Opinion
Case No. 2:00-CV-936-ST
May 31, 2002
ORDER ON MOTIONS FOR SUMMARY JUDGMENT
This matter came before the court on May 20, 2002, for hearing on the following four motions: MediaNews Defendant's Motion for Summary Judgment, Plaintiff's Motion for Partial Summary Judgment Against Deseret News Publishing and Kearns-Tribune on All Claims of Mismanagement, Plaintiff's Motion forSummary Judgment Regarding the Option Agreement, and Deseret News Publishing's Motion for Partial Summary Judgment and for Partial Summary Adjudication.
I. Standard for Summary Judgment
The standard for summary judgment is as follows:
Summary judgment is appropriate if there is no genuine issue as to any material fact and the moving party is entitled to judgment as a matter of law. See Fed.R.Civ.P. 56(c); Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986).
To meet the burden of production required to support summary judgment, the movant "need only point to those portions of the record that demonstrate an absence of a genuine issue of material fact given the relevant substantive law." Thomas v. Wichita Coca-Cola Bottllng Co., 968 F.2d 1022, 1024 (10th Cir. 1992) (citing Celotex, 477 U.S. at 322-23). Summary judgment will then lie if the movant establishes entitlement to judgment as a matter of law "given [the] uncontroverted, operative facts." Id. (citing Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 251 (1986)). "Factual disputes that are irrelevant or unnecessary will not be counted." Anderson, 477 U.S. at 248. The substantive law of the case determines which facts are material. See Id.
Where a movant has met the initial burden required to support summary judgment, the non-movant then "must either establish the existence of a triable issue of fact under Fed.R.Civ.P. 56(e) or explain why he cannot . . . under Rule 56(f)" Pasternak v. Lear Petroleum Exploration, 790 F.2d 828, 832 (10th Cir. 1986). Conclusory allegations made by a non-movant will not suffice. See Allen v. Muskogee, Oklahoma, 119 F.3d 837, 843-44 (10th Cir. 1997). Instead, "sufficient evidence (pertinent to the material issue) must be identified by reference to an affidavit, a deposition transcript, or a specific exhibit incorporated therein." Thomas, 968 F.2d at 1024.
United States v. Simons, 129 F.3d 1386, 1388-89 (10th Cir. 1997).
[A] movant that will not bear the burden of persuasion at trial need not negate the nonmovant's claim. Such a movant may make its prima facie demonstration [of the absence of a genuine issue of material fact and entitlement to judgment as a matter of law] simply by pointing out to the court a lack of evidence for the nonmovant on an essential element of the nonmovant's claim.
Adler v. k-Mart Stores, Inc., 144 F.3d 664, 670-71 (10th Cir. 1998) (citing Celotex, 477 U.S. at 323).
The court will address the motions by categories of claims rather than discuss the motions individually. The factual and procedural background of this case has been extensively discussed in prior orders and need not be repeated here.
E.g. Order Granting Plaintiff's Motion to Disqualify Jones Waldo, No. 2:00-CV-936-ST (D. Utah November 16, 2001) at 3-4 (explaining 1952 Joint Operating Agreement, (JOA), the 1982 JOA and the Newspaper Agency Corporation (NAC)).
II. Anti-alienation Clause and Option Agreement
The parties each raise the issue of the anti-alienation provision of the 1982 Joint Operating Agreement (1982 JOA) as part of their claims for declaratory relief on the enforceability of the July 31, 1997 Option Agreement. The Option Agreement provides that Plaintiff may purchase the "Tribune Assets" from Kearns-Tribune for fair market value beginning on July 31, 2002. A vital Tribune Asset is the NAC stock. However, pursuant to their JOAs, Kearns-Tribune and Deseret News Publishing provided that the NAG stock can not be alienated. The parties agree that the operative anti-alienation provision is. section 2 of the 1982 JOA. They further agree that section 2 is not ambiguous and should be construed by the court as a matter of law. Section 2 provides as follows:
2. STOCK RESTRICTIONS: The parties hereto shall continue the operations of the Agency Corporation and shall not assign, sell, transfer, mortgage, pledge or otherwise dispose of their stock in the Agency Corporation [NAC] nor voluntarily permit alienation thereof by any means during the term of this Agreement or any renewal or extension thereof, and such stipulation shall remain printed on the face of the stock certificates heretofore issued to the parties hereto as aforesaid, or any stock certificates representing shares of the Agency Corporation [NAC] hereafter issued.
