Dick Broad. Co. v. OAK Ridge FM, Inc.

• Citation: 395 S.W.3d 653
• Decision Date: 17 January 2013
• Docket Number: No. E2010–01685–SC–R11–CV.,E2010–01685–SC–R11–CV.
• Parties: DICK BROADCASTING COMPANY, INC. OF TENNESSEE v. OAK RIDGE FM, INC. et al.
• Court: Supreme Court of Tennessee

395 S.W.3d 653

DICK BROADCASTING COMPANY, INC. OF TENNESSEE

v.OAK RIDGE FM, INC. et al.

No. E2010–01685–SC–R11–CV.

Supreme Court of Tennessee,

at Knoxville.

Sept. 5, 2012 Session.

Jan. 17, 2013.

Robert S. Stone, Knoxville, Tennessee, for the appellant, Oak Ridge FM, Inc., and ComCon Consultants.

John A. Lucas, Alcoa, Tennessee, for the appellant, John W. Pirkle.

John A. Day and Brandon E. Bass, Brentwood, Tennessee, for the appellee, Dick Broadcasting Company, Inc., of Tennessee.

OPINION

SHARON G. LEE, J., delivered the opinion of the Court, in which GARY R. WADE, C.J., JANICE M. HOLDER, CORNELIA A. CLARK, and WILLIAM C. KOCH, JR., JJ., joined. WILLIAM C. KOCH, JR., J., filed a concurring opinion.

SHARON G. LEE, J.

The legal issues in this appeal revolve around the assignment of three agreements. The first is a Right–of–First–Refusal Agreement that allowed for an assignment with the consent of the non-assigning party. The agreement was silent as to the anticipated standard of conduct of the non-assigning party in withholding consent. The other two agreements—a Time Brokerage Agreement and a Consulting Agreement—were assignable without consent. The primary issue we address is whether the implied covenant of good faith and fair dealing applies to the non-assigning party's conduct in refusing to consent to an assignment when the agreement does not specify a standard of conduct. Oak Ridge FM, Inc. (“Oak Ridge FM”) contractually agreed for Dick Broadcasting Company (“DBC”) to have a right of first refusal to purchase Oak Ridge FM's WOKI–FM radio station assets. The agreement was assignable by DBC only with the written consent of Oak Ridge FM. When DBC requested Oak Ridge FM to consent to the assignment of the Right–of–First–Refusal agreement to a prospective buyer, Oak Ridge FM refused to consent. Oak Ridge FM also refused to consent to the assignment of the Consulting Agreement and Time Brokerage Agreement, neither of which contained a consent provision. DBC sued Oak Ridge FM and the other defendants, alleging breach of contract and violation of the implied covenant of good faith and fair dealing. The trial court granted the defendants a summary judgment. DBC appealed, and the Court of Appeals vacated the summary judgment. We hold that where the parties have contracted to allow assignment of an agreement with the consent of the non-assigning party, and the agreement is silent regarding the anticipated standard of conduct in withholding consent, an implied covenant of good faith and fair dealing applies and requires the non-assigning party to act with good faith and in a commercially reasonable manner in deciding whether to consent to the assignment. Because there are genuine issues of material fact in dispute, we affirm the judgment of the Court of Appeals and remand to the trial court.

I.

DBC and its related companies were the Federal Communications Commission (“FCC”) licensees for various radio stations, including WIVK, WIVK–FM, and WIOL in Knoxville, Tennessee, and WXVO–FM in Oliver Springs, Tennessee. Oak Ridge FM was the FCC licensee for radio station WOKI–FM in Knoxville. On June 23, 1997, three separate, but related, contracts (collectively “the WOKI–FM Agreements”) were executed relating to WOKI–FM. The first agreement was a Time Brokerage Agreement between DBC and Oak Ridge FM wherein Oak Ridge FM sold substantially all of WOKI–FM's broadcast time to DBC.¹ DBC was required to program the purchased broadcast time to include entertainment, music, news, commercials, and other matters for a period of seven years. The Time Brokerage Agreement was binding on the parties and their “successors and assigns” and contained no limitation on the right of either party to assign the agreement.

The second agreement was a Consulting Agreement between DBC and ComCon Consultants (“ComCon”), a partnership composed of John W. Pirkle and his son Jonathan W. Pirkle, employees at Oak Ridge FM. Under the Consulting Agreement, the Pirkles were paid to serve as consultants to DBC for seven years. The Consulting Agreement was binding on the parties and their “successors and assigns” and contained no limitation on the right of either party to assign the agreement.

