Allied Communications Corp. v. Continental Cellular Corp., 86-1885

• Decision Date: 23 June 1987
• Docket Number: No. 86-1885,86-1885
• Citation: 821 F.2d 69
• Parties: ALLIED COMMUNICATIONS CORPORATION, Plaintiff, Appellant, v. CONTINENTAL CELLULAR CORPORATION, Defendant, Appellee.
• Court: U.S. Court of Appeals — First Circuit

Page 69

821 F.2d 69

ALLIED COMMUNICATIONS CORPORATION, Plaintiff, Appellant, v. CONTINENTAL CELLULAR CORPORATION, Defendant, Appellee.

No. 86-1885.

United States Court of Appeals First Circuit.

Argued Feb. 5, 1987.

Decided June 23, 1987.

James Pollock with whom Robert V. Lizza, Miriam R. Goldstein, Sherburne, Powers & Needham, J. Albert Johnson, and Johnson, Mee & May, Boston, Mass., were on brief, for plaintiff, appellant.

Ira K. Gross with whom Margaret H. Raymond, and Sullivan & Worcester, Boston, Mass., were on brief, for defendant, appellee.

Before BREYER, ALDRICH and SELYA, Circuit Judges.

BREYER, Circuit Judge.

The appeal in this diversity case raises an issue of Massachusetts contract law: Does a written contract between Allied Communications Corporation (Allied), the appellant, and Continental Cellular Corporation (Continental), the appellee, contain an implied promise by Continental to remain in business in the Boston area? The district court read the contract, and after considering affidavits, depositions and answers to interrogatories, concluded that the contract contained no such promise. Having rejected Allied's arguments for implying the promise, and finding no genuine issue as to any material fact, the court granted summary judgment in Continental's favor. See Fed.R.Civ.P. 56. In our view, the district court's judgment was legally correct.

Allied and Continental entered their written contract in September 1984. At that time Continental was in the process of entering the Boston market in cellular telecommunications services. Continental intended to buy communications "airtime" from two firms that operate a network of low-power radio receivers and transmitters, placed in geographically adjoining areas, called "cells," in or near Boston. Continental would resell that "airtime" in the form of an automobile telephone service to drivers who wanted to use phones in their cars. Allied, a firm that services automobile telephone equipment, would install, maintain and repair the equipment that Continental's customers would use.

The contract imposes three basic kinds of obligations on Allied, and three on Continental. Allied promises: 1) to promote Continental's service--to use its "best efforts" to solicit customers for Continental and to place them on Continental's Boston Cellular Network, 2) to install Continental telephones in the automobiles of Continental subscribers, and 3) to maintain and to repair the car telephones of Continental subscribers who have maintenance agreements. In return, Continental essentially promises: 1) to pay Allied a percentage of the Revenue Margin it receives from the customers Allied finds; 2) to pay for Allied's installations of the Continental phones, at a 20% discount from Allied's normal rates; and 3) to pay for the repair and maintenance service that Allied provides Continental customers. The contract was to be in force for seven years, renewing automatically thereafter from year to year (unless there was an uncured breach).

Apparently, soon after Continental and Allied signed their contract, Continental prepared new market projections that showed that Continental would find Boston a far more costly market to develop than it had previously imagined. In December 1984, Continental told Allied it would close its operations in Boston. Allied then brought this suit, and it now appeals the district court's award of summary judgment for Continental.

Since the contract contains no express promise by Continental to remain in business, the question is whether or not to imply such a promise. Massachusetts courts, like many other courts, leave determination of any relevant background facts in such cases to juries, but they treat the question of whether to imply a promise from given language and background as one for the judge. See E. Farnsworth, Contracts Sec. 7.16, at 520 (1982). They look to the type of contract in question, precedent and general contract principles to help determine whether the law permits the implication of a promise in the circumstances. See, e.g., Neofotistos v. Harvard Brewing Co., 341 Mass. 684, 171 N.E.2d 865 (1961) (examining precedent and the nature of an output contract in deciding not to imply a promise to stay in business). But cf. 407 East 61st Garage, Inc. v. Savoy Fifth Ave. Corp., 23 N.Y.2d 275, 244 N.E.2d 37, 296 N.Y.S.2d 338 (1968) (holding that the jury should decide whether the contract imported a promise to stay in business). This allocation of role between judges and juries may reflect the fear that leaving juries totally free to imply whatever promises might in a layman's sense seem "reasonable" would unduly undermine contracting parties' need for certainty. Cf. E. Farnsworth, supra, Sec. 7.16, at 525 (noting that in recurring situations courts will try to imply terms that promote certainty). The allocation permits a judge to decide the issue on a motion for summary judgment, as long as the underlying facts are not in dispute.

