Opinion
Case No. 2:00-CV-936-ST
March 27, 2002
ORDER GRANTING ATT DEFENDANTS' MOTION TO DISMISS OR FOR SUMMARY JUDGMENT
This matter came before the court on January 28, 2002, for hearing on the Motion to Dismiss or for Summary Judgment filed by defendants ATT and ATT Broadband, LLC, collectively the ATT Defendants.
I. Introduction
Plaintiff, the company that holds an option to purchase The Salt Lake Tribune newspaper from defendant Kearns-Tribune, brings several claims against the ATT Defendants arising from their alleged actions during the time the ATT Defendants owned and sold Kearns-Tribune. For the reasons set forth below, the court will grant the ATT Defendants' Motion for Summary Judgment.
II. Background
There have been several written decisions in this case that explain the background, the parties, the contracts and the major issues. See Salt Lake Tribune Publishing Co. v. ATT Corp., 2001 WL 670928 (D. Utah February 21, 2001) (unpublished Order granting preliminary injunction) (hereinafter the Februay 21, 2001, Order) and Order on Motion to Disqualify (November 16, 2001) (explaining the 1997 merger). Accordingly, the court presumes familiarity with the 1997 merger, the Management Agreement and the Option Agreement that form the heart of this case. As in past decisions, the court will refer to Defendant Kearns-Tribune, LLC, and its predecessors in interest, as Kearns-Tribune, recognizing that it has undergone several name changes, organizational restructuring and mergers since 1997. See Order on Motion to Disqualify, at 10-14 (discussing Kearns-Tribune's changes in organizational form and names).
III. Claims Against ATT Defendants
Plaintiff's claims against ATT, ATT Broadband and the other Defendants have been renumbered through a series of Amended Complaints. The parties agree that the present Motion covers the claims as numbered and set forth in the Fourth Amended Complaint. Plaintiff's claims against the ATT Defendants are as follows: breach of contract (fourth claim for relief); breach of a binding commitment or preliminary commitment to sell (seventh claim for relief); breach of the duty of good faith and fair dealing (eighth claim for relief against the ATT Defendants and other defendants); interference with contract (ninth and tenth claims for relief against the ATT Defendants and other defendants); interference with prospective economic relations (eleventh claim for relief against the ATT Defendants and all other defendants); bad faith negotiations (twelfth claim for relief); and, promissory fraud (thirteenth claim for relief).
IV. Summary Judgment Standard
In resolving this motion the court considered matters outside the pleadings. Therefore, pursuant to Fed.R.Civ.P. 12(b), the Motion was treated as a motion for summary judgment and additional time was provided for discovery under Fed.R.Civ.P. 56(f).
Summary judgment is appropriate "if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Fed.R.Civ.P. 56 (c). In applying this standard, we examine the factual record and draw reasonable inferences therefrom in the light most favorable to the nonmoving party.
As the moving parties, defendants shoulder the "initial burden to show that there is an absence of evidence to support the nonmoving party's case." Thomas v. IBM, 48 F.3d 478, 484 (10th Cir. 1995) If defendants meet this burden, it falls to plaintiff to "identify specific facts that show the existence of a genuine issue of material fact." Id. "The party opposing the motion must present sufficient evidence in specific, factual form for a jury to return a verdict in that party's favor." Id.
Clinger v. New Mexico Highlands Univ. Bd. of Regents, 215 F.3d 1162, 1165 (10th Cir. 2000) (citations and internal quotation marks partially omitted).
In support of their motion, the ATT Defendants rely upon findings made pursuant to the December 15, 2000 Order denying Plaintiff's request for a preliminary injunction to stop ATT Broadband's sale of Kearns-Tribune to Media News (hereinafter the December 15, 2000 Order). In that December 15, 2000 Order, the court found that Plaintiff had not "raised questions going to the merits so serious, substantial, difficult and doubtful as to make them fair grounds for litigation and thus for more deliberate investigation." Id. at 8 (quoting Koerpel v. Heckler, 797 F.2d 858, 866 (10th Cir. 1986)). However, the standard for summary judgment is not the same as for granting a preliminary injunction. In this summary judgment motion, if Plaintiff shows there is a material issue of fact on any of its claims against the ATT Defendants, it would be entitled to present those claims to a jury, regardless of the earlier, pre-discovery ruling in favor of the ATT Defendants on the injunction motion.
The list of undisputed facts relied upon by ATT is short — 19 numbered paragraphs. Plaintiff does not dispute the first seven and has not met its burden of identifying specific facts that show a genuine issue of fact on the material portions of the other twelve paragraphs. Plaintiff does however, offer 290 paragraphs of facts and approximately 178 supporting exhibits that it contends show material issues of fact relating to its claims.
Plaintiff's Memorandum in Opposition and supporting exhibits were filed under seal. They are currently the subject of the Intervenors Objection to Court's Sealing of Records.
V. Discussion of Disputed and Undisputed Facts
For purposes of summary judgment, the court examines the factual record and draws reasonable inferences therefrom in the light most favorable to Plaintiff as the nonmoving party. Under this standard, Plaintiff presents evidence showing the following facts, some of which are disputed. However, for the purposes of this motion, the court considers any disputed facts in the light most favorable to Plaintiff as the nonmovant.
From March 9, 1999, through January 2, 2001, ATT's subsidiary, ATT Broadband, owned defendant Kearns-Tribune. Kearns-Tribune owns The Salt Lake Tribune newspaper (The Tribune) and related assets. See December 15, 2000 Order. Plaintiff's 290 paragraphs trace the relationship between the parties beginning several years before ATT became involved.
Although defendant Deseret News Publishing, owner of the Deseret News, and Kearns-Tribune, owner of The Salt Lake Tribune, were newspaper rivals, they jointly owned and operated Newspaper Agency Corporation (NAC), the entity responsible for the circulation, printing, distribution and advertising of the two competing newspapers. Id. at 2. In the 1990s, NAC operated under the 1982 version of a Joint Operating Agreement (JOA). Id.
In 1997, TCI acquired Kearns-Tribune through Kearns-Tribune's merger with a specially created TCI merger subsidiary (the 1997 merger). The newly merged entity, Kearns-Tribune, retained ownership of The Salt Lake Tribune newspaper and related assets such as interests in the NAC, and valuable TCI stock. Another new entity, Plaintiff Salt Lake Tribune Publishing, created by some of the former owners of Kearns-Tribune, acquired the right to manage The Tribune newspaper for five years under a Management Agreement entered into as part of the 1997 merger. Plaintiff also acquired an option, under the Option Agreement, to buy The Tribune and related assets (Tribune assets) at the end of those five years. Plaintiff's position is that Kearns-Tribune's NAC stock is one of the Tribune assets covered by the Option Agreement.
The merger agreement was executed on April 17, 1997. On July 31, 1997, the Management Agreement and Option Agreement were executed and the merger was simultaneously closed.
It also owned and later sold several smaller newspapers, matters not at issue in this case.
At about the same time, TCI hired Leo Hindery as TCI's President when John Malone, formerly TCI's President and CEO, became Chairman of the Board. According to Plaintiff, its problems started shortly after the completion of the 1997 merger when Mr. Hindery, who had newspaper experience, was assigned responsibility for TCI's new subsidiary, Kearns-Tribune. Pl.'s Mem. at ix. Plaintiff contends that Mr. Hindery unilaterally and immediately decided to sell The Salt Lake Tribune. (Hindery Dep. at 11-12, 44-45.) For this purpose, Mr. Hindery negotiated with Dean Singleton, the President and CEO of defendant MediaNews as a potential buyer from approximately September 1997, through January 1998. During this time, MediaNews spent serious time and effort investigating Kearns-Tribune and its contracts, including the Option Agreement. (Singleton Dep. at 18.)
