Oregon RSA No. 6, Inc. v. Castle Rock Cellular of Oregon Ltd. Partnership, s. 94-35903
| Decision Date | 13 February 1996 |
| Docket Number | 94-36009,95-35168 and 95-35169,94-35965,Nos. 94-35903,s. 94-35903 |
| Parties | , 96 Cal. Daily Op. Serv. 986, 96 Daily Journal D.A.R. 1619 OREGON RSA NO. 6, INC., Plaintiff-Appellee, v. CASTLE ROCK CELLULAR OF OREGON LIMITED PARTNERSHIP, A Colorado limited partnership; Cellular, Inc., a Colorado corporation, Defendants, Pacific Telecom Cellular, Inc., a Delaware corporation, Defendant-Appellant. OREGON RSA NO. 6, INC., Plaintiff-Appellee, v. CASTLE ROCK CELLULAR OF OREGON LIMITED PARTNERSHIP, A Colorado limited partnership; Cellular, Inc., a Colorado corporation, Defendants-Appellants, Pacific Telecom Cellular, Inc., a Delaware corporation, Defendant. OREGON RSA NO. 6, INC., Plaintiff-Appellee, v. CASTLE ROCK CELLULAR OF OREGON LIMITED PARTNERSHIP, A Colorado limited partnership, et al., Defendants, and Pacific Telecom Cellular, Inc., a Delaware corporation, Defendant-Appellant. OREGON RSA NO. 6, INC., Plaintiff-Appellee, v. CASTLE ROCK CELLULAR OF OREGON LIMITED PARTNERSHIP, A Colorado limited partnership; Cellular, Inc., a Colorado corporation, Defendants-Appellants. OREGON RSA NO. 6, INC., Plaintiff-Appellant, v. CASTLE ROCK CELLULAR OF OREGON LIMITED PARTNERSHIP, A Colorado limited partnership; Cellular, Inc., a Colorado corporation; Pacific Telecom Cellular, Inc., a Delaware corporation, Defendants-Appellees. |
| Court | U.S. Court of Appeals — Ninth Circuit |
Mark A. Turner, Ater, Wynne, Hewitt, Dodson & Skerritt, Portland, Oregon, for appellant Castle Rock and Cellular, Inc.
James N. Westwood, Bruce L. Campbell, Miller, Nash, Weiner, Hager & Carlsen, Portland, Oregon, for appellant Pacific Telecom Cellular, Inc.
Duane A. Bosworth, Davis Wright Tremaine, Portland, Oregon, Richard J. O'Brien, Gerard D. Kelly, Sidley & Austin, Chicago, Illinois, for appellee Oregon RSA.
Appeals from the United States District Court for the District of Oregon, Owen M. Panner, District Judge, Presiding.
Before JOHN T. NOONAN, Jr., LEAVY, and HAWKINS, Circuit Judges.
Opinion by Judge NOONAN
OPINION
Cellular, Inc., a Colorado corporation (Cellular); Castle Rock Cellular, Inc. (CRCI), a Colorado corporation; Castle Rock Cellular of Oregon Limited Partnership (CRCO), a Colorado partnership; and Pacific Telecom Cellular, Inc., a Delaware corporation (PTCI) appeal the judgment of the district court and the award of sanctions against them in a suit brought by Oregon RSA No. 6, Inc. (Oregon RSA). The merits of the case turn on the application of Oregon law to first refusal rights in a partnership agreement. Holding that the district court has accurately stated the law in this regard, we briefly summarize its conclusions. The sanctions for abuse of discovery involving the federal rules and the inherent authority of the district court we address more fully.
The Crook County RSA Limited Partnership (the Partnership) was formed in 1989 and was licensed by the Federal Communications Commission to provide cellular phone service in the Oregon Rural Service Area. As of August 1992, when the events involved in this litigation began, the Partnership shares were held 25 percent apiece by Oregon RSA, the general partner; U.S. West NewVector (NewVector); CRCO; and Pacific Telcom Cellular of Oregon, Inc., which is owned by PTCI. At this time the parent of CRCO was CRCI, whose parent was Midvale Telephone Exchange (Midvale), an Idaho corporation. On August 4, 1992 Cellular sent a letter of intent to Midvale, indicating the state of negotiations through which Midvale's interest in CRCI and CRCO would be acquired by Cellular. Agreement on this transaction was effected at some point before October 28, 1992, at which time Cellular agreed to convey all its interests in CRCI and CRCO to PTCI by a Purchase Agreement (the Purchase Agreement). The parties do not dispute that CRCO and CRCI are essentially "shells"--CRCO's only significant asset is its interest in the Partnership and CRCI's only significant asset is its 51% share of CRCO. At this time the Purchase Agreement was known only to the parties to it.
