USA Cable vs WWE, Viacom, CBS Corporation

8/19/2019 USA Cable vs WWE, Viacom, CBS Corporation

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Document Links:

Start of DocumentSUBSEQUENT HISTOR Y:

DISPOSITION:

CASE SUMMAR Y

PROCEDURAL POSTURE:

OVERVIEW:

OUTCOME:

CORE TERMS:

LexisNexis® Headnotes

COUNSEL:

JUDGES:

OPINION B Y:

OPINION

USA C ABLE, Plaintiff , v. WORLD WRESTLING FEDER ATION ENTERT AINMENT, INC., VI ACOM INC., and CBS CORPOR ATION, Def endants.

Civil Action No. 17983

COURT OF CH ANCERY OF DEL AW ARE, NEW C ASTLE

2000 Del. Ch. LEXIS 87

June 22, 2000, SubmittedJune 27, 2000, Decided

SUBSEQUENT HISTOR Y: [*1] As Amended July 3, 2000. Released f or Publication by the Court July 3, 2000.

DISPOSITION: Judgment entered in favor of def endants and against plaintiff .

CASE SUMMAR Y

SHEP ARD'S® 2000 Del . Ch. LE X IS 8 7 , *

PROCEDURAL POSTURE: Plaintiff cable TV network brought an action to enforce

specifically a "matched" contract that plaintiff contended it had entered into with

defendant integrated media and entertainment company in exercise of a right of first

refusal in their existing programming licensing contracts, and to enjoin

consummation of an agreement between the defendant integrated media and

entertainment company and the defendant diversified entertainment business.

OVERVIEW: Defendant integrated media and entertainment company produced four highly

successful program series which plaintiff cable TV network distributed under

programming licensing contracts. The contracts contained a right of first refusal

granting plaintiff the right to match the offer that defendant had received from

defendant integrated media and entertainment company with respect to those series.

The agreement between defendants contained matters unrelated to the series.

Plaintiff sought to enforce specifically a "matched" contract that plaintiff

contended it had entered into in exercise of the right of first refusal and to

enjoin consummation of the agreement between the defendants. The court declined to

specifically enforce the "matched" contract or to enjoin consummation of defendants'agreement. The right of first refusal was enforceable and not waived. The right of

first refusal scope was limited to "any and all of the four series." Although

plaintiff did not have to accept the matters unrelated to those series, it did not

unconditionally accept all matters within the scope, omitting territorial rights,

choice of law and forum, cross-promotion, and program preemption terms.

OUTCOME: The court declined to specifically enforce the "matched" contract or to

enjoin consummation of defendants' agreement. The right of first refusal was

enforceable and not waived. The right of first refusal scope was limited to "any and

all of the four series." Plaintiff, however, did not unconditionally accept all



CORE TERMS: match, sub ject matter, negotiation, television, networ k, progr amming, str ategic, license, cable, alliance,wrestling, broadcast, ter mination, preemption, licensing, distribute, holder, media, r adio, contr act language, material ter ms,regularly scheduled, territory, matching, package deal, notice, tendered, sentence, package, unconditionally

LexisNexis ® Headnotes Hide Headnotes

Contr acts Law > Contr act Interpretation > Gener al Overview



Contr acts Law > For mation > Rights of First Ref usalReal Property Law > Ownership & Tr ansf er > Gener al Overview Real Property Law > Purchase & Sale > Option Contr acts > Gener al Overview

Contr acts Law > For mation > Rights of First Ref usal

Contr acts Law > For mation > Rights of First Ref usalReal Property Law > Purchase & Sale > Option Contr acts > Gener al Overview


matters within the scope, omitting territorial rights, choice of law and forum,

cross-promotion, and program preemption terms.

HN1The primary rule of contract analysis is that the interpretation of a written

agreement begins with examination of its language. The law of New York and the

law of Delaware are in accord with this rule. New York law states that it is a

fundamental premise of contract law that contracts should be enforced in

accordance with their terms. Delaware law states that the attempt to define the

legal meaning and effect of a contractual document must start in each instance

with the language used in the contract itself.

HN2Language in a vacuum may take on any number of meanings. A court can more

readily assign contract language its intended meaning if it reads the language

at issue within the context of the agreement in which it is located.

Accordingly, while the canons of contract interpretation instruct anexamination of the explicit contract language in order to determine the

clause's meaning, one must simultaneously read that language within the context

of the contract surrounding that language in order to best elicit the most

appropriate meaning.

HN3A New York court recently observes that it has long been the rule that a

contract must be read as a whole in order to determine its purpose and intent,

and single clauses cannot be construed by taking them out of their context and

giving them an interpretation apart from the contract of which they are a part.

Words considered in isolation may have many and diverse meanings. In a written

document the word obtains its meaning from the sentence, the sentence from the

paragraph and the latter from the whole document.

HN4New York courts construing right of first refusal clauses have uniformly held

that a property owner cannot compel the holder of a right of first refusal to

one property to match the terms of a package deal encompassing extraneous

properties.

HN5 The holder of a first refusal right relating to a software product cannot be

forced to match the terms of a third-party offer for substantially all of the

seller's assets, including the software product.

HN 6A lessee of a car wash, with a right of first refusal, cannot be forced to

match the terms of a third-party offer to buy property including the car wash

and a neighboring gas station.

HN7 A lessee of movie theater with right of first refusal cannot be forced to match

terms of third party's offer to buy from lessor a larger parcel including the

theater.











Contr acts Law > For mation > Acceptance > Gener al Overview Contr acts Law > For mation > Rights of First Ref usal

Civil Procedure > Venue > Gener al Overview Contr acts Law > Contr act Conditions & Provisions > Forum Selection Clauses

Contr acts Law > For mation > Acceptance > Gener al Overview



HN8A lessee and holder of option to buy leased premises cannot be forced to match

terms of third-party offer to buy larger parcel including the leased premises.

HN9The right which plaintiff enjoys by virtue of the first refusal clause cannot

be rendered nugatory by the device of attaching additional land to the leased

premises and finding a buyer for the entire parcel.

HN10A lessee of restaurant with right of first refusal cannot be forced to match

terms of third-party offer to buy building complex including the restaurant.

HN11In New York a right of first refusal regarding intellectual property prohibits

the use of a package deal.

HN12New York courts recognize that rights of first refusal are a common and

essential element of television programming contracts.

HN13Courts reject the argument that the prohibition against the use of "package

deals" to defeat a right of first refusal should be limited to the real estate

context.

HN14While a right of first refusal customarily, but not exclusively, arises in

real property transactions the subject matter may be anything which the

parties may make the subject of a contract.

HN15 Business exigencies and changed circumstances are not a proper basis for a

court to rewrite the parties' contract.

HN16The offeree's intention to accept is unimportant except insofar as it is

overtly manifested. Under New York law, a party's manifestations of intent are

viewed from the vantage point of a reasonable person in the position of the

other party. In determining whether such manifestations constitute acceptance,

disproportionate emphasis must not be put on any single act, phrase or

provision. Rather, the court must consider the totality of all these, in light

of the attendant circumstances, the situation of the parties, and the

objectives they were striving to obtain.

HN17 New York law holds that injection of a forum selection clause into a proposed

contract is a material alteration of the contract.

HN18New York law teaches that overt manifestations of intent are what counts for

contract acceptance, not a party's (or its counsel's) self-serving statements

of future intention.

There is a fundamental principle that a right of first refusal holder may not






Contr acts Law > For mation > Rights of First Ref usalContr acts Law > Remedies > Specif ic Per f or mance

COUNSEL: David C. McBride, Bruce L. Silverstein, and Danielle Gibbs, of YOUNG, CON AW AY, ST ARG ATT & T AYLOR LLP,Wilmington, Delaware; OF COUNSEL: Herbert M. Wachtell, Marc Wolinsky, Geor ge T. Conway III, Elaine P. Golin, and Jed I.Ber gman, of W ACHTELL, LIPTON, ROSEN & K ATZ, New Yor k, New Yor k, Attorneys f or Plaintiff .

Robert K. Payson and Arthur L. Dent, of POTTER, ANDERSON & CORROON LLP, Wilmington, Delaware; OF COUNSEL:Jerry S. McDevitt, Terry Budd, Jason L. Richey, and Curtis B. Kr asik, of KIRKP ATRICK & LOCKH ART LLP, Pittsbur gh,Pennsylvania, Attorneys f or Def endant World Wrestling Feder ation Entertainment, Inc.

A. Gilchrist Spar ks, III, of MORRIS, NICHOLS, ARSHT & TUNNELL, Wilmington, Delaware; OF COUNSEL: Richard B.Kendall, of IRELL & M ANELL A LLP, Los Angeles, Calif ornia, Attorneys f or Def endants Viacom Inc. and CBS Corpor ation.

JUDGES: CH ANDLER, Chancellor.

OPINION B Y: CH ANDLER

OPINION

MEMORANDUM OPINION

CH ANDLER, Chancellor

This lawsuit involves a dispute over the meaning of rights of f irst ref usal clauses in contr acts between plaintiff USA Cable

("USA") [*2] and def endant World Wrestling Feder ation Entertainment, Inc. ("WWFE"). As more f ully described below, theseclauses, which have been in every contr act between the parties since 1983, gr ant to USA the right to match the elements of a third-party off er that are "with respect to" certain wrestling based progr ams televised on USA's cable networ k and the sub ject of certain licensing agreements between USA and WWFE. Upon ter mination of the contr act between WWFE and USA, WWFEmay negotiate and receive off ers f rom third parties f or the wrestling progr ams. WWFE cannot accept such a third-party off er,however, without f irst providing USA with the opportunity to accept the ter ms of the third-party off er, pursuant to USA's f irstref usal right.

When WWFE inf or med USA that it intended to accept a third-party off er f rom def endants Viacom, Inc. and CBS Corpor ation,USA responded by trying to match Viacom's off er. Simultaneously, USA brought this action to en join consummation of theViacom-WWFE agreement and to enf orce specif ically the "matched" contr act that USA contends it has entered into withWWFE.

HN19defend a refusal to match a term in the third party's offer on the ground that

the third party "didn't mean it."

HN20In all non-Uniform Commercial Code transactions New York follows the rule that

a qualified acceptance is nothing more than a counteroffer. Indeed, whenever a

purported acceptance is even slightly at variance with the terms of an offer,

the qualified response operates as a rejection and termination of and

substitution for the initially offered terms.

HN21New York law holds that to conclude an agreement, the acceptance must meet and

correspond with the offer in every respect, neither falling short of nor going

beyond the terms proposed, but meeting them exactly at all points and closing

them just as they stand.

HN22Some authorities hold that the holder of a contractual right of first refusal

has an affirmative legal obligation to undertake a reasonable investigation of

any terms or conditions of the third party offer that are unclear to the

holder.