* * *
22. SUCCESSORS AND ASSIGNS. This agreement shall be binding upon and inure to the benefit of the respective successors and assigns of the parties hereto.
1982 JOA at 3 § 2 and 31 § 22 (underlined emphasis added).
The MediaNews Defendants seek declaratory judgment that Kearns-Tribune has no obligation to sell the Tribune Assets to Plaintiff unless and until Deseret News Publishing consents to waive the stock transfer restriction in § 2 of the JOA. The MediaNews Defendants contend that the option contract to transfer the NAC stock without Deseret News Publishing's consent is void as a violation of its preexisting rights. The MediaNews Defendants contend that the court must void the Option Agreement unless it construes the Option Agreement as containing a Deseret News Publishing "veto right" or a consent requirement.
As explained in prior orders, the MediaNews Defendants are Kearns-Tribune and its owner, MediaNews.
Plaintiff seeks summary judgment declaring that the Option Agreement is valid and enforceable as a matter of law. Plaintiff contends that section 2 is not a consent right but is an absolute prohibition that is void as a matter of law. Plaintiff relies on language from Shumaker v. Utex Exploration Co., 157 F. Supp. 68, 72 (D. Utah 1957), for what it argues is the common law rule that an absolute prohibition against the alienation of stock is void.
Deseret News Publishing seeks summary judgment on its counterclaim for declaratory judgment that the Option Agreement is void and unenforceable because the JOA makes the NAC stock non-transferrable and non-assignable. It also seeks a declaration that Plaintiff cannot exercise its option without Deseret News Publishing's consent.
The court agrees with the parties that section 2 is not ambiguous. Construing this unambiguous section as a matter of law, the court finds that section 2 is an absolute prohibition against the transfer of the stock by assignment, sale or otherwise. The court finds that the language relied upon by Plaintiff from Shumaker is dicta and there is no Utah case law directly addressing the issue. Further, Shumaker involved an alienation restriction contained in corporate bylaws. Id. (considering the bylaws' provision for a first right to purchase at a price to be fixed by appraisers). The anti-alienation provision at issue in this case is not part of the NAC corporate bylaws. Instead, it is part of a separate contract for the joint operation of substantial portions of the two newspapers' business. Kearns-Tribune and Deseret News Publishing are sophisticated business organizations that twice negotiated and agreed to the anti-alienation provision. That provision reflects the unique position of the parties to the JOA, and the fact that they jointly own assets and are interdependent upon each other for success in the publishing, advertising and distribution of their respective papers.
The anti-alienation provision does not apply to the sale of the stock of, or membership interest in, either party to the JOA. See Order denying injunctive relief, slip op. at 10-11 (D. Utah December 15, 2000). However, under the "successors and assigns" clause, such a sale would continue to bind a company's new owners under the JOA. In this manner, the JOA ensures that the stock ownership in the NAC — the entity necessary for the joint business operations — is not separated from the parties to the JOA, regardless of who may eventually own the companies that are the JOA parties.
The court finds that section 2 is enforceable. As a result, it need not address the parties' arguments that Plaintiff is judicially estopped from challenging the anti-alienation clause.
Finding section 2 to be an absolute, unambiguous and enforceable prohibition against any alienation, the court need not consider any of the extrinsic evidence offered by the parties. However, even if the court were to consider extrinsic evidence, the court believes that the extrinsic evidence supports the conclusion that section 2 is an absolute prohibition against transfer.
The court finds that Plaintiff has not shown that, by acquiescence or participation in past transfers of the NAC stock to directors or to the successors in interest to the JOA parties, either of the JOA parties has waived the anti-alienation provision.