In October 1997, Mr. Hindery also began negotiations with Deseret News Publishing. Through these negotiations, Mr. Hindery developed a business relationship with Glen Snarr, Deseret News Publishing's Chairman of the Board. Many of Plaintiff's asserted facts concern Mr. Hinder/s alleged actions during the protracted negotiations with Deseret News Publishing, and his alleged motivations for those actions.
Mr. Hindery first offered to sell The Tribune to Deseret News Publishing and later suggested purchasing only some assets and amending the JOA. Mr. Hindery negotiated with Deseret News Publishing for over two years and the proposed deals underwent many changes. Plaintiff was not informed of the negotiations with Deseret News Publishing. Generally, Deseret News Publishing dealt with TCI (later renamed ATT Broadband) or with ATT regarding the proposed deals.
Plaintiff's evidence on these mailers cites portions of the Snarr and Gomm depositions and various exhibits, all of which are currently filed under seal.
Sometime in or around February 1998, Deseret News Publishing informed TCI that it believed that the NAC stock could not be transferred under the Option Agreement without its approval. (Hindery Dep. and Ex. P-138.)
By March 1998, TCI received advice from its counsel that Kearns-Tribune's NAC stock could "arguably" be considered part of the assets subject to Plaintiff's Option and so informed Deseret News Publishing. (Ex. P-27.) In March 1998, Mr. Hindery suggested to Deseret News Publishing that they amend the JOA to have the NAC president be mutually agreed upon and that Mr. Hindery be appointed to the NAC Board of Directors. (Ex. P-27.) In April 1998, Deseret News Publishing informed TCI that it believed the Option Agreement was unenforceable as to the NAC stock without its consent and that the Management Agreement was unenforceable if it purported to delegate Kearns-Tribune's rights/obligations regarding the JOA. (Ex. P-183.)
In 1999, when it appeared that ATT would buy TCI, Mr. Hindery discussed the sale of the newspaper and/or related assets with various ATT representatives and counsel. During this time ATT representatives and counsel examined the documents and ATT obtained legal advice that the Option Agreement was unenforceable. (Hindery Dep. at 137.) Mr. Hindery informed Deseret News Publishing that he would continue to be responsible for Kearns-Tribune assets after a merger with ATT and would meet and discuss options available for the TCI/Deseret News Publishing sale after the merger. (Ex. P-53.)
Plaintiff presents evidence that it believes shows Mr. Hindery tried to poison Plaintiff's relationship with Deseret News Publishing by communicating negative information about Dominic Welch, Plaintiff's CEO and member of the NAC Board. (Pl.'s Br. at xx citing to sealed Exs.)
ATT acquired TCI on or about March 9, 1999, and TCI was renamed ATT Broadband. In anticipation of the acquisition, Kearns-Tribune went through a series of mergers and emerged as a limited liability company and successor in interest to Kearns-Tribune. Although it had changed organizational form, Kearns-Tribune remained a wholly owned subsidiary of TCI/ATT Broadband. The changes in the form of Kearns-Tribune facilitated the ability of ATT to cause the transfer of TCI stock from Kearns-Tribune to another company owned and/or controlled by ATT. (Hindery Dep. at 164-66.) The TCI stock was transferred. Plaintiff claims no interest in the TCI stock.
After ATT acquired TCI (and renamed it ATT Broadband), the on-going negotiations for a sale to Deseret News Publishing were continued. On March 23, 1999, ATT sent Plaintiff a letter suggesting interest in accelerating the Option while expressing concern about Deseret News Publishing's position that the JOA prohibited a sale of the NAC stock. The letter solicited input on the "seeming conflict" between the JOA and the Option Agreement and informed Plaintiff that if it could not be resolved, ATT was considering a sale to a "third party satisfactory the Deseret News." (Ex. I-58.)
By the end of March to the first week of April, Mr. Hindery communicated to Deseret News Publishing that he believed the time was right for a declaratory judgment action to determine the issue of Plaintiff's Option. (Hindery Dep. at 163.)
Negotiations for a sale to Deseret News Publishing continued and in late May 1999, drafts of term sheets were exchanged between counsel for Deseret News Publishing and counsel for ATT. The deal was far enough along that by June 1999, Deseret News Publishing prepared a press announcement regarding its purchase of the Tribune. The various forms of the proposed deal addressed Deseret News Publishing's potential challenge to the Option Agreement. However, by August 1999, Deseret News Publishing was frustrated by its inability to close the deal.
In the first week of October 1999, Mr. Hindery resigned from ATT. He left about two weeks later.
Despite assurances from Mr. Hindery and ATT's counsel that its Board would approve the sale, when the proposed sale to Deseret News Publishing went before the ATT Board of Directors, the sale was not approved. Deseret News Publishing, which thought the deal was agreed, then threatened to sue.
Between November 1999, and March 2000, discussion continued between ATT and Deseret News Publishing. By June 2000, the negotiations on behalf of ATT Broadband were taken over by its Executive Vice President, Michael Huseby. In June 2000, he reopened negotiations with MediaNews and encouraged it to work with Deseret News Publishing regarding the JOA in the event MediaNews bought the Tribune.
Mr. Huseby also separately informed Plaintiff and Deseret News Publishing by letter that if the problems could not be worked out, ATT Broadband would sell Kearns-Tribune by accepting bids. (ATT Def's Ex. K (June 22, 2000 letter) and Ex. J.) These letters were accompanied by an ATT drafted form of Acquisition Agreement. The letters informed Plaintiff and Deseret News Publishing as follows:
ATT desires to resolve any potential legal claims between SLT [plaintiff Tribune Publishing] and DNPC [Deseret News Publishing], and to eliminate the issues created for ATT by its nominal ownership of a newspaper. For these reasons, ATT intends to commence a concurrent process that would involve, first an effort to reach a three-way transaction that would resolve the parties' claims still providing fair value for TCI's disposition of its interest in KT [Kearns-Tribune] and, second, in the absence of a three-way transaction, a formal invitation to each of SLT and DNPC to submit a firm offer to acquire TCI's interest in KT.
As part of the first effort, ATT would be happy to meet jointly with SLT and DNPC to try and facilitate the development and negotiation of a three-way resolution. Laura Kaster, Chief Counsel, ATT Solicitor General's office, will support these discussions for ATT. In addition, ATT has no objection to SLT and DNPC communicating with each other to formulate a joint proposal that would accomplish this end. In the event this does not result in a resolution by August 31, 2000, ATT will then request SLT and DNCP each to submit a firm offer . . . in accordance with the procedures outlined below. The offers would be evaluated on the basis of both price and terms, with particular attention to ATT's desire to be indemnified fully by the acquiring party with respect to any legal claims that have been or may be brought . . . Also ATT will consider the willingness of SLT and DNPC to make accommodations or take steps to eliminate or moderate ongoing disputes between the newspapers.
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7. Evaluation. ATT will evaluate the offers received as promptly as reasonably practical. ATT may determine that one or both of the offers will be used as the basis of further negotiation. An offer will be deemed accepted only when the Acquisition Agreement has been executed and delivered. Until the execution of the Acquisition Agreement, ATT will have no obligation to accept any offer, whether or not such offer represents the highest purchase price. ATT expressly reserves the right, in its sole discretion, to evaluate the terms and conditions of any offer and to reject any offer, without specifying the reasons therefor, and to request another set of offers.
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ATT also reserves the right, without giving reasons therefor and without any liability therefore, at any time and in any respect, (i) to amend or terminate the offering procedures with respect to either or both of the prospective purchasers, . . . (iii) to terminate discussion with either or both of the prospective purchasers, (iv) to reject either or both proposals, and (v) to negotiate, sign and close with either prospective purchaser or with any other person with respect to a transaction involving KT [Kearns-Tribune].
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In the absence of a different resolution, ATT intends to proceed with the sale . . . subject to ATT's rights as set forth in paragraph 7 above (including the right to reject both offers in its sole discretion or to conduct further negotiations or discussions with respect to either or both offers.
