Opinion
No. 95-C-694
August 29. 1995.
Thomas P. Aiello, Kenosha, WI, Franklyn M. Gimbel, Milwaukee, WI, for plaintiff.
Dean P. Laing, Milwaukee, WI, for defendant.
DECISION and ORDER
On May 12, 1995, the plaintiff commenced this action in the Kenosha county circuit court seeking to block the sale of WHKE, Channel 55 ["Channel 55"], operating in Kenosha, Wisconsin, from LeSea Broadcasting, Inc. ["LeSea"] to The Christian Network, Inc. ["CNI"]. Mr. Miller also seeks to compel LeSea to sell Channel 55 to him pursuant to a right of first refusal which he holds regarding a sale of Channel 55 by LeSea. On June 28, 1995, LeSea removed the action to this court pursuant to 28 U.S.C. § 1441. Jurisdiction is based upon 28 U.S.C. § 1332(a)(1).
Presently before the court is Mr. Miller's motion for a preliminary injunction. In his motion, the plaintiff asks the court to enjoin LeSea from proceeding with the sale of Channel 55 to CNI. The closing date for that sale is August 31, 1995. An evidentiary hearing on Mr. Miller's motion was held on August 23, 1995.
I. BACKGROUND
The facts which gave rise to this action are essentially undisputed. Mr. Miller is presently the general manager of Channel 55. Channel 55 is a television station operating in Kenosha, Wisconsin, owned by LeSea. LeSea is an Indiana not-for-profit corporation with its principal place of business located in South Bend, Indiana. LeSea purchased Channel 55 in 1988. Mr. Miller testified that he began working for Channel 55 in July 1993. In August 1993, he and LeSea entered into an employment contract, drafted by the plaintiff, which provided Mr. Miller with a right of first refusal in the event that a third party offered to purchase the television station.
The clause in Mr. Miller's employment agreement regarding his right of first refusal is as follows:
While Employee [Mr. Miller] is in the employ of Employer [LeSea] and for two (2) years thereafter, Employer hereby grants to Employee the right of first refusal to purchase any interest in Employer's business property and/or interest in the business enterprise ("the property") known as Channel 55, Kenosha, Wisconsin offered to any third person or entity. Should Employer receive an acceptable Offer to Purchase ("the Offer") for said property or any portion thereof from a bona fide purchaser, Employer shall present said Offer to Employee. Employee shall have 72 hours to match said offer upon the exact terms and conditions as contained in the Offer of any third-party bona fide purchaser. This right of first refusal must be exercised in writing and transmitted to Employer either personally or by fax within 72 hours of receipt of the offer by Employee.
On January 9, 1995, Paxson Communications Corporation ["Paxson"] sent a letter to LeSea stating its willingness to enter into an agreement with the defendant, "through an affiliated entity to be formed," to purchase Channel 55 for the sum of $2,500,000. Paxson's letter also stated that it would agree to place $200,000 in an escrow account, which would be forfeited to LeSea in the event that Paxson wrongfully failed to close on its prospective purchase agreement with LeSea.
LeSea provided the plaintiff with a copy of Paxson's letter. In a January 23, 1995, letter, Mr. Miller responded to LeSea and requested that he be presented with the terms and conditions of any offer to purchase Channel 55 "[a]t such time as an offer to purchase is executed." Paxson's letter of intent expired on February 24, 1995, without any further activity.
On March 31, 1995, LeSea entered into an asset purchase agreement with CNI which purports to sell Channel 55 to CNI. Mr. Miller learned of the agreement on April 12, 1995. On April 13, 1995, the plaintiff sent to LeSea's president, Stephen Sumrall, a letter exercising his right of first refusal. In that letter, Mr. Miller represents that an account was established at Heritage Bank of Kenosha, Wisconsin, in the name of Joseph F. Madrigrano, Jr. for the benefit of the plaintiff in the sum of $200,000. That sum represented the amount which the plaintiff would be obligated to pay as a down payment for the purchase of Channel 55. At the preliminary injunction hearing, Mr. Miller testified that, contrary to his statement in the letter, no funds were ever deposited in that account.
On April 18, 1995, counsel for LeSea wrote a letter to Mr. Madrigrano, an attorney for the plaintiff, inquiring whether Mr. Miller "unequivocally and unconditionally agrees to match the terms and conditions" of the defendant's purchase agreement with CNI. On April 20, 1995, Thomas Aiello, one of the plaintiff's attorneys in the present action, wrote to Stephen Sumrall and to counsel for LeSea stating that Mr. Miller "hereby unconditionally and unequivocally matches the terms and conditions" of LeSea's agreement with CNI.
