278 F.3d 401 (4th Cir. 2002), 00-2366, Burbach Broadcasting Co. v. Elkins Radio Corp.
|Citation:||278 F.3d 401|
|Party Name:||BURBACH BROADCASTING COMPANY OF DELAWARE, Plaintiff-Appellant, v. ELKINS RADIO CORPORATION; CAT RADIO INCORPORATED, Defendants-Appellees.|
|Case Date:||January 25, 2002|
|Court:||United States Courts of Appeals, Court of Appeals for the Fourth Circuit|
Argued: November 2, 2001
Appeal from the United States District Court for the Northern District of West Virginia, at Elkins. Robert Earl Maxwell, Senior District Judge. (CA-98-111-2)
Before MICHAEL, KING, and GREGORY, Circuit Judges.
Vacated and remanded by published opinion. Judge Gregory wrote the opinion, in which Judge Michael and Judge King joined.
[Copyrighted Material Omitted]
COUNSEL ARGUED: Joseph W. Conway, Sarver, Pennsylvania, for Appellant. Jeffrey Stewart Zurbuch, BUSCH & TALBOTT, L.C., Elkins, West Virginia, for Appellees. ON BRIEF: John E. Busch, BUSCH & TALBOTT, L.C., Elkins, West Virginia, for Appellees.
GREGORY, Circuit Judge:
Burbach Broadcasting brought suit against Elkins Radio for breach of contract and specific performance based on an alleged agreement made between the parties for the purchase of Elkins' radio station assets. The agreement Burbach sought to enforce took the form of a letter of intent, signed by the parties on October 2, 1998. The district court granted judgment on the pleadings, finding that the letter of intent was not binding because it was subject at all times to the negotiation and execution of a mutually agreeable asset purchase agreement, and no such agreement was ever reached by the parties. Burbach contends that the letter of intent contained all the elements of a complete, binding and enforceable contract and that the lack of an asset purchase agreement does not affect Elkins' obligation to sell the assets. It argues that it could waive the provision calling for an asset purchase agreement because the sole purpose of that provision was to protect itself, due to limited information provided by Elkins. In the alternative, Burbach contends that the letter of intent was, at a minimum, a binding agreement obligating the parties to negotiate in good faith towards a final contract. We find that the complaint adequately states a claim on which relief can be granted, and because the parties' intent to be bound cannot be discerned on the face of the pleadings alone, we vacate and remand to the district court for further proceedings.
In September of 1998, Elkins Radio, through its agent, submitted a written offering document to Burbach Broadcasting regarding the sale of Elkins' radio station assets in West Virginia. In the offering, Elkins proposed to sell the station assets for "$3.6 million on terms." The offering stated that Elkins sought the sale due to retirement of its owner.
After numerous discussions and meetings, the parties signed what was termed a "Letter of Intent" on October 2, 1998. The five page letter was written on Burbach letterhead. Burbach's president, Nicholas Galli, authorized the letter, which was addressed to Richard McGraw, president of Elkins Radio. It was faxed to Richard McGraw at approximately 4:30 p.m. on October 2, 1998, and if Mr. McGraw had not signed it by 5:00 p.m. that same day, it would have become null and void.
The opening paragraph of the letter set forth the assets to be sold by Elkins to Burbach. Following the opening paragraph, the letter stated that because it was "based on certain limited information provided by the Sellers to Buyers," it was subject at all times to 1) buyers' due diligence review of the assets, 2) completion of disclosure schedules for matters related to the assets, 3) "negotiation and execution of a mutually agreeable asset purchase agreement," and 4) FCC approval for the assignment of the stations' licenses from sellers to buyers.
Next, the letter stated, "Sellers and Buyers, intending to be legally bound, hereby agree to the contemplated transaction based on the following terms and conditions." The terms and conditions that followed were set forth with detail.