(ATT Defs' Ex. K (June 22, 2000 letter).)
Basically the same information on the bid process contained in paragraph 7, partially quoted above, was earlier sent by letter to MediaNews on September 13, 2000. (Defs' Ex. O.)
Various combinations of ATT, ATT Broadband, MediaNews, Deseret News Publishing and Plaintiff negotiated over the next few months. At an undetermined time Deseret News Publishing appears to have dropped out as a potential purchaser. It did continue to negotiate with the others regarding the JOA.
Plaintiff objected to the bid process and met with ATT representatives regarding its position on September 25, 2000. (Frisch Dep. at 88, 90, 93.) On September 29, 2000, ATT notified the parties it was suspending its bid process and would notify them if the process was restarted. (Huseby Dep. at 59.) It was ATT, and not ATT Broadband, that suspended the negotiations.
By the end of September 2000, MediaNews and Deseret News Publishing came to an agreement under which Deseret News Publishing would consent to MediaNews' purchase of Kearns-Tribune and, in exchange, MediaNews would promise to make certain changes to the JOA. (December 15, 2000 Order at 6.) MediaNews expressed to ATT its interest in acquiring Kearns-Tribune for $200 million.
Knowing MediaNews would offer $200 million, ATT then met with Plaintiff's representatives in early October 2000, initially to negotiate speeding up the option process. On October 16, 2000, Plaintiff's counsel returned to ATT a copy of draft Acquisition Agreement with their added comments. (Frisch Dep. at 100-01.) On October 17, 2000, ATT's and Plaintiff's representatives met to negotiate for Plaintiff to acquire Kearns-Tribune. Mr. Huseby told Plaintiff's representatives that not every single detail had to be resolved before an agreement was reached, (Huseby Dep. at 144), and that he had authority to work out a deal and present it to ATT's Board of Directors. Randy Frisch, conducted the negotiations on Plaintiff's behalf in the fall 2000. Mr. Frisch testified in his deposition that Plaintiff informed ATT of the concessions it [Plaintiff] was willing to make to Deseret News Publishing to adjust its relationship with Deseret News Publishing in furtherance of purchasing Kearns-Tribune from ATT. in this context, he discussed his understanding that ATT was negotiating exclusively with Plaintiff.
The context of this statement is strongly disputed. The ATT Defendants present evidence that this statement did not include "voiced issues" such as financing, price, and indemnification. See ATT Defendants' Reply Mem. at 3 n. 4 and Ex. A.
Q. Did [Tribune publishing] offer it [concessions] to Deseret News?
A. No. Mr. Garfinkel and Miss Kaster were negotiating just with us. It wasn't our role to —
Q. So at this time [November 13, 2000] are you saying that ATT had taken over the negotiation with Deseret News?
A. No. ATT had at this time, really since October 3rd, had been negotiating with us exclusively. The had told us that the acquisition — Miss Kaster had said that the acquisition of [Kearns-Tribune] was on a different track than resolution with Deseret News. They were independent with one another. Now, she wasn't perfectly clear at all times, but that was our understanding.
Q. That the resolution of the dispute between Deseret News and [Plaintiff], was on a different track from what did you say?
A. Speeding up the Option Agreement. The acquisition of [Kearns-Tribune] by [Plaintiff].
(Frisch Dep. at 109-10.)
On November 13, 2000, Plaintiff's counsel sent ATT a letter saying that Plaintiff wished to make it clear that its commitment to buy Kearns-Tribune was not part of ATT's previously announced "bidding process." (Frisch Dep. Ex. at 12.)
The week before Thanksgiving 2000, ATT Broadband responded to MediaNews' inquiries about the status of the MediaNews' efforts to buy by saying it was not ready to talk to them yet. (Huseby Dep. at 127.) At the time, Mr. Huseby was hopeful of working out a deal with Plaintiff. Id.
During a negotiation conducted over the telephone on November 17, 2000, Mr. Huseby told Mr. Frisch that to fall within the range of Kearns-Tribune's estimated value, Plaintiff's offer would have to be at least $180 million. (Huseby Dep. at 85.) At that time, Mr. Huseby had reason to know that MediaNews had previously expressed interest in purchasing Kearns-Tribune for $200 million, but did not give Plaintiff that information. Id. Mr. Frisch inquired if ATT Broadband would be using Plaintiff's bid to get another entity to increase its bid:
And I said, look, Mike [Huseby] I want to make sure that we are dealing one on one, that you are not going to take anything we talk about here and go run it to somebody else. I want to know we're dealing just with you, you're dealing just with us. And he [Mr. Huseby] said, well, I'm not using your bid against anybody else. I have had another offer, but I'm only using that to measure the reasonableness of your bid. I said, okay.
(Frisch Dep. at 113.)
Mr. Huseby acknowledges that he "assured [Mr. Frisch] I was not using [Plaintiff's offer as a stalking horse for any other offer." (Huseby Dep. at 99.)
Plaintiff increased its offer from its latest $175 million bid to $180 million. Mr. Frisch then inquired of Mr. Huseby words to the effect of "is that all we have to do? Or, "are we done." (First Huseby Dep. at 85.) Mr. Huseby replied that Mr. Frisch needed to talk to Mr. Garfinkel, General Counsel for ATT. Mr. Huseby ended the call by saying "I'll get right back to you." (Id. and Frisch Dep. at 112-14.) A few minutes later, Mr. Huseby and Mr. Garfinkel called Mr. Frisch back. Mr. Huseby said "I have Garfinkel on the line and we want to get this all resolved. We want to get this done." (Frisch Dep. at 114.) Mr. Welch was present but Mr. Frisch conducted the negotiations for Plaintiff. Mr. Frisch, Mr. Garfinkel and Mr. Huseby discussed several outstanding points, such as funding and the amount of the personal guarantees. Plaintiff increased its offer on the amount of the personal guarantees from the $25 million it had offered. Mr. Frisch described the conversation as follows:
And Garfinkel said, well, let us talk about it [the guarantees] and we'll get back to you. I said, okay 28 million. They [Mr. Frisch and Mr. Garfinkel] chuckled and said, look, it isn't a big deal to us either. Let us talk about it. And I said, okay, we're done. We've got a deal.
And Huseby and Garfinkel talked at about the same time, and Huseby said, no. I hate to say we're done until the money is in the bank. And Garfinkel said, you know, I'm going to check with Maryland. And I [Mr. Frisch] said, well, what about — I forgot about reps and warranties. And Garfinkel said, you know, we've agreed on the mater points, they don't matter, they're nits. They are just cleaning up. They said good-bye. We [Mr. Welch and Mr. Frisch] hung up the phone, certain we had a deal.
(Frisch Dep. at 116-17) (underlined emphasis added).
Mr. Garfinkel then called Mr. Frisch back. Mr. Frisch asked about a closing date and Mr. Garfinkel suggested by the end of the year. Mr. Garfinkel remarked that he had told Mr. Huseby that, to sign the deal, there would not be much travel required because "it was just nits. It was all we had to do was do fax [sic] and phone." (Frisch Dep. at 117-18.)
Mr. Huseby told Mr. Frisch that approval from ATT's Board was required but that "the Board would follow staff recommendation." (Frisch Dep. at 12-21.)
On November 21, 2000, Deseret News Publishing renewed its threats to sue.
On November 27, 2000, Plaintiff's attorneys sent back to ATT a copy of the draft Acquisition Agreement with proposed changes and showing a price of $180 million. (ATT Def.s' Ex. S.) The changes Plaintiff proposed by its November 27, 2000 Draft included a different dispute resolution mechanism and a disagreement on the forum for the forum selection clause. Most significantly, in the section on personal guaranties Plaintiff's proposed changes crossed out the $50 million shown on ATT's Draft and wrote in a $33 million figure. (Id. at 13.) Plaintiff does not dispute that the differences represented by its changes were never agreed to between ATT and Plaintiff. (See ATT Def.s' Mem. at 10, asserted undisputed fact No. 10 and Pl's Mem. at iv-v.)
