Clarke v. Max Advisors, LLC, CIV.A.1:02-CV-0308 DEP.

• Decision Date: 16 December 2002
• Docket Number: No. CIV.A.1:02-CV-0308 DEP.,CIV.A.1:02-CV-0308 DEP.
• Parties: Gary CLARKE, Susan Clarke and WWBI TV, Inc., Plaintiffs, v. MAX ADVISORS, LLC, Max Media Properties, LLP, Max Television, Inc., Max Holding, LLC, Max Management, LLP, A. Eugene Loving, John A. Trinder, Defendants/Third-Party Plaintiffs, v. SMC Communications, Inc. Third-Party Defendant.
• Court: U.S. District Court — Northern District of New York

235 F.Supp.2d 130

Gary CLARKE, Susan Clarke and WWBI TV, Inc., Plaintiffs, v. MAX ADVISORS, LLC, Max Media Properties, LLP, Max Television, Inc., Max Holding, LLC, Max Management, LLP, A. Eugene Loving, John A. Trinder, Defendants/Third-Party Plaintiffs, v. SMC Communications, Inc. Third-Party Defendant.

No. CIV.A.1:02-CV-0308 DEP.

United States District Court, N.D. New York.

December 16, 2002.

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Law Office of Mark Schneider, Plattsburgh, NY, Mark Schneider, Esq., for Plaintiffs and Third-Party Defendant.

Menter, Rudin Law Firm, Syracuse, NY, Mitchell J. Katz, Esq., Williams, Mullen Law Firm, Newport News, VA, Christopher A. Abel, Esq., for Defendants/Third-Party Plaintiffs.

DECISION AND ORDER

PEEBLES, United States Magistrate Judge.

The broad array of legal skirmishes comprising this commercial suit have as their genesis a failed business transaction centered around ownership and operation of a commercial television broadcasting station located in northern New York, and owned and operated by the plaintiffs. Both sides of the unsuccessful sale now seek the court's intervention, and have requested various forms of relief. For their part the defendants, who the plaintiffs assert wrongfully aborted the venture, essentially seek the court's imprimatur upon its refusal to exercise an option for the purchase of the station, and additionally to elicit aid in securing repayment of monies loaned to the plaintiffs in anticipation that a sale would occur. Plaintiffs, on the other hand, characterize the transactions between the parties very differently from those evidenced by the four corners of the relevant written documents prepared, signed and exchanged, and to a large degree have asked this court to reframe the parties' business relationship to coincide with their expectations and understandings of the deal.

Currently pending before the court in this action — which is in its infancy — are cross-motions, to some degree procedural but largely dispositive in nature. Plaintiffs have requested leave to amend their answer to defendants' counterclaims in order to add as defenses claims which have already been asserted as causes of action in their complaint. From a dispositive point of view, defendants seek summary judgment dismissing plaintiffs' various claims and, in essence, declaring that the option agreement entered into was just that — an option which was never in fact exercised. Defendants also ask that summary judgment be entered in their favor finding liability based upon various notes given by the plaintiffs. Plaintiffs oppose those motions and seek summary judgment on their various claims including, inter alia, for fraud and fraud in the inducement.

Given the many and diverse claims and defenses asserted in the parties' pleadings as well as the large volume of materials exchanged in connection with the pending motions, I am tasked with parsing out which of the various — and often contradictory — claims interposed by the parties should remain in the action, and to concisely frame the claims and defenses, if any, which should go forward in light of the existence of triable issues of material fact. For the reasons set forth below, I find that plaintiffs' motion for leave to amend should be granted in small part, but largely denied on the basis of futility. In addition, I find that summary judgment is appropriate on various claims, but that there remain genuine issues of material fact principally surrounding plaintiffs' fraud and quasi contract claims, thereby precluding the entry of summary judgment disposing of all claims and defenses in the action.

I. BACKGROUND

A. The Parties

Plaintiffs Gary and Susan Clarke are husband and wife, and together reside in Champlain, New York. At all times relevant to the various claims and defenses asserted in this action, the Clarkes have been directly involved in the ownership and operation of WWBI-TV, a commercial television station broadcasting on Channel 27 and operated out of the Plattsburgh, New York area.¹ At the time the parties began their discussions regarding sale of the station, Susan Clarke was the Federal Communications Commission ("FCC") licensee for Channel 27, although that license was subsequently transferred to third-party defendant SMC Communications, Inc. ("SMC"), a Delaware corporation formed in July of 1997 and wholly owned by Susan Clarke. The assets associated with the station are owned by the Clarkes and WWBI TV, Inc., another Delaware corporation of which 99.5% of the stock is owned by Susan Clarke.