Section 11.1 of the Partnership Agreement provided:
Limitation on Transfer; Right of First Refusal ... Before the General Partner or any Limited Partner sells, exchanges, transfers or assigns all or any part of its Partnership Interest to a non-Affiliate of such Partner, it shall offer, by giving written notice to the General Partner, that interest to all of the other Partners for the price at which and the terms under which such non-Affiliate has offered in writing to pay for such interest.
In November 1992, pursuant to this provision, NewVector offered the right of first refusal to its interest to its three partners. CRCO executed a form declining to take its share of NewVector's interest. In December 1992, however, CRCO attempted to rescind its refusal of the offer. This attempt consisted of a conversation between a CRCO officer and a lawyer representing Oregon RSA, in which, according to CRCO's evidence, the lawyer said, "That should be no problem," in response to CRCO's request to resubmit its right of first refusal form. Oregon RSA disputes that it made any agreement to revive CRCO's first refusal rights.
In January 1993 Oregon RSA brought suit seeking a declaration of its rights with respect to the NewVector interest. After filing its complaint, Oregon RSA discovered the existence of the Purchase Agreement to sell CRCO and CRCI to PTCI and amended its complaint to enforce the first refusal provisions of the Partnership against CRCI, CRCO, and Cellular.
On December 15, 1993 the district court gave summary judgment for Oregon RSA as to its first refusal right to the share in the Partnership held by CRCO and offered to PTCI. The district court's rulings in this respect were published at 840 F.Supp. 770 (D.Or.1993) and subsequently amended by unpublished opinions of August 23, 1994 and September 13, 1994. On March 13, 1994, the district court also gave summary judgment for Oregon RSA as to CRCO's claim based on the court's determination that Oregon RSA had not agreed to revive CRCO's first refusal rights to the NewVector interest.
Oregon RSA, accepting the invitation of the district court, moved for sanctions on the basis of the defendants' responses to discovery requests. The district court permitted the defendants to supplement the record by affidavits but did not hold an evidentiary hearing. By opinion of January 9, 1995 the district court awarded sanctions in the form of attorneys' fees caused by the defendants' delayed responses to discovery requests. The district court found that the defendants had violated Federal Rule of Civil Procedure 26(g)(3) and that they had acted in bad faith. The defendants were found jointly and severally liable for the sanctions awarded on the ground that they had filed a joint memorandum on the so-called "Midvale issue" and that they had shared the decisions relating to discovery and production of documents. The total award was $30,604.75.
Cellular, CRCI, CRCO, and PTCI appeal the judgment on the merits and the award of sanctions.
The Attempted Recision. The sole ole e evidence submitted by CRCO as to its attempted recision of its refusal of the NewVector interest in the Partnership was its version of the conversation with outside counsel for Oregon RSA. As the district court pointed out, the lawyer's response was far from clear, so that there was no acceptance of an offer, if indeed an offer was being made. See C.R. Shaw Wholesale Co. v. Hackbarth, 102 Or. 80, 201 P. 1066, 1067 (1921) (). Neither was there any consideration for this alleged contract revoking the refusal. See McCombs v. McClelland, 223 Or. 475, 354 P.2d 311, 314 (1960) (), nor was there evidence that the lawyer had the authority to act in this matter for Oregon RSA. The district court correctly applied familiar principles of contract law to hold that CRCO's attempted recision was unavailing.
As to Oregon RSA's right of first refusal of the interest offered to PTCI, the defendants argue that there was no sale, exchange, transfer, or assignment for purposes of § 11.1 of the Partnership Agreement because CRCO would remain a partner. What was being transferred was Cellular's control of CRCO. The district court correctly found that in every contract in Oregon there is an implied covenant of good faith and fair dealing and that this covenant was violated by the Purchase Agreement. See Sheets v. Knight, 308 Or. 220, 779 P.2d 1000, 1007 (1989). To permit the transfer of a shell company as a way around the first refusal provisions was "an artifice intended to thwart plaintiff's legitimate contractual expectation." Oregon RSA, 840 F.Supp. at 776.
CRCO, CRCI, Cellular, and PTCI argue that Swanson v. Warner, 125 Or.App. 524, 865 P.2d 493 (1993), prevents this court from looking behind the precise language of the Partnership Agreement to construe its meaning. Swanson, however, deals with the interpretation of a restrictive covenant, not a partnership agreement, and in Oregon, restrictive covenants are construed "most strongly against the covenant and will...
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