Continental Cablevision of New England, Inc. v. United Broadcasting Co., 88-1147

Citation873 F.2d 717
Decision Date25 May 1989
Docket NumberNo. 88-1147,88-1147
PartiesCONTINENTAL CABLEVISION OF NEW ENGLAND, INC., Plaintiff-Appellant, v. UNITED BROADCASTING COMPANY; Suburban Bank, d/b/a Sovran Bank/Maryland, as it is Co-Trustee of the Residuary Trust established under the Will of Richard Eaton, Defendants-Appellees, and Grover B. Russell, Jr., as he is Co-Trustee of the Residuary Trust established under the Will of Richard Eaton, Defendant.
CourtUnited States Courts of Appeals. United States Court of Appeals (4th Circuit)

Laura Steinberg (Katherine J. Ross, Sullivan & Worcester, Boston, Mass., John C. Keeney, Jr., Hogan & Hartson, Washington, D.C., on brief), for plaintiff-appellant.

Marianne K. Renjilian (W. Shepherdson Abell, Jeff Evan Lowinger, Furey, Doolan & Abell, Chevy Chase, Md., Thomas Schattenfield, James H. Hulme, Arent, Fox, Kintner, Plotkin & Kahn, Washington, D.C., on brief), for defendants-appellees.

Before HALL, PHILLIPS, and MURNAGHAN, Circuit Judges.

MURNAGHAN, Circuit Judge:

The closing months of 1974 found Continental Cablevision of New England, Inc. and United Cable Company of New Hampshire, Inc. engaged in wide-ranging and expensive litigation involving television franchise rights in Manchester, New Hampshire. The parties, while the litigation was still going on, decided to settle. Continental agreed to terminate the litigation which it had instituted and to concede certain disputed franchise areas to United Cable, in return for $135,000 and a right of first refusal in the event of any attempted direct or indirect transfer of various property assets or the controlling stock interest in United Cable to a third party.

United Cable was a wholly-owned subsidiary of Friendly Broadcasting Company, Inc., which in turn was a wholly-owned subsidiary of United Broadcasting Company, Inc., whose sole stockholder was Richard Eaton. In January of 1975, Continental, United Cable, and Eaton (acting as agent for both United Broadcasting and Friendly, as well as United Cable, and in his own right) entered into a written agreement, embodying the terms of settlement. 1 The contract ultimately entered provided as to the right of first refusal, in pertinent part: 2

United hereby grants to Continental a right of first refusal to acquire all or any part of the assets, real or personal, tangible or intangible, including but not limited to all CATV system facilities, house drops and associated equipment of United constituting all or any portion of United's CATV system or systems serving any or all portions of the City of Manchester, New Hampshire (the "System Assets"), and Eaton for himself and as authorized agent for United Broadcasting and Friendly hereby grants to Continental a right of frist (sic) refusal to acquire the shares of stock of United constituting its controlling capital stock interest (the "Control Stock") in each instance before the System Assets or any shares of the Control Stock may, directly or indirectly, be sold or transferred to any third person or persons. 3

Continental subsequently complied with the provisions of the agreement and received payment of $135,000, representing part of the consideration to which it was entitled. 4 The document in final form on January 15, 1975 or January 16, 1975 was sent by Continental from Massachusetts, where it had prepared it, to Eaton in Maryland. It, though dated "as of this 22nd day of January, 1975" (the contemplated settlement date), was still unsigned by either party when sent by Continental to Eaton. On January 17, 1975, Eaton, in Maryland, signed on behalf of himself, United Cable, Friendly Broadcasting, and United Broadcasting, and returned the Settlement Agreement to Continental in Massachusetts, where Continental, upon approval by the board of directors, signed the document on January 20, 1975.

A second, conformed copy of the Settlement Agreement, the text of which was in all respects identical with that which had been signed by the parties on January 17, 1975 in Eaton's case and January 20, 1975 in Continental's, was sent to Eaton or his counsel by Continental bearing its signature on January 20, 1975. On receipt thereafter of the conformed copy bearing only Continental's signature, Eaton, who was in Maryland, also signed the document. The date appearing on both the agreement signed January 17, 1975 by Eaton and January 20, 1975 by Continental, and the conformed copy, was "as of" January 22, 1975.