HN23The holder of a contractual right of first refusal clearly has the right and

the opportunity to secure interpretive assistance from the courts before,

rather than after, it responds to an offer from a third-party offeror.



USA commenced this action on April 12, 2000, and the parties engaged in expedited discovery. The [*3] Court held a f our-daytrial (f rom June 12-15), the parties submitted post-trial brief s on June 21 and presented closing ar guments on June 22. This isthe Court's decision on the merits.

For the reasons I set f orth more f ully below, I conclude that the rights of f irst ref usal clauses in dispute in this caseunambiguously gr anted to USA the right to match any bona f ide third-party off er that related to the sub ject matter of the USA-WWFE agreements--namely the licensing rights to distribute certain television progr ams WWFE produces. Nevertheless,because USA failed to match certain material ter ms of Viacom's off er within the actual scope of the right of f irst ref usal, USA'sresponse did not qualif y as a legally eff ective acceptance. Having failed to match properly the tendered Viacom off er, nocontr act has been f or med between USA and WWFE. As a result, I deny USA's request f or an in junction against the Viacom-WWFE agreement. Similarly, I deny USA's request f or specif ic per f or mance of its own failed eff ort to match that agreement.

I. FACTUAL BACKGROUND

A. T he Par t ies

USA, a New Yor k partnership with its principal place of business in New Yor k, is a subsidiary of USA Networ ks [*4] Inc., a Delaware corpor ation. USA oper ates two domestic advertiser-supported 24-hour cable-television networ ks, USA Networ k andSci-Fi Channel. USA Networ k reaches between 76 and 77 million households in the United States. USA Networ k is thenumber-one-r ated basic cable television service in prime time, an achievement attributable in signif icant part to the popularityof the WWFE progr amming that it carries.

WWFE, f or merly known as Titan Sports, Inc., is a Delaware corpor ation with its principal place of business in Stamf ord,Connecticut. WWFE is an integr ated media and entertainment company, principally engaged in the development, productionand mar keting of television progr amming, pay-per-view progr amming and live events, and the licensing and sale of br anded

consumer products f eaturing its highly successf ul "World Wrestling Feder ation" br and.

Viacom, a Delaware corpor ation with its principal place of business in New Yor k, is a diversif ied entertainment business that,among other things, owns the Par amount Pictures movie studio, the "MTV: Music Television" cable television networ k, the UPNbroadcast television networ k, theme par ks, the Simon & Schuster publishing house, and Famous [*5] Players theatres inCanada.

At the time this action was f iled, CBS was a Pennsylvania corpor ation with its principal place of business in New Yor k. Among other things, CBS owned the CBS television broadcast networ k, TNN (a cable television networ k f eaturing country lif estyle andentertainment progr amming), and Inf inity Broadcasting. In September 1999, CBS entered into a mer ger agreement withViacom that provided f or the mer ger of CBS into Viacom. CBS and Viacom completed their mer ger on May 4, 2000.

B. US A Cont rac t s wi t h WWFE t o Carry Wrestl ing

USA entered into its f irst direct contr act with WWFE f or a wrestling "series" in 1983. Stephen Brenner, the f or mer Gener alCounsel and President-Oper ations of USA Cable, provided the f or m contr act f or the original written agreements between USA and WWFE.

The 1983 agreement contained a "First Negotiation/First Ref usal" clause at § 4(b), which became § 5(b) in later agreements.The same or substantially similar clause has appeared in every succeeding contr act between USA and WWFE. The "FirstNegotiation" provisions of these clauses give USA the "opportunity to negotiate privately" with the progr am supplier (WWFE) todeter mine whether [*6] they can "come to an agreement regarding [an] extension, continuation, of whatever the progr am orprogr ams are." The "First Ref usal" provisions give USA the right to match the ter ms that a third-party off ers with respect to theSeries progr ams.

Although there have been minor changes to the f irst ref usal/f irst negotiation clause over the 17 year relationship between USA and WWFE, the clause's substance has never changed. Two "negotiations" with respect to this clause, however, did occurrecently. First, in connection with a discussion to renew the 1998 Agreement, WWFE's talent agent, Mar k Itkin of William Morris Agency, asked USA to agree to delete the f irst negotiation/f irst ref usal clause in its entirety. Brenner ref used, and the clausewas retained. Second, in November 1999, the parties agreed to remove the "f irst negotiation" provision of the clause, butmaintain the "f irst ref usal" provision of the clause. This second negotiation is discussed below in more detail.

C. T he 1998 Licensing Agreement

In an agreement dated July 2, 1998, WWFE gr anted USA a license to distribute the WWF television series "WWF Raw/WWFWar Zone," "WWF Live Wire," and "WWF Superstars." 1 In a companion [*7] agreement dated September 1, 1998, WWFEgr anted USA a license to distribute the WWFE television progr am "Sunday Night Heat." 2 For ease of ref erence, the twoagreements are collectively ref erred to herein as the "1998 Agreement" or simply the " Agreement." The f our progr ams arecollectively ref erred to as the "Series."

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1 Plaintiff 's Ex. ("PX") 1.



2 PX2.

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As noted, section 5(b) of the 1998 Agreement is a f irst negotiation/f irst ref usal provision, the pertinent ter ms of which will bedescribed in detail later in this opinion. It is almost identical to the same provision in the original 1983 agreement, except thatmore than one "Series" is ref erenced in the 1998 Agreement.

The 1998 Agreement, like all of its 15 predecessors, concerns licensing rights to certain WWFE-produced wrestling progr ams.Section 1 obligates WWFE to "produce and deliver to USA a specif ied number of Progr ams of each Series during the Ter m . . .." 3 Section 2 gr ants to USA "the exclusive right to distribute the Progr ams f or [the] [*8] Series. 4

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3 PX1 at § 1; PX2 at § 1.

4 PX1 at § 2; PX2 at § 2.

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USA is not licensed to distribute any other WWFE progr amming or products. In fact, WWFE has separ ately licensed anotherwrestling series (known as "SmackDown!") to UPN (a broadcast networ k now wholly-owned by Viacom). At the time thatWWFE gr anted UPN broadcast rights to "SmackDown!," Brenner recognized and advised his colleagues at USA that USA hadno basis f or ob jecting, even though "SmackDown!" contains the same char acters and the same storyline as the f our progr amslicensed to USA. 5

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5 Trial Tr. 133, 135-36, 195 (Brenner).

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D. Expansion of WWFE's Bu siness St rat egy

The parties agree that WWFE's "sports entertainment" progr ams represent "the crown jewel of cable television." From a r atingsperspective, this assertion appears justif ied. WWFE's two-hour Monday [*9] night show "Raw Is War/War Zone," which istreated as two separ ate one-hour shows f or r ating purposes, consistently has occupied the number-one and number-twopositions on basic cable television, with an aver age Nielsen r ating of about 6 during 1999. The show's strong r atings numberscontinued right up to and through the trial. "Sunday Night Heat" also has per f or med extremely well, of ten capturing the number-three r atings spot. WWFE progr amming has become especially popular with two groups in the United States that advertisersintensely covet: males aged 18 to 34 and teenagers aged 12 to 17.

The success of WWFE progr amming helped USA obtain its position as the number one-r ated cable channel. The r atings of theWWFE shows contribute directly to USA's r atings aver age, and indirectly by providing a promotional vehicle f or its other shows.When WWFE progr amming f ell behind its competition, Time Warner's World Championship Wrestling ("WCW"), USA Networ k slipped to the number-two position. USA Networ k regained its number one position when WWFE recovered its audience andbegan consistently to surpass WCW in the r atings.

WWFE's resur gence coincided with its recognition that it could not [*10] grow by restricting itself to being simply a cabletelevision content provider. WWFE recognized that the f or mation of a str ategic alliance with a multimedia partner that couldcross-promote WWFE progr amming and provide new platf or ms to grow the WWFE br and would be critical to expanding itsbusiness and competing against the sizable resources of Time Warner's WCW.

Consistent with its desire to grow its business through a str ategic alliance with a multimedia partner, WWFE's October 15, 1999IPO prospectus identif ied as one of the key elements of its str ategy the f or mation of "str ategic relationships with other mediaand entertainment companies." 6 As noted above, however, the 1998 Agreement contained an "exclusive negotiation" clause

that prohibited WWFE f rom "negotiating with any third party with respect to any of the [f our] Series prior to the end of [the]exclusive negotiation period." 7

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6 PX7.

7 PX1 at § 5(b); PX2 at § 5(b).

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In early 1999, USA Co-President Stephen Chao recommended that WWFE [*11] meet with the Endeavor Agency, a Hollywoodtalent agency that Chao thought could help WWFE f urther its str ategic goals. Endeavor conf ir med WWFE's view that a



str ategic alliance with a lar ge media company with multi-platf or m capabilities would best unlock WWFE's growth potential.Endeavor arr anged f or WWFE to meet with Twentieth Century Fox and Viacom in the spring and summer of 1999 f or thepurpose of exploring a potential str ategic alliance along the lines that Endeavor had originally recommended.

By April of 1999, Endeavor had arr anged a meeting between WWFE and Fox representatives to discuss the possibility of moving the f our Series to Fox. By July, however, it was clear that Fox was not interested in pursuing a deal.

In July of 1999, the McMahons met with Kerry McCluggage, the Chair man of Viacom's Par amount Television Group.McCluggage was familiar with WWFE's progr amming as he had served on USA's executive committee until Viacom divested itsinterests in USA in 1997. McCluggage expressed an interest in acquiring the Series, which he char acterized as consistent withViacom's long-r ange goal to "either start f rom scr atch or buy and repurpose a basic cable networ k." 8 Linda McMahon [*12]told McClugagge that the f our Series could be available as early as fall 2000. These discussions between WWFE and Viacom continued into the fall of 1999 until the time of WWFE's initial public stock off ering.

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8 Trial Tr. at 685-86.

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E. US A Waives I t s Right t o Negot iat e Exc lu sivel y wi t h WWFE

Shortly af ter WWFE's public off ering in October 1999, WWFE's CEO Linda McMahon inf or med Brenner that WWFE intended toexercise the early ter mination right in the Agreement. 9 When Brenner reported WWFE's intent to exercise its early ter minationright to his superiors, USA Networ ks' President and CEO, Barry Baker, became "apoplectic" and instructed Brenner to contact

Ms. McMahon and convince her to delay sending the early ter mination notice. Brenner contacted Linda McMahon andexplained to her that Baker did not want WWFE to send the early ter mination notice until they talked.

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9 Section 5(a) of the Agreement provided WWFE with an early ter mination that, if exercised, would trigger a 45-day periodduring which WWFE and USA would negotiate exclusively with each other over a new agreement.

