationwide class of DISH subscribers (collectively, “Plaintiffs”) seeking monetary
relief for the Turner and FOX News services interruptions. Applying Colorado law,
as the DISH Subscription Agreements expressly provide, the district court denied
DISH’s motion to dismiss Plaintiffs’ claims for breach of contract and breach of the
covenant of good faith and fair dealing. The court certified two questions for
immediate interlocutory appeal under 28 U.S.C. § 1292(b).1 We granted a timely
request to appeal the certified questions and now review de novo the district court’s
interpretation of the Subscription Agreements under Colorado law, Matrix Grp. Ltd.
v. Rawlings Sporting Goods Co., 477 F.3d 583, 590 (8th Cir. 2007), and the court’s
denial of DISH’s motion to dismiss these claims for failure to state a claim upon
which relief can be granted, Prescott v. Little Six, Inc., 387 F.3d 753, 756 (8th Cir.
2004), cert. denied, 544 U.S. 1032 (2005). We answer each certified question in the
negative, reverse the district court’s order denying DISH’s motion to dismiss, and
remand for further proceedings not inconsistent with this opinion.
I. Relevant Contract Terms.
Plaintiffs subscribed to specific DISH access packages, paying in advance.
They received Subscription Agreements after DISH installed satellite equipment in
1
Pending this appeal, the district court stayed this case and a case presenting
similar issues, Padberg v. DISH Network LLC, 11-04035-CV, 2012 WL 2120765
(W.D. Mo. June 11, 2012).
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their homes, comprised of a Digital Home Advantage Plan Agreement (“Plan
Agreement”) and a Residential Customer Agreement (“RCA”). The certified
questions on appeal turn on the following contract provisions. The Plan Agreement
provides in relevant part:
BY SIGNING BELOW YOU ACKNOWLEDGE AND AGREE THAT
YOU HAVE RECEIVED, READ, UNDERSTAND, AND AGREE TO
BE BOUND BY ALL OF THE TERMS AND CONDITIONS OF THIS
AGREEMENT, INCLUDING . . . THE RESIDENTIAL CUSTOMER
AGREEMENT . . . AND THAT THE FOLLOWING TERMS WERE
DISCLOSED TO YOU PRIOR TO LEASE:
...
WE RESERVE THE RIGHT TO CHANGE PRICES, PACKAGES,
AND PROGRAMMING AT ANY TIME, INCLUDING WITHOUT
LIMITATION, DURING ANY TERM AGREEMENT PERIOD TO
WHICH YOU HAVE AGREED.
The RCA provides in relevant part:
1. THE DISH NETWORK SERVICE
...
I. Changes in Services Offered. We may add, delete, rearrange and/or
change any and all programming, programming packages and other
Services that we offer, as well as the prices and fees related to such
programming, programming packages and Services, at any time,
including . . . during any term commitment period to which you have
agreed. If a change affects you, we will notify you of such change and
its effective date. In the event that we delete, rearrange or change any
programming, programming packages or other Services, we have no
obligation to replace or supplement such programming, programming
packages or other Services. You are not entitled to any refund because
of deletion, rearrangement or change of any programming, programming
packages or other Services.
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7. LIMITATION OF OUR LIABILITY
A. INTERRUPTIONS AND DELAYS. NEITHER WE NOR OUR
THIRD-PARTY BILLING AGENTS . . . WILL BE LIABLE FOR ANY
INTERRUPTION IN ANY SERVICE OR FOR ANY DELAY OR
FAILURE TO PERFORM, INCLUDING WITHOUT LIMITATION:
IF SUCH INTERRUPTION, DELAY OR FAILURE TO PERFORM
ARISES IN CONNECTION WITH THE TERMINATION OR
SUSPENSION OF DISH NETWORK’S ACCESS TO ALL OR ANY
PORTION OF SERVICES; THE RELOCATION OF ALL OR ANY
PORTION OF THE SERVICES TO DIFFERENT SATELLITE(S); A
CHANGE IN THE FEATURES AVAILABLE WITH YOUR
EQUIPMENT; ANY SOFTWARE OR OTHER DOWNLOADS
INITIATED BY US; OR ANY ACTS OF GOD, FIRES,
EARTHQUAKES, FLOODS, POWER OR TECHNICAL FAILURE,
SATELLITE OR UPLINK FAILURE, ACTS OF ANY
GOVERNMENTAL BODY OR ANY OTHER CAUSE BEYOND OUR
REASONABLE CONTROL.