The court notes that Plaintiff's Memorandum does not list Defs' No. 10 as a disputed fact.
Also on November 27, 2000, Mr. Huseby and Mr. Garfinkel met with senior ATT corporate management, including its CEO, CFO, its public relations group, and its attorneys. They discussed Plaintiff's offer and an earlier letter from MediaNews showing MediaNews' interest at a higher price. (Huseby Dep. at 113-14.) They decided to present the two positions to the Board at a meeting scheduled for the following Wednesday and to negotiate with MediaNews. (Huseby Dep. at 111-114.)
On November 29, 2000, negotiations with MediaNews began again. The same day, ATT's Board of Directors approved a $200 million sale to MediaNews subject to a final written agreement. The price was the determining factor in ATT's acceptance of the MediaNews offer. (Lodovic Dep. at 45.) The offer from MediaNews included releases to ATT from Deseret News Publishing. The deal with MediaNews was concluded the next day by execution of an Acquisition Agreement. Under that Acquisition Agreement, if the price eventually paid under the Option Agreement is less than the $200 million MediaNews paid for Kearns-Tribune, ATT will reimburse MediaNews up to $26 million. The net effect is that the MediaNews price could be as low as $174 million. (Garfinkel Aff. Ex. T, ¶ 5.09 (e)(ii) and Lodovic Dep. at 59-60.)
The Acquisition Agreement provides:
[MediaNews] understands, acknowledges and agrees that [Kearns-Tribune] is, and after the Closing Date will continue to be, a party to the Management Agreement and is, and after the Closing Date will continue to be, bound by the terms thereof Without limiting the foregoing, [MediaNews] will cause [Kearns-Tribune] to honor the terms of the Management Agreement that ensure the independence of the Tribune's reporting and editorial functions.
(Garfinkel Dec. Ex. T, ¶ 5.5(a).)
In reference to the Option Agreement, the Acquisition Agreement provides:
[MediaNews] understands, acknowledges, and agrees that [Kearns-Tribune] is, and after the Closing Date will continue to be, a party to the Option Agreement and is, and after the Closing Date will continue to be, bound by the terms thereof.
(Id. at ¶ 5.5(b)).
In reference to the JOA, the Acquisition Agreement provides:
Following the Closing, [MediaNews] will cause [Kearns-Tribune] to comply with its obligations under the Joint Operating Agreement, subject to all rights of [Kearns-Tribune] pursuant to the terms of the Joint Operating Agreement.
(Id. at ¶ 5.5(c).)
ATT announced the sale of Kearns-Tribune to MediaNews and Plaintiff filed this case to block the proposed sale. After extensive preliminary injunction hearings, this court refused to block the sale, in part because the sale documents recognized and preserved Plaintiff's rights under the Option Agreement and Management Agreement. Id.
Plaintiff contends that based upon the evidence at the hearings that resulted in the February 21, 2001 Order, ATT knew at the time of the sale what MediaNews and Deseret News Publishing planned to do regarding the appointment of new NAC directors and amending the JOA and how these changes would affect the Management Agreement, the Option Agreement and the Tribune assets.
The sale went through. MediaNews and Deseret News Publishing immediately amended the JOA (the 2001 JOA) and Plaintiff responded with a new injunction request. After more proceedings, this court restored the status quo by enjoining the implementation of certain of the 2001 JOA provisions.
Plaintiff does not dispute certain important facts advanced by the ATT Defendants. Plaintiff does not dispute that it and ATT never agreed on financing or security or the issue of how operational disputes between Tribune Publishing and Deseret News Publishing would be worked out. Plaintiff also does not dispute that after the telephone calls where it believed it was told there was a deal, except for "nits," that it then made a number of significant changes to the draft agreement. It does not dispute that it never subsequently reached agreement on those issues. Plaintiff does not dispute that ATT's Board approval was required and not obtained.
Plaintiff does not dispute that there was never a written agreement between ATT to enter into a contract or a written binding preliminary agreement. Plaintiff does not dispute the express language of the Acquisition Agreement whereby MediaNews agreed that, after the sale, Kearns-Tribune would be bound by the Option Agreement, the Management Agreement and the JOA. However, Plaintiff argues that the express language is a sham because ATT knew MediaNews would violate the Management Agreement and try to invalidate the Option.
V. Breach of Contract and Breach of Implied Covenant of Good Faith and Fair Dealing
The court will first address Plaintiff's claims for breach of contract and for breach of the implied covenant of good faith and fair dealing in those contracts (Plaintiff's fourth and eighth claims for relief). Plaintiff contends that ATT and ATT Broadband breached the Management Agreement and the Option Contract. However, neither ATT nor ATT Broadband is a party to those contracts — it is Kearns-Tribune that is the party to those contracts. Plaintiff attempts to impose liability for the alleged breaches on the ATT Defendants under the theory that Kearns-Tribune is their alter ego.
The parties agree that Delaware corporate law applies.
Persuading a Delaware court to disregard the corporate entity is a difficult task. In order to prevail on a claim to pierce the corporate veil and hold the corporation's shareholders liable, a plaintiff must prove that the corporate form causes fraud or similar injustice.
LaSalle Nat. Bank v. Perelman, 82 F. Supp.2d 279 (D. Del. 2000) (internal citation and quotation omitted).
To prevail on an alter ego theory of liability, a plaintiff must show that the two corporations "operated as a single economic entity such that it would be inequitable . . . to uphold a legal distinction between them."
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Thus, under an alter ego theory, there is no requirement of a showing of fraud. . . . To prevail on an alter ego claim under Delaware law, a plaintiff must show (1) that the parent and the subsidiary `operated as a single economic entity' and (2) that an `overall element of injustice or unfairness . . . [is] present.'
Fletcher v. Atex, Inc., 68 F.3d 1451, 1457 and 1458 (2d Cir. 1995) (quoting Harper v. Delaware Valley Broadcasters, Inc., 743 F. Supp. 1076, 1085 (D. Del. 1990) aff'd, 932 F.2d 959 (3rd Cir. 1991)).
Courts most often "pierce the corporate veil" where fraud would result if the corporate structure were allowed to shield shareholders from liability. Thus, in DeWitt Truck Brokers, Inc. v. W. Ray Flemming Fruit Co., 540 F.2d 681, 685-87 (4th Cir. 1976), the court noted that independent corporate status may be disregarded when such factors as gross undercapitalization, fraud, failure to observe corporate formalities, non-functioning of officers and directors, or similar circumstances indicate that the subsidiary is merely the shadow of the parent. It as in this case, the shareholder happens to be another corporation, piercing the corporate veil results in disregard for the separate existence of parent and subsidiary.
In determining whether two corporations are truly separate, significant factors to consider include adequacy of capitalization, overlapping directorates and officers, separate record keeping, payment of taxes and filing of consolidated returns, maintenance of separate bank accounts, level of parental financing and control over the subsidiary, and subsidiary authority over day-to-day operations. See 1 Fletcher, Cyclopedia of the Law of Private Corporations § 43, at 194 (cum. supp. 1987). In that context, the concept of complete domination by the parent is decisive. The activities bearing on the issue of corporate independence need not have any particular relationship to the cause of action being asserted.
Phoenix Canada Oil Co. Ltd. v. Texaco, Inc., 842 F.2d 1466, 1476-77 (3rd Cir. 1988).
The burden of proof on alter ego liability rests with the party attempting to negate the existence of a separate entity in order to pierce the corporate veil. Publicker Industries, Inc. v. Roman Ceramics Corp., 603 F.2d 1065, 1069 (3rd Cir. 1979).