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[*13] Baker himself later called Ms. McMahon and asked her to amend the parties' Agreement, pushing back the earlyter mination f inal notice date f rom November 30, 1999 to March 31, 2000. In return f or this, Baker said USA would waive the 45-day exclusive negotiation period under § 5(b) of the Agreement. He explained that USA "was off ering [WWFE] the ability to goout into the mar ketplace and get whatever off er [it] could." 10 Baker told Ms. McMahon: "Look, I understand f rom a businessperspective that you should go out and f ind out the value of your business and that you should get the best off er you can. I cantell you right now, nobody is going to give you a networ k, but bring it all back. And then I have a right to talk to you." 11

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10 Trial Tr. at 1023.


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Af ter Baker instructed WWFE to come back to USA with an off er that ref lected the value of its business, Ms. McMahon askedBaker if he would waive the f irst ref usal provision in § 5(b) of the Agreement so as not to dampen WWFE's [*14] negotiationswith third parties. Baker agreed to waive USA's f irst ref usal right, so that WWFE no longer would have to aff ord USA the right tomatch any "best off er" that WWFE could f ind in the mar ketplace.

Baker's agreement to waive the f irst ref usal provision led to a heated debate within USA. At the conclusion of this debate, it

was decided that Baker should not have waived the right of f irst ref usal, and the problem then was "dumped in [Brenner's] lapto solve." 12 In a later conversation with Linda McMahon, Brenner observed that the parties could not modif y the 1998 Agreement or ally, according to its ter ms. Ms. McMahon conceded this point.

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As a result of these conversations, on November 19, 1999, Brenner sent Ms. McMahon a letter amendment to the 1998 Agreement that changed the early ter mination notice date f rom "on or bef ore November 30, 1999" to "between March 1, 2000and March 31, 2000," and eliminated the exclusive negotiation period. 13 Section 5(b)'s f irst ref usal language, [*15] however,



was retained word f or word. Linda McMahon acknowledged that there was no modif ication of the right of f irst ref usal by virtueof these conversations and correspondence. No one discussed whether to modif y the oper ation or substance of the right of f irstref usal. No one asked how the right of f irst ref usal would oper ate in pr actice.

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13 Brenner understood that the November 19, 1999 letter amendment modif ied not only the Agreement but also the SundayNight Heat Agreement. Brenner Dep. 205:13-21.

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F. Negot iat ions Bet ween WWFE and V iacom

With the exclusive negotiation provision eliminated, WWFE was now completely f ree to negotiate with Viacom or any otherinterested party. Viacom and CBS in turn were eager to obtain the f our Series f or TNN, CBS's country-living cable networ k,which Viacom would acquire through its mer ger with CBS. TNN was losing N ASC AR progr amming and needed to restore its"must carry" status with cable oper ators. CBS and Viacom viewed the acquisition of the Series f or TNN as a potential [*16]solution to TNN's problems.

To that end, Viacom and Endeavor, WWFE's talent agents, continued their discussions. In late November 1999,representatives of Endeavor told Viacom's Kerry McCluggage that WWFE had a "clean out" of its agreements with USA andcould make the f our Series available to Viacom in the fall of 2000. WWFE and Viacom continued their discussions at a December 2, 1999 meeting at the off ices of Par amount Pictures in Hollywood. The parties specif ically discussed the possibilityof moving the f our Series progr amming to TNN.

On January 6, 2000, WWFE and Viacom met again at WWFE's headquarters in Stamf ord, Connecticut. Following this meeting,McCluggage sent a discussion dr af t to Linda McMahon listing elements of a possible deal. McCluggage revised his discussiondr af t proposal f ollowing the January 6 meeting with Linda McMahon. He sent the revised dr af t to Ms. McMahon on January 18,2000. The discussion dr af t proposal included a 4-5 year " joint venture/str ategic alliance between WWF and Viacom" that wouldinclude a broadcast component (3-4 year renewal of Smackdown on UPN), a cable component (moving the Series currentlycarried on USA to TNN), specials (6-7 one-hour [*17] specials annually to be broadcast on UPN, TNN, CBS, and MTV), a series f eaturing WWFE star Steve Austin, international distribution, cover age of WWFE's new f ootball league (the XFL), homevideo distribution, a theatrical development f und, r adio syndication, and Canadian in-theater pay-per-view. 14 Af ter McCluggagesent Linda McMahon his discussion dr af t, she contends that she inf or med him that USA had a f irst ref usal right and wasentitled to review the details of any off er that WWFE intended to accept.

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14 VX 229.

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G. Negot iat ions wi t h WWFE t o Ret ain t he Series And t o Broad en t he Rel at ionship

Once USA waived the exclusive negotiation period in its agreements with WWFE, it had no contr actual obligation to talk toUSA until it had received a third-party off er that it intended to accept. Nonetheless, WWFE was willing to engage in broaderdiscussions with USA. And it did so.

On February 17, 2000, USA delivered a broad presentation to WWFE involving various distribution capabilities, including theHome Shopping [*18] Networ k, the Sci Fi Channel, USA's internet and e-commerce sites, USA Video, USA Studios, and USA Broadcasting. USA or ganized the presentation based on some of the str ategic ob jectives outlined in WWFE's October 1999IPO prospectus. It hoped to use the promise of a broader partnership (and the cross-promotional opportunities created thereby)to induce WWFE to renew its cable Series on USA. Following USA's receipt of WWFE's f or mal notice of early ter minationaround March 1, 2000, Brenner sent an internal e-mail suggesting that he should call Linda McMahon to f ind out what WWFEwas looking f or r ather than being put in a position to match the ter ms of a third-party off er. Brenner's suggestion was re jected.Instead, USA decided to wait and see what WWFE would bring back to USA to match.

H. V iacom's "St rat egic All iance" Offer

One week af ter USA's presentation, Viacom made its own presentation to WWFE. Viacom's presentation addressed a numberof ter ms that appeared in earlier dr af t proposals, including telecast of WWFE's f our existing cable Series on TNN, WWFEspecials on Viacom's broadcast and cable networ ks, a WWFE dr ama series, cover age of XFL f ootball, a multi-million dollaradvertising [*19] campaign, a theatrical development f und, pay-per-view events, r adio syndication, print publishing, and WWFEevents at theme par ks, among other things.

On March 10, 2000, Linda McMahon sent McCluggage a proposal in which she recommended that WWFE and Viacom f irstcomplete negotiations over the f our Series. Against this background, WWFE and Viacom met again on March 16 to discuss thecable progr amming and other proposals set f orth in Ms. McMahon's March 10 letter. By the end of the March 16 meeting, theparties had reached agreement on tr ansf erring the f our Series, while other proposals were lef t f or later negotiation.



In an eff ort to memorialize the agreements reached regarding the f our Series, Viacom and WWFE began dr af ting a f or malagreement. Viacom prepared and then circulated an initial short f or m dr af t off er to WWFE's representatives on March 27.Representatives of both parties convened in Los Angeles on March 30-31 to negotiate a f inal document. The f inal documentemer ged as Viacom's off er letter dated April 2, 2000. The April 2 letter f irst established ter ms f or the f our Series progr ams to betr ansf erred to TNN. It also addressed preexisting arr angements between WWFE and Viacom, [*20] such as UPN's right to"Smackdown!". The April 2 letter off er also mentioned a variety of other relationships, many of which were lef t to f urthernegotiation. Finally, Viacom's off er letter described a series of ter ms relating to the cover age territory, preemption rights, achoice of law and f orum selection provision, as well as a broadcast exclusivity provision, the signif icance of which will beexplained later.

I. US A Respond s t o V iacom's Lett er Offer

On April 3, 2000, WWFE notif ied USA that it intended to accept the Viacom off er and provided USA with a copy of that off er.USA spent the next ten days engaged in two principal activities: (1) quantif ying the cost of matching the Viacom off er that hadbeen tendered by WWFE; and (2) meeting with outside counsel to deter mine a str ategy f or responding to that off er. USA wasunclear about certain ter ms in Viacom's off er. For reasons that are not entirely apparent, USA made no eff ort to contact anyrepresentative of WWFE during this ten-day period.

On April 12, 2000, the last day of USA's ten-day response period under § 5(b), USA responded to Viacom's off er. It presentedWWFE with a black-lined version of Viacom's off er letter that [*21] expunged many elements of Viacom's off er. By picking andchoosing f rom the par agr aphs in Viacom's letter, USA purported to bind WWFE to a f ive-year renewal of its licensing agreements concerning the Series progr ams, as well as other provisions related to the Series. On the same day ( April 12) thatUSA "accepted" the tendered Viacom off er using selective matching, USA f iled this lawsuit to en join consummation of Viacom'sagreement and to compel WWFE to per f or m under USA's "matched contr act"--a contr act whose ter ms and conditions are an

amalgamation of provisions appearing throughout Viacom's off er. USA proclaims its "match" to be a legally enf orceablecontr act that relates to the Series pursuant to § 5 of the 1998 Agreement.

II. ANAL YSIS

The narrow issue bef ore this Court is whether USA, through its April 12, 2000 letter to WWFE, eff ectively exercised its right tomatch Viacom's April 2, 2000 off er to WWFE. To resolve this issue, the Court must answer two questions. First, what is thescope of USA's right of f irst ref usal contained in § 5 of the 1998 license agreement between USA and WWFE? Second, didUSA match the provisions contained in Viacom's April 2 off er to WWFE which [*22] fall within the scope of the right of f irstref usal contained in § 5?

A. T he Scope of t he Right of First Ref u sal

USA and WWFE have entered into a succession of license agreements to distribute various WWFE wrestling progr amsbeginning in 1983. The dur ation of each license agreement has r anged between one and three years. With the exception of minor "wordsmithing," the language of the license agreements has remained gener ally constant f or the lif e of the 17 yearrelationship between USA and WWFE.

As noted above, the parties amended § 5 through a November 19, 1999 letter which Brenner and Linda McMahon executed onbehalf of their respective companies. The November 19 amendment eliminated USA's right to a 45 day exclusive negotiationperiod with WWFE f or the extension of the license agreement. The amendment, however, did not in any way alter the languagedescribing USA's right of f irst ref usal. In other words, the November 19 amendment, by eliminating the exclusive negotiating period, tr ansf or med § 5 f rom a "First Negotiation/First Ref usal" clause to exclusively a "First Ref usal" clause. Section 5, asamended, is set f orth below in its entirety. The underscored text represents [*23] the f irst ref usal language at issue:

5. The ter m hereof shall commence on September 28, 1998 and shall end on September 23, 2001 (the "Ter m").Notwithstanding the f oregoing, either party hereto may ter minate this Agreement as of September 24, 2000, f orany reason whatsoever, by written notice to the other, delivered between March 1, 2000 and March 31, 2000. Inno event, however, may [WWFE] enter into any arr angement, understanding or agreement with any such thirdparty with respect to any or all of the three Series without f irst giving to USA a right of f irst ref usal, exercisablewithin ten (10) business days f ollowing receipt by USA of written notice detailing the ter ms of the third party off er (s), as to any such off er(s) which [WWFE] intends to accept. If USA does not meet such off er(s), [WWFE] willnot enter into an Agreement with such third-party on ter ms less favor able to it than those contained in the off er (s) without again aff ording USA a f irst ref usal as above provided. 15

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15 Plaintiff 's Trial Ex. ("PX") 6JJ.