The third agreement was a Right–of–First–Refusal Agreement between Oak Ridge FM and DBC that gave DBC the right of first refusal to purchase at a discounted price substantially all of Oak Ridge FM's assets used in the operation of WOKI. The critical part of the Right–of–First–Refusal Agreement for the purpose of this appeal is the assignment provision, which provides:

This First Refusal Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns, including, without limitation, any assignee of the FCC licenses for [WOKI–FM]. No party may assign its rights, interests or obligations hereunder without the prior written consent of the other party, and any purported assignment without such consent shall be null and void and of no legal force or effect; provided, however, that DBC shall be permitted to assign its rights and obligations under this First Refusal Agreement (1) to an entity controlled by James Allen Dick Jr., or by any one or more of the Dick family shareholders of DBC, or (2) to another entity provided that DBC shall be prevented from performing this First Refusal Agreement and provided that DBC shall guarantee the obligations of such other entity as DBC's assignee hereunder.

(Underlining in original; italics added).

On April 30, 2000, DBC entered into a written Asset Purchase Agreement with Citadel Broadcasting Company (“Citadel”) selling most of its radio station assets, including its agreements with Oak Ridge FM, for a purchase price of $300,000,000.

On July 18, 2000, DBC sent a letter to Mr. Pirkle as president and principal shareholder of Oak Ridge FM advising him “of the pending acquisition” by Citadel of substantially all of DBC's assets, including the WOKI–FM Agreements, and asking him to consent to the assignment of the Right–of–First–Refusal Agreement. At nearly the same time, Mr. Pirkle, as president of Oak Ridge FM, sent a letter to DBC stating that he had learned of DBC's proposed deal with Citadel and that none of the agreements—the Time Brokerage Agreement, the Consulting Agreement and the Right–of–First–Refusal Agreement—could be assigned without ComCon's and Oak Ridge FM's permission. Mr. Pirkle refused to consent unless they could agree on “an arrangement which satisfies our concerns allowing for the full or partial replacement of DBC with Citadel.” In an affidavit filed in support of the motion for summary judgment, Mr. Pirkle acknowledged that on the advice of counsel he refused to agree to the assignment without additional consideration. His goal was to negotiate a “separate and more profitable agreement with Citadel.”

To close the Citadel sale, DBC maintained that it had to obtain the assignment of all three agreements,² and therefore DBC continued unsuccessfully to request Mr. Pirkle's consent. DBC offered to guarantee Citadel's obligations under the WOKI–FM Agreements, but Mr. Pirkle continued to withhold consent. Eventually DBC finalized the deal with Citadel without the assignment of the agreements and with a $10,000,000 reduction in the sales price.

On March 27, 2001, DBC sued Oak Ridge FM, ComCon, and Mr. Pirkle (“Defendants”), seeking a declaratory judgment that the Time Brokerage Agreement and the Consulting Agreement were assignable by DBC to Citadel without the consent of the Defendants and that Mr. Pirkle, on behalf of Oak Ridge FM, breached the agreements by wrongfully and unreasonably withholding consent to the assignments in order to extract money from the sale to Citadel. DBC further alleged that the implied covenant of good faith and fair dealing applied to the Right–of–First–Refusal Agreement and that the Defendants breached the agreement by failing to act reasonably and in good faith. The Defendants answered, admitting that Mr. Pirkle refused to consent to the assignment of the agreements but denying any breach of contract on their part.

Both sides filed a motion for summary judgment. Following a hearing on the parties' competing summary judgment motions, the trial court held that the implied covenant of good faith and fair dealing was not applicable to the Right–of–First–Refusal Agreement and that the Defendants did not breach the agreement. As to the Consulting Agreement, the trial court held that DBC's interests in this agreement were freely assignable without the Defendants' consent and that there was a genuine issue of fact regarding whether Mr. Pirkle's actions in insisting the agreement was not assignable without his consent, and in withholding that consent, were reasonable under the circumstances. The trial court nevertheless granted a summary judgment to the Defendants, stating that it was “unwilling to find that a party may be held liable for a breach of contract for holding out a good faith but mistaken interpretation of a contract provision,” and dismissed the action.

DBC appealed. The Court of Appeals vacated the award of summary judgment, holding that the implied covenant of good faith and fair dealing applies to the assignment clause in the Right–of–First–Refusal Agreement and that genuine issues of material fact made the summary judgment improper. Dick Broad. Co. of Tenn. v. Oak Ridge FM, Inc., No. E2010–01685–COA–R3–CV, 2011 WL 4954199, at *11 (Tenn.Ct.App. Oct. 19, 2011). DBC and the Defendants each filed an application for permission to appeal.

We granted both applications primarily to address the following issue: where the parties have contracted to allow assignment of an agreement with the consent of the non-assigning party, and the agreement is silent regarding the anticipated standard of conduct in withholding consent, does the implied covenant of good faith and fair dealing apply to require the non-assigning party to act with...