In this summary judgment case, we view the facts in Allied's favor insofar as the evidence reasonably permits. Given these extrinsic facts, the contract's language and Massachusetts precedent, we conclude that the district court properly granted summary judgment for Continental. We believe a promise by Continental to remain in business cannot be implied for the following reasons.

First, the express language of the contract contains no such promise. That language contains several unconditional express promises by Allied that Allied could fulfill only by staying in business, but it contains no comparable express promise by Continental. For example, the contract provides:

Allied shall market and promote the Continental Boston Cellular Network....

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Allied shall establish and maintain ... a service network....

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Allied ... shall provide installation, repair and maintenance services to all purchasers of Continental Cellular Telephones....

Agreement, paragraphs 1.1, 3.1, 3.2. Continental's express promises, however, are all conditional: they impose no obligations on Continental unless it first decides to continue operations. For example, the contractual language most favorable to Allied's position says:

Continental will use its best efforts to ensure that cellular telephone numbers are available for assignment to prospective Allied Cellular Customers. [But "Allied Cellular Customers" are persons who "have been placed on" and "continue to remain as subscribers on the Continental Boston Cellular Network." (Emphasis added.) ]

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Continental shall ... maintain an inventory of Continental Cellular Telephones ... at Allied's principal place of business ... equal to Allied's average biweekly sales of Continental Cellular Telephones during the preceding three months.

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Continental shall direct all Continental Customers ... who are subscribers on the Continental Boston Cellular Network, exclusively to the Allied Service Network for ... installation....

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Continental will use its best efforts to insure that all Continental Customers ... have their cellular telephone equipment installed and serviced by Allied....

Agreement, paragraphs 1.1, 1.2, 2.1, 3.3. This language contains no express promise by Continental to remain in business, to have customers, to make certain it is possible to "remain as [Continental] subscribers," or to see that Allied's "average biweekly [telephone] sales" are greater than zero. The detail of the contract, reflecting the commercial nature of the transaction and the sophistication of the parties, suggests that the difference in the phrasing of the parties' respective promises is significant. It tends to show that the parties wrote unconditional language when they wanted to make unconditional promises. It indicates that the omission of an express promise by Continental reflected neither oversight nor an integral but unspoken contractual assumption that Continental would remain in business. See E. Farnsworth, supra, Sec. 7.16, at 521. It suggests that the reason that the contract contains no express promise to stay in business is that Continental did not want to make any such promise. Cf. New England Structures, Inc. v. Loranger, 354 Mass. 62, 69, 234 N.E.2d 888, 893 (1968) (declining to imply a term when "[i]t would have been natural for the parties to have provided expressly [for that term] if that had been the purpose").

Second, extrinsic facts also suggest that we should not imply the promise. 1) Cellular communications was an industry new to the Boston market. This fact makes understandable Continental's reluctance to commit itself to stay in the industry. It makes less credible the assertion that the contract rests upon a shared assumption that Continental was obliged to stay. 2) Allied concedes that it might have made a less risky arrangement with NYNEX, a firm almost certain to remain in the Boston area. Instead, Allied accepted Continental's "more lucrative" offer. The possibility that Continental would cease operations therefore appears to have been a risk consciously assumed by Allied in exchange for a potentially much higher return on its investment. Allied "doubtless hoped for and may have expected the best, but it also knew the worst and ... took the risk." Baetjer v. New England Alcohol Co., 319 Mass. 592, 601, 66 N.E.2d 798, 803 (1946). We hesitate to disturb this apparent allocation of risk among the parties. Cf. S.M. Wilson & Co. v. Smith Int'l, Inc., 587 F.2d 1363, 1375 (9th Cir.1978) ("Risk shifting is socially expensive and should not be undertaken in the absence of a good reason."). 3) During negotiations, Allied specifically asked Continental to include a clause imposing liability for liquidated damages should it leave the Boston market, but Continental refused to do so. The parties disagree about why Continental rejected the clause, but the fact that Allied asked for it shows that the parties...