Plaintiff is correct inasmuch as fraud, strictly speaking, is not the only basis for finding an alter ego relationship and piercing the corporate veil. "Fraud is frequently cited as a basis on which to pierce the corporate veil, but it is not the only one: `It may be done only in the interest of justice, when such matters as fraud, contravention of law or contract, public wrong, or where equitable consideration[s] . . . are involved.'" Mabon, Nugent Co. v. Texas American Energy Corp., Fed.Sec.L.Rep. (CCH) ¶ 93,674, at p. 98,092 (Del.Ch. 1988).
The injustice/inequity alleged by Mobil, however, is insufficient to justify disregarding the separate corporate existence of the Oklahoma subsidiary. Any breach of contract and any tort — such as patent infringement — is, in some sense, an injustice. Obviously this type of"injustice" is not what is contemplated by the common law rule that piercing the corporate veil is appropriate only upon a showing of fraud or something like fraud. The underlying cause of action does not supply the necessary fraud or injustice. To hold otherwise would render the fraud or injustice element meaningless, and would sanction bootstrapping.
The law requires that fraud or injustice be found in the defendants' use of the corporate form. In Zubik v. Zubik, 384 F.2d 267 (3d Cir. 1967), (1968), the court noted that:
[l]imiting one's personal liability is a traditional reason for a corporation. Unless done deliberately, with specific intent to escape liability for a specific tort or class of torts, the cause of justice does not require disregarding the corporate entity. The corporate form itself works no fraud on a [tort victim] who has never elected to deal with the corporation. Id. at 273 (footnote omitted).
Mobil Oil Corp. v. Linear Films, Inc., 718 F. Supp. 260, 268-69 (D. Del. 1989).
While the issue of whether the parent company's domination is sufficient to justify piercing the corporate veil is ordinarily a question of fact, it is appropriate to decide the issue on summary judgment if there is a lack of sufficient evidence to place the alter ego issue in dispute. Fletcher 68 F.3d at 1415.
In this case, even if all of Plaintiff's asserted facts are accepted as true, it has not shown sufficient evidence to place the alter ego issue in dispute. Plaintiff has not shown fraud in the use of the corporate form, undercapitalization, or that Kearns-Tribune was a facade for TCI/ATT Broadband or ATT. Kearns-Tribune had officers and they observed minimal formalities. (See Ex. P-141 (action by written consent in lieu of annual meeting of the sole member — TCI).)
By the time it was owned by TCI/ATT Broadband, Kearns-Tribune was a limited liability company rather than a corporation. However, it appears that the veil-piercing doctrine applies to limited liability companies. E.g. Ditty v. CheckRite, Ltd., Inc., 973 F. Supp. 1320, 1335 (D. Utah 1997) (veil piercing theories apply to Utah Limited Liability companies). This court finds that it is likely that the Courts of Delaware would apply their well-developed case law on piercing corporate veils and alter ego liability to Delaware limited liability companies.
Plaintiff makes much of the commonality of Kearns-Tribune officers with officers, directors or employees of ATT Broadband and/or ATT. However, the fact of common officers, by itself, can never be grounds for piercing the corporate veil of a parent corporation, nor is the fact that the sole owner of a company exercises its power to elect or appoint the officers of its wholly owned subsidiary. Skouras v. Admiralty Enters., 386 A.2d 674, 681 (Del.Ch. 1978) ("Absent a showing of fraud or that a subsidiary is in fact the mere alter ego of the parent, a common central management alone is not a proper basis for disregarding separate corporate existence."); Fletcher, 68 F.3d at 1459 ("Parents and subsidiaries frequently have overlapping boards of directors while maintaining separate operations."); and, Joiner v. Ryder System Inc., 966 F. Supp. 1478, 1485 (C.D. Ill. 1996) (applying Illinois law to find parent corporation's power to elect officers of wholly-owned subsidiary was, by itself, insufficient basis to pierce corporate veil).
The evidence is that Kearns-Tribune's business operations are entirely separate from those of TCI/ATT Broadband. The evidence is undisputed that, pursuant to the Management Agreement, all of Kearns-Tribune's actual business operations were not managed and controlled by TCI/ATT Broadband. Instead, they were managed and controlled by Plaintiff, as manager of the newspaper under the Management Agreement. As manager, it was Plaintiff that maintained Kearns-Tribune's business books and records, incurred its business expenses and paid its bills, selected its bank, maintained its bank accounts, managed the newspaper's employees, obtained insurance, and all manner of similar business and administrative responsibilities. (Hindery Dep. at 270-76 and Frisch Dep. Ex. 1.) Under the Management Agreement, Plaintiff acts on behalf of Kearns-Tribune in connection with Kearns-Tribune's rights and responsibilities under the JOA. (Frisch Dep. Ex. 1 ¶ 3.02(ii).) Thus the only evidence is that there was a complete separation of Kearns-Tribune's day-to-day operations, record-keeping, bank accounts and all similar matters from those of its corporate owner, ATT Broadband. Even if Kearns-Tribune's corporate owner received and approved the annual plan submitted by Plaintiff as Kearns-Tribune's manager, it does not show domination and control by the corporate parent. Such general executive responsibilities for supervision of a subsidiaries' operations is insufficient to show domination and control supporting the piercing of the corporate veil. See Fletcher 68 F.3d at 1459-60 (evidence that parent corporation's approval or participation was necessary for subsidiary's major financial decisions is no basis for finding domination by parent corporation).
Conducting negotiations for the sale of a subsidiary or for the sale of one or all of a subsidiary's assets is also consistent with the general executive responsibilities of a parent corporation. For example, in Fletcher the plaintiff seeking to establish liability under an alter ego theory presented evidence that the parent corporation exerted control over the subsidiary's sale of its stock and played a significant role in negotiating the sale of substantially all of the subsidiary's assets to a third party. The Second Circuit affirmed the trial court's determination that these facts were insufficient to raise an issue of material fact regarding the parent corporation's liability under an alter ego theory. Fletcher 68 F.3d at 1459-60.
Although ATT or ATT Broadband caused Kearns-Tribune to be reorganized to facilitate the transfer of ownership of TCI stock, there is no evidence that the TCI stock transfer, or the earlier sale of regional newspapers, rendered Kearns-Tribune insolvent. Kearns-Tribune still retains all of the valuable Tribune assets and there is no evidence that Kearns-Tribune is undercapitalized.
Many of Plaintiff's assertions of facts relate to ATT's control over its subsidiary, ATT Broadband. However, such alleged control is not evidence that either ATT Broadband and Kearns-Tribune or ATT and Kearns-Tribune acted as a single economic unit sufficient to require disregarding the separate identity of Kearns-Tribune.
As noted, because the ATT Defendants are not parties to the Option Agreement and Management Agreement, they cannot be liable for the alleged breach of those contracts absent imposition of liability as the alter ego of Kearns-Tribune. Despite the volume of its material, the court finds and concludes that Plaintiff has not shown evidence which could establish alter ego status entitling Plaintiff to disregard Kearns-Tribune's separate identity. Thus, ATT and ATT Broadband have shown there are no material issues of fact on the alter ego issue. Because the ATT Defendants have shown there are no material issues of fact under which they could be found liable for the breach of Kearns-Tribune's contracts, it is not necessary to address the substance of Plaintiff's claims that the ATT Defendants breached duties under the Option Agreement or Management Agreement. Accordingly, the ATT Defendants are entitled to judgment as a matter of law on Plaintiff's claim of breach of contract.
The breach of the duty of good faith and fair dealing claim against the ATT Defendants is also premised on alter ego liability. For the same reasons, the court will grant summary judgment on the breach of duty of good faith and fair dealing claim.
