Schaller Telephone Co. v. Golden Sky Systems, Inc.

Decision Date23 April 2001
Docket NumberNo. C 99-4101-MWB.,C 99-4101-MWB.
PartiesSCHALLER TELEPHONE COMPANY, Plaintiff, v. GOLDEN SKY SYSTEMS, INC., Rodney A. Weary, and Jo Ellen Linn, Defendants.
CourtU.S. District Court — Northern District of Iowa

Alan E. Fredregill and Jeff W. Wright of Heidman, Redmond, Fredregill, Patterson, Plaza, Dykstra & Prahl, L.L.P., Sioux City, IA, for Plaintiff.

William D. Beil (argued), Brooks A. Richardson of Rouse, Hendricks, German, May, P.C., Kansas City, MO, G. Daniel Gildemeister of Gildemeister & Keane, L.L.P., Sioux, IA, for Defendants.

MEMORANDUM OPINION AND ORDER REGARDING DEFENDANTS' MOTION FOR SUMMARY JUDGMENT

BENNETT, Chief Judge.

                TABLE OF CONTENTS
                I. INTRODUCTION .................................................................. 1074
                   A. Factual Background ......................................................... 1074
                   B. Procedural Background ...................................................... 1076
                II. LEGAL ANALYSIS ............................................................... 1078
                    A. Standards For Summary Judgment ............................................ 1078
                    B. Schaller's Breach-Of-Contract Claim ....................................... 1079
                       1. Applicable principles of Iowa contract law ............................. 1080
                          a. Existence and terms of an oral contract ............................. 1080
                          b. Negotiations and reduction to writing ............................... 1081
                             i.  The Faught decision ............................................. 1081
                             ii. Faught's precursors ............................................. 1083
                       2. Did these negotiations ripen into an oral contract? .................... 1085
                          a. Golden Sky's intent not to be bound except by a written
                               agreement ............................................................... 1085
                          b. Manifestations of assent to an oral contract ........................ 1086
                                i. Agreement to the "essential term" of price .................... 1087
                               ii. Agreement on all terms ........................................ 1089
                              iii. Representations that the only contingency was board
                                    approval ........................................................... 1089
                               iv. Other conduct suggesting an agreement had been
                                    reached ............................................................ 1090
                                v. Weary's statements ............................................ 1091
                               vi. Agreement to agree ............................................ 1092
                              vii. Scope of Golden's Sky's disclaimers ........................... 1092
                          c. Consideration of other factors ...................................... 1093
                    C. Fraudulent Misrepresentation .............................................. 1096
                       1. The claim as pleaded and clarified in response to interrogatories ...... 1098
                       2. Merits of summary judgment on the claim as formulated .................. 1104
                          a. Fraudulent misrepresentation under Iowa law ......................... 1104
                          b. Misrepresentations of intention to perform .......................... 1106
                          c. Other "misrepresentations" .......................................... 1106
                    D. Golden Sky's Counterclaim ................................................. 1108
                III. CONCLUSION .................................................................. 1108
                

In Greek mythology, Pegasus, the winged horse, was the mount of the hero Bellerophon when he rescued the kingdom of Lycia from the fire-breathing monster ChimÆra.1 In this commercial litigation, plaintiff Schaller Telephone Company, disappointed by failure to close a deal to sell its satellite television assets to defendant Golden Sky Systems, Inc., was rescued from the full extent of any loss when Pegasus Communications Corporation bought Schaller's satellite television assets for over ten million dollars. Nevertheless, Schaller filed this suit against Golden Sky and two of its employees, alleging breach of an oral contract and asserting that Golden Sky's offer to buy its assets was a "chimera" of a different sort, because Golden Sky fraudulently misrepresented its intent and ability to perform the transaction. For its part, Golden Sky asserts a counterclaim of unjust enrichment arising from Schaller's failure to pay for satellite dishes that Golden Sky provided during the negotiation of the asset purchase agreement. Golden Sky now seeks summary judgment on both Schaller's claims and its own counterclaim. Following submission of a voluminous record and extensive arguments, written and oral, the court's task is to rule on Golden Sky's motion.

