Video Update, v. Videoland

• Citation: 182 F.3d 659
• Decision Date: 10 February 1999
• Docket Number: No. 98-1601,98-1601
• Parties: (8th Cir. 1999) Video Update, Inc., a Minnesota corporation, Appellant, v. Videoland, Inc., an Indiana corporation; Mark Spilker, individually, Appellees
• Court: United States Courts of Appeals. United States Court of Appeals (8th Circuit)

Page 659

182 F.3d 659 (8th Cir. 1999)

Video Update, Inc., a Minnesota corporation, Appellant, v. Videoland, Inc., an Indiana corporation; Mark Spilker, individually, Appellees.

No. 98-1601

UNITED STATES COURT OF APPEALS FOR THE EIGHTH CIRCUIT

February 10, 1999, Submitted

July 8, 1999, Filed

Eric Magnuson, Minneapolis, MN., argued (Patrick J. Rooney and William P. Wassweiler, on the brief), for Appellant.

Robert M. McClay, St. Paul, MN., argued (Paula D. Osborn, on the brief), for Appellee.

Before McMILLIAN, JOHN R. GIBSON and MURPHY, Circuit Judges.

McMILLIAN, Circuit Judge.

Video Update, Inc. (Video Update) appeals from a final order entered in the United States District Court¹ for the District of Minnesota, granting summary jud gment in favor of Videoland, Inc. (Videoland), and Videoland's owner, Mark Spilker. Video Update, Inc., v. Videoland, Inc., No. 3-96-735 (D. Minn. Jan. 26, 1998). For reversal, Video Update argues that the district court erred in (1) interpreting the purchase agreement between Video Update and Videoland, (2) awarding attorney's fees to Videoland and Spilker, and (3) awarding pre-judgment interest to Videoland and Spilker. For the reasons stated below, we affirm.

Jurisdiction

Jurisdiction in the district court was proper based upon 28 U.S.C. 1332. Jurisdiction in this court is proper based upon 28 U.S.C. 1291. The notice of appeal was timely filed pursuant to Fed. R. App. P. 4(a).

Background

The following is a summary of the undisputed facts set forth in the district court's order. Id. In 1980 Mark Spilker founded Videoland, a video rental business which owned and operated various stores in Lafayette, Indiana. Video Update and Videoland entered into negotiations for the sale of Videoland to Video Update which culminated in a signed purchase agreement in November 1995. Under the purchase agreement, Video Update agreed to pay Spilker approximately $ 4 million-- $ 2 million in cash and approximately $ 2 million in unregistered Video Update stock (239,163 shares). The purchase agreement provided that, if Spilker sold the stock between March 14 and September 14, 1996, Video Update would guarantee a price of at least $ 12 per share. If the stock sold for less than $ 12, Video Update agreed to pay the difference or the "deficiency amount," in cash or additional stock, as set forth in Section 1.3(a)(ii) (the "deficiency payment provision") of the purchase agreement. ² In addition, Section 6(k) (the "lockup/dribble" provision) of the purchase agreement contained restrictions on both the amount and timing of Spilker's sale of stock.³

In January 1996 Video Update notified Spilker that it intended to file a registration statement with the Securities Exchange Commission in contemplation of a public offering. In response, Spilker requested that Video Update register his shares so that he could sell them. At Video Update's request, Spilker executed a "registration election form" in which he agreed to honor the lockup provision. The Video Update shares were registered on February 15, 1996. Between March 15,1996 and May 24, 1996, Spilker sold 239,163 shares of Video Update stock for less than $ 12.00 per share. During April and May 1996 he sold 2 blocks of 30,000 shares each within 5 business days.

In August 1996 Video Update filed this action for declaratory judgment pursuant to 28 U.S.C. 2201 in federal district court to determine its liabilities under the purchase agreement. Video Update sought a judicial declaration that Spilker's obligation under Section 6(k) of the purchase agreement was an express condition precedent to Video Update's obligation to make the deficiency payment, that Spilker breached the purchase agreement by selling in excess of 25,000 Video Update shares within a five (5) business day period, in violation of the lockup/dribble provision, and that Video Update is excused from performance under Section 1.3(a)(ii), and has no obligation to pay attorney's fees. Videoland and Spilker filed an answer asserting affirmative defenses (waiver, disproportionate or extreme forfeiture) and a counterclaim against Video Update for a deficiency payment in excess of $ 1.2 million.