The court declines to consider the parties' position on whether this plain language interpretation of section 2 would result in a loss of the JOA's exemption under the Newspaper Preservation Act and therefore the JOA would be in violation of antitrust laws. Because section 2 is not ambiguous, the court will not strain to give it additional or different meanings. Further, the status of the JOA under the Newspaper Preservation Act is not before the court in this case.
By their motions regarding declaratory relief on the Option Agreement, the parties also seek to have this court re-write the Option Agreement. Deseret News Publishing and the MediaNews Defendants seek declaration that the Option Agreement may be exercised only with Deseret News Publishing's consent. Plaintiff contends that, if the anti-alienation clause is valid, this court should effectuate the intent of the Option Agreement by changing the form of the transaction to a sale of the ownership interest in Kearns-Tribune, or to an assignment of the JOA contract rights. The MediaNews Defendants, however, seek a declaration that if Deseret News Publishing does not consent to the sale of the NAC stock, Kearns-Tribune is not liable for breach of the Option Agreement. The MediaNews Defendants also seek a declaration that Kearns-Tribune is not responsible for obtaining Deseret News' consent to the transfer of the NAC stock.
The July 31, 1997 Option Agreement between Plaintiff and Kearns-Tribune Corporation [now Kearns-Tribune], provides that on July 31, 2002, and so long thereafter as the Management Agreement is in effect, Plaintiff has the following option:
Kearns-Tribune represents that pursuant to ¶ 2.01 of the Management Agreement, it has served written notice it will not renew the Management Agreement.
1. Grant of Option. KT [Kearns-Tribune] hereby grants to SLT [Plaintiff] an option (the "Option") to purchase all. and not less than all, of the assets listed on Exhibit A hereto (the "Tribune Assets"), which assets constitute all of the assets used, held for use or usable in connection with the operation and publication of The Salt Lake Tribune.
The MediaNews Defendants concede their earlier position that the Option Agreement is void because Ex. A to the Option Agreement was never prepared. See MediaNews Defendants' opposition Memorandum at 2 n. 2.
Option Agreement ¶ 1 (underlined emphasis added).
Plaintiff has met its burden on summary judgment of showing that there are no material issues of fact on the validity of the Option Agreement. Accordingly, it is entitled to judgment as a matter of law on that portion of its Count I for declaratory relief The court will enter judgment in favor of Plaintiff declaring that it has a valid, existing and enforceable right under the Option Agreement to purchase the Tribune Assets on or after July 31, 2002, pursuant to its terms, and such right is binding on and enforceable against MediaNews and Kearns-Tribune.
Because the Option Agreement is valid and enforceable as a matter of law, the court will not re-write the Option Agreement for the parties. The court will not re-write the Option Agreement to insert a "consent right" into the contract. The parties to the JOA remain able, of course, to modify or waive their contractual agreement that the NAC stock can not be alienated. While Deseret News Publishing may waive or modify the anti-alienation clause, the court will not re-write the Option Agreement to provide that it may be exercised only with its consent. Further, this court will not re-write the Option Agreement by changing the form of the transaction to a sale of the ownership interest in Kearns-Tribune, or to an assignment of the JOA contract rights.
However, the parties may agree to change the form of the transfer to a sale of the ownership interest in Kearns-Tribune.
Similarly, the court will not re-write the Option Agreement to relieve Kearns-Tribune of liability in the event that Deseret News Publishing does not consent to the sale of the NAC stock. The Option Agreement provides for the sale of "all" of the Tribune Assets. The parties concede, and the court finds, that "all" of the Tribune Assets includes ownership of the NAC stock currently owned by Kearns-Tribune. The court further finds that "all" does not mean "all or nothing at all." In other words, it does not mean that if Kearns-Tribune is
not able to transfer all of the Tribune Assets that it therefore has no obligation or liability under the Option Agreement.
