SCHURZ COMMUNICATIONS, INC.,
Plaintiff,
v.
DUHAMEL BROADCASTING ENTERPRISES,
Defendant.
[1999 DSD 5]
United States District Court
District of South Dakota - Western Division
CIV. 98-5085
MEMORANDUM OPINION AND ORDER
John Crisman Palmer, Mark J. Connot
Gunderson, Palmer, Goodsell & Nelson, LLP, Rapid City, SD
William N. Farabaugh, South Bend, IN
Attorneys for Plaintiff
George Beal, Rapid City, SD
Attorney for Defendant
Filed February 4, 1999
Richard H. Battey, Senior District Judge
I. PROCEDURAL HISTORY
[¶1] On August 20, 1998, Schurz Communications, Inc. ("Schurz") filed a complaint (Docket #1) asking this Court to order the specific performance of an alleged contract negotiated between Schurz and Duhamel Broadcasting Enterprises ("Duhamel") whereby Duhamel was to sell its extensive television holdings to Schurz for $27 million.(fn1) On October 28, 1998, Duhamel filed its motion for summary judgment alleging in part that the parties had failed to enter into a binding agreement (Docket #17).(fn2) Pursuant to this Court's order, Schurz filed a cross-motion for summary judgment on January 6, 1999 (Docket #44).
[¶2] Schurz is an Indiana corporation with its principal place of business located in South Bend, Indiana. Duhamel is a South Dakota corporation with its principal place of business located in Rapid City, South Dakota. The Court has jurisdiction pursuant to 28 USC § 1332.
II. FACTS
[¶3] The following material facts are undisputed. In 1996, negotiations began between Schurz and Duhamel concerning the sale of Duhamel's television stations. Plaintiff's Material Facts ("PMF") at ¶1. By October of that same year, matters had progressed sufficiently so that the parties entered into a "standstill agreement" in which Duhamel agreed to negotiate exclusively with Schurz for a period of sixty days in exchange for Duhamel's payment of $1 million in earnest money.(fn3) The pertinent terms of the standstill agreement stated:
This letter constitutes a standstill agreement between Duhamel Broadcasting Enterprises and Schurz Communications, Inc. looking toward the negotiations by the parties of a mutually acceptable definitive agreement for the acquisition by Schurz of the FCC licenses and certain other assets of the Stations. The parties acknowledge Schurz's offer to Duhamel to purchase the Assets for the purchase price of $27,000,000 in cash; provided, however, that neither this letter, nor the acceptance hereof is intended to, nor shall it, create a binding legal obligation to sell the Assets to Schurz nor Schurz to purchase the Assets, and any transaction between the parties is subject to the execution of a binding mutually acceptable definitive agreement.
See Exhibit 1, Defendant's Brief in Support of Summary Judgment ("Defendant's Brief") (emphasis added); DSMF at ¶2-3. The standstill agreement was later extended for an additional six weeks on December 20, 1996, and for an additional sixty days on January 31, 1997. DSMF at ¶4. Following execution of the first standstill agreement, the parties entered into intensive negotiations. During these negotiations, both parties exchanged numerous drafts of a document entitled "Asset Purchase Agreement." DSMF at ¶5; see also Exhibit 2-10, Plaintiff's Response to Defendant's Motion for Summary Judgment ("Plaintiff's Response") (Asset Purchase Agreement drafts). Each of the Asset Purchase Agreements exchanged reflected an anticipated sale price of $27 million. PSMF at ¶2.
[¶4] Between September 1996 and April 1998, both parties made detailed plans and arrangements in preparation for the sale of the Duhamel stations. DSMF at ¶6; Plaintiff's Statement of Material Facts ("PSMF") at ¶¶ 8,12, 15, 18, 20-44. However, by February 1998, significant portions of the Asset Purchase Agreement remained to be agreed upon. See Exhibit 44, Plaintiff's Response (letters of February 26 and February 27, 1998).
[¶5] One of the problems encountered by the parties centered around the terms of a commercial lease for Duhamel's television studio in Rapid City. Under the terms of this lease, Duhamel was to rent its television studio to Schurz for five years. See Exhibit 40, Plaintiff's Response (draft of studio lease). However, the parties could not agree to a "Destruction of Premises" clause. This inability to find common ground on the studio lease prompted Bill Duhamel (president of Duhamel Broadcasting) to warn as late as March 1998: "Perhaps you can suggest some kind of intermediate step and a reasonable time frame in which we would try to mutually agree on what could be done, and if we couldn't agree, then we would just have to part ways." Exhibit 49, Plaintiff's Response (March 27, 1998 letter).
