Hanson v. McCaw Cellular Communications, Inc., 94 Civ. 7201 (LAK).

• Decision Date: 07 April 1995
• Docket Number: No. 94 Civ. 7201 (LAK).,94 Civ. 7201 (LAK).
• Citation: 881 F. Supp. 911
• Parties: Suzanne M. HANSON and Peter C. Hanson, Plaintiffs, v. McCAW CELLULAR COMMUNICATIONS, INC. and McCaw Communications of Florida, Inc., Defendants.
• Court: U.S. District Court — Southern District of New York

881 F. Supp. 911

Suzanne M. HANSON and Peter C. Hanson, Plaintiffs, v. McCAW CELLULAR COMMUNICATIONS, INC. and McCaw Communications of Florida, Inc., Defendants.

No. 94 Civ. 7201 (LAK).

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

April 7, 1995.

COPYRIGHT MATERIAL OMITTED

Charles R. Jacob, III, Kenneth S. Yudel, Miller & Wrubel P.C., for plaintiffs.

Robert D. Kaplan, Katherine L. Sonnenberg, Friedman & Kaplan, for defendants.

OPINION

KAPLAN, District Judge.

This commercial dispute, which is governed by California law, turns on the parol evidence rule, underpinnings of which sharply divided two of the great judges of this century, Judge Learned Hand and Chief Justice Roger Traynor of California. In the final analysis, I conclude that both would have reached the same result in this case, albeit by different paths. In consequence, defendants' motion to dismiss the complaint, which has been converted into a motion for summary judgment pursuant to FED.R.CIV.P. 12(b), is granted.

Facts

In June 1988, plaintiffs sold their interest in a potentially lucrative cellular telephone system and license in the Melbourne-Titusville-Palm Bay, Florida, area (the "Interest") to McCaw Communications of Florida, Inc. ("McCaw Florida"), a wholly owned subsidiary of McCaw Cellular Communications, Inc. ("MCC"). The contract, as amended, provided for an adjustment in the purchase price in the event McCaw "sold or transferred" the Interest to an unaffiliated third party within six years. In August 1993, prior to the expiration of the six year period, MCC entered into an Agreement and Plan of Merger with American Telephone & Telegraph Company ("AT & T") and applied to the Federal Communications Commission ("FCC") for approval of the transaction.¹ Following a lengthy delay, the FCC granted approval and the merger was consummated in 1994, after expiration of the six year period.

The plaintiffs claim that the McCaw-AT & T merger constituted a "sale or transfer" of the Interest and that the application to the FCC, which occurred within the six year adjustment period, triggered the right to a price adjustment allegedly in excess of $16 million. Defendants argue that the price adjustment was not triggered because the merger, even assuming it constituted a sale or transfer of the Interest, did not occur until after expiration of the six year period. I therefore turn to the contracts and other evidence presented.

The 1987 Option Agreement

In 1987, the Hansons owned one hundred percent of the partnership interests in P & S Hanson Communications ("P & S"), a partnership that held a construction permit issued by the FCC for the non-wireline (Frequency Block A) cellular mobile telephone system in the Melbourne-Titusville-Palm Beach, Florida, Metropolitan Statistical Area. On May 23, 1987, they entered into an Option Agreement (the "Option Agreement") pursuant to which they granted McCaw Florida an option to purchase, and McCaw Florida gave them the right to put to it, their interest in P & S for $3.75 million during a period that was to begin on the sixth monthly anniversary of the date on which the cellular system would become operational and end three years later. (Cpt Ex. A, §§ 2, 4, 5) The price was payable $750,000 at or before the execution of the Option Agreement and $3 million at the closing following exercise of the option. (Id. § 6) The transaction was structured as an option rather than an outright sale because the FCC at that time would not permit the purchase of interests in mobile cellular systems prior to construction and operation. (Id. Ex. B, at 1)

The Option Agreement afforded the Hansons some protection against the possibility that McCaw Florida would resell the Hansons' Interest at a higher price. The relevant provision stated in pertinent part:

"The Purchase Price may be adjusted in the event the interest in the System acquired by Optionee McCaw Florida pursuant to exercise of either the Call Option or the Put Option is sold or transferred to another entity not affiliated with McCaw Florida within five (5) years from the Closing Date. Such adjustment shall occur if the proportionate cash equivalent sale price for the Ownership Interests upon resale by McCaw Florida (the `Sale Price') exceeds the Purchase Price.... The additional payment due Optionors the Hansons pursuant to the adjustment shall be one-third of the amount by which the Sale Price exceeds the Purchase Price.... The additional payment shall be paid by cashier's or certified check or by bank wire transfer within ninety (90) days of the closing of any such sale. In making the adjustment described herein, a `proportionate cash equivalent sale price' shall be determined. This amount shall be computed as of the closing date for a sale, by placing a present value on any deferred payments and placing a fair market value on any securities or other types of property paid or to be paid as consideration." (Cpt Ex. A, § 9)

Thus, it provided, roughly speaking, that the Hansons were to receive one-third of the amount by which the price McCaw Florida received on any resale of the Interest within five years exceeded the price McCaw Florida paid to the Hansons.