In support of its efforts to have the court re-write the Option Agreement, Kearns-Tribune makes much of the fact that the individuals formerly in control of the "pre-merger" Kearns-Tribune knew about the consent right. Nonetheless, the obligation of Kearns-Tribune, as authored by its own attorneys, was to sell the Tribune Assets, including the NAC stock, if and when Plaintiff exercised its option. This obligation was fully known to its current owner, MediaNews, when it purchased Kearns-Tribune. Kearns-Tribune is also a party to the JOA. As such, it knew from the inception of the Option Agreement that it might not be able to perform what it agreed to perform — transfer of all of the Tribune Assets. The parties' contentions regarding another party's knowledge of the anti-alienation provision are not material to the court's construction of the plain language of the anti-alienation agreement. However, those contentions may be relevant to the issue of damages for breach of contract in the event that (1) Plaintiff attempts to exercise the Option and (2) Deseret News Publishing declines to waive the prohibition against transfer of the NAC stock. See Duncan v. Theratx, Inc., 775 A.2d 1019, 1022 (Del. 2001) (standard remedy for breach of contract is based upon reasonable expectations of the parties and expectation damages are measured by the amount of money that would put the promisee in the same position as if the promisor had performed the contract) and Genencor Int'l, Inc. v. Novo Nordisk, 766 A.2d 8 (Del 2000).
For this same reason, the court will not re-write the contract to declare that Kearns-Tribune is not responsible for obtaining Deseret News' consent to the transfer of the NAC stock. The parties to the Option Agreement did not assign the responsibility of obtaining a waiver for the transfer of the NAC stock. Accordingly, the court finds that neither party has a contractual obligation under the Option Agreement to secure a waiver of the anti-alienation provision of section 2 of the JOA.
Because the court has found the Option Agreement to be valid and enforceable, the court need not address Plaintiff's arguments that the MediaNews Defendants are estopped from seeking an order declaring that the Option Agreement is unenforceable, void or voidable.
Plaintiff also seeks declaratory judgment that it is entitled to specific performance of the Option Contract. Because the court has found section 2's restriction on alienation of the NAC stock to be valid and enforceable, Plaintiff has not shown that it is entitled to specific performance of the Option Agreement covering all of the Tribune Assets.
III. Claims of Mismanagement and Violation of the Management Agreement
Plaintiff seeks summary judgment on the various claims it lumps together and labels "claims of mismanagement." As characterized by Plaintiff they include the following claims by Deseret News Publishing: claims for declaratory and injunctive relief on mismanagement; breach of the implied covenant of good faith and fair dealing in the JOA, breach of fiduciary duties owed by Kearns-Tribune to Deseret News Publishing under the JOA; breach of the Management Agreement, and: interference with existing contractual and prospective economic relations.
As to the MediaNews Defendants, its claims characterized by Plaintiff as mismanagement claims include the following: breach of the Management Agreement; breach of the covenant of good faith and fair dealing implied in the Management Agreement; interference with contract, and: breach of fiduciary duty and negligence.
The court will address the claims relating to the Management Agreement and fiduciary duty in this section and will address the remaining claims in the categories that follow.
The court finds there are material issues of fact on the claims involving the Management Agreement. The issue of fact include the nature and extent of the powers granted to Plaintiff pursuant to the Management Agreement. The court finds that claims involving the nature of the rights under the Management Agreement are related to Deseret News Publishing's claim seeking declaratory relief to void the Management Agreement's assignment or delegation to Plaintiff of Kearns-Tribune's JOA's rights. The claims are also related to Deseret News Publishing's alternative claim that to the extent that such rights were assigned, or that Plaintiff purports to exercise such rights, Plaintiff has a fiduciary duty towards it under the JOA.
The following claims are affected by the nature and extent of the rights conveyed under the Management Agreement: the alleged existence of a fiduciary duty, the claim of a business judgment privilege under the Management Agreement, whether there has been a breach of the Management Agreement, whether Plaintiff can be liable for alleged breaches of the JOA, the existence of an implied covenant of good faith and fair dealing and whether Deseret News Publishing is a third party beneficiary under the Management Agreement. Accordingly, none of these claims are in a posture for summary disposition at this time.
Further, the court finds that, even apart from the above issues of fact, there are additional material issues of fact on the Plaintiff's and the MediaNews Defendants' claims against each other for breach of the Management Agreement. Accordingly, the court will deny the motions for summary judgment as they relate to claims involving the Management Agreement.