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[*24] As the parties themselves make clear, this case is f undamentally a dispute over contr act language. Specif ically, thequestion I must answer is what exactly does an off er "with respect to any or all of the three Series" entail? Accordingly, theCourt will apply gener al principles of contr act construction in order to best elicit the meaning of the disputed clause.

In so doing, I begin with HN1 the primary rule of contr act analysis that "the interpretation of a written agreement begins withexamination of its language." 16 The law of New Yor k, which is applicable to this dispute by virtue of the parties' choice-of -law provision, 17 and the law of Delaware are in accord. 18

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16 U.S. v. Int ' l Bhd . Of T eamst ers, 970 F.2d 1132, 1136 (2d Cir. 1992).

17 See PX1, § 19.

18 See Serna v. Pergament Dist ribut ors, Inc. 182 A.D.2d 985, 582 N.Y.S.2d 550, 552 (N.Y. App. Div. 1992) ("It is a f undamental premise of contr act law that contr acts should be enf orced in accordance with their ter ms") and RainbowNavigat ion, Inc. v. Yonge, Del. Ch., 1989 Del. Ch. LEXIS 41, *7, C. A. No. 9432, Allen, C. ( Apr. 24, 1989) ("The attempt todef ine the legal meaning and eff ect of a contr actual document must start in each instance with the language used in thecontr act itself .").

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[*25] I will not, however, analyze in isolation the explicit words of § 5. HN2 Language in a vacuum may take on any numberof meanings. A Court can more readily assign contr act language its intended meaning if it reads the language at issue withinthe context of the agreement in which it is located. Accordingly, while the canons of contr act interpretation instruct anexamination of the explicit contr act language in order to deter mine the clause's meaning, one must simultaneously read that

language within the context of the contr act surrounding that language in order to best elicit the most appropriate meaning. HN3

Indeed, a New Yor k court has recently observed that,

"it has long been the rule that a 'contr act must be read as a whole in order to deter mine its purpose and intent,and . . . single clauses cannot be construed by taking them out of their context and giving them an interpretationapart f rom the contr act of which they are a part. Words considered in isolation may have many and diversemeanings. In a written document the word obtains its meaning f rom the sentence, the sentence f rom thepar agr aph and the latter f rom the whole document.'" 19

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19 Bijan Designer for M en, Inc. v. Fireman's F u nd Ins. Co., N.Y. App. Div., 264 A.D.2d 48, 705 N.Y.S.2d 30, 33 (1st Dep't 2000)(internal citations omitted).

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[*26] All parties contend that the f irst ref usal clause's meaning is facially apparent, and that despite a voluminous discoveryrecord and f our day trial on the merits, the Court need not look beyond the plain language of the contr act. USA def ines thescope of its matching obligation--if it elects to exercise its right of f irst ref usal--restrictively, insisting that the plain language"with respect to the Series" limits the scope of the right of f irst ref usal to the sub ject matter of the existing contr act, a license todistribute the Series progr ams. Def endants Viacom and WWFE, on the other hand, ar gue that the scope of USA's matching right is quite broad, and gener ally contend that USA must match every item in a third party off er tendered in good faith.

The explicit language of the f irst ref usal provision, examined in the context of the 1998 Agreement as a whole, reveals itsintended meaning: the obligation to match is limited to the sub ject matter of the Agreement, the television license rights f or the

Series. In my opinion, the inclusion of the words "with respect to the Series" are intended as restrictive language. The holder of the right of f irst ref usal must match all ter ms contained [*27] in a third party off er directly related to the Series itself . Forexample, USA must match ter ms detailing scheduling of the Series, licensing f ees f or the Series, advertising splits f or theSeries, and ter ms establishing the length of the contr act f or the right to distribute the Series. USA need not match ter ms of athird party off er that relate to ot her sub ject matters. Other sub ject matters include the XFL, theme par k events, and motionpictures, f or example.

I must also note an important distinction in order to def ine clearly the outer boundary of the f irst ref usal right's scope. The scopeof the right is limited to the sub ject matter of the Agreement in which the right exists. Such sub ject matter is the licensing of t heSeries. The distinction one must keep clear is that the sub ject matter of the Agreement, the licensing of the Series, is verydiff erent f rom the sub ject matter of the Series themselves, the WWFE char acters and story lines. The scope at issue is def inedby the licensing of the Series, not the char acters and story lines that exist within those Series. This is why, f or example, USAneed not match the ter ms in the Viacom off er relating to specials, such as [*28] "Wrestlemania." Although both the Series and



"Wrestlemania" will inevitably involve the same char acters and story lines, a special--a one time stand alone progr am--is notthe same sub ject matter as the Series--the f our specif ic progr ams that USA televises each week.

The plain language of § 5, when read in the context of the contr act as a whole, compels this interpretation. The very f irstpar agr aph of the 1998 Agreement recites that it is an:

Agreement … between USA Networ ks and [WWFE] wi t h respec t t o the production of and gr ant of certain rightsin t he [] Series individually and collectively, of original television progr ams presently entitled "WWF Raw/WWFWar Zone" ("Raw"), "WWF Live Wire" ("Live Wire"), and "WWF Superstars" ("Superstar").

The very f irst par agr aph of the Agreement contains the words "with respect to the Series." The Agreement employs thesewords here to indicate that the contr act to f ollow is about the gr ant of certain rights in t he Series. That is, the contr act is aboutthe Series. These exact same words, the primary words at issue in this case, appear verbatim in § 5. It is simply not reasonableto believe that the same words [*29] in the opening par agr aph of the Agreement and in § 5 have diff erent meanings. Thewords in the opening par agr aph indicate that the contr act def ines the parties' rights to t he Series, not to any other sub jectmatters, just as the words in § 5 indicate that the right of f irst ref usal is limited to the same sub ject matter, t he Series, and not toany other sub ject matter. The language at issue in § 5 does not take on a more expansive meaning.

Section 1 and 2 of the Agreement also mandate this restrictive textual reading of § 5. Section 1 of the Agreement sets f orthWWFE's obligations under the Agreement--to "produce" and "deliver" a "specif ied number of Progr ams of each Series during the Ter m." The Agreement does not contain any obligation whatsoever to produce specials, theme par k events, books, f ootballgames, etc., no matter how related (or unrelated) that progr amming or product may be to the Series licensed under theagreements.

Section 2 sets f orth USA's chief right under the Agreement. This right is neither more nor less than an exclusive l icense t od ist ribut e t he Series. Quite simply, the 1998 Agreement is a licensing agreement the sub ject matter of which is the [*30] f ourSeries. Accordingly, it is eminently reasonable that the meaning of the phr ase "with respect to the Series" in the Agreement'sintroductory par agr aph, plus the language of § 1 and § 2 of the Agreement regarding the sub ject matter of the contr act as a whole, illuminates the meaning of "with respect to the Series" in § 5 and the scope of the right of f irst ref usal. These provisionsindicate that the scope of the right of f irst ref usal is limited to the sub ject matter of the contr act containing the right.

To my mind, it is unreasonable to conclude that a right of f irst ref usal clause in a contr act f or the distribution of certain televisionseries would require the holder of the right of f irst ref usal to match a package off er f rom a third-party f or various properties thatvastly exceed the scope of the property under the contr act giving rise to the f irst ref usal right. Nothing in the record suggeststhat a contr ary scenario was reasonabl y in the minds of the parties at the time of dr af ting or amendment of the succession of agreements in question.

I f ind the def endants' broader interpretation of the f irst ref usal right's scope unconvincing. Def endants ar gue, unreasonablyin [*31] my opinion, that USA must match all reasonable ter ms contained in a third party off er which the seller (WWFE) and thethird-party (Viacom) have entered into in good faith. Def endants contend that Viacom's April 2 off er is an "arr angement,

understanding or agreement with [a] third-party with respect to any or all of the three Series" and that USA's matching obligation runs to every item of a third party off er that WWFE "intends to accept."

Viacom ar gues that in order f or an "arr angement, understanding or agreement" to be "with respect to any or all of the [f our]Series," it is not necessary that the "arr angement, understanding or agreement" concern sol el y the f our Series and no otherprogr ams WWFE produces or properties WWFE owns. Section 5 of the Agreement, ar gue Viacom and WWFE, does notcontain the word "only" or "solely." The scope of § 5, theref ore, is not limited to the Series.

Despite the absence of the words "only" or "solely," the scope of the right is not as broad as Viacom and WWFE ar gue it is.Under the broadest possible interpretation of the phr ase "with respect to the Series," I still do not know how a provisionregarding the XFL would ever fall within the [*32] scope of the right of f irst ref usal. The XFL is a f ootball league that hasnothing to do whatsoever with prof essional wrestling beyond its association with WWFE.

Even if I give "with respect to the Series" its broadest meaning--e.g., with ref erence, relating to, or pertaining to--the XFL doesnot "relate" to the Series. In fact, even if the scope of the right included anything relating to the char acters or story lines of the

wrestling progr ams, the XFL would not fall within such a scope. The only way that the XFL would fall within the scope of theright of f irst ref usal is if I interpreted "with respect to the Series" to mean an off er "inc lud ing the Series." No evidence compelsme to reach such a result. Indeed, it is clearly more reasonable to interpret "with respect to the Series" to constitute limitinglanguage, and not expansive language. Interpreting "with respect to the Series" to limit the scope of the right of f irst ref usal tothe sub ject matter of the contr act even absent the words "only" or "solely" is clearly reasonable. Interpreting "with respect to theSeries" to actually mean "inc lud ing the Series" and to expand the scope of the right of f irst ref usal to [*33] any ter ms Viacom and WWFE have entered into other than f or the purpose of def eating USA's f irst ref usal rights, in my mind, robs § 5 of itsintended meaning.

