United Telecommunications, Inc. v. American Television & Communications Corp.

• Decision Date: 16 June 1976
• Docket Number: No. 75-1462,75-1462
• Citation: 536 F.2d 1310
• Parties: UNITED TELECOMMUNICATIONS, INC., a Kansas Corporation, Plaintiff-Appellee, v. AMERICAN TELEVISION AND COMMUNICATIONS CORPORATION, a Delaware Corporation, Defendant-Appellant.
• Court: U.S. Court of Appeals — Tenth Circuit

Page 1310

536 F.2d 1310

UNITED TELECOMMUNICATIONS, INC., a Kansas Corporation Plaintiff-Appellee, v. AMERICAN TELEVISION AND COMMUNICATIONS CORPORATION, a Delaware Corporation, Defendant-Appellant.

No. 75-1462.

United States Court of Appeals Tenth Circuit.

Argued and Submitted March 23, 1976.

Decided June 16, 1976.

David M. Ebel, of Davis, Graham & Stubbs, Denver, Colo. (Robert H. Harry and Alan M. Loeb, of Davis, Graham & Stubbs, Denver, Colo., on the brief), for plaintiff-appellee.

Harry L. Hobson, of Holland & Hart, Denver, Colo. (Robert T. Connery and Stephen L. Pepper, of Holland & Hart, Denver, Colo., of the brief), for defendant-appellant.

Before BREITENSTEIN, McWILLIAMS and DOYLE, Circuit Judges.

William E. DOYLE, Circuit Judge.

This is a diversity action in which the appellant was defendant in the trial court and suffered the award of a judgment based on a jury verdict in the amount of $2,021,500. The action brought by plaintiff-appellee was for a breach of contract and breach of warranty. The case was filed December 5, 1973 and was tried in March 1975.

Involved here is the exchange of an interest in Jefferson-Carolina Corp., a cable television company, by United Telecommunications, Inc. ("United") for 175,000 shares of American Television & Communications Corp. ("ATC").

United is said to be the third largest telephone company in the United States. ATC is a Delaware corporation based in Denver and the operator of cable television systems. The purchase agreement between United and ATC was signed on Februry 22, 1972. It outlined the basic terms, that is, that United would receive 175,000 unregistered shares of ATC. The agreement also gave United the right to demand registration of these shares any time after the transaction was closed. Upon the making of such a call by United, ATC undertook to use its "best efforts" to obtain registration by preparing and filing a registration statement and by causing the statement to become and remain effective. In addition, ATC represented and warranted that the execution and carrying out of the agreement and compliance with the provisions of it by ATC would not conflict with or result in any breach of any of the terms, conditions or provisions of any agreement to which ATC was a party or by which it was bound or affected. Further provisions in the agreement were that all ATC representations and warranties would be true and correct as of the closing and would survive the closing. The closing occurred on August 16, 1972, in Greensboro, North Carolina. Immediately following the closing, United called for registration of its ATC shares.

In May 1972, ATC entered merger negotiations with Cox Cable Communications, Inc., and by July 19, 1972, the two companies had reached an agreement on the merger, which agreement was announced. United was informed of it on July 19, 1972, at which time it was told that a representative from Cox Cable ("Cox") would be present at a meeting scheduled for July 20. In an effort to secure the registration of the shares and also to gain approval for the proposed merger with Cox, ATC submitted the two propositions together to the Securities and Exchange Commission and did so on September 29, 1972. Due to the fact that the registration statement did not include the consents of the Cox nominees for board members of the surviving corporation and did not request SEC waiver, the registration was not approved. Subsequently, ATC sought to obtain the consents of the nominees, but was unable to get them. A further problem with the registration statement was that it needed to include certain information about Cox Cable for the accuracy of which ATC, its officers, directors and an underwriter would be held liable. Cox, however, refused ATC's request for indemnification.

At a meeting which was held on November 8, 1972, with Cox, United and ATC present, ATC said that it had decided to postpone registration until the Cox merger was completed. This decision had actually been reached earlier on November 2. At the meeting Cox announced that the merger could not proceed if the registration went forward first. United stated its position that it would not acquiesce to the postponement of the registration. The merger between Cox Cable and ATC was substantially completed on December 15, 1972, at which time United voted for the merger. It was, however, thwarted by a suit filed by the Department of Justice on antitrust grounds. The registration statement never became effective and was withdrawn by the SEC at ATC's request on April 6, 1973. In conjunction with the withdrawal of the registration statement the price of ATC stock declined from $45.75 on November 8, 1972 to $34.50 on April 6, 1973 and finally to $7.75 as of the time of the filing of this action on December 3, 1973.