VI. Intentional Interference with Contract
Plaintiff contends that the ATT Defendants intentionally interfered with its existing rights under the Management Agreement and Option Agreements (ninth claim for relief) and with its prospective rights under those contracts (tenth claim for relief). Plaintiff concedes its prior claim that the ATT Defendants intentionally interfered with its rights under the JOA — to which Plaintiff is not a party. (Plaintiff's Mem. at 11 n. 7.)
In its ninth claim for relief Plaintiff claims, pursuant to Restatement (Second) of Torts § 766, that the ATT Defendants intentionally interfered with Plaintiff's rights under the Management Agreement and Option Agreement by "inducing or causing' Kearns-Tribune not to perform those contracts by entering into a "three-way" transaction where it sold Kearns-Tribune to MediaNews knowing that MediaNews would amend the JOA and violate Plaintiff's rights. Plaintiff alleges that the ATT Defendants knew that MediaNews intended to deprive Plaintiff of its management rights, surrender Tribune assets and impede any attempt by Plaintiff to exercise its Option right.
In its tenth claim for relief Plaintiff claims, pursuant to Restatement (Second) of Torts § 766A, that the ATT Defendants intentionally interfered with Plaintiff's rights under the Management Agreement and Option Agreement by preventing Plaintiff from performing under those Agreements or by causing Plaintiff's performance to be more expensive or burdensome by entering into a "three-way" transaction where it sold Kearns-Tribune to MediaNews knowing that MediaNews would amend the JOA and violate Plaintiff's rights. According to Plaintiff, the amendment of the JOA then caused the Plaintiff to resort to litigation in order to preserve and enforce the rights it bargained for under the Management Agreement and Option Agreement. Plaintiff contends that if it loses in this lawsuit, it will have been prevented by the ATT Defendants from performing the Option Agreement and Management Agreement. Plaintiff contends that even if it succeeds in this lawsuit, the costs of litigation will have made its performance more expensive and burdensome.
The parties appear to agree that Utah law applies to this claim. Under Utah law, the court must apply the Restatement (Second) of Torts, § 766 and § 766A. A cause of action for prospective interference with contractual relationship is explained as follows:
[O]ne who persuades another . . . to breach a contract is guilty of an actionable tort, unless such persuasion or other action causing the breach was done with just cause or excuse. It is also generally recognized that even though a defendant's action brings about a breach of contract, he is not liable where the breach was caused by the doing of an act which he has a legal right to do.
Jones v. Intermountain Power Project, 794 F.2d 546, 554 (10th Cir. 1986) (quoting Bunnell v. Bills, 368 P.2d 597, 602-03 (Utah 1962) overruled in part on other grounds)).
Plaintiff contends that the ATT Defendants sold Kearns-Tribune to MediaNews when they knew that "as part of the deal," MediaNews would then amend the JOA, which amendments would then violate Plaintiff's rights under the separate Management Agreement and Option Agreement. "The deal," as seen by Plaintiff is an alleged "three way transaction" that allows the parties (presumably Deseret News Publishing, the ATT Defendants and MediaNews), to achieve the goal of violating the Option Agreement and Management Agreement by selling Kearns-Tribune to a third party accompanied by that third party's concession to Deseret News Publishing's demands. This is a highly attenuated claim.
The court finds Plaintiff has failed to show facts from which a reasonable jury could find that by selling Kearns-Tribune, the ATT Defendants caused or induced Kearns-Tribune not to perform the Management Agreement or Option Contract. There is no evidence that either of those contracts was impaired, amended or changed by the sale. The actions complained of were taken by Kearns-Tribune and/or MediaNews after the sale when Kearns-Tribune had a new owner. Plaintiff's Option Agreement does not cover the ownership of Kearns-Tribune itself, only certain assets owned by Kearns-Tribune. Thus what the ATT Defendants sold was not covered by the Option Agreement.
None of the three cases cited by Plaintiff support its position. In Schwartz v. Bianco Family Trust, 874 P.2d 430 (Colo.Ct.App. 1993), the court affirmed the trial court's award of damages for intentional interference with a contract where evidence showed that the purchaser of an interest in real property was aware of a co-owners's preemptive right to purchase land and yet insisted that the selling co-owner not disclose the sale so that the preemptive right could not be exercised. In Carlson v. Carlson, 775 P.2d 478 (Wyo. 1989), the court held there were triable issues of fact where a bank was "instrumental" in "causing" a lessor to first insist upon a new lease and; second, to terminate that lease for the purpose of eliminating a claimed option under a prior lease. Both of these cases contain evidence of affirmative acts of "persuasion" to harm the interests of others.
In Tiger, Inc. v. Time Warner Entertainment Co., L.P., 26 F. Supp.2d 1011 (N.D. Ohio 1998), also cited by Plaintiff, involves an intentional interference with contract claim against a party acquiring a beneficial interest in real property when another party held a right of first refusal on the property. Thus, Tiger is inapposite to Plaintiff's claim against the ATT Defendants.
In this case, there is no evidence that by selling Kearns-Tribune in its entirely that the ATT Defendants induced, caused or persuaded Kearns-Tribune to violate the Option Agreement or Management Agreement. Evidence relating to the negotiations for the various proposed deals between the ATT Defendants and Deseret News Publishing is irrelevant to these claims because those various proposals never became final and the ATT Defendants did not sell to Deseret News Publishing. The court finds that encouraging MediaNews, as a prospective purchaser, to negotiate directly with Deseret News Publishing regarding any disputes between it and Kearns-Tribune and/or Plaintiff does not show an affirmative act to persuade or other action to cause another to breach a contract.
Plaintiff has failed to present evidence that the ATT Defendants caused, induced, insisted on, or persuaded the others regarding the 2001 JOA amendments or any other of the post-sale actions which then arguably allowed Kearns-Tribune to interfere with the preexisting Management Agreement and Option Agreement. Knowledge, alone, of what might occur in contrast to inducing, causing or persuading actions that interfere with a contract, is insufficient to impose liability under existing case law.
Where there is no showing that the ATT Defendants induced, insisted persuaded or otherwise acted affirmatively to cause a breach of contract, the Plaintiff has failed to show a material issue of fact on its intentional interference claims. Accordingly, the court need not address the ATT Defendants' argument pursuant to Jones, supra, that they would not be liable for such interference because it was caused by an act, the selling of a subsidiary, which they had a legal right to do. See Jones, 794 F.2d at 554.
The ATT Defendants have shown there are no material issues of fact on the claims based on intentional interference with contract. Accordingly, the court will grant ATT's Motion for Summary Judgment on the intentional interference with contract claims (the ninth and tenth claims for relief).
VII. Intentional Interference with Prospective Economic Relations
Plaintiff contends that if it turns out it is not able to exercise its option to purchase The Tribune, the ATT Defendants will have interfered with its prospective economic relations with the newspaper' advertisers, readers, employees and "others" (eleventh claim for relief).
Under Utah law, a claim for intentional interference with another's prospective economic relations has three elements: (1) that the ATT Defendants intentionally interfered with Tribune-Publishing's existing or prospective economic relations; (2) for an improper purpose or by improper means; and (3) that the interference caused injury to Tribune-Publishing. St. Benedict Development Co. v. St. Benedict Hospital, 811 P.2d 194, 200 (Utah 1991).
The court agrees with the ATT Defendants that this claim is premature and speculative. It presupposes that Plaintiff will be deprived of its right to purchase The Tribune and thereby enter into economic relations with advertisers, readers, employees and others in the market area. Accordingly, the court will dismiss this claim.
VIII. Breach of a Binding Preliminary Agreement or Binding Preliminary Commitment and Bad Faith Negotiations
Plaintiff contends that the negotiations and discussions between the ATT Defendants and Plaintiff culminating in an exchange of draft Acquisition Agreements created either (1) a preliminary binding agreement without a written formal agreement or (2) a binding preliminary commitment imposing an obligation on both parties to act in good faith to complete and execute the formal agreement (seventh claim for relief).