Viacom next ar gues that the structure of § 5 buttresses its expansive interpretation of the f irst ref usal right's scope. Viacomexplains that § 5 requires the WWFE to tender the entire third party off er, not part of it, to USA because § 5 provides thatWWFE must tender the off er it "intends to accept." Because WWFE intended to accept all the provisions of Viacom's off er,WWFE, theref ore, also must tender the entire off er. Af ter obligating WWFE to tender the entire off er, § 5 does not explicitly



allow USA to meet only portions of the third party off er. Implicitly, theref ore, § 5 commands that USA meet "such off er" in itsentirety. Consequently, def endants ar gue that WWFE must tender Viacom's entire off er and USA must either match the off erentirely, or f or f eit its f irst ref usal right.

I f ind this ar gument unpersuasive. Section 5 provides that WWFE must tender "su ch off er" and USA must meet "su ch off er.""Su ch off er" ref ers to an off er "with respect to the Series." Theref ore, WWFE must tender and USA must match [*34] an off er"with respect to the Series." The oper ation of this clause, however, still fails to explain how the phr ase "with respect to theSeries" aff ects the scope of the f irst ref usal right. Although the def endants are correct that this is how the f irst ref usal rightoper ates according to the language in § 5, its oper ation does not speak to the meaning of the phr ase.

Just because WWFE seeks a str ategic alliance, of which the f our Series are a part, and tenders the entire str ategic allianceoff er to USA, it does not necessarily f ollow that the entire str ategic alliance is an "off er with respect to the Series." Moreover, just because USA treated the Viacom off er as an off er "with respect to the Series" f or purposes of triggering its right of f irstref usal, does not necessarily mean that every provision of the str ategic alliance off er is "with respect to the Series." USA mayhave t reat ed the Viacom off er as a triggering off er because within the broad str ategic alliance package existed provisions thatdid, in fact, fall within the scope of the phr ase "with respect to the Series." That is, the broad package did include provisionsconcerning licenses f or the f our Series progr ams. Presented [*35] with the str ategic alliance off er, USA attempted to match thepart of the str ategic alliance off er that it considered to be "with respect to the Series" according to its understanding of thatlanguage.

USA and WWFE likely did not anticipate a dispute over the scope of the right of f irst ref usal, at the time of dr af ting, becausethey could not anticipate the signif icant changes in the media industry, particularly the industry's r apid consolidation and moveto a world of multi-platf or m conglomer ates. Given the parties' relationship and the state of the media industry in 1983, I am compelled to conclude that the dr af ters of § 5 did not anticipate a package off er of the kind Viacom has tendered, and this lackof anticipation has caused a tension in the manner § 5 oper ates. 20

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20 The manner in which § 5 oper ates in the context of a changed media industry, however, has no bearing on how I interpretthe contr actual language and the scope of the right of f irst ref usal.

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Accordingly, I f ind the language of § 5, [*36] read in the context of the entire contr act, clear on its face. Its only reasonableinterpretation is that the scope of the f irst ref usal right is limited to the sub ject matter of the Agreement.

Had the f irst principle of contr act construction, the plain meaning rule, not resolved this dispute, the second principle of contr actconstruction, the parol evidence rule, would have compelled the Court to adopt the same limited scope interpretation. The parolevidence rule holds that where the language of a contr act is susceptible to more than one reasonable interpretation, the Courtwill consider proff ered admissible evidence bearing on the ob jective circumstances relating to the background of the contr act,including statements made during the course of the negotiation, courses of prior dealings between the parties, and pr actices inthe relevant tr ade or industry.

Every contr act between USA and WWFE since their f irst contr act in 1983 has included the same contr act language describing the right of f irst ref usal. In fact, USA has insisted upon it. As the parties have used the same contr act language(notwithstanding slight "wordsmithing") in each contr act since 1983, they have preserved the [*37] same meaning of thatrecurring language since 1983. Bef ore USA and WWFE signed their f irst contr act to televise a wrestling series in 1983, USA had previously only televised monthly wrestling shows per f or med at Madison Square Garden, pursuant to a contr act withMadison Square Garden. At that time, neither party has suggested that they contemplated the str ategic partnership that WWFEcurrently seeks, and WWFE certainly did not possess the mar ket power it presently holds. Accordingly, in 1983, when WWFEwas f irst securing television distribution and did not en joy the same level of popularity it does today, it is much more likely thatthe parties contemplated a right of f irst ref usal limited to the sub ject matter of the contr act containing that right of f irst ref usal, asopposed to the open-ended right the def endants now allege prevails. The 1998 Agreement, containing the same right of f irstref usal clause and the same language, theref ore, does not have a diff erent meaning than the identical provision the partiesagreed to back in 1983.

WWFE's repeated attempts to eliminate the right of f irst ref usal provision f rom its contr acts with USA bolsters the limited scopeinterpretation. In [*38] 1998, WWFE's talent agent, Mar k Itkin of the William Morris Agency, requested that USA agree todelete the f irst negotiation/f irst ref usal clause in its entirety. Brenner ref used.

In October 1999, Linda McMahon indicated that WWFE intended to exercise its early ter mination right. Brenner asked her toref r ain f rom sending the early ter mination notice until she had f urther conversations with Baker. Linda McMahon, in return f orpostponing WWFE's exercise of its early ter mination right, requested that Baker agree to waive USA's rights of f irst negotiationand f irst ref usal. According to Vince McMahon, WWFE understood that obtaining a waiver of the f irst-ref usal right had "value"to WWFE. 21 Ultimately, USA agreed to waive the f irst negotiation provision, but it reaff ir med its right of f irst ref usal. The partiesamended the 1998 agreement to ref lect this modif ication.

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21 V. McMahon Dep. 162-163, 169.

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WWFE's repeated attempts to eliminate the right of f irst ref usal clause indicates that WWFE viewed this clause as [*39] a serious hindr ance. If the scope of the right of f irst ref usal clause were truly as broad as WWFE and Viacom claim, thenelimination of that provision would not have been as necessary. I assume that WWFE and Viacom would retort that all right of f irst ref usal provisions, regardless of their scope, have a chilling economic eff ect. That is, third parties are less likely tonegotiate with WWFE because the property at issue is sub ject to a right of f irst ref usal.

I f ind this ar gument, in this instance, unconvincing, because WWFE already knew that Viacom had an interest in wrestling progr amming as early as July 20, 1999, three months bef ore Linda McMahon requested that USA waive the right of f irstref usal. Thus, WWFE cannot contend that it needed the f irst ref usal right waived in order to prevent a chilling economic eff ect--Viacom already had expressed its interest in acquiring the Series. Indeed, Vince and Linda McMahon, along with Endeavor,WWFE's agent, met with McCluggage at Par amount's off ices in Hollywood on July 20, 1999 to discuss moving the Series f rom USA to Viacom. McCluggage's phone logs ref lect ten incoming calls f rom Endeavor and WWFE f rom July through the end of October [*40] 1999, when Linda McMahon attempted to eliminate the right of f irst ref usal provision.

WWFE and Viacom insist that McCluggage was not aware of the right of f irst ref usal when the parties began negotiations.Implicitly, they ar gue that had he known of the ref usal right, Viacom would have been less likely to pursue WWFE. Indeed,McCluggage testif ied that Endeavor told him that WWFE had a "clean out" of its contr act with USA. Endeavor's conversationwith McCluggage regarding a "clean out" did not occur, however, until November 1999, more than three months af ter Viacom and WWFE began negotiations f or the wrestling progr amming. I f ind it incredible that despite preliminary discussions in May, a meeting on July 20, and at least ten subsequent phone calls over the next three months, WWFE did not once mention USA'sright of f irst ref usal.

In addition, I cannot believe that Viacom failed to inquire as to any contr act restrictions on the f our Series. It would seem to methat when a company is attempting to acquire rights to property, one of its f irst inquiries would be whether the property is in anyway encumbered. That is, is the property readily available at the expir ation of the current [*41] contr act? These circumstances,in my opinion, under mine WWFE's broad interpretation of the f irst ref usal right.

The actions of USA executives also have neither altered the meaning of § 5 nor lent credibility to Viacom's and WWFE's overlybroad interpretation of the scope of the right of f irst ref usal. In November 1999, Baker and Chao encour aged Linda McMahonto go out into the mar ketplace and deter mine the value of her company. They did so, no doubt, in the hope she would comeback empty handed and, thus, with little bar gaining lever age. In fact, Linda McMahon testif ied that Baker said, "nobody is goingto give you a networ k." 22 USA was quite plainly mistaken. But the fact that USA executives told, indeed exhorted, Linda McMahon to go out and negotiate off ers f or WWFE progr amming (and f or whatever else she wanted to sell) did not wor k toalter or amend the language and purpose of the contr act. It was, in fact, entirely in keeping with the contr act, once USA waivedthe exclusive negotiation period.

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22 Tr. 1023: 10-11.

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[*42] Further more, the fact that USA pitched a broad, integr ated off er to WWFE in February 2000 does not demonstr ate a belief that it was required to match such an off er f rom a third party in the event its f irst ref usal rights were triggered. TheFebruary pitch cannot be considered some sort of waiver of USA's f irst ref usal rights or an admission that it is required to meeta package deal off er under the ter ms of § 5. The February pitch is best understood as USA's eff ort to head off the triggering of its f irst ref usal right. And though much of USA's testimony at trial and in deposition was equivocal at best and dissembling atworst, they consistently testif ied that they believed that no matter what kind of off er WWFE obtained, they had a "backstop" onthe distribution rights to the Series. This view, to my mind, is consistent with the language of § 5.

I also f ind that certain language in Viacom's April 2 off er letter to WWFE demonstr ates that Viacom believed its interpretation of § 5 to be more tenuous than it indicated during trial. The off er letter of April 2 states: "the various components of the proposed

agreement…are being off ered as a complete integr ated package to WWFE, each [*43] dependent on the other, and are notoff ered other wise." 23

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23 Viacom Exhibit ("VX") 158.

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Why would Viacom include this sentence in their off er letter? WWFE already knew that the off er constituted an integr atedpackage because it sought out such a deal in the f irst place. WWFE also did not intend to pick and choose certain provisions of the off er, as it clearly coveted all the provisions contained in the off er. Thus, Viacom did not include that sentence f or WWFE'sbenef it. Moreover, Viacom did not include the sentence f or its own benef it because Viacom already knew that WWFE intended



to accept the entire package; both parties negotiated the deal and had settled on its ter ms. Viacom did know that WWFE had totender the off er to USA. The April 2 off er, theref ore, likely contained the sentence f or USA's benef it. In my opinion, thesentence constitutes an implicit threat to USA: this is an integr ated package that you must accept in its entirety. The onlyreason to include such a sentence in an off er to WWFE is if [*44] Viacom and WWFE recognized that an issue existedregarding the scope of the f irst ref usal right.