[¶6] By early April 1998, the parties were still negotiating numerous terms in the Asset Purchase Agreement and the disagreement over the studio lease had yet to be settled. See Exhibit 52, Plaintiff's Response (April 3, 1998 letter). Despite the difficult nature of the negotiations, relations between the parties remained amiable and in early April Bill Duhamel told Schurz: "I think we finally may have all of the issues about resolved so that once your people have had an opportunity to review the Exhibits, we can get everything signed and filed with the Commission. I don't know if we can still make a July 1 closing . . . ." Id.
[¶7] As mid-April came to pass, however, both sides were still not ready to sign a final agreement. The details of the Asset Purchase Agreement and its accompanying schedules were not finalized, and a final set of "contract books" were in the process of being compiled. See Exhibit 54, Plaintiff's Response (April 13, 1998 facsimile). On April 21, 1998, Duhamel sent Schurz five un-executed sets of the updated Asset Purchase Agreement ("the April 21 Agreement") which Schurz would later point to as the contract. DSMF at ¶7. Along with the April 21 Agreement, Duhamel's attorney sent a cover letter stating:
I have enclosed five (5) clean copies of the asset purchase agreement, as well as one blacklined copy for your board meeting on Thursday. Although I have attached copies of the schedules as well, I understand that there have been some minor changes and that they will have to be updated prior to signing.
See Exhibit 10, Plaintiff's Response (April 21, 1998 letter) (emphasis added). In addition to the changes mentioned above, the parties had yet to reach a compromise on a new "Destruction of Premises" clause for the studio lease. In an attempt to settle the problem, Duhamel's attorney faxed a new version of the clause to Schurz for its consideration and "approval" on April 22, 1998. Duhamel's attorney stated: "Faxed herewith is an April 22 draft revision of paragraph XI "Destruction of Premises" of the Lease. I believe that it is in conformity with what we discussed and tentatively agreed upon subject to . . . your client's approval." Exhibit 54, Plaintiff's Response. See Exhibit 54, Plaintiff's Response.
[¶8] On April 23, 1998, Schurz's Board of Directors authorized the consummation of the sale, although it was Schurz that later suggested additional revisions to the April 21 Agreement. The suggested changes were sent from Schurz, through its attorney, to Duhamel, and stated in pertinent part:
Thank you for the hard copies of the Asset Purchase Agreement which Frank Schurz is now reviewing.
Several minor changes I suggest are:
Enclosed is a redrafted Schedule 3.7 which includes item "10" on non-written contracts.
Schedule 3.9 lists only the "KOTA" service mark. I suggest adding "Those intangible assets noted in the Bond & Pecaro updated report of March 8, 1998."
At Sec. 3.10 (page 10, line 2) would you include financial statements of September 30, 1997, and current monthly financial statements?
At Sec. 3.17, the Buyer needs a current list of employees and compensation. Presumably that will be in the book coming out next week.
Sec. 3.19 erroneously refers to a "Schedule 2.1". This should read "Section 2.1".
I will look forward to the redrafted books.
See Exhibit 4, Defendant's Brief (April 24, 1998 facsimile); see also PSMF at ¶¶18-19. Sometime following April 23, 1998, Duhamel decided that it would not consummate the sale to Schurz at the original $27 million price. DSMF at ¶13. On or around May 7, 1997, Schurz signed the April 21 Agreement noting a number of suggested changes in the margins. DSMF at ¶12. Upon Duhamel's steadfast refusal to consummate the sale for the $27 million price, Schurz initiated the instant action seeking specific performance.
III. SUMMARY JUDGMENT STANDARD
[¶9] Under Rule 56(c) of the Federal Rules of Civil Procedure, a movant is entitled to summary judgment if the movant can "show that there is no genuine issue as to any material fact and that [the movant] is entitled to judgment as a matter of law." In determining whether summary judgment should issue, the facts and inferences from those facts are viewed in the light most favorable to the nonmoving party, and the burden is placed on the moving party to establish both the absence of a genuine issue of material fact and that such party is entitled to judgment as a matter of law. Fed. R. Civ. P. 56(c); Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 106 S. Ct. 1348, 1356-57, 89 L. Ed. 2d 538 (1986). Once the moving party has met this burden, the nonmoving party may not rest on the allegations in the pleadings, but by affidavit or other evidence must set forth specific facts showing that a genuine issue of material fact exists.
[¶10] In determining whether a genuine issue of material fact exists, the Court views the evidence presented based upon which party has the burden of proof under the underlying substantive law. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 106 S. Ct. 2505, 2513, 91 L. Ed. 2d 202 (1986). The Supreme Court has instructed that "[s]ummary judgment procedure is properly regarded not as a disfavored procedural shortcut, but rather as an integral part of the Federal Rules as a whole, which are designed to 'secure the just, speedy, and inexpensive determination of every action.'" Celotex Corp. v. Catrett, 477 U.S. 317, 327, 106 S. Ct. 2548, 2555, 91 L. Ed. 2d 265 (1986). The nonmoving party "must do more than simply show that there is some metaphysical doubt as to the material facts," and "[w]here the record as a whole could not lead a rational trier of fact to find for the nonmoving party, there is no 'genuine issue for trial.'" Matsushita, 106 S. Ct. at 1356.