The essence of this action by United is that ATC failed to use its best efforts to register United's ATC shares and, secondly, it was alleged that ATC's simultaneous merger with Cox was in conflict with its undertaking to register the stock. The claim was for $9.6 million in damages. However, the jury awarded a lesser amount, $2,021,500.

ATC's appeal is based on the following contentions:

1. That it was error for the court to charge the jury that United was entitled to recover interest costs or borrowing costs or expenses which allegedly it paid as a result of failure of ATC to use its best efforts to bring about the registration.

2. The alleged error of the court in failing to direct a verdict on the issue of ATC's conflict arising from the effort to bring about the merger and the registration at the same time.

3. The exclusion of expert testimony tendered by ATC.

4. The refusal of the trial court to instruct on waiver and ratification and an inadequate instruction on estoppel.

5. The alleged error in failing to instruct on "best efforts."

6. The error of the court in failing to give instructions which were specific with respect to damages.

I. WHETHER UNITED WAS ENTITLED TO RECOVER INTEREST AS DAMAGES

At the trial United presented testimony which showed the amount of its borrowing costs and the nexus between these costs and the breach of ATC. United also presented testimony showing that ATC was aware before entering into the agreement that United had planned to convert the ATC stock to cash and would use that cash to reduce its short-term debts. Evidence was also offered to show that parties were aware that registration was necessary in order to have a successful public sale of the stock and that they also were aware that a private sale could be obtained only at a significant discount. For this element of damage United claimed the sum of.$1.6 million.

The trial court explained to the jury that the plaintiff was claiming that it suffered an additional direct loss "by being unable to reduce its short-term debt by the amount of money which it would have received on the sale to the public of the registered shares of ATC stock." The trial court also explained that the claim was that the cost of continued borrowing was a part of actual damages from the breach. The court then continued:

"As to this claim, you must find from a preponderance of the evidence that this was a natural and probable consequence of the claimed breach of contract by the defendant and also that at the time the parties entered into the contract, the defendant reasonably could have anticipated from the facts and circumstances which it then knew or should have known, that these damages would probably be incurred by the plaintiff if the defendant breached the contract."

ATC maintains that this instruction was erroneous. Its argument is that the instruction allowed United to recover prejudgment interest, and that applicable Colorado law bars such interest. United responds that this is not prejudgment interest in that it is not the kind of interest contemplated by the Colorado statutes and, instead, it is, according to United, borrowing costs which are recoverable like any other element of contract damage.

In general, we agree with the United argument and with the position taken by the trial court that interest as an item of damage or loss related to the substantive claim differs from interest measured by a percentage of the judgment. ¹ In our view the kind of interest that was here awarded is not barred or limited by the Colorado interest statute and the Colorado cases. Here our concern is with United's borrowing costs and expenses. The Colorado statute does not deal with interest charges which arise from an independent debt owed by the plaintiff to a third party. So even on the assumption that the law of Colorado governs, it would not be the Hays v. Arbuckle, supra, line of cases together with the interest statute which would apply.

Had United claimed damages of $8 million for lost market value stemming from the stock not being registered together with interest measured by a percentage of that loss, the claim would have been one for prejudgment interest subject to the limitations of Colorado law. When United claims, however, that it is entitled to recover from ATC expenses which resulted from interest which it was obligated to pay on money which it was required to borrow as a result of ATC's unwarranted delays and manipulations, a wholly different theory is presented. This latter type of interest is not regulated by the Colorado interest statute.

So, having determined that the substantive rights here asserted by United are governed by general damage principles, we need not pursue the Hays v. Arbuckle, supra, doctrine as to the choice of law in the area of prejudgment interest. Contractual rights such as we are here considering are under Colorado law governed by the place where the contract was made and the place designated by the parties as governing. See Western Enterprises, Inc. v. Robo Sales, Inc., 28 Colo.App. 157, 470 P.2d 931 (1970). ² In this case, that is North Carolina.

Finally, we consider...