Section 11.13 of LeSea's agreement with CNI provides that Paxson will guaranty the $2,500,000 purchase price and all obligations assumed by CNI under the agreement. Mr. Miller represented to LeSea that he would be able to obtain a guaranty from Harry J. Pappas, Pappas Telecasting Companies.
Various correspondence was exchanged between LeSea and Mr. Miller during the latter part of April 1995 and the first two weeks of May 1995. On May 15, 1995, the plaintiff was provided by LeSea with a proposed asset purchase agreement for the purchase of Channel 55 which was essentially identical to the agreement between LeSea and CNI, save for the replacement of CNI with Mr. Miller's name and the replacement of Paxson with Pappas Telecasting Companies.
Absent from the prospective agreement provided to the plaintiff on May 15, 1995, is section 11.14, entitled "Inducement to Buyer." That section provides that as an inducement to CNI to enter into the purchase agreement, LeSea agrees "that in the event that a court of competent jurisdiction issues a final decision" that holds that the plaintiff is entitled to acquire all or part of Channel 55 by virtue of Mr. Miller's right of first refusal, LeSea agrees to pay CNI the sum of $75,000. The section also provides that LeSea covenants to exercise due diligence to defend against any effort made by Mr. Miller to acquire Channel 55.
On May 26, 1995, Mr. Miller sent to LeSea copies of the executed asset purchase agreement bearing his signature. However, the plaintiff deleted section 11.13 of the agreement, which was to provide for a third party guaranty. Upon receipt of Mr. Miller's executed agreement, LeSea took the position that the plaintiff failed to match the exact terms and conditions of the CNI agreement due to his deletion of section 11.13. Therefore, the defendant concluded that Mr. Miller lost his right of first refusal, and it proceeded with the planned sale to CNI.
At the preliminary injunction hearing, Peter Sumrall, vice president of LeSea, testified that he would prefer to sell Channel 55 to another religious broadcaster. Mr. Sumrall also testified that Paxson entered into a management agreement with CNI whereby Paxson will manage Channel 55 subsequent to the prospective sale of that station to CNI. In 1992, LeSea had entered into an agreement to sell Channel 55. That agreement was never consummated as the buyer was unable to pay the $1,300,000 purchase price.
Between 1988 and 1994, Channel 55 sustained a net loss in excess of $2,200,000. Through the first seven months of 1995, Channel 55 has sustained net losses, on average, in excess of $40,000 per month.
II. ANALYSIS
A party seeking a preliminary injunction must establish four elements: (1) a reasonable likelihood of succeeding on the merits; (2) it has no adequate remedy at law and will suffer irreparable harm if the request for preliminary relief is denied; (3) the threatened harm to the movant outweighs the harm the defendant may incur if injunctive relief is granted; and (4) the granting of an injunction will not disserve the public interest. See Roth v. Lutheran General Hospital, 57 F.3d 1446, 1453 (7th Cir. 1995); Abbott Laboratories v. Mead Johnson Co., 971 F.2d 6, 11 (7th Cir. 1992). The movant must initially meet the first two prerequisites. Id. Then
the inquiry becomes a `sliding scale' analysis of the harm to the parties and the public from the grant or denial of the injunction and the actual likelihood of success on the merits.JAK Productions, Inc. v. Wiza, 986 F.2d 1080, 1084 (7th Cir. 1993). The movant carries the burden of persuasion as to each of the elements. See American Dairy Queen v. Brown-Port Co., 621 F.2d 255, 257 (7th Cir. 1980).
A preliminary injunction is a form of equitable relief. Abbott Laboratories, 971 F.2d at 17. When considering a request for such relief, the court must "weigh the equities as to each element of preliminary relief sought by the plaintiff." Id. The court's goal is to achieve a just result which will maintain the status quo pending trial. Lawson Products, Inc. v. Avnet, Inc., 782 F.2d 1429, 1435 (7th Cir. 1986).
A. Likelihood of Success
A movant has some likelihood of succeeding on the merits of his claim where his chances are "better than negligible." National People's Action v. Village of Wilmette, 914 F.2d 1008, 1010 (7th Cir. 1990), cert. denied, 499 U.S. 921, 111 S.Ct. 1311, 113 L.Ed.2d 245 (1991) (quoting Roland Machinery Co. v. Dresser Industries, Inc., 749 F.2d 380, 386-87 (7th Cir. 1984). The threshold under this standard is low. Roland Machinery, 749 F.2d at 387.