I. INTRODUCTION
A. Factual Background

This dispute arises from the parties' failure to close a deal for defendant Golden Sky Systems, Inc., to purchase plaintiff Schaller Telephone Company's exclusive rights to provide DIRECTV satellite service to homes in Schaller's service territory. For the sake of convenience, the court will refer to the failed transaction between the parties as the purchase of Schaller's DBS ("direct broadcast satellite") assets. This summary of the factual background to the parties' dispute is by no means complete or detailed; rather, it is intended to provide only the background essential to put in context the parties' claims and counterclaims and Golden Sky's motion for summary judgment. Where necessary, the court will examine pertinent undisputed and disputed facts in more detail in the course of its legal analysis.

Schaller entered the DBS business in August of 1992, when it acquired from the National Rural Telecommunications Cooperative (NTRC) the rights to provide DBS programming services from DIRECTV to cabled and non-cabled homes in Woodbury, Monona, Plymouth, and Ida Counties in Iowa. Golden Sky was formed in 1996 for the purpose of acquiring and owning distribution rights to DIRECTV, and operating DIRECTV programming services and equipment. Golden Sky's business strategy has been to expand its market through the acquisition of additional territories and the rapid increase of subscribers in those territories. In the fall of 1998, Golden Sky first expressed an interest in purchasing Schaller's DBS assets. The parties' negotiations of a possible purchase of Schaller's DBS assets by Golden Sky were long and complex. For background purposes, the court will touch only upon the principal landmarks in those negotiations.

The principal players in this drama are Steven Reimers, the President of Schaller Telephone Company, Steven R. Jensen, Schaller's attorney and principal negotiator on Schaller's behalf with regard to the Golden Sky transaction, Rodney A. Weary, the President and CEO of Golden Sky, Jo Ellen Linn, Golden Sky's General Counsel, LaQuita Jones, Golden Sky's Vice President for Acquisitions, and Ed Foster, outside counsel hired by Golden Sky to negotiate the transaction with Schaller. The parties agree that only Reimers and Weary had the authority to bind their respective parties by entering into a written agreement for the sale and purchase of Schaller's DBS assets.

After preliminary inquiries and the exchange of some information, on March 9, 1999, Golden Sky sent Schaller its first formal letter of interest making a conditional offer to purchase Schaller's DBS assets for $6,400,000 for a minimum of 3,200 subscribers, plus an additional $300 per subscriber in excess of 3,200. As a per subscriber deal, this offer was for a base price of $2,000 per subscriber. At about the same time, Golden Sky's main rival, Pegasus Communications Corporation, also made a somewhat better offer to purchase Schaller's DBS assets. Therefore, on May 26, 1999, Golden Sky sent Schaller a second letter of interest upping its offer. The May 26, 1999, letter made Schaller a conditional offer of $11,070,000 for a minimum of 4,100 subscribers, or $2,700 per subscriber, plus an additional $300 per subscriber in excess of 4,100. Although negotiation of numerous other issues began in earnest after this second letter of interest, the per subscriber price Golden Sky offered for Schaller's DBS assets remained at $2,700.

The parties' representatives held a meeting in Council Bluffs, Iowa, on June 30, 1999, to see if they could put together various details of a deal for the sale of Schaller's DBS assets to Golden Sky. Prior to that meeting, Steven Jensen, Schaller's attorney, requested and received a copy of a "standard form" of written asset purchase agreement typically used by Golden Sky from Golden Sky's outside counsel, Ed Foster. Jensen requested the "standard form" agreement so that he could get some indication of the terms that Golden Sky normally put in such agreements and to identify issues or concerns for Schaller.

One thing of interest to Schaller at this time was increasing its subscriber total to 5,000 or more to increase the purchase price for its DBS assets. Therefore, during the course of the meeting on June 30, 1999, in addition to other terms, the parties discussed a purchase price of $2,700 per subscriber for up to 5,000 subscribers, for a maximum total price of $13,500,000, with a reduction in purchase price of $2,700 per subscriber for every subscriber short of 5000.

During the course of the negotiations that followed, the parties exchanged several "blacklined" draft agreements, which need not be detailed here. However, after further negotiations, on July 23, 1999, Golden Sky sent Schaller a "Letter of Intent" to "confir[m] proposed terms under which Golden Sky Systems, Inc., ... will acquire all of the assets, business and property from Schaller Telephone Company ... for the provision of DIRECTV ® programming services pursuant to NRTC/Member Agreement For Marketing and Distribution of DBS Services" in Schaller's service area. The...

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