The parties filed cross-motions for summary judgment. In January 1998 the district court granted summary judgment in favor of Videoland and Spilker. The district court regarded this case as one of contract interpretation and applied Minnesota law pursuant to a choice-of-law provision in the purchase agreement. The district court noted that the parties did not dispute that Spilker sold his stock for less than the $ 12 per share guarantee or that some of Spilker's sales of stock exceeded the quantity and frequency limitations set forth in the lockup/dribble provision. By relying upon the "condition precedent" language in Section 6(k), Video Update argued that Spilker's obligation under the lockup/dribble provision was an express condition precedent to its obligation to make any deficiency payment under Section 1.3(a)(ii). However, the district court relied on the phrase "this Section" to conclude that Section 6 referred only to stock registration matters and not the deficiency payment which was contained in Section 1.3(a)(ii). Slip op. at 5. For this reason, the district court rejected Video Update's argument that the lockup/dribble provision was a condition precedent to any deficiency payment.

The district court also reasoned that, because the terms of the contract were unambiguous, extrinsic evidence regarding the negotiation process was barred by the parol evidence rule. Id. at 6 (noting that, under Minnesota law, if the terms of a contract are clear and unambiguous, parol evidence is inadmissible to alter the terms of the contract, and that an integrated agreement cannot be altered by any prior oral agreement).

The district court rejected Video Update's argument that the subsequent conduct of the parties-- specifically Spilker's letter about D.H. Blair's offer⁴ -- was clear and convincing evidence that would justify altering the meaning of the purchase agreement. Id. The district court decided that the letter only showed that Spilker wanted Video Update to agree that, if he sold his shares to D.H. Blair for less than $ 12 per share, Video Update would still pay the deficiency amount.

The district court awarded Videoland and Spilker attorney's fees and expenses pursuant to Section 5.2 of the purchase agreement and pre-judgment interest (from October 31, 1996 at 18%) pursuant to Section 5.4 of the purchase agreement.

In subsequent orders, the district court denied Video Update's post-judgment Motion to Alter and Amend the Judgment⁵ (although the district court noted that Video Update could pay the deficiency in additional shares of stock pursuant to the purchase agreement) and reduced the amount of attorney's fees by 25% (because some entries for fees were vague and ambiguous, and others appeared unrelated to this litigation), for a total of $ 73,080.00. This appeal followed.

Discussion

Contract Interpretation

Video Update argues on appeal that the district court erred in interpreting the purchase agreement. Specifically, Video Update argues that the district court erroneously held that the purchase agreement unambiguously provided that compliance with the lockup/dribble provision is not an express condition precedent to Video Update's obligations under the deficiency payment provision.

A condition precedent is "any fact except mere lapse of time which must exist or occur before a duty of immediate performance by the promisor can arise" under the contract. Carl Bolander & Sons, Inc. v. United Stockyards Corp., 298 Minn. 428, 431, 215 N.W.2d 473, 475 (1974). Video Update argues that compliance with the lockup/dribble provision is an express condition precedent to Video Update's obligation to make any deficiency payment under Section 1.3(a)(ii). Video Update argues that because Spilker's sales of stock violated the lockup/dribble provision on 7 of 29 days, Spilker breached the purchase agreement. Therefore, Video Update concludes, it is relieved of its obligation to pay the deficiency payment (a total of $ 1,220,403.00).

First, Video Update argues that the lockup/dribble provision is an express condition precedent because it is consistent with the language and structure of the purchase agreement. The lockup/dribble provision states in pertinent part: "It shall be a condition precedent to the obligations of Video Update to take any action pursuant to this Section...."

Second, Video Update argues that the lockup/dribble provision is an express condition precedent because it is consistent with the course and sequence of events which were contemplated by the purchase agreement. Spilker would not have been able to sell his shares until after they had been registered. Video Update argues that the only obligation on Video Update's part that arose after Spilker sold his Video Update shares was Video Update's obligation to make the deficiency payment.

Third, Video Update argues that its interpretation is consistent with the purpose of the lockup/dribble provision. Video Update argues that this provision was meant to protect Video Update from unnecessary increases in the deficiency payment which might arise from the sale of large quantities of Video Update's stock by insiders on the market. By restricting Spilker's ability to sell large blocks of his Video Update shares, Video Update would avoid short-term over-reaction by the market which would drive down the price of Video Update stock. Moreover, Video Update argues that this provision was also meant to protect other investors from precipitous declines in the value of their Video Update stock. Not only was Video Update preparing to "go public," but it also wanted to keep up the price of its stock to minimize the amount of any deficiency payment due Spilker.

Finally, Video Update argues that its interpretation of the lockup/dribble provision...