IV. Interference With Contract
The MediaNews Defendants move for judgment on Plaintiff's claims against MediaNews for interference with contracts, namely the Management Agreement and the Option Agreement. MediaNews contends that its actions were privileged under the competition privilege and that any actions after it acquired Kearns-Tribune were privileged because it was advancing its subsidiary company's interest.
Deseret News Publishing also moves for summary judgment on Plaintiff's interference with contract claims against it on the basis that its actions were privileged under the competition privilege.
The court finds that Plaintiff has failed to meet its burden on summary judgment of coming forward with evidence from which a reasonable jury could find that Deseret News Publishing's negotiations for, and unsuccessful attempt to buy Kearns-Tribune, and/or MediaNews' negotiations for, and purchase of, Kearns-Tribune was tortious interference with Plaintiff's rights under either the Management Agreement or the Option Agreement. Deseret News Publishing and MediaNews are entitled to summary judgment insofar as the interference with contract claims are based on their negotiations for, or purchase of, Kearns-Tribune.
However, on Plaintiff's claim that by their actions in amending the 2001 JOA, and actions since then when it is alleged that MediaNews and Deseret News Publishing have acted to knowingly interfere with Plaintiff's rights under the Management Agreement or the Option Agreement, the court finds that Plaintiff has met its burden of showing material issues of fact that preclude summary judgment. See Coronado Mining Corp. v. Marathon Oil Co., 577 P.2d 957 (Utah 1978) and Gull Labs., Inc. v. Diagnostic Tech., Inc., 695 F. Supp. 1151, 1155 (D. Utah 1988) (discussing competition privilege in connection with a claim of prospective economic relations). The court further finds that there are material issues of fact on MediaNews' claim that its actions after the acquisition are not intentional interference because it is the parent corporation of Kearns-Tribune. It is true that a parent company does not engage in tortious conduct when it directs its wholly-owned company to breach a contract because it is no longer in the subsidiary's interest to perform the contract. Boulevard Associates, v. Sovereign Hotels, Inc., 72 F.3d 1029, 1036 and n. 3 (2nd Cir. 1995). However, when the parent company interferes solely to protect the parent's own economic interest, it may be liable. Phil Crowley Steel Corp. v. Sharon Steel Corp., 782 F.2d 781, 783-85 (8th Cir. 1986). There are issues of fact in this case on whether MediaNews acted to further the economic interests of its wholly owned subsidiary Kearns-Tribune, or if it acted to further its own economic interest. Accordingly, the court will deny summary judgment on Plaintiff's claim against MediaNews for tortious interference with contract.
The court finds that there are material issues of fact on the application of privilege to Deseret News Publishing's alleged actions. Plaintiff's theory is that Deseret News Publishing has acted for the purpose of stifling or eliminating an editorial viewpoint now exercised by Plaintiff as manager of The Salt Lake Tribune and to prevent such a viewpoint from being exercised in the future by interfering with its option to buy the Tribune Assets. The court expresses no opinion on the merits of this position, except to find that Plaintiff has presented evidence showing an issue of fact on Deseret News Publishing's claim of privilege. See Colorado Mining Corp. v. Marathon Oil Co., 577 P.2d 957, 960 (Utah 1978) and Bunnell v. Bills, 368 P.2d 957, 603 (Utah 1978). Accordingly, the court will deny summary judgment on Plaintiff's claim against Deseret News Publishing for tortious interference with contract.
V. Reformation
In addition to Plaintiff's request that this court construe the Option Contract to allow a transfer of the NAC stock through means other than a direct sale, discussed above, Plaintiff also seeks unspecified reformation of the Option Agreement and Management Agreement. The MediaNews Defendants seek summary judgment on Plaintiff's count 6, for reformation.
As noted above, the court will not re-write the contracts for the parties. Further, Plaintiff has failed to show evidence that it is entitled to reformation under Delaware law.
Reformation is appropriate . . . when an agreement has been made[,] but in reducing such agreement or transaction to writing, either through the mistake common to both parties, or through the mistake of the plaintiff accompanied by the fraudulent knowledge and procurement of the defendant, the written instrument fails to express the real agreement or transaction. In such a case the instrument may be corrected so that it shall truly represent the agreement or transaction actually made or determined upon according to the real purpose and intention of the parties.
