Qantum Communications v. Star Broadcasting

• Decision Date: 09 February 2007
• Docket Number: No. 05-21772-CIV.,05-21772-CIV.
• Parties: QANTUM COMMUNICATIONS CORPORATION, a Delaware Corporation, Plaintiff, v. STAR BROADCASTING, INC., a Florida corporation, and Ronald E. Hale, Sr., Defendants.
• Court: U.S. District Court — Southern District of Florida

473 F.Supp.2d 1249

QANTUM COMMUNICATIONS CORPORATION, a Delaware Corporation, Plaintiff, v. STAR BROADCASTING, INC., a Florida corporation, and Ronald E. Hale, Sr., Defendants.

No. 05-21772-CIV.

United States District Court, S.D. Florida, Miami Division.

February 9, 2007.

John O'Sullivan and Jason Kellogg of Hogan & Hartson LLP in Miami were counsel for the plaintiff, Qantum Communications Corp.

Jeffrey P. Shapiro of Shapiro Ramos P.A. of Miami was counsel for the defendants, Star Broadcasting, Inc. and Ronald E. Hale Sr.

ORDER GRANTING PLAINTIFF'S MOTION FOR SUMMARY JUDGMENT AND GRANTING PLAINTIFF'S MOTION FOR SANCTIONS

MARTINEZ, District Judge.

THIS CAUSE came before the Court upon Plaintiffs Motion for Partial Summary Judgment as to Liability (D.E. No. 118) ("Motion for Summary Judgment") and Plaintiffs Motion for Sanctions, Including the Entry of a Default Judgment and an. Award of Attorney's Fees (D.E. No. 117) ("Motion for Sanctions"). The Court has carefully considered these two motions, which are fully briefed, and it is otherwise duly advised.¹ This Court held a hearing on both the Motion for Summary Judgment and the Motion for Sanctions on October 17, 2006 and heard oral argument from counsel. This case involves a commercial dispute over an agreement to purchase the assets of an FM radio station. Plaintiff alleges that Defendants breached a. "No-Shop" provision of that agreement by negotiating to sell the radio station to Plaintiff's main competitor while the agreement was still in effect. Plaintiff argues that under the language of the agreement, Defendants' subsequent attempt to terminate the agreement was invalid because Defendants were in breach of the agreement at the time Defendants attempted to terminate. Plaintiff seeks specific performance to enforce the agreement, declaratory relief, damages, and injunctive relief. See generally (Amended Complaint, D.E. No. 87).

Plaintiffs Motion for Sanctions argues that due to a pattern of serious misconduct on the part of Defendants, including failing to produce "smoking-gun" documents during discovery, testifying falsely under oath, and putting the defendant corporation into bankruptcy in a bad-faith attempt to avoid the agreement and pending litigation, Plaintiff is entitled to the "ultimate" sanction of default judgment as to liability for all counts of the Amended Complaint, as well as reasonable attorney's fees and costs.² In the alternative, Plaintiffs Motion for Summary Judgment seeks judgment as to liability for Count I (Specific Performance), Count III (Declaratory Relief), and Count IV (Injunctive Relief) of the Amended Complaint.³ Plaintiff essentially argues that this Court should find as a matter of law that the parties' agreement is enforceable, that Defendants breached the agreement, and that Defendants should be ordered to specifically perform their obligations under the agreement.

This Court addresses the Motion for Summary Judgment first and the Motion for Sanctions second.⁴ For the reasons discussed in this Order, this Court finds that the Motion for Summary Judgment should be granted and that the Motion for Sanctions should also be granted. This Court first discusses the relevant factual and procedural background of this case. It then discusses Plaintiffs Motion for Summary Judgment and concludes that there is no genuine issue of material fact and that as a matter of law Plaintiff is entitled to judgment as to liability for Count I, Count III, and Count IV of the Amended Complaint. Accordingly, Plaintiff is entitled to declaratory relief, injunctive relief, and specific performance pursuant to the parties' agreement. Furthermore, this Court finds that there is clear and convincing evidence of a pattern of serious misconduct on the part of the Defendants during the course of this litigation. After careful consideration, this Court finds that Plaintiffs Motion for Sanctions should be granted and that Plaintiff is entitled to default judgment as to liability for all counts of the Amended Complaint, including Count II (Breach of Contract), and to reasonable attorney's fees and costs.⁵

I. BACKGROUND

A. Factual and Procedural Overview

This case arises from an Asset Purchase Agreement ("Agreement") between Plaintiff Qantum Communications Corporation ("Qantum") and Defendant Star Broadcasting, Inc. ("Star") and Ronald E. Hale, Sr. ("Hale") (collectively "Defendants") that was executed on September 5, 2003 for the purchase of WTKE-FM ("WTKE"), a radio station licensed in Holt, Florida that transmits through the Ft. Walton Beach, Florida market. Plaintiff describes the WTKE radio station assets, the focus of this litigation, as the more important part of a two-station deal in which Hale and companies owned by his family entered into two separate agreements on September 5, 2003 to sell Qantum the assets of two radio stations, WTKE and WMMK-FM ("WMMK").⁶ Plaintiffs Amended Complaint explains the business strategy of this two-station deal:

It was strategically important to Qantum to acquire both stations due to economies of scale in operations and advertising sales advantages in owning multiple stations in a single market. And by adding WMMK and WTKE to the two stations Qantum already owned in the market, Qantum would for the first time be in a position to compete on near-equal footing with the station group owned by Cumulus [Broadcasting, Inc.], the dominant player in the market with a 70 percent share of total advertising revenue.

(Amended Complaint, D.E. No. 87 at 15). Plaintiff explains that the deal was implemented through two agreements because the two stations were owned by different corporations. Id. at ¶ 16. However, Hale himself negotiated the deals for both stations. Id. Plaintiff alleges that "the signing of these two agreements began what has become a nearly two-year ordeal during which the Hale parties have done virtually everything in their power to frustrate and prevent the consummation of the contracts they signed." Id. at ¶ 17.

Plaintiff's Amended Complaint requests declaratory relief, injunctive relief, and specific performance. Plaintiff alleges that the WTKE assets are unique, that specific performance was the relief specified in the contract, and that the WTKE assets are a strategically essential part of Plaintiff's business plan to enter the Ft. Walton Beach market. Id. at 2-3. In essence, Plaintiff alleges that Defendants breached the "Non-Solicitation" provision of the Agreement by negotiating with Plaintiffs main competitor, Cumulus Broadcasting, Inc. ("Cumulus"), and then contracting to sell the WTKE assets to Cumulus.⁷ On April 14, 2005, Defendants gave termination notice to Plaintiff, pursuant to a provision of the contract that allows either party to terminate at will provided that the closing has not been consummated on or before eighteen months after the date of the Agreement, and provided that "the party seeking to terminate this. Agreement is not then in breach of this Agreement." (D.E. No. 126, Exh. B (exhibit attached to Affidavit of Ronald Hale, Sr. dated May 17, 2006)). However, Plaintiff argues that this termination notice was invalid because Defendants were already in breach of the Agreement's "Non—Solicitation" provision, a covenant that requires that the parties not take any action "inconsistent" with the agreement, and various other alleged breaches.

In contrast, Defendants argue that it had become apparent that the deal could not be consummated before the expiration of the Agreement because of Federal Communication Commission (FCC) licensing issues, and that Plaintiff "manufactured" breaches in order to prevent Defendants from terminating the Agreement. When the Plaintiff sent Defendants a "breach letter" dated January 12, 2005, the Defendants issued a response letter dated February 11, 2005, which Defendants claim explained why breaches had not in fact occurred or how immaterial breaches had been cured. (D.E. No. 26 at 7). As is discussed further infra, the main thrust of Defendants' legal arguments is that the alleged breach of the non-solicitation provision is an immaterial breach because it was the non-occurrence of a condition precedent of the Agreement (i.e. FCC approval), rather than Defendants' acts or omissions, that prevented the deal from closing.

This Court has diversity jurisdiction over the parties under 28 U.S.C. § 1332. Plaintiff is a corporation organized under the laws of Delaware with its principal place of business in Connecticut. Defendant Star Broadcasting is a corporation organized under the laws of Florida, with its principal place of business in Ft. Walton Beach, Florida. Defendant Ronald Hale is a resident of the state of Florida. In an Order dated August 4, 2005, this Court denied Defendants' motion to dismiss for improper venue under Federal Rule of Civil Procedure 12(b)(3), motion to transfer for improper venue under 28 U.S.C. § 1406(a), and motion to transfer for convenience of the parties pursuant to 28 U.S.C. § 1404(a). (D.E. No. 41).

On July 5, 2005 this Court issued an Order granting Plaintiffs Motion for a Temporary Restraining Order (D.E. No. 10) after an ex parte hearing on the same date. The Court later extended the Temporary Restraining Order, with the consent of the parties, until August 3, 2005 in an Order Granting Agreed Motion for Continuance of Preliminary Injunction Hearing (D.E. No. 17), issued on July 8, 2005. That Order stated that the Temporary Restraining Order was extended until August 3, 2005, or until further order of the Court, whichever period is shorter.

Shortly before the preliminary injunction hearing was held, Plaintiff filed an extensive Reply Memorandum in support of its Motion for a Preliminary Injunction.⁸ See generally (D.E. No. 36). Plaintiff's Reply Memorandum explained that discovery propounded to third parties revealed a number of what Plaintiff describes as "smoking-gun" documents that Defendants had failed to...