The parties dispute whether New York or Utah law applies. At the preliminary injunction stage, the issue of the applicable law was not resolved. Instead, the court found that under the law of either New York or Utah, there was no binding preliminary agreement or binding preliminary commitment. To determine the applicable law, the court looks to the choice of law provisions of Utah as the forum state.
We apply the "most significant relationship" approach, as described in the Restatement (Second) of Conflict of Laws, in determining which state's law should apply in actions involving torts, contracts, property interests, and the like.
Under this type of approach, we attempt to determine which state has the most significant relationship to the case in question. The Restatement (Second) lists certain factors which a court needs to consider to make this determination. These express factors vary with the type of action brought (i.e., tort claims, contract claims, etc.).
Records v. Briggs, 887 P.2d 864, 867 and n. 3 (Utah App. Dec 13, 1994). Thus, this court applies Restatement (Second) of Conflicts § 188(2). Under this section, relevant considerations include:
"(a) the place of, (b) the place of negotiation of the contract, (c) the place of performance, (d) the location of the subject matter of the contract, and (e) the domicile, residence, nationality, place of incorporation and place of business of the parties.
These contacts are to be evaluated according to their relative importance with respect to the particular issue.
Restatement (Second) of Conflicts § 188(2).
ATT's draft of the Acquisition Agreement provided that New York law would apply if the contract were executed. Some negotiations were conducted in, or from, New York, although Plaintiff's representatives conducted some negotiations by telephone from Utah and the parties faxed documents back and forth. ATT is a New York corporation, but it has conducted business in Utah. Kearns-Tribune is a Delaware company, however, its major assets are all located in Utah and, as the owner of the largest newspaper in the state, its operations have more of an impact in Utah than any other place. Plaintiff's major operations are in Utah and have an impact here as it currently operates the newspaper.
In a similar case, Philips Credit Corp. v. Regent Health Group Inc., 953 F. Supp. 482, 502-03 (S.D. N.Y. 1997), the court held that where formation of a contract is at issue, the court should not consider certain factors of § 188(2), namely, the first (place of contracting) and third (place of performance).
The court finds that the contract was partially negotiated in Utah, the assets of Kearns-Tribune are in Utah, Utah is Plaintiff's place of business and Utah is the place where the contract, if it existed, would have the most impact. The court finds that on balance, Utah has the most significant relationship with the alleged contract at issue.
Under the Utah law, "a contract can be enforced by the courts only if the obligations of the parties are set forth with sufficient definiteness that it can be performed." December 15, 2000 Order at 18-19 (quoting Bunnell v. Bills, 368 P.2d at 600.)
The evidence is undisputed that Plaintiff and the ATT Defendants did not reach agreement on several material terms. Thus, the court finds that the evidence fails to show issues of fact from which a reasonable jury could find that under Utah law the alleged contract was sufficiently definite to be performed. Therefore, the ATT Defendants are entitled to judgment on this claim.
However, as was the situation at the preliminary injunction stage, the choice of law is not dispositive because under the law of New York, the ATT Defendants would also be entitled to summary judgment.
The law of New York provides that certain preliminary agreements are enforceable.
Because preliminary agreements to negotiate, by definition, leave material terms open for future consideration, courts have struggled not only with the enforceability of such contracts, but also with the damages associated with the breach of them. In Teachers Insurance and Annuity Association of America v. Tribune Co., 670 F. Supp. 491, 498 (S.D.N.Y. 1987), the court developed a useful "taxonomy" of preliminary agreements in order to assess the legal obligations flowing from such agreements. The Tribune decision reasoned that preliminary agreements can be of at least two distinct types: (1) contracts in which the parties have essentially reached agreement (including on the intent to be bound) on all material issues and completion of the agreement is merely contingent on more elaborate formalization of the contract (hereinafter "Type I contracts"), and (2) agreements which express mutual commitment to major terms, while recognizing that other material terms remain open for negotiation (hereinafter "Type II agreements"). Tribune, 670 F. Supp. at 498.
There are critical differences between these two types of agreements: "The first type binds both sides to their ultimate contractual objective in recognition that contract has been reached, despite the anticipation of further formalities. The second type — the binding prelimiary commitment — does not commit the parties to their ultimate contractual objective but rather to the the alternate objective within the agreed framework." Id. Furthermore, parties to Type I contracts may lawfully demand full performance even if the formal agreement is not reached, while parties to Type II agreements may not. Id. Parties to Type II agreements may insist, however, that their counter parties negotiate in good faith toward completion of their agreement after negotiation on the open terms.
The Court's discussion of the Tribune decision should not be mistaken for the proposition that all preliminary agreements should be placed within the taxonomy. Certain preliminary agreements may be so open-ended on material terms that it would be impossible for a court to enforce a legal obligation, a point which the Tribune opinion carefully acknowledges: "if the agreement is too fragmentary, in that it leaves open terms of too fundamental importance, it may be incapable of sustaining binding legal obligation." Id., at 497.
The primary concern for courts confronting preliminary agreements, and the reason behind the Tribune court's attempt to develop a taxonomy, is to avoid imposing obligations that the parties to an agreement never intended. On the one hand, parties should be free to negotiate without binding themselves to obligations, even when indications of preliminary assent have been exhibited; on the other, the courts are bound to enforce agreements that were intended as binding, even though the formal memorialization has not yet taken place.
Westerbeke Corp. v. Daihatsu Motor Co., Ltd., 162 F. Supp.2d 278, 286-87 (S.D.N.Y. 2001).
Confronted with the issue of determining whether a preliminary agreement is binding, the Court is mindful of two competing interests:
First, courts must be wary of "trapping parties in surprise contractual obligations that they never intended" to undertake. Second, "courts [must] enforce and preserve agreements that were intended [to be] binding, despite a need for further documentation or further negotiation," for it is "the aim of contract law to gratify not defeat, expectations." Adjustrite, 145 F.3d at 548 (quoting Tribune, 670 F. Supp. at 497-98).
Miller v. Tawil, 165 F. Supp.2d 487, 490-91 (S.D. N.Y. 2001).
Plaintiff first contends that it had reached a binding preliminary agreement with the ATT Defendants because the key terms had been agreed upon and only needed to be reduced to writing. However, Plaintiff has not shown evidence that all key terms had been agreed upon. Plaintiff does not dispute that no agreement was reached on financing for the purchase. It does not dispute that no agreement was reached for the amount of indemnification. It contends these issues were not resolved because the parties were going to "talk about" indemnification further. However, Plaintiff has failed to dispute that it made a number of significant changes to the draft Acquisition Agreement after the November 17, 2000 telephone calls and that the parties never reached agreement on the items that Plaintiff changed after the telephone calls where it contends there was an agreement. For example, Plaintiff sent back a draft version with a difference of $17 million on one key term. This does not show that all the terms of the alleged contract had been agreed upon. In fact, it supports a contrary showing. Thus, there is no showing that full agreement had been reached. Accordingly, Plaintiff has failed to meet its burden of producing evidence from which a reasonable jury could find a binding preliminary agreement under New York law.
Plaintiff also claims that it had a "binding preliminary commitment" with the ATT Defendants that required the ATT Defendants to continue to negotiate until an agreement was reached. However, in this case, unlike the case Plaintiff relies on, see Teachers Insurance and Annuity Association of America v. Tribune Co., 670 F. Supp. 491, 498 (S.D. N.Y. 1987), there was no written agreement or commitment letter. As explained in Teachers Insurance:
In seeking to determine whether such a preliminary commitment should be considered binding, a court's task is, once again, to determine the intentions of the parties at the time of their entry into the understanding, as well as their manifestations to one another by which the understanding was reached. Courts must be particularly careful to avoid imposing liability where binding obligation was not intended. There is a strong presumption against finding binding obligation in agreements which include open terms, call for future approvals and expressly anticipate future preparation and execution of contract documents. Nonetheless, if that is what the parties intended, courts should not frustrate their achieving that objective or disappoint legitimately bargained contract expectations.