Thus, any reformation of a written instrument must be based on a showing of either (i) a mutual mistake, or (ii) a unilateral mistake by the plaintiff, combined with knowing silence by the defendant. In cases involving a mutual mistake, the plaintiff must show that both parties were mistaken about a material term of the written agreement. The party seeking reformation must show by clear and convincing evidence that the parties' actual (oral) agreement was not accurately reflected in their executed written contract. To discharge that burden, the party seeking reformation must persuade the Court of the precise, orally-agreed-to terms that it seeks to have judicially inserted into the contract.
Amstel Associates, L.L.C. v. Brinsfield-Cavall Associates, ___ A.2d ___, 2002 WL 1009457 (Del.Ch. May 09, 2002) (footnotes and internal citations omitted).
Plaintiff has failed to meets its heavy burden under Delaware law of showing by "clear and convincing evidence" fraud, mutual mistake or unilateral mistake in the Option Agreement or Management Agreement. Most importantly, Plaintiff fails to show evidence of what language it contends should be inserted in the Option Agreement or Management Agreement to properly reflect what it contends was the intent of the parties at the time the contracts were executed. This fails to meet the requirements for reformation because it leaves the court in the impossible position of creating a contract for the parties. Coffins v. Burke, 418 A.2d 999, 1002 (Del. 1980).
The MediaNews Defendants have pointed out the lack of evidence on this claim. Plaintiff's suggestion of an unspecified "drafting error is insufficient to meet its burden, as the party who would bear the burden of proof at trial of showing specific facts supporting each element of its claim for reformation. Accordingly, summary judgment will be granted in favor of MediaNews and against Plaintiff on its Count 6 for reformation of the Option Agreement and Management Agreement.
VI. Prospective Economic Advantage
The MediaNews Defendants and Deseret News Publishing move for summary judgment on the grounds that Plaintiff has failed to show facts supporting its claim for intentional interference with prospective contractual advantage. They note that the court previously granted summary judgment dismissing a similar claim against ATT because it found the claim was speculative and premature.
The court finds that Plaintiff has again failed to show facts in support of this claim. Accordingly, it will be dismissed.
VII. Conclusion
Based upon the foregoing, it is therefore
ORDERED that Plaintiff is GRANTED summary judgment on that portion of its Count I for declaratory judgment declaring that Plaintiff has a valid, existing and enforceable right under the Option Agreement to purchase the Tribune Assets on or after July 31, 2002, pursuant to its terms and such right is binding on and enforceable against MediaNews and Kearns-Tribune. It is further
ORDERED that Deseret News Publishing is GRANTED partial summary judgment on its claim for declaratory judgment that section 2 of the 1982 JOA is an absolute and enforceable prohibition against the alienation of the NAC stock. It is further
ORDERED that Deseret News Publishing's and the MediaNews Defendants' Motion for Summary Judgment on Plaintiff's claims of interference with contract are DENIED except as explained in section III, supra. It is further
ORDERED that summary judgment is GRANTED against Plaintiff and in favor of the MediaNews Defendants on Plaintiff's count 6 for reformation. It is further
ORDERED that summary judgment is GRANTED in favor of Plaintiff and against the MediaNews Defendants on the MediaNews Defendants' Counterclaim Count I for declaratory judgment on the Option Agreement. It is further
ORDERED that Plaintiff's claims against the MediaNews Defendants and Deseret News Publishing for intentional interference with prospective economic advantage are DISMISSED without prejudice. It is further
ORDERED that except, to the extent granted above, the MediaNews Defendant's Motion for Summary Judgment, Plaintiff's Motion for Partial Summary Judgment Against Deseret News Publishing and Kearns-Tribune on all Claims of Mismanagement, Plaintiff's Motion for Summary Judgment Regarding the Option Agreement, and Deseret News Publishing's Motion for Partial Summary Judgment and for Partial Summary Adjudication are otherwise DENIED.