In 1981, Eaton died. The trustees of Eaton's estate now seek to sell a controlling stock interest in United Broadcasting to a third party. 5 Continental, arguing that such a move constitutes an indirect transfer of the controlling stock interest of United Cable, brought the present action in the United States District Court for the District of Maryland to enforce its preemptive rights. The district court granted summary judgment to the defendants, finding the right of first refusal in United Cable stock violated the Maryland Rule Against Perpetuities. Continental has appealed.

I.

As a preliminary matter, it has to be resolved, factually, whether a sale of the type contemplated by Eaton's trustees has even vested in possession any right of first refusal which may exist in Continental. Without finding it necessary to decide whether the settlement agreement truly extended to a transfer of a controlling interest in United Broadcasting, the district judge, in a footnote, indicated that he was of the opinion that it would be "illogical" not to consider a transfer of the parent as an indirect transfer of the wholly-owned subsidiary's controlling capital stock interest. We consider the matter as pertinent to our disposition of the case and, hence, one requiring decision. Upon examination of the record, we are convinced that the district court's statement on the matter, while an aside, was a reasoned one, reaching the correct result on the preliminary point involved. 6 The objects which the Settlement Agreement sought to accomplish were as much affected by stock in United Broadcasting which owned, through Friendly Broadcasting, 100% of United Cable, as by stock in United Cable itself. 7 We cannot agree, however, with the ultimate result the district court reached.

Construing the Settlement Agreement requires, as an initial inquiry, the determination of which forum's law is applicable. It is well accepted law that a federal court sitting in diversity is required to follow the choice of law rules of the state in which it sits, i.e., in the present case, in Maryland. Klaxon Co. v. Stentor Elec. Mfg. Co., 313 U.S. 487, 61 S.Ct. 1020, 85 L.Ed. 1477 (1941). The district judge correctly applied Maryland law at the choice of law rules stage and found that, under Maryland law, the place of contracting or locus contractus established what substantive law should apply. Traylor v. Grafton, 273 Md. 649, 657, 332 A.2d 651, 659 (1975); Maryland Casualty Co. v. Armco, Inc., 643 F.Supp. 430, 431 (D.Md.1986), aff'd, 822 F.2d 1348 (4th Cir.1987), cert. denied, --- U.S. ----, 108 S.Ct. 703, 98 L.Ed.2d 654 (1988). Specifically, Maryland has defined the locus contractus as the place "where the last act is performed which makes an agreement a binding contract." Grain Dealers Mutual Ins. Co. v. VanBuskirk, 241 Md. 58, 65-66, 215 A.2d 467, 471 (1965).

The district court examined the contracting process engaged in by the parties. Having initially sketched out in broad outline the terms of the Settlement Agreement, the parties, negotiating through counsel, proceeded to prepare a document delineating with detail the contours of the right of first refusal. The agreement as so prepared was discussed by the parties who decided that it was accurate and agreeable to both of them in all respects, save for the lack of certain provisions regarding the coverage of direct or indirect actions of Friendly Cablevision and United Broadcasting. 8

Continental's counsel drafted the final version of the Settlement Agreement in Massachusetts, modifying the language to conform to a mutually satisfactory solution for the one item as to which agreement was lacking. Continental sent the new Settlement Agreement, brought to what proved to be final shape in Massachusetts, to Eaton for signature. Continental had not then signed the document. On receiving the unsigned document in Maryland, Eaton signed and either himself forwarded it or had an agent forward it to Continental in Massachusetts. A special meeting of Continental's Board of Directors was convened, at which time the Board voted to enter into the Settlement Agreement and the document was signed on Continental's behalf.

Thereupon, Continental, in order to have available a conformed copy which would put an executed version in the hands of both parties, signed a second version and mailed it to Eaton, again in Maryland, who then attached his signature.

The district judge ruled that, as to the state whose substantive law should apply, Maryland was the proper state to select, concluding that Maryland was the locus contractus. He reasoned that, although signature by all the contracting parties is the most uniformly regarded satisfactory way to elevate a piece of writing into an agreement, it is not the only way. A settlement agreement, like any other contract, comes into being as soon as an offer and an acceptance, with due consideration, have occurred, regardless of whether subsequent formalities ensue. Baker v. Dawson, 216 Md. 478, 484-85, 141 A.2d 157, 160-61 (1958). Parties could agree upon the terms of a contract to be entered by them and, when a paper writing in exactly satisfactory terms has been finalized, it would become a contract if the parties so intended, even though the signatures of one of the parties, or indeed of all of them, were lacking.

The district judge's major principle of law, namely, that, in certain circumstances, signatures are not required to bring a contract into being,...

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