[¶11] The teaching of Matsushita was further articulated by the Supreme Court in Eastman Kodak Co. v. Image Technical Services, Inc., 504 U.S. 451, 468, 112 S. Ct. 2072, 2083 (1992) where the Court said, "Matsushita demands only that the nonmoving party's inferences be reasonable in order to reach the jury, a requirement that was not invented, but merely articulated, in that decision." The Court expounded on this notion by reiterating its conclusion in Anderson that, "[s]ummary judgment will not lie . . . if the evidence is such that a reasonable jury could return a verdict for the nonmoving party." Eastman Kodak, 504 U.S. at 468 n.14, 112 S. Ct. at 2083 n.14 (quoting Anderson, 477 U.S. at 248, 106 S. Ct. at 2510). To survive summary judgment there must be evidence that "reasonably tends to prove" plaintiff's theory; defendant meets the burden under Fed. R. Civ. P. 56(c) when it is conclusively shown that the facts upon which the nonmoving party relied to support the allegations were not susceptible of the interpretation which was sought to give them; only reasonable inferences can be drawn from the evidence in favor of the nonmoving party. Id. (citations omitted).
[¶12] Finally, should there remain any doubt as to whether the courts continue to harbor any antagonistic feeling toward resolution of summary judgment motions, Chief Judge Arnold in City of Mt. Pleasant, Iowa v. Associated Electric Co-op., 838 F2d 268 (8th Cir. 1988) laid such thoughts to rest. He stated that, "a trilogy of recent Supreme Court opinions demonstrates that we should be somewhat more hospitable to summary judgment than in the past. Id. at 273. See also Midwest Radio Co. v. Forum Pub. Co., 942 F2d 1294, 1296 (8th Cir. 1991). The motion for summary judgment can be a tool of great utility in removing factually insubstantial cases from crowded dockets, freeing courts' trial time for those cases that really do raise genuine issues of material fact." Id.
[¶13] Based on the foregoing, the trilogy of Celotex, Anderson, and Matsushita provides the Court with a methodology in analyzing defendants' motion for summary judgment. See generally 1 Steven A. Childress & Martha S. Davis, Federal Standards of Review § 5.04 (2d ed. 1991) (discussing the standards for granting summary judgment that have emerged from Matsushita, Celotex, and Anderson).(fn4) Under this trilogy, it is incumbent upon the nonmoving party, based upon the showing set forth by the moving party, to establish significant probative evidence to prevent summary judgment. See Terry A. Lambert Plumbing, Inc. v. Western Sec. Bank, 934 F2d 976, 979 (8th Cir. 1991).
IV. DISCUSSION
[¶14] In seeking the extraordinary remedy of specific performance, Schurz invokes this Court's equitable powers. See Amdahl v. Lowe, 471 NW2d 770, 773 (S.D. 1991).(fn5) If it appears to this Court that "an agreement has not passed beyond the condition of negotiation, '[a]nd if it is left doubtful from all the evidence in the case whether a contract was concluded or not, equity will not grant specific relief.'" Geraets v. Halter, No. 20509, 1999 WL 33103, at *3 (S.D. Jan. 27, 1999) (quoting Watters v. Lincoln, 35 N.W. 712, 713 (S.D. 1912). It must first be determined whether or not the parties actually created a valid contract. City of Chamberlain v. R.E. Lien, Inc., 521 NW2d 130 (S.D. 1994). "[I]t is elementary that before a court may enforce a contract there must be a determination that a valid contract was created." Id. at 132.
[¶15] Schurz contends that the parties "from the inception . . . agreed that Schurz would purchase the FCC licenses and attendant assets of Duhamel for the sum of $27,000,000." See Plaintiff's Brief at 1(emphasis added). The Court disagrees.
[¶16] Under SDCL 53-1-2, the elements necessary for formation of a contract are:
(1) parties capable of contracting;
(2) their consent;
(3) a lawful object; and
(4) sufficient cause or consideration.
The only issue here is whether element (2) has been satisfied. The Court holds that it has not.
[¶17] While there can be no doubt that both Schurz and Duhamel anticipated an ultimate end to negotiations culminating in the sale of the Duhamel stations, both sides expressly agreed that they would not be bound until the "execution of a binding mutually acceptable definitive agreement." See Exhibit 1-3, Defendant's Brief (standstill agreements) (emphasis added). This was not done.