II. The First Certified Question.
1. Under Colorado law, is the Subscription Agreement between Stokes and
DISH, which is comprised of both a Digital Home Advantage Plan Agreement
and a Residential Customer Agreement, illusory?
In our view, this issue is a classic red herring.2 The phrase “illusory promise”
means “words in promissory form that promise nothing.” 2 Corbin on Contracts
§ 5.28, at 142 (rev. ed. 1995). In most cases, the purported contract fails for lack of
consideration because, “[w]here the apparent assurance of performance is illusory,
it is not consideration for a return promise.” Restatement (Second) of Contracts § 77
2
Defined in Webster’s Third New International Dictionary as “a diversion
intended to distract attention from the real issue.”
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cmt. a. For example, in Bernhardt v. Hemphill, 878 P.2d 107, 111 (Colo. App. 1994),
plaintiffs entered into time-share contracts with a motel they owned and operated; the
court concluded that “the contracts were wholly illusory” because “no rights were
created that the plaintiffs did not already possess.”
In this case, the district court concluded that, if the Subscription Agreements
provided “that DISH cannot be held liable for any interruption or delay of any or all
programs for any period of time . . . such an interpretation would of course render the
contract illusory.” We disagree. An illusory contract is unenforceable from its
inception. Here, the Subscription Agreement between Stokes and DISH had been in
effect for years when the Turner and FOX News service interruptions occurred. Both
parties had provided substantial performance of their respective contractual promises,
and DISH continued to provide many uninterrupted channels to its subscribers.
Under Colorado law, a contract is not illusory for lack of consideration where a party
with seemingly unlimited discretion in performing has at least partially performed and
thereby “incurred a sufficient detriment to provide consideration.” O’Hara Grp.
Denver, Ltd. v. Marcor Housing Sys., Inc., 595 P.2d 679, 683-84 (Colo. 1979); see
United Press Int’l, Inc. v. Sentinel Publ’g Co., 441 P.2d 316, 318-19 (Colo. 1968).
The answer to the first certified question is no.
III. The Second Certified Question.
2. Under Colorado Law, if the Subscription Agreement between Stokes and
DISH, which is comprised of both a Digital Home Advantage Plan Agreement
and a Residential Customer Agreement, is not illusory, may, in light of the
express terms of the Subscription Agreement, the duty of good faith and fair
dealing be applied to require DISH to provide any monetary relief when it
deletes or changes programming for which subscribers have already paid?
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Under Colorado law, all contracts are subject to an implied duty of good faith
and fair dealing, as DISH concedes on appeal. The Plan Agreement, and Section 1.I.
of the RCA, entitled “Changes in Services Offered,” granted DISH discretion to
change “programming, programming packages and other Services that we offer, as
well as the prices and fees related to such . . . Services, at any time.” Under Colorado
law (as elsewhere), the “implied duty of good faith and fair dealing ‘requires that a
party vested with contractual discretion exercise that discretion reasonably.’” Bloom
v. Nat’l Collegiate Ass’n, 93 P.3d 621, 624 (Colo. App. 2004). As the Colorado
Supreme Court has explained:
The good faith performance doctrine is generally used to
effectuate the intentions of the parties or to honor their reasonable
expectations. Good faith performance of a contract involves faithfulness
to an agreed common purpose and consistency with the justified
expectations of the other party. . . . [A]dherence to this principle
promotes the central policy underlying contract law, that of construing
contracts so as to effectuate the parties’ intentions.
The duty of good faith and fair dealing applies when one party has
discretionary authority to determine certain terms of the contract, such
as quantity, price, or time. The covenant may be relied upon only when
the manner of performance under a specific contract term allows for
discretion on the part of either party. However, it will not contradict
terms or conditions for which a party has bargained.
Amoco Oil Co. v. Ervin, 908 P.2d 493, 498 (Colo. 1995) (quotations omitted).