Based on the plain language of § 5, especially when read within the context of the Agreement as a whole, and the previouslydiscussed parol evidence, I f ind that the only reasonable interpretation of the f irst ref usal right's scope is to limit it to the sub jectmatter of the Agreement. I re ject WWFE's and Viacom's interpretation of § 5. The meaning of the phr ase "with respect to theSeries" limits the scope of § 5 and is not intended to provide an open-ended matching obligation that includes unrelatedsub jects such as f ootball telecasts, theme par k events and r adio syndication. The well-settled law of New Yor k regarding rightsof f irst ref usal only serves to f urther bolster USA's interpretation.

HN4 New Yor k courts construing right of f irst ref usal clauses have unif or mly held that a property owner cannot compel theholder of a right of f irst ref usal to one property to match the ter ms of a package deal encompassing extr aneous properties. New Atl ant ic Gar d en v. Atl ant ic Gar d en Realt y Corp. commenced a long line of uninterrupted authority so holding. 24 In Camp

Syst ems, Inc. v. PHH [*45] Aviat ion Services, Inc., 25 HN5 the court held that the holder of a f irst ref usal right relating to asof tware product could not be f orced to match the ter ms of a third-party off er f or substantially all of the seller's assets, including

the sof tware product. Likewise, in Saab Ent erprises v. W l ad isl aw W u nd erbar , the court held that HN 6 a lessee of a car wash,with a right of f irst ref usal, could not be f orced to match the ter ms of a third-party off er to buy property including the car washand a neighboring gas station. 26

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24 N.Y. App. Div., 201 A.D. 404, 194 N.Y.S. 34 (1st Dep't 1922), aff 'd, N.Y., 237 N.Y. 540, 143 N.E. 734 (1923) (HN7 lessee of movie theater with right of f irst ref usal cannot be f orced to match ter ms of third party's off er to buy f rom lessor a lar ger parcelincluding the theater).

25 1988 U.S. Dist. LEXIS 6346, E.D.N.Y., C. A. No. 88 CIV 945, 1988 WL 70637 (May 31, 1988).

26 N.Y. App. Div., 160 A.D.2d 931, 554 N.Y.S.2d 657 (2nd Dep't 1990); see al so T arall o v. Norst ar Bank , N.Y. App. Div., 144

A.D.2d 157, 534 N.Y.S.2d 485 (3d Dep't 1988) (HN8 lessee and holder of option to buy leased premises cannot be f orced tomatch ter ms of third-party off er to buy lar ger parcel including the leased premises); C & B Whol esal e St at ionery v. S. DeBell a

Dresses, Inc., N.Y. App. Div., 43 A.D.2d 579, 349 N.Y.S.2d 751, 753 (2d Dep't 1973) ("HN9 The right which plaintiff en joyedby virtue of the f irst ref usal clause cannot be rendered nugatory by the device of attaching additional land to the leasedpremises and f inding a buyer f or the entire parcel"; lessor "improperly disregarded plaintiff 's attempted exercise of the option as

to the leased premises"); Cost ell o v. Hoffman, N.Y. App. Div., 30 A.D.2d 530, 291 N.Y.S.2d 116 (2d Dep't 1968) (HN10

lessee of restaur ant with right of f irst ref usal cannot be f orced to match ter ms of third-party off er to buy building complexincluding the restaur ant).

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[*46] Def endants' attempt to distinguish the litany of New Yor k authorities cited in USA's brief by ar guing that they are not a prohibition on package deals but, r ather, stand only f or the unremar kable proposition that specif ic contr act language def inesthe scope of a matching obligation (and, in this case, such clear language is absent) is ineff ective. Def endants take the contr actlanguage f rom New Atl ant ic Gar d en as an example. There, def endants ar gue the contr act language provided a clear def initionof the scope of the property the plaintiff 's right of f irst ref usal covered.

The clause in question in New Atl ant ic Gar d en provided that "in the event of a contemplated sale of sai d premises during thedemised ter m, the landlord agrees to give to the tenant a notice in writing at least ten days bef ore the contemplated sale of thesubstance of the ter ms on which it is proposed to be made…[and] the tenant shall have the right to purchase sai d premises

upon the ter ms and conditions proposed." 27 Def endants' contention, that the case currently bef ore the Court is diff erent f rom New Atl ant ic Gar d en because the contr act in New Atl ant ic Gar d en specif ically def ined the [*47] property that plaintiff s' f irstref usal right covered is unpersuasive.

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27 Emphasis Viacom's.

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The f irst ref usal language annexed above f rom New Atl ant ic Gar d en is in reality no more precise than the language f ound in §5 of the 1998 Agreement. "Sai d premises" in New Atl ant ic Gar d en is quite plainly the sub ject matter of the underlying contr act,off ers f or which the holder of the right of f irst ref usal has a right to match. Here, the sub ject matter of the 1998 Agreement is a



license f or the f our Series. It thus stands to reason that a license f or the f our Series, and ter ms reasonably related thereto,def ine the scope of USA's matching obligation.

Def endants' reliance on West T exas T ransmission v. Enron Corp. 28 is unavailing. There, two ener gy companies each owned a one-half interest in a gas pipeline sub ject to cross rights of f irst ref usal in the event one of the owners chose to sell his interestto a third-party. Enron elected to sell its interest to a third-party and predicated such sale [*48] on the prospective buyerreceiving regulatory clear ance prior to sale. West Texas ob jected to this ter m and ar gued that Enron breached its preemptiveright by inter jecting an inter mediate condition (regulatory approval) into the purchase agreement that it should not be requiredto match. In very broad language, the Court, applying Texas law, held that plaintiff West Texas was required to meet thisper f ectly legitimate ter m in Enron's agreement with the prospective third-party purchaser because it was commerciallyreasonable and imposed in good faith.

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28 907 F.2d 1554 (5th Cir. 1990).

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Contr ary to def endants' contentions, West T exas T ransmission does not stand f or the proposition that a third-party agreement,irrespective of its scope, is the sole deter minant of a right of f irst ref usal holder's obligation to match. The sub ject matter of thecontr act at issue in West T exas T ransmission was an ownership interest in a pipeline. The scope of the f irst ref usal rightcovered the same. Inclusion [*49] of a regulatory approval ter m did not in any way alter or add to the sub ject matter of theunderlying contr act nor f orce the preemptive right holder to match a "package deal" as is the case here. Rather, regulatoryapproval bore a direct relation to the sub ject matter of the contr act and was, theref ore, properly within the scope of the rightholder's matching obligation.

Def endants cite only one decision running truly contr ary to the consistent and over whelming authority f rom New Yor k andelsewhere proscribing package deals: In re New Era Resor t s, LLC . 29 In that case, a Bankruptcy Court construed Tennesseelaw to require the holder of a f irst ref usal right to match the ter ms of a third-party package deal off er. In re New Era Resor t sdoes not represent New Yor k law on this sub ject.

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29 238 B.R. 381 (Bankr. E.D. Tenn. 1999).

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Moreover, def endants have not asserted a compelling r ationale or directed the Court to any legal authority stating that the well-settled body of New Yor k law construing [*50] rights of f irst ref usal should not apply in the context of television distributionrights. Def endants cite no authority f or their contention that this contr act should be treated diff erently because it relates to

intellectual property. HN11 One New Yor k court has construed a right of f irst ref usal regarding intellectual property to prohibit

the use of a package deal. 30 And in CBS v. French T ennis Fed erat ion, 31 in the course of issuing a preliminary in junction,

HN12 a New Yor k trial court recognized that rights of f irst ref usal are a common and essential element of televisionprogr amming contr acts. This Court made the same observation in Dover Downs v. ESPN, Inc., 32 a case decided under New

Yor k law. HN13 Courts in other jurisdictions have also re jected the ar gument that the prohibition against the use of "packagedeals" to def eat a right of f irst ref usal should be limited to the real estate context. 33

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30 See Camp Sys. v. PHH Aviat ion Servs., Inc., 1988 U.S. Dist. LEXIS 6346, E.D.N.Y., C. A. No. 88 CIV 945, 1988 WL 70637 (May 31, 1988) (sof tware).

31 N.Y. Sup. Ct., N.Y.L.J. 5 (Jan. 24, 1983).

32 1991 Del. Ch. LEXIS 76, Del. Ch., C. A. No. 11830, Jacobs, V.C. ( April 26, 1991). [*51]

33 See, e.g., Rad io WEBS v. T el e-M ed ia Corp., Ga., 249 Ga. 598, 292 S.E.2d 712, 715 (1982) ("the cited lease cases [are]applicable to sales of businesses; to f ind other wise would facilitate def eat of contr actual rights of f irst ref usal by inclusion of extr aneous matters."); F l ori d a's First Coast Servs., Inc. v. Le-Jo Ent ers., 1989 U.S. Dist. LEXIS 4471, E.D. Pa., C. A. No., 88-9413, 1989 WL 46102, at *3 (1989) (re jecting contention that package deal cases are limited to real estate). See al so 3 Corbin

on Cont rac t s § 11.3, at 469 ( Apr. 25, 1989) (HN14 while a right of f irst ref usal "customarily, but not exclusively, arises in realproperty tr ansactions . . . the sub ject matter may be anything which the parties may make the sub ject of a contr act").

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There is no doubt that WWFE sought out a str ategic alliance with a multiplatf or m media conglomer ate in complete good faith.



Linda and Vince McMahon quite r ationally believed, and indeed were so advised, that the most eff ective way to grow theircompany and increase the value of the WWFE f r anchise was through horizontal expansion of WWFE production.

[*52] The changed landscape of the media business since the WWFE and USA f irst entered into that original 1983 licenseagreement, and WWFE's current desire to secure a str ategic alliance do not, however, alter the meaning of § 5 of the contr actbetween USA and the WWFE. In fact, the contr act language has hardly changed since 1983 when the parties f irst entered intoan agreement to distribute the Series. At that time, WWFE did not possess the mar ket power it does today and was notseeking a str ategic alliance. It also could not have anticipated the vast changes that have occurred in the media business.Changed circumstances, however, do not alter the meaning of contr act language, especially when such language has not only

gone unchanged, but has indeed been reaff ir med by the parties as recently as November 1999. HN15 Business exigenciesand changed circumstances are also not a proper basis f or the Court to rewrite the parties' contr act.

The clear meaning of the language of § 5 read in the context of the entire contr act, relevant parol evidence, and well-settledNew Yor k case law supports the view that the scope of USA's matching obligation is limited by the sub ject matter of the Agreement, [*53] a license to distribute the f our progr ams. And although I do not doubt the sincerity o f Linda McMahon'stestimony that she genuinely believed that she had the right and ability to go out and sign whatever deal she could and requireUSA to match every element of it, no matter how unrelated to the parties' current relationship, the language of the clause,particularly when read in the context of the entire contr act, and inf or med by a reading of the relevant New Yor k case law,simply cannot bear the weight of such a broad reading.