[¶18] In Garrett v. BankWest, Inc., 459 NW2d 833, 840 (S.D. 1990), the South Dakota Supreme Court held that no lease agreement existed because party admitted lease was intended to be memorialized by signed writing at a later time. In G.H. Lindekugel & Sons, Inc. v. Brezina Constr. Co., 160 NW2d 121, 123 (S.D. 1968), the South Dakota Supreme Court held that one of the necessary inquiries to determine whether or not a contractual relation has been established by informal writings and negotiations is whether the parties intended a binding agreement prior to the time of the signing and delivery of a formal contract. By the express terms of the standstill agreement, the parties agreed they would not be bound by preliminary negotiations.
[¶19] In this case, it is clear that the parties were very close to reaching a definitive agreement for the sale of the Duhamel stations. However, the Court finds no basis to conclude that the April 21 Agreement was either mutually acceptable or definitive. Moreover, the agreement was only executed by Schurz.
[¶20] As this Court has already noted, both parties participated in the continual drafting and redrafting of the asset purchase agreements. By April 21, 1998, the parties appeared to be close to completing their negotiations, although a significant number of details had yet to be resolved. In fact, in the cover letter that accompanied the April 21 Agreement, Duhamel, through its attorney, indicated its understanding that a more final agreement would be forthcoming: "I understand that there have been some minor changes and that they will have to be updated prior to signing." See Exhibit 10, Plaintiff's Response. Despite this comment, however, it was this un-updated version that Schurz would later sign and urge this Court to enforce. Moreover, the April 21 Agreement, as originally presented to Schurz, failed to contain an agreed-upon "Destruction of Premises" clause, although Duhamel had previously made this a condition of closing. The clause that was faxed to Schurz on April 22 appears to have been a tentative suggestion only. In his cover sheet, Duhamel's attorney stated that the faxed "Destruction of Premises" clause was a "draft revision." Finally, the April 21 Agreement would later be subject to additional revisions, not at the suggestion of Duhamel, but instead at the prompting of Schurz. Under these circumstances, the Court cannot find that the April 21 Agreement was either definitive or mutually accepted. See Sabow v. Hall, 323 NW2d 861, 863 (S.D. 1982) (ensuing negotiations evidence absence of intent that a purchase agreement constitutes a final and complete agreement between the parties).
[¶21] As stated, the April 21 Agreement was executed only on behalf of Schurz. This appears to be counter to the parties' original intent that both Schurz and Duhamel were to execute the document before it would be binding. In this case, it is undisputed that Duhamel did not sign the April 21 Agreement, although the document contained signature lines for such an execution. While ordinarily the absence of a fully executed document will not stand in the way of the creation of a binding contract, where the parties expressly agree that no contract will be formed, absent an executed document, the signing by both parties becomes a condition precedent to the birth of a binding agreement.
[¶22] The Court concludes that the April 21 Agreement fails to rise to the threshold demanded by the parties themselves, that is, that the contract be an "executed binding mutually acceptable definitive agreement." Accordingly, it is hereby
[¶23] ORDERED that Schurz's motion for summary judgment (Docket #44 ) is denied.
[¶24] IT IS FURTHER ORDERED that Duhamel's motion for summary judgment (Docket #17) is granted. Judgment with prejudice shall be entered in favor of Duhamel and against Schurz.
Footnotes
1. Duhamel was to sell Schurz certain assets of the television stations KOTA-TV, Rapid City, South Dakota; KHSD-TV, Lead, South Dakota; KSGW-TV, Sheridan, Wyoming; and KDUH-TV, Scottsbluff, Nebraska.
2. Duhamel urges that as the party to be charged, its failure to sign the contract in question has failed to satisfy the Statute of Frauds as embodied in SDCL 53-8-2 and/or 57A-2-201. Because this Court concludes that no binding, definitive agreement was ever proffered to Schurz for its acceptance, it does not address the merits of the Statute of Fraud argument.
3. The $1 million in earnest money was never actually paid.
4. The trilogy of Celotex, Anderson, and Matsushita has redefined the standard for summary judgment previously annunciated in Adickes v. S.H. Kress & Co., 398 U.S. 144, 157, 90 S. Ct. 1598, 1608, 26 L. Ed. 2d 142 (1970) and Poller v. Columbia Broadcasting, Inc., 368 U.S. 464, 467, 82 S. Ct. 486, 7 L. Ed. 2d 458, 488 (1962). Poller and Adickes run counter to the teachings of Celotex, Anderson, and Matsushita which take issue with the concept that summary judgment is to be used sparingly. See generally William W. Schwarzer, Alan Hirsch, and David J. Barrans, The Analysis and Decision of Summary Judgment Motions: A Monograph on Rule 56 of the Federal Rules of Civil Procedure, Federal Judicial Center, at 4 (1991).
5. This being a diversity case, the Court must apply the law of the state of South Dakota. Erie R. R. v. Tompkins, 304 U.S. 64, 58 S. Ct. 817, 82 L. Ed. 1188 (1938).