JKC Holding Co. v. Washington Sports Ventures, 00-2511

• Citation: 264 F.3d 459
• Decision Date: 05 June 2001
• Docket Number: No. 00-2511,00-2511
• Parties: (4th Cir. 2001) JKC HOLDING COMPANY LLC, Plaintiff-Appellee, v. WASHINGTON SPORTS VENTURES, INCORPORATED, Defendant-Appellant, and WFI GROUP, INCORPORATED, formerly known as Jack Kent Cooke, Incorporated; THE ESTATE OF JACK KENT COOKE, Defendants-Appellees, and GREGORY R. DILLON; MARK POLLAK; HOWARD B. SOLOWAY, Defendants. Argued:
• Court: United States Courts of Appeals. United States Court of Appeals (4th Circuit)

Page 459

264 F.3d 459 (4th Cir. 2001)

JKC HOLDING COMPANY LLC, Plaintiff-Appellee, v. WASHINGTON SPORTS VENTURES, INCORPORATED, Defendant-Appellant, and WFI GROUP, INCORPORATED, formerly known as Jack Kent Cooke, Incorporated; THE ESTATE OF JACK KENT COOKE, Defendants-Appellees,

and

GREGORY R. DILLON; MARK POLLAK; HOWARD B. SOLOWAY, Defendants.

No. 00-2511

UNITED STATES COURT OF APPEALS FOR THE FOURTH CIRCUIT

Argued: June 5, 2001

Decided: September 7, 2001

Appeal from the United States District Court for the Eastern District of Virginia, at Alexandria. Claude M. Hilton, Chief District Judge.

(CA-00-35-A)

[Copyrighted Material Omitted]

[Copyrighted Material Omitted] COUNSEL ARGUED: David Boies, BOIES, SCHILLER & FLEXNER, L.L.P., Armonk, New York, for Appellant. Paul J. Mode, Jr., WILMER, CUTLER & PICKERING, Washington, D.C., for Appellees. ON BRIEF: Alan B. Vickery, Christopher M. Green, BOIES, SCHILLER & FLEXNER, L.L.P., Armonk, New York; Jonathan D. Schiller, Carol J. Nichols, BOIES, SCHILLER & FLEXNER, L.L.P., Washington, D.C., for Appellant. David P. Donovan, Melanie D. Coates, Laura B. Kotanchik, Joshua R. Stebbins, WILMER, CUTLER & PICKERING, Washington, D.C.; Thomas C. Green, Mark D. Hopson, Griffith L. Green, Kristin Graham Koehler, SIDLEY & AUSTIN, Washington, D.C., for Appellees.

Before WILKINSON, Chief Judge, NIEMEYER, Circuit Judge, and Irene M. KEELEY, Chief United States District Judge for the Northern District of West Virginia, sitting by designation.

Affirmed by published opinion. Chief Judge Keeley wrote the opinion, in which Chief Judge Wilkinson and Judge Niemeyer joined.

OPINION

KEELEY, Chief District Judge:

In this case we are asked to determine whether JKC Holding Company LLC ["JKC Holding"] engaged in wrongdoing to prevent the sale of the Washington Redskins professional football team to Washington Sports Ventures, Inc. ["WSV"]. WSV failed in its attempt to purchase the Redskins from the Estate of Jack Kent Cooke and alleges a variety of claims, including breach of contract and fraudulent inducement against JKC Holding. Because of the speculative nature of the evidence on which WSV relies, we affirm the district court's grant of summary judgment to JKC Holding.

I.

At the time of his death in April 1997, Jack Kent Cooke held 90% of the shares of JKC, Inc., which in turn owned the Washington Redskins, Jack Kent Cooke Stadium and the Redskins' training facility in Virginia. His son, John Cooke, Sr. ["Cooke"], owned the remaining 10% of the shares. Jack Kent Cooke's will provided that his estate ["Estate"] was to sell his stock in JKC, Inc. and use the proceeds to fund a charitable foundation benefitting underprivileged youth. Cooke was one of the executors of the Estate, as well as a director of JKC, Inc. and JKC Holding, which was formed for the purpose of selling the team and its related assets. A Special Committee, consisting of all of the JKC, Inc. directors except Cooke, was created to oversee the sale. Cooke recused himself from sitting on the Special Committee because he wished to bid on the team himself.

After a controlled auction for the stock, which began in September 1998 and ended in January 1999, the Special Committee accepted an $800 million bid from WSV, a group of investors led by Howard P. Milstein ["Milstein"], his brother Edward L. Milstein, and Daniel Snyder ["Snyder"]. Cooke and his group of investors had offered the second highest bid of $725 million.

On January 9 and January 10, 1999, representatives of the Special Committee and WSV met to finalize the Stock Purchase Agreement ["Agreement"]. Prior to the exchange of signature pages, representatives of the Special Committee advised WSV's representatives that Cooke was disappointed, upset and emotional over the pending sale of the Redskins to WSV, but stated that they thought he would get over his disappointment. WSV's representatives have testified they understood that Cooke was potentially hostile to WSV's bid and that the transaction could fail as a result. Importantly, the Special Committee gave WSV time to reconsider proceeding with the Agreement in light of this information. Nevertheless, WSV decided to proceed, and the signature pages were signed and exchanged on January 10, 1999.

