Hanson v. McCaw Cellular Communications, Inc.

• Decision Date: 27 February 1996
• Docket Number: D,No. 523,523
• Citation: 77 F.3d 663
• Parties: Suzanne M. HANSON; Peter C. Hanson, Plaintiffs-Appellants, v. McCAW CELLULAR COMMUNICATIONS, INC.; McCaw Communications of Florida, Inc., Defendants-Appellees. ocket 95-7473.
• Court: U.S. Court of Appeals — Second Circuit

Page 663

77 F.3d 663

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

No. 523, Docket 95-7473.

United States Court of Appeals Second Circuit.

Argued Nov. 28, 1995.

Decided Feb. 27, 1996.

Joel M. Miller, Miller & Wrubel, New York City (Charles R. Jacob III, Steven M. Lester, Miller & Wrubel, New York City, of counsel), for Plaintiffs-Appellants.

Robert D. Kaplan, Friedman & Kaplan, New York City (Robert S. Loigman, Friedman & Kaplan, New York City, of counsel), for Defendants-Appellees.

Before: OAKES and McLAUGHLIN, Circuit Judges, and KOELTL, District Judge. ^*

McLAUGHLIN, Circuit Judge:

Suzanne and Peter Hanson (the "Hansons") were the sole members of a partnership that owned a lucrative interest in a cellular telephone system (the "system"). The Hansons sold their interest to McCaw Communications of Florida, Inc., a wholly-owned subsidiary of McCaw Cellular Communications, Inc. (together, "McCaw"). Their agreement provided that, if McCaw "sold or transfered" the system within six years, McCaw would share with the Hansons a percentage of any profit realized on the resale.

McCaw later agreed to merge with American Telephone and Telegraph Company ("AT & T"). Before the six-year profit-sharing period had run, McCaw and AT & T filed for Federal Communications Commission ("FCC") approval of the merger. The FCC did not immediately approve the merger; as a result, the merger was not actually consummated until after the six-year period had run. McCaw refused to pay the Hansons any amount.

The Hansons sued McCaw for breach of contract in the United States District Court for the Southern District of New York (Lewis A. Kaplan, Judge ), demanding a share of McCaw's merger profits. McCaw moved to dismiss the complaint under Fed.R.Civ.P. 12(b)(6), arguing that the resale did not occur until the closing of the merger, after the six-year period had run. The Hansons submitted the affidavit of Suzanne Hanson, contending that the "sale" took place when the agreement to merge was reached, prior to the filing for FCC approval, and within the six-year period.

Applying the California parol evidence rule, the district court held that because the sale contract was not reasonably susceptible of Suzanne Hanson's interpretation, the affidavit was inadmissible. The court then converted McCaw's motion into a motion for summary judgment, granted summary judgment to McCaw, and dismissed the Hansons' complaint. See Hanson v. McCaw Cellular Communications, Inc., 881 F.Supp. 911 (S.D.N.Y.1995). The Hansons now appeal, renewing the same arguments. We hold that the district court properly applied California parol evidence law and properly granted summary judgment for McCaw.

BACKGROUND

The facts and circumstances of this case are set forth at length in the district court's published opinion. See Hanson, 881 F.Supp. at 913-15. We summarize them.

The Hansons were the sole members of a California general partnership, which in turn owned an FCC construction permit for a cellular telephone system in Florida. On May 23, 1987, the Hansons signed an Option Agreement (the "Agreement") giving McCaw the right to buy the system during a three-year period beginning on the six-month anniversary of the date on which the system became operational. McCaw was to pay $750,000 at or before the execution of the Agreement, and $3 million at the closing after exercising the option. The deal had to be crafted as an "option" instead of an outright sale, however, because the FCC did not then allow the purchase of cellular telephone systems before they were constructed and operational.

The Hansons were distressed that, by selling the system, they might lose out on future increases in its value. For this reason, the Agreement provided that the Hansons would share in any profit if McCaw resold the system within five years. The critical language is:

9. Adjustment to Purchase Price

The Purchase Price may be adjusted in the event the interest in the System acquired by [McCaw] pursuant to exercise of either the Call Option or the Put Option is sold or transferred to another entity not affiliated with [McCaw] within five (5) years from the Closing Date.... The additional payment due [the Hansons] pursuant to the adjustment shall be one-third of the amount by which the Sale Price exceeds the Purchase Price (as increased by any capital contributions made by or increases in the capital account of [McCaw]. 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....