Under Wisconsin law, the terms of a contract must be given their plain and ordinary meaning where the contract is free from ambiguity. Craigs, Inc. v. General Electric Capital Corp., 12 F.3d 686, 688 (7th Cir. 1993). A right of first refusal is a conditional option which is dependent upon the decision to sell the property by its owner. See Last v. Puehler, 19 Wis.2d 291, 297, 120 N.W.2d 120 (1963). Under Wisconsin law, rights of first refusal must be strictly construed. Frandsen v. Jensen-Sundquist Agency, Inc., 802 F.2d 941, 946 (7th Cir. 1986). However, " `[e]very contract implies good faith and fair dealing between the parties to it, and a duty of cooperation on the part of both parties.'" Estate of Chayka, 47 Wis.2d 102, 107 n. 7, 176 N.W.2d 561 (1970).
Pursuant to his agreement with LeSea, Mr. Miller was entitled to exercise his right of first refusal when LeSea received an acceptable offer to purchase Channel 55. The plaintiff was required to exercise this right within 72 hours after LeSea presented him with the offer. To exercise this right, Mr. Miller is obligated to match "the exact terms and conditions" of any acceptable third-party offer.
Giving that phrase its facially plain meaning, the plaintiff was required to submit an offer to LeSea for the purchase of Channel 55 which was the same as the agreement between the defendant and CNI. LeSea argues that the plaintiff's failure to include in his offer a third-party guaranty constitutes a failure on his part to match exactly the terms of the defendant's agreement with CNI. Mr. Miller contends that LeSea's conduct in entering into its agreement with CNI and its attempt to prevent him from exercising his right of first refusal constitutes bad faith. Further, the plaintiff contends that the requirement of a guaranty is not reasonable, given the fact that the purchase of Channel 55 involves a cash sale.
Under LeSea's interpretation of the right of first refusal, Mr. Miller would be required to match CNI's offer word for word. Consequently, in the absence of waiver by the seller, as occurred in this case with respect to section 11.14, the plaintiff would be required to include in his offer that section in which LeSea agreed to defend against any effort by Mr. Miller to exercise his right of first refusal.
The defendant's interpretation would lead to absurd results. Under its interpretation, the holder of a right of first refusal would be required to match each and every term of a third-party offer, regardless of the materiality of such terms. I do not believe that Mr. Miller was required to match the literal terms of CNI's offer. Cf Prince v. Elm Investment Co., Inc., 649 P.2d 820, 825 (Utah 1982) ("`[I]f the holder of a right of first refusal cannot meet exactly the terms and conditions of the third person's offer, minor variations which obviously constitute no substantial departure should be allowed.'" (quoting Brownies Creek Collieries, Inc. v. Asher Coal Mining Co., 417 S.W.2d 249, 252 (Ky. 1967))); C. Robert Nattress Associates v. Cidco, 184 Cal.App.3d 55, 229 Cal.Rptr. 33, 43 (1986) ("If the literal matching of terms were required, a triggering offeror could by offering some unique consideration such as . . . a bag of diamonds or a herd of Arabian horses, effectively defeat the lessor's right of first refusal.")
Paxson's offer of January 9, 1995, was essentially identical to the agreement of March 31, 1995, between LeSea and CNI. Both buyers agreed to make a $200,000 down payment with the balance of the $2,500,000 purchase price due at closing. By its own terms, Paxson's offer was to be made through "an affiliated entity." The guaranty by Paxson is somewhat illusory; Mr. Sumrall testified that Paxson entered into an agreement with CNI to manage the station if the sale to CNI is completed. Therefore, in a sense, Paxson is guarantying its own purchase.
Moreover, it is apparent that in entering into its agreement with CNI, LeSea was not only aware of Mr. Miller's interest, but also agreed with CNI to resist Mr. Miller's right of first refusal. Section 11.14, the contractual clause so providing, was omitted from the proposed purchase agreement submitted to Mr. Miller. Section 11.14 provides as follows:
11.14 Inducement to Buyer. As an inducement to Buyer to enter into this Agreement, Seller covenants that in the event that a court of competent jurisdiction issues a final decision that holds that John Miller, by virture [sic] of the agreement described in Section 10.2(b) hereof, is entitled to acquire all or substantially all of the Assets to be sold to Buyer hereunder, Seller shall pay to Buyer the sum of $75,000 within ten (10) business days after closing of such acquisition, which payment shall be Buyer's sole and exclusive remedy as to Seller. Seller further covenants that it will defend with due diligence against any effort by John Miller to assert any claim of right to acquire the Assets which are the subject of this agreement.
In my opinion, this casts a serious cloud over the good faith of LeSea in fulfilling its duty to honor Mr. Miller's right of first refusal.