The Agreement between the parties is 64 pages in length and teams of lawyers participated in the negotiations of its terms. It conditioned the sale of stock upon WSV obtaining the approval of the National Football League ["NFL"] for its ownership of the Washington Redskins. The parties agreed to "consult and use commercially reasonable efforts to make or obtain all Approvals as soon as is reasonably practicable after execution of this Agreement." Art. VII, S7.2.

Each party was contractually obliged to use its best efforts to secure NFL approval for WSV. In addition, WSV was required to provide a $30 million irrevocable letter of credit, which JKC Holding could exercise if a "Deposit Forfeiture Event" occurred. Under the Agreement, the following three conditions must exist for a "Deposit Forfeiture Event" to occur: (1) the Agreement was terminated prior to the closing date, in accordance with the termination provisions set forth in Section 9.1 of the Agreement;¹ (2) the Agreement was terminated prior to WSV obtaining NFL approval to own the Redskins; and (3) the NFL Commissioner did not advise JKC Holding in writing that the reason WSV did not obtain NFL approval was solely due to problems with JKC Holding's capital structure. The closing date was originally set for March 31, 1999, but this was later amended to April 14, 1999.

The NFL owners scheduled a vote on WSV's proposed ownership of the Washington Redskins on April 7, 1999. Eight negative votes would prevent WSV from obtaining NFL approval, but it was aware of only three. Shortly before the NFL owners were to vote, however, WSV entered into a separate agreement with the NFL, negotiated by Commissioner Paul Tagliabue and Finance Committee Chairman Robert Kraft. According to this separate agreement, the NFL owners agreed to pay WSV the amount of any loss (up to $30 million) that it actually incurred with respect to the irrevocable letter of credit provided to JKC Holding under the Agreement, if

WSV would voluntarily withdraw its bid and agree not to sue the NFL over its application and subsequent withdrawal. The NFL owners then voted to accept WSV's voluntary withdrawal from the approval process, and resolved to approve the agreement with WSV on condition that a satisfactory and enforceable final agreement be prepared encompassing such terms.

Following the withdrawal of WSV's bid, Cooke renewed his bid for the Redskins, but the Special Committee again rejected it and, in July 1999, sold the team to a group headed by Snyder, the Milsteins' former minority partner, for $800 million.²

Pursuant to its agreement with WSV, JKC Holding demanded payment under the $30 million irrevocable letter of credit on January 5, 2000. It filed a declaratory judgment action against WSV to establish its right to exercise the letter of credit, contending that all of the requirements for a Deposit Forfeiture Event had occurred. WSV counterclaimed against JKC Holding, WFI Group, Incorporated (formerly JKC, Inc.), the Estate of Jack Kent Cooke, and three individuals who were executors of the Estate, managers of JKC Holding and formerly directors of JKC, Inc. [collectively "counterclaim defendants"]. It did not sue Cooke in this action, although the record indicates that WSV has filed a separate action against him elsewhere.

WSV alleged that the counterclaim defendants breached the Agreement by failing to use their best efforts to cause the Estate, and specifically Cooke, to support its proposed deal to purchase the Redskins, and that they fraudulently induced WSV to enter into the Agreement by representing that Cooke would not interfere in the approval process. In its appeal, WSV has not challenged the district court's earlier dismissal of its breach of fiduciary duty, business conspiracy, and tortious interference with business relations claims.

On October 26, 2000, the district court granted JKC Holding's motion for summary judgment on its declaratory judgment count and dismissed WSV's remaining counterclaims. The district court found that WSV's withdrawal from the NFL approval process amounted to a repudiation of the Agreement and that WSV could not complain, and no jury could find, that JKC Holding prevented WSV from gaining NFL approval when it was WSV that prevented a vote from being taken by withdrawing its application.

On appeal, WSV contends that the $30 million irrevocable letter of credit agreed to by the parties is unenforceable as an illegal penalty under New York law,³ and that JKC Holding caused WSV to withdraw its application before the NFL approval process was completed. WSV further argues that the district court erred in limiting the damages it could recover under the Agreement, and in granting summary judgment on its fraudulent inducement claim.

II.

We review a grant of summary judgment de novo. Virtual Works, Inc. v. Volkswagen Of Am., Inc., 238 F.3d 264, 269 (4th Cir. 2001). Summary judgment is appropriate only if "the pleadings, depositions, answers to interrogatories, and admissions on file, together with affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law." Fed.R.Civ. P. 56(c). The existence of an alleged factual dispute between the parties will not defeat a properly supported motion for summary judgment, unless the disputed fact is one that might affect the outcome of the litigation. Hooven-Lewis v. Caldera, 249 F.3d 259, 265 (4th Cir. 2001). Mere speculation by the non-movant cannot create a genuine issue of material fact. Cox v. County of Prince William, 249 F.3d 295, 299 (4th Cir. 2001). A material fact is one where its existence or non-existence could...