Giving legal recognition to preliminary binding commitments serves a valuable function in the marketplace, particularly for relatively standardized transactions like loans. It permits borrowers and lenders to make plans in reliance upon their preliminary agreements and present market conditions. Without such legal recognition, parties would be obliged to expend enormous sums negotiating every detail of final contract documentation before knowing whether they have an agreement, and if so, on what terms. At the same time, a party that does not wish to be bound at the time of the preliminary exchange of letters can very easily protect itself by not accepting language that indicates a "firm commitment" or "binding agreement."
Id., 670 F. Supp. at 498.
The Teachers Insurance case is unusual because the parties exchanged commitment letters, one of which had an attached two page term sheet covering the important economic terms of a loan and expressly committed the parties to a binding agreement contingent only upon the execution of appropriate documentation and Board approval. 670 F. Supp. at 494. Thus1 in that case, unlike this case, the express written language of the parties' preliminary agreement, strongly supported a finding of an agreement to be bound to take further steps where it was replete with the terminology of binding contract. 670 F. Supp. at 499.
In this case there was no written preliminary agreement showing an intent to be bound until the conclusion of final formalities. Not only is there no written statement showing an intent to be bound to continue to negotiate until an agreement is reached, ATT's written expression clearly shows the opposite. The letter from ATT sending out its draft Acquisition Agreement and soliciting bids expressly reserved the right not to be bound in the absence of the execution and delivery of a formal written Acquisition Agreement. (Def.s' Ex. K quoted supra.) ATT's letter of September 13, 2000 (ATT Def.s' Ex. M) referenced the terms of this earlier (June 22, 2000) letter for the procedures to be followed.
Plaintiff attempts to distance itself from the expression of intent not to be bound in the absence of a written contract by pointing out that its attorney stated it was not offering to buy as part of the announced bid process and that ATT did not formally notify it in November that ATT was restarting the formal bid procedures. Nonetheless, the bid procedures clearly expresses ATT's intent to reserve the right not to be bound in the absence of a formal written contract, including when it conducted further negotiations on any bid and there is no evidence of a contrary agreement or intent between the parties.
In Teachers Insurance the court found that the reservation of the Board of Directors approval was, in the context of the negotiations, representations and written commitment letters, merely a recognition that there were various issues and documentation which remained open which would require negotiation and approval. However, unlike the relatively minor "additional terms as are customary in such agreements" that were at issue in Teachers Insurance, it is undisputed that no agreement had been reached on major terms — as evidenced by the $17 million difference between the parties in the guaranty amount. Similarly, in this case, unlike Teachers Insurance, there is no expert or other evidence that in the industry it is customary for preliminary commitments to be binding. See 670 F. Supp. at 503.
In this case, ATT's Board of Directors had recently rejected the negotiated terms of the proposed sale of the same property to Deseret News Publishing — evidence that ATT's Board approval was not a mere formality.
There is insufficient evidence to raise a material issue of fact that the parties manifested an intent to be bound to continue negotiations until all terms were reached and all approvals received. Accordingly, even if this court were to apply New York law, the ATT Defendants have shown they are entitled to summary judgment on the breach of binding preliminary agreement or binding preliminary commitment claim.
Plaintiff's claim for bad faith negotiations (twelfth claim for relief') is derivative of its claim for a binding preliminary commitment and fails for the same reasons. Accordingly, the ATT Defendants are entitled to summary judgment on the claim for bad faith negotiations.
IX. Promissory Fraud
Plaintiff contends that the ATT Defendants' actions in connection with the sale constitute promissory fraud (thirteenth claim for relie). The parties appear to agree that Utah law applies to this claim. This cause of action is explained as follows:
The jurisprudence of this state has long recognized as actionable deceit a promise accompanied by the present intention not to perform it, made for the purpose of deceiving the promissee, thereby inducing him to act where otherwise he would not have done so, and by virtue of which he parts with his money or property.
Cerritos Trucking Co. v. Utah Venture No. 1, 645 P.2d 608, 611 (Utah 1982).
In the Fourth Amended Complaint, this promissory fraud claim involves allegations of an alleged promise to enter into and honor a contract for Plaintiff's accelerated purchase of Kearns-Tribune's ownership. Fourth Amended Complaint at ¶¶ 189-194. However, in its Memorandum, Plaintiff appears to expand this claim to also include common law fraud. Pl's Mem. at 24-25. The elements of common law fraud are as follows:
(1) [T]hat a representation was made (2) concerning a presently existing material fact (3) which was false and (4) which the representor either (a) knew to be false or (b) made recklessly, knowing that there was insufficient knowledge upon which to base such a representation, (5) for the purpose of inducing the other party to act upon it and (6) that the other party, acting reasonably and in ignorance of its falsity, (7) did in fact rely upon it (8) and was thereby induced to act (9) to that party's injury and damage.
Gold Standard, Inc. v. Getty Oil Co., 915 P.2d 1060, 1066-67 (Utah 1996) (underlined emphasis added).
Plaintiff raises several allegations of "deceitful" actions by the ATT Defendants, almost all of which are irrelevant in as much as they arise in the context of negotiations with Deseret News Publishing. Pl.'s Mem. at 16-17 and 25. Plaintiff asserts that its evidence shows that ATT represented to Plaintiff that it would negotiate exclusively with Plaintiff and no others. This misstates Plaintiff's evidence. As noted above, Plaintiff's own evidence shows ATT did disclose to Mr. Frisch that it had another bid and was using it to compare Plaintiff's bid. There is no evidence to support Plaintiff's assertion that Mr. Huseby represented that ATT or ATT Broadband would not negotiate with any other party. Further, Plaintiff's evidence of Mr. Huseby's statements does not show a material misrepresentation of a present fact, because it is undisputed that at the time he made the statements, ATT had received an offer from MediaNews but was not then negotiating with MediaNews and did not begin negotiations with it again until November 27, 2000.
As to Plaintiff's assertion that its evidence shows that another attorney, Ms. Kaster, represented to Mr. Frisch that ATT was negotiating exclusively with Plaintiff, even granting all favorable inferences to Plaintiff, its evidence does not show the elements of common law fraud or promissory estoppel. As quoted above, the evidence is that Ms. Kaster said the negotiations for speeding up the option an/or buying Kearns-Tribune were on "a different track than" and "independent of" "resolution with Deseret News." (Frisch Dep. at 109-10 quoted above). This evidence does not raise a material issue of fact on a promise made to another with the present intent not to carry out a promise because there is no evidence of a promise to do or not to do something in the future. This representation also does not show an issue of a presently existing material fact about the negotiations for a sale of Kearns-Tribune that was false when made. In fact, there is no evidence of a representation by Ms. Kaster on the subject of any lack of negotiations with others.
There being no material issue of fact on this claim, the ATT defendants are entitled to judgment as a matter of law on the promissory fraud claim.
X. Order
Based upon the foregoing, it is therefore
ORDERED that defendant ATT's and defendant ATT Broadband's Motion to Dismiss or for Summary Judgment is GRANTED. It is further
ORDERED that Plaintiff's eleventh claim for relief, for intentional interference with prospective economic relations against defendant ATT and defendant ATT Broadband is DISMISSED without prejudice. It is further
ORDERED that Defendants ATT and ATT Broadband are granted summary judgment on Plaintiff's claims against them for breach of contract (fourth claim for relief); breach of a binding commitment or preliminary commitment to sell (seventh claim for relief); breach of duty of good faith and fair dealing (eighth claim for relief); intentional interference with contract (ninth and tenth claims for relief); bad faith negotiations (twelfth claim for relief); and, promissory fraud (thirteenth claim for relief).