B. Irreparable Harm and no Adequate Remedy at Law
In considering the absence of a remedy at law, "[t]he question is whether the plaintiff will be made whole if he prevails on the merits and is awarded damages." Roland Machinery, 749 F.2d at 386. A plaintiff has no adequate remedy at law where an award of damages at the end of trial would be seriously deficient. Id.
In this case, Mr. Miller has no adequate remedy at law. If the sale of Channel 55 to CNI is permitted to proceed, the plaintiff will be unable to obtain the relief which he seeks through this action, namely, specific performance of his right of first refusal by LeSea. Although he could recover monetary damages in the event that the sale to CNI was wrongly allowed to proceed, it is unlikely that he would be able to utilize his recovery to purchase another television station in the Kenosha area. A local television station is a unique property. See Hawaiian Paradise Park Corporation v. Friendly Broadcasting Co., Inc., 414 F.2d 750, 758 (9th Cir. 1969).
The plaintiff will also suffer irreparable harm if his request for an injunction is not granted. The sale to CNI would be completed, and Mr. Miller would be foreclosed from exercising his right of first refusal.
C. Balance of the Harms to the Parties
The harm suffered by Mr. Miller if the sale of Channel 55 to CNI was permitted to proceed would be significant. The plaintiff would be forever foreclosed from exercising his right of first refusal.
The harm suffered by LeSea due to the granting of a preliminary injunction would be less significant. Pursuant to section 9.2(b), CNI may terminate its agreement to purchase Channel 55 if an order is in effect which prevents LeSea from closing on August 31, 1995. Additionally, LeSea would be forced to continue to operate the unprofitable Channel 55 for at least the next 75 days. However, the delay in LeSea's sale of the television station would be of limited duration. Consequently, I find that this factor weighs in favor of the plaintiff.
D. Harm to the Public Interest
Granting the injunction would not disserve the public interest. Whether LeSea is prevented from consummating its sale of Channel 55 to CNI on August 31, 1995, will have little if any impact on parties not a part of this action, aside from CNI and Paxson.
Considering all of the factors which Mr. Miller is required to establish as a prerequisite to granting his request for a preliminary injunction, I find that the balance of the equities weighs in favor of granting his motion. The plaintiff has shown that he has a reasonable likelihood of succeeding on the merits of his claim. He has also demonstrated that he will suffer irreparable harm if his request for injunctive relief is denied and that he has no adequate remedy at law. Balancing Mr. Miller's likelihood of success against the harm to the defendant and others warrants granting the plaintiff's request.
III. SECURITY
Pursuant to Rule 65(c), Federal Rules of Civil Procedure,
[n]o . . . preliminary injunction shall issue except upon the giving of security by the applicant, in such sum as the court deems proper, for the payment of such costs and damages as may be incurred or suffered by any party who is found to have been wrongfully enjoined. . . .
Under this rule, security is mandatory, see American Hospital Supply v. Hospital Products Ltd., 780 F.2d 589, 597 (7th Cir. 1986), but the court may exercise its discretion in determining the amount of the bond to be posted. Rathmann Group v. Tanenbaum, 889 F.2d 787, 789 (8th Cir. 1989).
LeSea requests a security bond in the amount of $750,000. That figure is based upon its estimate of losses it will likely sustain: (1) if CNI exercises its option to terminate its agreement to purchase Channel 55; and (2) from its continued ownership of the unprofitable television station. The plaintiff will be required to post a security bond in the amount of $100,000.
IV. FURTHER PROCEEDINGS
I believe that prompt disposition of this action would be beneficial to both parties. The defendant has already filed a motion for summary judgment. As the facts are generally undisputed, the plaintiff may elect to file a cross motion for summary judgment. The parties are also invited to submit a set of stipulated facts.
In the event that this case cannot be resolved by summary judgment, a jury trial will be held starting on Monday, October 23, 1995, at 10:00 a.m. A pretrial conference will be held on Tuesday, October 10, 1995, at 10:30 a.m.
ORDER
Therefore, IT IS ORDERED that the plaintiff s motion for a preliminary injunction be and hereby is granted.
IT IS ALSO ORDERED that the plaintiff, pursuant to Rule 65(c), Federal Rules of Civil Procedure, be and hereby is directed to post a surety bond in the amount of $100,000 with the clerk of court before the close of business on Wednesday, August 30, 1995.
IT IS FURTHER ORDERED that upon plaintiff's posting of a $100,000 surety bond in accordance with this decision, LeSea Broadcasting, Inc., its officers, agents and all those in active concert or participation with it, are enjoined from proceeding with the asset purchase agreement dated March 31, 1995, between LeSea Broadcasting Corporation and The Christian Network, Inc. until further order of the court.