The Option Agreement, it should be noted, contains a California choice of law clause and provides that it and a concurrently executed construction agreement (which is not material to this case) "embody the entire agreement and understanding of the parties hereto relating to the subject matter hereof and supersede any and all prior agreements and understandings relating to the subject matter hereof." (Id. §§ 25, 21). It provides also that it may not be amended, supplemented or modified except by a writing signed by all parties. (Id. § 21)

The 1988 Amendment

Subsequent to the execution of the Option Agreement, the FCC changed its policies in a manner that permitted the purchase of the Hansons' Interest prior to construction and operation of the system. In re Application of Madison Cellular Telephone Co., 2 F.C.C.R. 5397, 1987 WL 344762, 1987 FCC LEXIS 3173 (1987). On or about January 20, 1988, the parties entered into a written amendment of the Option Agreement (the "Amendment"). (Cpt. ¶ 6 & Ex. B) The Amendment recited that the "Optionors the Hansons wish to take advantage of this change in FCC policy to accelerate the exercise of the Call Option" (id., at 1), and went on to provide that the option period began on the date of the Amendment, that McCaw Florida simultaneously exercised the option, and that a closing would take place "as soon as practicable after FCC approval ..." (id., § 3). One effect of this transaction, of course, was to accelerate the payment by McCaw Florida to the Hansons of $3 million. (Cpt Ex. A, § 6; id. Ex. B, § 5)

The Amendment contained also the following paragraph, which is at the heart of this case:

"Section 9 of the Option Agreement is amended to specify that the period during which the Purchase Price may be adjusted shall be six (6) years from the Closing Date, instead of five (5) years. For the duration of this period, Optionee McCaw Florida agrees to notify Optionors the Hansons of the impending sale or transfer of any interest in the System acquired as a result of the exercise of the Call Option at the time application is made to the FCC for authority to conduct such sale or transfer, if such authority is necessary, and in any event no later than closing such sale or transfer." (Id. § 7) (emphasis added)

McCaw Florida acquired the Hansons' Interest in P & S pursuant to its exercise of the option on June 10, 1988. (See Cpt ¶ 8; Hanson Aff. ¶ 20) The six year period therefore expired on June 10, 1994.

The AT & T Merger

On August 16, 1993, ten months prior to the expiration of the six year period, McCaw entered into an agreement and a plan of merger (the "Merger Agreement") with AT & T. (Kaplan Aff.Ex. 2) The parties applied for FCC approval on August 23, 1993. (Hanson Aff. ¶ 22) The FCC approved the merger on September 19, 1994 (see Kaplan Aff.Ex. 6), and the merger took place on that date. Thus, the application for FCC approval took place within the six year period. The consummation of the merger did not.

The Hanson Affidavit

The plaintiffs have submitted an affidavit of Suzanne M. Hanson in an effort to establish that the event that triggered the Hansons' right to a price adjustment was the filing of the application for approval of the AT & T-McCaw merger or that the agreements are at least susceptible of that construction.

Mrs. Hanson asserts that plaintiffs and McCaw agreed at the time the Option Agreement was signed that the price adjustment period (then five years) would begin from the latest possible date, the closing of McCaw's purchase of the Hansons' interest, which was to the Hansons' advantage. According to Mrs. Hanson, they did not expressly define when or how the price adjustment would be triggered. (Hanson Aff. ¶ 9)

Mrs. Hanson claims that McCaw approached the Hansons following the Madison decision and sought to amend the Option Agreement to permit McCaw to exercise its purchase option without waiting until six months after the system was operational.² (Id. ¶ 10) She asserts that the Hansons were concerned that acceleration of the exercise of the option would be to their disadvantage in that it could shorten the period during which the Hansons would be entitled to an adjustment in the event of resale. (Id. ¶¶ 12-13) So, Mrs. Hanson claims, McCaw agreed to increase the price adjustment period to six years (which is clear on the face of the Amendment) and agreed also that a price adjustment would be required "if an event requiring notification occurred during this time — whether it consisted of a sale or transfer accompanied by an FCC application, or the closing itself if FCC approval was unnecessary ..." (Id. ¶ 18) The triggering event, according to Mrs. Hanson, thus was an FCC application. "There was no requirement," she says, "that the closing or...