To begin, the letter called for a purchase price of $1.5 million cash at closing and a $1 million promissory note, which would bear interest and amortize for a term of fifteen years. The letter stated that interest would accrue at the "Prime Rate of National City Bank of Pennsylvania as such may change from time to time plus one half percent." There was to be an interest rate floor throughout the term and an interest rate ceiling of 9.5% for the first five years, 10% for years six through ten, and 10.5% for years eleven through fifteen. Repayment was to be interest only for the first three years, level amortization of principal over 144 months equal to $6,944.44, plus accrued interest monthly for years four through twelve. Under the letter, buyers had the right to prepay at any time. Though the letter set forth these details regarding interest and repayment, it did not specify whether the promissory note would be secured or unsecured.
The letter called for a consulting contract to Elkins' president, Richard McGraw, for one year after closing, at $3000 a month. Additionally, Mr. McGraw was to sign a three year non-competition covenant. The letter also stated that Elkins was not conveying ownership in its studio facility. Rather, Elkins was to lease Burbach its facilities for two years, at $1000 a month rental, and was to grant three one year renewals after the expiration of the two year term. Other terms specified that the parties would mutually agree to any public announcements, and the date of closing was to be held on the latter of January 4, 1999, or ten business days after Commission approval of the FCC license transfer.
Regarding escrow, the letter stated that Burbach would place $5000 in a closing account held by its FCC counsel within five business days of execution of the letter of intent and $70,000 upon execution of the asset purchase agreement. Funds in escrow would be applied to the purchase price at closing. If Burbach's material breach caused closing to fail, the letter specified that the funds in escrow would be paid to Elkins, as liquidated damages and as Elkins' exclusive remedy for such breach. The escrow funds were to be paid to Burbach if closing failed due to a material breach by Elkins. In addition, the letter stated that "Buyers shall retain the right at Buyer's [sic] option to proceed with an action for specific performance."
The asset purchase agreement to be negotiated by the parties was to 1) provide for, among other things, Burbach's post closing obligations related to operations which were incurred in the ordinary course of business and 2) reflect terms and conditions typical for the sale and purchase of comparable radio broadcasting operations. Under the letter, Burbach had the responsibility of drafting the asset purchase agreement, subject to review by Elkins and Elkins' counsel.
One of the last paragraphs in the letter stated: "Upon execution by the parties herein and subject at all times to the terms herein, this Letter of Intent shall be binding on and enforceable by the parties hereto." The letter of intent was to expire by its own terms if an asset purchase agreement was not executed by 5:00 p.m. on October 22, 1998, provided that a party was not in material breach or had not unreasonably caused a delay.
On October 10, 1998, Elkins' president wrote his broker about the status of Elkins' outstanding debt at that time, which amounted to approximately $1.8 million. The letter was attached to Burbach's complaint. The debt included the broker's possible five percent commission on $2.5 million. Given the $1.8 million in combined debt and commission, Mr. McGraw observed that at least that amount would be needed at closing, instead of the $1.5 million stated in the letter of intent. Mr. McGraw indicated that the debt was higher than he had previously calculated: "I just blew it by forgetting to add in that second part of the CNB loan."
Burbach asserts that Elkins committed a material breach of the letter of intent by demanding an additional $300,000 or $400,000 be added to the cash paid at closing. Burbach argues that this breach made it factually and legally impossible for it to complete a due diligence review of the assets and to negotiate and execute a mutually agreeable asset purchase agreement.
Burbach filed its complaint against Elkins on November 23, 1998, alleging breach of contract based on the letter of intent. Jurisdiction was based on diversity of citizenship--Burbach is a Delaware corporation with its principal place of business in Pennsylvania, and Elkins is a West Virginia corporation with its principal place of business in West Virginia. The letter of intent and other exhibits were attached to the complaint as exhibits. In its responsive pleading, Elkins asserted that Burbach failed to state a claim upon which relief can be granted, and moved to dismiss the complaint. After unsuccessful attempts at mediation, the district court granted Elkins' motion to dismiss, or in the alternative, judgment on the pleadings. The court dismissed the complaint with prejudice, concluding that the letter of intent was not enforceable as a purchase agreement and that it expired by its own terms when the parties failed to negotiate and...
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