B. US A Has Not Uncond i t ionall y M at ched V iacom's Offer

When WWFE presented to USA Viacom's April 2 off er, USA treated the off er as triggering its right of f irst ref usal under the1998 Agreement. USA responded by attempting to match those ter ms "with respect to the Series." To that end, USA crossed

out those parts of the April 2 off er that were clearly extr aneous to the sub ject matter of its licensing agreement with WWFE.Thus, USA properly blacklined ter ms and conditions regarding television rights f or specials, the "Smackdown!" series on UPNand the XFL. USA also properly excised provisions relating to theme par k attr actions, theatrical motion pictures, [*54] r adiosyndication, pay-per-view events in Canada, a publishing venture and a dr ama television series. These elements clearlyexceeded the scope and sub ject of the earlier licensing agreements between WWFE and USA. Turning to the ter ms of the off erthat did relate to the Series progr ams, the sub ject matter of the 1998 Agreement, USA listed the items that it would "match" andsubstituted "USA" f or "Viacom," "TNN," "MTV" or "CBS" in each provision that dealt with the f our Series.

The Court now must conf ront the second level of analysis in this matter. That is, when WWFE submitted Viacom's April 2 off erto USA pursuant to USA's right of f irst ref usal, did USA accept those provisions that it was required to accept to enter into abinding and enf orceable contr act with WWFE? To deter mine whether USA accepted the off er, the Court must look to the

ob jective manif estation of the parties' intent as expressed by their words and deeds. 34 HN16 The off eree's intention to acceptis unimportant except insofar as it is overtly manif ested. 35 Under New Yor k law, a party's manif estations of intent are viewedf rom the vantage point of a reasonable person in the position of the other party. In deter mining [*55] whether suchmanif estations constitute acceptance, disproportionate emphasis must not be put on any single act, phr ase or provision.

Rather, the Court must consider the totality of all these, in light of the attendant circumstances, the situation of the parties, andthe ob jectives they were striving to obtain. 36

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34 See Dover Downs at 16-17.

35 I d .

36 I d .

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Applying these principles to the facts of this case, I conclude that no reasonable person in WWFE's position could have viewedUSA's letter and the blacklined version of Viacom's off er letter as an unconditional acceptance of Viacom's off er. USA's April 12 letter did state that USA treated Viacom's April 2 off er as triggering USA's right of f irst ref usal, and that USA intended toexercise that right. But USA's letter, as well as the crossed out version of Viacom's off er, failed to accept unconditionally all of the material ter ms and conditions that related to the Series progr ams, the sub ject matter of the 1998 Agreement. BecauseUSA's [*56] acceptance is at variance with its obligations under its right of f irst ref usal, its April 12 letter oper ated as acounteroff er, not as a legally enf orceable acceptance of an off er. I turn now to a brief discussion of the ter ms and conditions inthe April 2 off er which were within the scope of the right of f irst ref usal, but that USA failed to unconditionally accept.

First, I conclude that USA failed to match the territorial rights component of Viacom's off er f or the television rights to the Series. As discussed at length above, a license f or the f our Series is the sub ject matter of the 1998 Agreement and def ines the scopeof the f irst ref usal right. Specials, the "Smackdown!" series, the XFL, theme par k attr actions, theatrical motion pictures, r adiosyndication, pay-per-view in Canada, book publishing and a TV dr ama series are diff erent sub ject matters and, thus, outside of the scope of USA's f irst ref usal rights and obligations. The territory covered under a prospective license agreement f or the f our Series, however, clearly is not a separ ate sub ject matter, but r ather is a material ter m correlated to the f our Series.



An example of USA's f lawed reasoning in this connection is Lynn's [*57] explanation at trial: "I think that our current agreementtalks about a license of the f our series in a def ined territory of the United States. And I think that that is I guess what I would callthe sub ject of the agreement. And theref ore, we didn't have to--that is what our right of f irst ref usal had to do with, was thesub ject of the agreement, being the license of the series in the territory. And this went beyond that scope; and theref ore, I didn'tthink we had to match it." 37

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37 Trial Tr. at 471 (Lynn).

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USA's mistake (as evidenced by the above testimony) is in assuming that Canada and the Carribean are outside the scope of the f irst ref usal right because the 1998 Agreement extended only to the territory of the domestic United States and itsterritories. But the limit of the f irst ref usal right's scope is not the f our corners of the 1998 Agreement itself . Rather the limit isthe sub ject matter of the Agreement (the f our Series). Def ining the scope of the f irst ref usal right by the f our corners of the Agreement [*58] tr ansf or ms the f irst ref usal sentence in section 5(b) into a right of renewal. In eff ect, under Lynn's misguidedinterpretation, USA's right of ref usal would require any third party off er to mimic the ter ms of the 1998 Agreement, except f or the price and time f r ame of the off er.

USA alternatively ar gues that, by crossing out the non-domestic territory in Viacom's off er, USA actually did WWFE a favor, asit enabled WWFE to sell distribution rights in Canada and the Caribbean f or more money. But USA cannot place itself in theposition of making str ategic business decisions f or WWFE. Nothing in the record supports USA's contention that territorialcover age of the television distribution of the series was unimportant to WWFE. To the contr ary, the undisputed evidence is thatWWFE was interested in arr angements that would diversif y and expand its br and globally. The territorial cover age ter m in

Viacom's off er was, theref ore, clearly a material ter m relating to the Series that USA was obligated to match unconditionally. Itfailed to do so and, thus, eff ectively made a counteroff er to WWFE.

Second, I f ind that USA failed to match the choice of law and f orum selection clauses in Viacom's [*59] off er. Viacom's off erprovides that "the str ategic alliance (and all of the components thereof ) shall be governed by New Yor k law, and each partyagrees to submit to the exclusive jurisdiction of the courts located in New Yor k." USA struck these provisions in their entirety. Again, Richard Lynn testif ied that "the same basic concept" is captured in another provision of USA's response, which providesthat the ter ms of USA's purported agreement with WWFE "shall be ref lected in a long-f or m agreement (containing customarycovenants, representations, warr anties and indemnities) mutually satisfactory to USA and WWFE." 38

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38 Trial Tr. at 483-484.

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WWFE, however, is entitled to USA's unequivocal acceptance of the material ter ms of the tendered third party off er. Lynn'sexplanation is irrelevant, because it does not account f or the fact that the same language regarding a long-f or m agreement alsoappeared in Viacom's off er in add i t ion t o the choice of law and f orum selection provision that USA chose to strike. USA [*60]

cites no authority that choice of law and f orum selection clauses are immaterial ter ms of a contr act. In fact, HN17 New Yor k law holds that in jection of a f orum selection clause into a proposed contr act is a material alter ation of the contr act. 39 Choice of law and f orum are undoubtedly material ter ms. They appear in virtually every contr act USA off ered into evidence in this case. Itis not enough, in my opinion, f or a party to cross out such a material ter m and compel the other contr acting party to accept

assur ances (made at trial, but not bef ore) that a compar able ter m will be agreed to later. HN18 New Yor k law teaches thatovert manif estations of intent are what counts, not a party's (or its counsel's) self -serving statements of f uture intention,statements which USA did not make to WWFE on April 12 when it purported to accept the April 2 off er. 40 By striking the choiceof law and f orum selection ter ms of Viacom's off er, USA's response varied materially f rom that off er insofar as it related to theSeries and, thus, USA failed to match.

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39 General Inst r u ment Corp. v. T ie M anu fac tu ring, Inc., 517 F. Supp. 1231, 1235 (S.D.N.Y. 1981) (applying New Yor k law);Lorbrook Corp. v. G&T Indu s., Inc., 162 A.D.2d 69, 73, 562 N.Y.S.2d 978 (N.Y. Supr. 1990). [*61]

40 See Brown Bros. E l ec t rical Cont rac t ors, Inc. v. Beam Const r u c t ion Corp., 41 N.Y.2d 397, 361 N.E.2d 999, 1001, 393N.Y.S.2d 350 (N.Y. Ct. App.1977); "Indu st rial America," Inc. v. F ult on Indu st ries, Inc., Del. Supr., 285 A.2d 412, 415 (1971).

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Third, I f ind that USA failed to match the ter ms of Viacom's off er concerning certain cross-promotional obligations directlyrelated to the Series progr ams. Viacom's off er requires that Viacom "cross-promote the WWFE progr amming contemplatedhereunder across its various media platf or ms and outlets (including television, r adio and billboards)." USA concedes that itcould have purchased r adio time and rented billboards so as to match Viacom's promotional commitment. 41 Nonetheless, USA



crossed out all of the cross-media promotional platf or ms in the tendered off er.

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41 Peter man Dep. at 193-195.

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USA struck these explicit ter ms even though one of its [*62] executives, Baker, admits that billboards qualif y as cross-promotion and that USA could have purchased them. Baker explained that USA deleted the ref erence to billboards, r adio andtelevision because USA did not want to be "specif ic." 42 During the trial, USA's counsel ar gued that, although USA struck thewords "television, r adio, and billboards" f rom Viacom's off er, USA added the phr ase "as well as any additional promotion."These words, counsel insisted, capture the same intention as the explicit ter ms that Viacom used. Finally, USA also contendsthat the cross-promotional ter ms ref erring to television, r adio and billboards were illusory in any event, as Viacom's off er did notguar antee a f ixed amount of cross-promotional expenditures, but instead promised only to review annually the level of suchpromotion with WWFE.

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42 Baker Dep. at 56.

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These explanations and ar guments fall victim again to HN19 the f undamental principle that a right of f irst ref usal holder may

not def end a ref usal to match a ter m in the third [*63] party's off er on the ground that the third party "didn't mean it." USAeff ectively treats cross-promotion as an immaterial ter m. It is not. No evidence in this case suggests that the specif ic f or ms of cross-promotion of the f our Series included in Viacom's April 2 off er is an insubstantial element of the consider ation f or theSeries. To the contr ary, the parties agree that cross-promotion is increasingly prevalent in a world of media conglomer ates.Ultimately, theref ore, I am not persuaded that USA's equivocal match of portions of the cross-promotion provision in Viacom'soff er constitutes an unconditional acceptance. Instead, I f ind that USA eff ectively made a counteroff er to WWFE regarding thef or m and type of promotion it would provide under the agreement.

Fourth, based on my assessment of the testimony at trial and the situation of these parties, I f ind that USA failed to match theprovision of Viacom's off er promising "no regularly scheduled preemption." WWFE has long suff ered f rom USA's pr actice of preempting WWFE progr amming three weeks out of every year f or the U.S. Open and Westminster Kennel Club Dog Show. AsLinda McMahon testif ied at trial: "We have the world's longest [*64] running soap oper a. When you interrupt the viewing pattern of your audience, even if it's just, as USA would ref er to it, almost momentary, hiccup or blip, you can aff ect that viewing audience. [ And] that aff ects the other parts of your business." 43 To make matters worse, because USA's preemptions areregularly scheduled well in advance, Time Warner's competing WCW is able to plan ahead to capture WWFE's audience whenUSA preempts WWFE's progr ams.