The duty of good faith and fair dealing “will not contradict terms or conditions
for which a party has bargained.” Id. The duty “does not obligate a party . . . to
assume obligations that vary or contradict the contract’s express provisions, nor does
it permit a party to inject substantive terms into the contract.” ADT Sec. Servs., Inc.
v. Premier Home Prot., Inc., 181 P.3d 288, 293 (Colo. App. 2007). Rather, “the
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doctrine of good faith performance is a means of finding within a contract an implied
obligation not to engage in the particular form of conduct which, in the case at hand,
constitutes ‘bad faith.’” Tymshare, Inc. v. Covell, 727 F.2d 1145, 1152 (D.C. Cir.
1984). The covenant is not about establishing new, independent rights or duties; it
is about “securing to the parties the sort of good faith performance that . . . they
reasonably thought they were securing at the time they entered the bargain.” Flood
v. Clearone Commc’ns, Inc., 618 F.3d 1110, 1122 (10th Cir. 2010); see Tymshare,
727 F.2d at 1153-54.
Count II of Plaintiffs’ First Amended Complaint pleaded a claim for breach of
the covenant of good faith and fair dealing. But Plaintiffs did not allege that DISH
interrupted their access to Turner and FOX News channels in bad faith. They instead
alleged that DISH breached its duty of good faith and fair dealing “by unfairly
charging and collecting monies . . . for satellite television programming that DISH did
not provide . . . without providing a credit or other monetary relief . . . for the failure
to provide the programming.” Consistent with the contractual claims as pleaded, the
district court in denying DISH’s motion to dismiss concluded that “[t]he operative
question is whether it was reasonable for DISH to stop providing Turner and FOX
News Programming, keep the payments it would have been paying previously to the
providers for those channels, and provide no recompense to its customers.”
DISH argues that the covenant of good faith and fair dealing, while applicable
to its Subscription Agreement, cannot support Plaintiffs’ claim for monetary relief for
the two programming interruptions, because the Subscription Agreement expressly
provides that customers are not entitled to monetary relief for interruptions and
performance delays resulting from the loss of DISH’s access to the programming
services it provides. We agree, and therefore answer this second question in the
negative. The covenant “will not contradict terms or conditions for which a party has
bargained.” Amoco, 908 P.2d at 498. Therefore, DISH’s duty to exercise its
discretion to change programming in good faith cannot be the legal basis for a claim
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to monetary relief that is precluded by unambiguous terms of the Subscription
Agreement. In applying the covenant to specific contractual relationships, courts
must “take care to ensure that we don’t use the covenant as another means for
substituting a different deal from the one the parties contemplated.” Flood, 618 F.3d
at 1121. The Supreme Court of Colorado has repeatedly recognized this principle.
“It is axiomatic that in construing a document courts should not rewrite the provisions
of an unambiguous document, but must enforce an unambiguous contract in
accordance with the plain and ordinary meaning of its terms.” USI Props. E., Inc. v.
Simpson, 938 P.2d 168, 173 (Colo. 1997).
Section 1.I. of the RCA provides that subscribers “are not entitled to any refund
because of a deletion . . . or change of any programming, programming packages or
other Services.” Section 7.A. unequivocally provides that DISH “will [not] be liable
for any interruption in any service or for any delay or failure to perform . . . without
limitation.” The district court cited various textual reasons why it declined to
construe these provisions in accordance with their plain meaning. First, the court
limited Section 7.A. to interruptions, delays, and failures that are “beyond [DISH’s]
reasonable control.” This interpretation ignored the use of semicolons in Section 7A,
which serve to signify that modifying phrases in one clause do not apply to other
clauses. See Greater E. Transp. LLC v. Waste Mgmt. of Conn., Inc., 211 F. Supp. 2d
499, 504 (S.D.N.Y. 2002). Giving effect to the provision’s punctuation, the phrase
“beyond our reasonable control” applies only to the final force majeure clause, which
disclaims liability for “any acts of god, fires, earthquakes, floods, power or technical
failure, satellite or uplink failure, acts of any governmental body or any other cause
beyond our reasonable control.” For service interruptions and delays that may occur
for many other reasons, and may entail loss of service ranging from momentary to
extensive, Section 7.A. precludes monetary liability “without limitation.”