The parties also included the following choice of law provision:

25. Governing Law

This Agreement shall be governed by and interpreted in accordance with the laws of the State of California applicable to agreements made and performed entirely in that state.

After the Agreement was signed, but before the option period had begun to run, the FCC changed its policy to allow the purchase of unconstructed and nonoperational cellular telephone systems. See In re Madison Cellular Tel. Co., 2 F.C.C.R. 5397 (1987). In order to take advantage of this policy change, on or about January 20, 1988, the Hansons and McCaw entered into a written amendment (the "Amendment") to the Agreement, providing that the option period began running upon the date of the Amendment, and that McCaw simultaneously exercised the option. Because the acceleration of the deal effectively shortened the time that the Hansons were entitled to their profit-sharing right, the Amendment further provided:

7. Adjustment to Purchase Price

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, [McCaw] agrees to notify [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.

McCaw's purchase of the system closed on June 10, 1988. The six-year period governing the Hansons' right to share the fruits of any future sale or transfer by McCaw thus expired on June 10, 1994.

On August 16, 1993, ten months prior to the expiration of the six-year profit-sharing period, McCaw entered into a conditional agreement and plan of merger with AT & T. On August 23, 1993, McCaw and AT & T filed for the required FCC approval of the merger. See 47 U.S.C. § 310(d). After much time and public debate that was widely bruited in every major newspaper, and after a pair of United States District Court rulings on whether the merger would violate a standing AT & T consent decree, see United States v. Western Elec. Co., 154 F.R.D. 1 (D.D.C.1994), aff'd, 46 F.3d 1198 (D.C.Cir.1995); United States v. Western Elec. Co., 158 F.R.D. 211 (D.D.C.1994), aff'd, 46 F.3d 1198 (D.C.Cir.1995), the FCC approved the merger on September 19, 1994. The merger was consummated that same day, which, of course, was three months after the expiration of the six-year profit-sharing period.

McCaw refused to share any of its profit with the Hansons, who then sued in the Southern District of New York. The Hansons claimed that McCaw, through the AT & T merger, realized a profit on the sale of the system of not less than $50 million, and that McCaw's failure to share some of it was a breach of the Agreement. McCaw moved to dismiss the complaint under Fed.R.Civ.P. 12(b)(6), arguing that, even if the merger constituted a "sale or transfer," and which McCaw conceded for purposes of the motion only, that sale occurred on September 19, 1994, clearly after the six-year period had run.

In response, the Hansons proffered the affidavit of Suzanne Hanson, in which she claimed that the parties had agreed that the profit-sharing provision would be triggered if, within six years, McCaw applied to the FCC for permission to sell or transfer the system. The district court received the affidavit and, pursuant to California parol evidence law, considered whether the Agreement was susceptible of the Hansons' interpretation. Finding that it was not, the court converted McCaw's motion into a motion for summary judgment (because the court had considered evidence beyond the pleadings), and granted that motion, thereby dismissing the Hansons' complaint.

DISCUSSION

We review a grant of summary judgment de novo. Buttry v. General Signal Corp., 68 F.3d 1488, 1492 (2d Cir.1995). "Summary judgment is proper only if, viewing all evidence in the light most favorable to the nonmoving party, there is no genuine issue of material fact." Id.; see also Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 250, 106 S.Ct. 2505, 2511, 91 L.Ed.2d 202 (1986). When the interpretation of a contract is at issue, summary judgment is proper where the language of the contract is unambiguous, lending itself to only one reasonable interpretation. Mellon Bank, N.A. v. United Bank Corp. of N.Y., 31 F.3d 113, 115 (2d Cir.1994); Wards Co. v. Stamford Ridgeway Assocs., 761 F.2d 117, 120-21 (2d Cir.1985).

I. The California Parol Evidence Rule

The Agreement between the Hansons and McCaw is a contract, and Suzanne Hanson's affidavit is parol evidence offered to interpret that contract. California, ¹ like most states, provides that, where a contract is fully integrated, it may not be contradicted, supplemented, or varied by parol evidence. Ca.Civ.P.Code § 1856(b) (1983); see also Masterson v. Sine, 68 Cal.2d 222, 65 Cal.Rptr. 545, 547, 436 P.2d 561, 563 (1968) (in bank). There is an exception recognized in California: even if a contract is integrated, parol evidence is admissible to explain the meaning of the contract, if the contract is...