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This situation str ained the relationship between WWFE and USA. As a result, WWFE sought and obtained, as an element of the f our Series license component of the proposed alliance with Viacom, a commitment f rom Viacom that there would be noregularly scheduled preemption of WWFE progr amming, absent an incident on the order of a national disaster. In other words,WWFE's Series would be televised at their regular times 52 weeks a year. Both WWFE and Viacom understand the words "noregularly scheduled preemption" to encompass this concept. This [*65] was the consistent, unequivocal testimony of McCluggage, Vince McMahon and Linda McMahon, and I f ind it persuasive and credible.

USA's position is that it is not preempting the WWFE series progr am when it televises the dog show and the U.S. Open. In

USA's view, this is not a regularly scheduled preemption. I do not agree. The ordinary meaning of the words should govern. Inthe circumstances of this case, the words "regularly scheduled preemption" supports WWFE's position. The dog show and theU.S. Open appear on USA regularly. That is, USA televises them at the same time of year, every year. They are scheduled tobe aired on USA and it is a regular appear ance. USA knows it. WWFE knows it. And WCW knows it. No evidence at trial haspersuaded me that these words have a special meaning in the entertainment industry, or a meaning contr ary to that describedabove. Theref ore, I will give the words their ordinary meaning in the context in which they are used.

Despite their plain meaning, USA ar gues that it matched this ter m because it chose not to strike the ter m "no regularlyscheduled preemption." By not striking, USA contends that it has matched unconditionally the ter ms of Viacom's [*66] off er.But USA's executives have made clear that WWFE will "have to live with" the regularly scheduled annual preemptions of WWFE's cable series f or the U.S. Open and Westminster Dog Show if the Series remain on USA beyond the 1999-2000television season. 44 These statements have inf uriated the McMahons, who have char acterized USA's purported match of Viacom's no preemption ter m as "a lie." 45 Having assessed Lynn's trial testimony on this precise question, I agree that USA's



liter al acceptance of the "no regularly scheduled preemption" ter m is more sleight of hand than it is a good faith intention toaccept unconditionally a material ter m of a third party off er. Stated simply, USA made it clear during the trial that it intends totelevise the dog show. It also intends, in my opinion, to televise the U.S. Open, notwithstanding its last ditch ar gument that itcould always pay off the Open and honor WWFE's no preemption clause.

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44 Trial Tr. at 1221-22.

45 Trial Tr. at 967-968; Trial Tr. at 1222.

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In short, [*67] USA's eleventh hour ar guments designed to minimize the importance of this ter m, or to assure its f utureintention to comply therewith, do not impress me more than the actual conduct of the parties over the past years. Accordingly, If ind as a matter of fact and law that USA failed to match unconditionally the "no regularly scheduled preemption" ter m of Viacom's off er.

Finally, I pause to describe a striking example of USA's remar kably opportunistic eff ort to match Viacom's off er. As notedabove, USA declined to match material aspects of the territory and cross-promotion provisions of the Viacom off er. Oneunderlying fact, common to both the territory and cross-promotion ter ms, is that USA lacked the "in house" capability to deliver on either provision. That is, its signal does not currently reach Canada and the Caribbean, territories covered under the Viacomoff er, and it does not own r adio or billboard assets, cross-promotional platf or ms promised in the Viacom off er.

These provisions of the Viacom off er, which USA was required to match, were burdensome to USA to the extent that they

would require USA to enter into some sort of subcontr acting relationship with a third-party in order [*68] to per f or m. To mymind, USA's r ationale f or declining to match them is lar gely a pretext, the purpose of which was to excise f rom the April 2 off erprovisions that it could not easily match, and "accept" the off er on its own ter ms--and not the exact ter ms of the third-partyoff eror.

USA's re jection of these provisions, clearly related to the f our Series and not constituting distinct sub ject matters, sits oddlynext to its enthusiastic acceptance of an exclusivity provision in the Viacom off er. USA's decision to match this ter m, a ter m painstakingly negotiated between Viacom and WWFE, smacks of opportunism. The exclusivity provision in the Viacom off er,among other things, gr ants to Viacom a "f irst negotiation/last ref usal" right on any wrestling-based sports progr amming WWFEproduces to air on a broad cast net work .

Bar gaining over this right led WWFE and Viacom to a compromise position in which Viacom would get a "f irst negotiation/lastref usal" right with respect to new broadcast progr amming--a compromise position tied into the over all value Viacom wasproviding WWFE and only agreed upon, as a pr actical matter, because of Viacom's signif icant broadcast assets in the CBS and UPN [*69] networ ks.

USA purported to match in f ull this exclusivity provision, including the clause gr anting "f irst negotiation/last ref usal rights" f orwrestling-based progr amming on broadcast networ ks. USA, however, d oes not own a broad cast net work . When this scenario istaken to its logical, though admittedly perverse conclusion, USA has assumed a veto power over the WWFE's ability todistribute wrestling-based progr amming over broadcast networ ks despite the fact that it does not own a broadcast networ k anddoes not itself intend to broadcast any wrestling progr ams whatsoever. This, to my mind, is nothing short of overreaching, andbuttresses my view, expressed later in this opinion, that USA's self -serving tactical decisions should not evoke judicialsympathy.

In the end, theref ore, USA's response to Viacom's off er failed to constitute a legally eff ective acceptance under New Yor k law.

HN20 In all non-Unif or m Commercial Code tr ansactions, as in this case, New Yor k f ollows the rule that a qualif ied acceptanceis nothing more than a counteroff er. 46 "Indeed, whenever a purported acceptance is even slightly at variance with the ter ms of an off er, the qualif ied response oper ates as a re jection [*70] and ter mination of - and substitution f or - the initially off eredter ms." 47

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46 M ar l ene Indu st ries Corp. v. Carnac T ex t i l es, Inc., 45 N.Y.2d 327, 332, 408 N.Y.S.2d 410, 380 N.E.2d 239 (N.Y. 1978) (citing Poel v. Br u nswick-Bal ke-Coll end er Co., 216 N.Y. 310, 110 N.E. 619 (1915)).

47 Homayou ni v. Paribas, 241 A.D.2d 375, 660 N.Y.S.2d 413, 414 (N.Y. App. Div. 1992); Watt s v. Car t er & Sons, Inc., 207 A.D.656, 202 N.Y.S. 852, 854 (N.Y. App. Div. 1924).

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Put diff erently, HN21 New Yor k law holds that "to conclude an agreement, the acceptance must meet and correspond with theoff er in every respect, neither falling short of nor going beyond the ter ms proposed, but meeting them exactly at all points andclosing them just as they stand." 48 Under USA's own interpretation of § 5, which I agree limits the scope of its rights to the



Series progr ams, USA's "acceptance" failed to match each and every material ter m that related in a reasonable way tothe [*71] Series and was contained in Viacom's off er. Under established New Yor k contr act law, theref ore, USA's selectiveacceptance does not constitute a legally eff ective acceptance of Viacom's off er.

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48 22 NY Jur.2d Contr acts § 52 (1999) (ci t ing Barber-Greene Co., Inc. v. M .F. Doll ar d , Jr., Inc., 239 A.D. 655, 269 N.Y.S. 211,215-16 (N.Y. App. Div. 1934)).

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The conclusion I reach, that USA failed to match the material ter ms of Viacom's April 2 off er pursuant to USA's right of f irstref usal, is required by the applicable New Yor k contr act law principles cited above. It is not, in my opinion, an inequitable or unfair result in light of all the circumstances. For example, I would note the high level of tactical maneuvering in this case, onthe part of all the participants. In any event, USA had possible alternatives open to it that might have produced a diff erentoutcome.

When WWFE tendered the April 2 Viacom off er (an off er that USA undoubtedly knew was "in the wings"), USA had every right,

indeed HN22 some [*72] authorities hold that it had an aff ir mative legal obligation, 49 to undertake a reasonable investigationof any ter ms or conditions of the third party off er that were unclear to USA. To the extent USA believed particular ter ms in theViacom off er might not relate to the Series, and thus might not be within the purview of its right of f irst ref usal, its recourse wasto request additional inf or mation f rom WWFE. Notwithstanding the opportunity to seek clarif ication f rom WWFE during the tenday period between receipt of Viacom's off er on April 3 and USA's response on April 12, USA did not call a single WWFErepresentative to seek guidance on questionable deal points. Lynn testif ied at trial that USA was "af r aid what would happen if

we talked to them during this period."50

Whatever tactical thinking animated this decision to ab jure direct communication withWWFE, it seems, f rom my commonsensical perspective, to have been destined to bear bitter f ruit.

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49 See John D. Stu mp & Assoc., Inc. v. C u nningham M emorial Park, Inc., 187 W. Va. 438, 419 S.E.2d 699, 706 (W. Va. Supr.1992); Koch Indu s., Inc. v. Su n Co., Inc., 918 F.2d 1203, 1212 (5th Cir. 1990). [*73]

50 Trial Tr. at 479-81.

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Additionally, HN23 USA clearly had the right and the opportunity to secure interpretive assistance f rom the courts bef ore,r ather than af ter, it responded to Viacom's off er. Rather than seek declar atory or in junctive relief as to whether Viacom's April 2 off er triggered its right of f irst ref usal under § 5, USA chose to treat the off er as a triggering off er and attempted to match it. It

seems that USA chose this avenue f or tactical reasons (i.e., USA could not have moved f or specif ic per f or mance other wise, a remedy that might aff ord it a str ategically superior contr actual position). USA's actions, viewed in this light, do not evoke thesympathy of a court of equity and provide no basis f or tempering the outcome required under controlling principles of New Yor k contr act law.

III. CONCLUSION

For all of the reasons stated above, I conclude that USA failed to match unconditionally a bona f ide third party off er WWFEtendered to it concerning television distribution rights to the Series, in accordance with § 5 of the 1998 Agreement. BecauseUSA cannot prevail on the merits [*74] of its claim, it is not entitled to in junctive relief against WWFE and Viacom or to specif icper f or mance.

An Order entering judgment in favor of def endants and against plaintiff has issued today, consistent with this Memor andum Opinion.

ORDER

For the reasons set f orth in this Court's Memor andum Opinion entered in this case on this date, it is

ORDERED that f inal judgment in this action is entered in favor of the def endants and against the plaintiff and the complaint isdismissed. Each party shall bear its own court costs.

William B. Chandlen III, Chancellor

Dated: June 27, 2000

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USA Cable vs WWE, Viacom, CBS Corporation