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The district court further reasoned that, if Section 7.A. were to disclaim
monetary liability for all failures to perform, consistent with its plain meaning, then
Section 7.F. of the RCA would be meaningless surplusage. Section 7.F. provides:
F. DAMAGES LIMITATION. NEITHER WE NOR OUR THIRD-
PARTY BILLING AGENTS . . . SHALL HAVE ANY LIABILITY
WHATSOEVER FOR ANY SPECIAL, INDIRECT, INCIDENTAL OR
CONSEQUENTIAL DAMAGES ARISING OUT OF OR RELATING
TO: DISH NETWORK EQUIPMENT OR ANY OTHER EQUIPMENT;
OUR FURNISHING OR FAILURE TO FURNISH ANY SERVICES
OR EQUIPMENT TO YOU; OR ANY FAULT, FAILURE,
DEFICIENCY OR DEFECT IN SERVICES OR EQUIPMENT
FURNISHED TO YOU.
This section disclaims liability for consequential damages arising out of equipment
failures and service deficiencies, whereas Section 7.A. disclaims liability for an
“interruption in any Service or for any delay or failure to perform” in connection with
problems such as loss of access to programming, relocation of services to different
satellites, and software downloads. The difference in the disclaimers is not
surprising. For example, if a satellite dish becomes detached from a subscriber’s
home, falls, and damages the subscriber’s property, Section 7.F. disclaims “any
special, indirect, incidental or consequential damages” caused by “DISH Network’s
equipment” (i.e., the satellite dish). Section 7.A. does not apply because it is limited
to interruptions, delays, and failures to perform relating to “Services.”3 Thus, giving
effect to Section 7.A.’s plain meaning does not render Section 7.F. meaningless.
3
Section 1.A. of the RCA states: “Services Defined. ‘Services’ shall mean all
video, audio, data, interactive and other programming services and all other services
that are currently available from DISH Network (whether subscription, pay-per-view
or otherwise) and that we may provide to customers in the future.”
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Section 1.I. of the RCA states that a subscriber is “not entitled to any refund
because of a deletion, rearrangement or change of any programming, programming
packages or other Services.” The district court declined to interpret this provision
in accordance with its plain meaning by drawing a distinction between a “refund” and
a “credit.” Noting that Section 3.D. of the RCA prohibits both credits and refunds,
the court concluded that Section 1.I. allows for monetary relief in the form of a credit
for service interruptions because Section 1.I. explicitly prohibits only refunds. We
disagree. Section 3 of the RCA contains multiple provisions dealing with
Cancellation of Service. Sections 3.A.-C. provide that a customer’s subscription will
continue until the customer cancels or DISH disconnects Services; that the customer
may cancel at any time, but some plans include early termination or cancellation fees;
and the circumstances that permit DISH to disconnect Services. Section 3.D. then
provides that, if Services are cancelled or disconnected for any reason, “charges for
Services, once charged to your account, are non-refundable, and no refunds or credits
will be provided in connection with the cancellation of Services.” The addition of a
reference to “credits” in the context of Section 3 is understandable. It in no way
suggests that the language in Section 1.I -- “You are not entitled to any refund” --
intended anything less than the total preclusion of monetary relief for Services
interruptions, as the total disclaimer of liability in Section 7.A. confirms.
We conclude that the district court’s interpretation of Section 1.I. and Section
7.A. of the RCA improperly converted the covenant of good faith and fair dealing
into an additional contract term. It allowed Plaintiffs to recover monetary relief for
Services interruptions, a remedy that is unambiguously precluded by the express
terms of the parties’ contractual bargain. Accordingly, the answer to the second
certified question is no. As pleaded, Plaintiffs’ claims for class-wide monetary relief
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in this case and in the related case of Padberg v. DISH Network LLC failed to state
a claim upon which relief can be granted. Our jurisdiction over this interlocutory
appeal extends no further.
The order of the district court dated July 15, 2015 is reversed and the case is
remanded for further proceedings not inconsistent with this opinion.
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