The interrelationship between the several defendants is somewhat more complicated than that involving the various Clarke entities. Defendant Max Media Properties, LLC ("Max Media") is a former Virginia limited liability company with headquarters in Virginia Beach, Virginia. Max Media was sold by its owners on July 3, 1998 to Sinclair Communications, Inc., and was apparently renamed a short time later as Sinclair Properties, LLC. Max Advisors, LLC ("Max Advisors") and Max Management, LLC ("Max Management") are two other Virginia limited liability companies also centered in Virginia Beach, Virginia. Both of these entities have at least some degree of involvement in the contemplated acquisition of WWBI-TV as well as the advances of monies to the Clarkes. Max Holding, LLC — an entity which is named in the caption of plaintiffs' verified complaint but not among the parties described within the body of that pleading (see Complaint (Dkt. No. 1) ¶¶ 3-11) — does not appear to have been involved in any of the dealings between the parties in this action. Similarly, Max Television Company, which is described in plaintiffs' complaint as being located in Virginia Beach, Virginia and a successor in interest to Max Media, does not appear from the record now before the court to have had involvement with the transactions at issue in this case.²

The two individual defendants, A. Eugene Loving and John A. Trinder, are alleged by the plaintiffs to operate various businesses out of 900 Laskin Road, Virginia Beach, Virginia, and to be involved in the ownership and operation of various Max entities. In their affidavits, Loving and Trinder admit being members of Max Advisors and Max Management, and former members of Max Media. The record is not clear, however, as to their involvement, if any, with Max Holding and Max Television.

B. Negotiation And Execution Of The Option Agreement

In or shortly prior to April of 1997, Gary and Susan Clarke approached representatives of Max Media, including Loving and Trinder, to determine their level of interest in leasing WWBI-TV. Negotiations concerning this prospect ensued, resulting in the issuance by Max Media representatives on May 7, 1997 of a letter of intent expressing their interest in pursuing the possibility of purchasing the station and describing contemplated terms of the transaction. See Plaintiffs' Exhibits (Dkt. No. 57) Exh. 4. That letter provided for negotiation and execution of an option agreement, and for the Max entities to loan monies to the Clarkes.

A written option agreement was subsequently entered into between WWBI-TV, referred to in that agreement as "seller," as well as the Clarkes, and Max Media, "the buyer," on or about July 11, 1997. Defendants' Exhibits (Dkt. No. 61) Exh. 1. Under the terms of that agreement, in return for forgiveness of debt on the part of WWBI-TV and the Clarkes as well as compensation to be paid to Gary Clarke under a separate but related agreement providing for his employment by Max Media, Max was given the right to exercise the option and acquire the assets of the station for an agreed purchase price of two million dollars. That option agreement, which originally expired of its own terms on December 31, 1998, was extended by agreement of the parties, but ultimately expired without having been formally exercised by Max Media.³

C. Promissory Notes

The July 11, 1997 option agreement contained a provision authorizing WWBI TV and the Clarkes to borrow money, characterized as "advances", from Max Media. Defendants' Exhibits (Dkt. No. 61) Exh. 1 Art. 11. The option agreement restricted the Clarkes' use of any advances received, providing that they could be used for taxes or to defray other expenses associated with operation of the television station. Id. The mechanism for requesting and receiving advances was specified in the option agreement, and included the requirement that WWBI TV and the Clarkes give promissory notes and a security agreement with requisite UCC financing statements, as well as a stock pledge, to secure repayment on the notes. Id. § 11.5.

In accordance with those provisions of the option agreement, the Clarkes sought and received from the Max entities advances in excess of $400,000, in three separate phases. Between approximately July 25, 1997 and August 28, 1997 Max Media advanced $145,500 to WWBI TV and the Clarkes. In return, three separate notes were executed on July 25, 1997 ($50,000), August 28, 1997 ($67,500), and August 28, 1997 ($28,000) (collectively, the "Series I Notes"). See Defendants' Exhibits (Dkt. No. 61) Exhs. 3-5. The Series I Notes were signed by Susan Clarke, as President of WWBI TV, Inc., as well as by Gary Clarke and Susan Clarke individually. Id.

Additional advances in the aggregate amount of $231,676 were given by Max Media to WWBI and the Clarkes between August 29, 1997 and April 20, 1998. In return, notes were executed and given to Max Media on August 29, 1997 ($37,000), August 29, 1997 ($25,000), October 7, 1997 ($30,000), October 7, 1997 ($79,000), October 24, 1997 ($42,500) and April 20, 1998 ($18,176) (collectively, the "Series II Notes"). See Defendants' Exhibits (Dkt. No. 61) Exhs. 6-11. The Series II Notes were signed by Susan Clarke on behalf of both WWBI TV and SMC, as well as by Gary and Susan Clarke individually. Id.

A third advance, in the amount of $25,000, was given...