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Charlotte Broadcasting, LLC v. Davis Broadcasting of Atlanta, L.L.C.

Superior Court of Delaware, New Castle

June 10, 2015

CHARLOTTE BROADCASTING, LLC NEW MABLETON BROADCASTING CORPORATION and RADIO ONE OF NORTH CAROLINA, LLC, Plaintiffs/Counterclaim-Defendants,
v.
DAVIS BROADCASTING OF ATLANTA, L.L.C., Defendant/Counterclaim-Plaintiff.

Submitted: March 11, 2015

Thomas E. Hanson, Jr., Esquire, and Patricia A. Winston, Esquire, Morris James LLP, 500 Delaware Avenue, Suite 1500, Wilmington, DE 19801. Attorneys for Plaintiffs.

Samuel T. Hirzel, II, Esquire, and Aaron M. Nelson, Esquire, Proctor Heyman Enerio LLP, 300 Delaware Avenue, Suite 200, Wilmington, DE 19801. Michael J. Cicero, Esquire, CMS Law, PLLC, 1000 Potomac Street, NW, Suite 500, Washington, DC 20007. Attorneys for Defendant.

OPINION

WILLIAM C. CARPENTER, JR. JUDGE

Before the Court is Charlotte Broadcasting, LLC, New Mableton Broadcasting Corporation and Radio One of North Carolina, LLC's ("Plaintiffs") Motion for Summary Judgment on their Complaint and on Davis Broadcasting of Atlanta, L.L.C.'s ("Defendant") Counterclaims. The Court finds that Plaintiffs had the right to terminate an Asset Exchange Agreement (the "Agreement") and, in doing so, the Agreement did not require Plaintiffs to use commercially reasonable efforts. However, Plaintiffs were required to comply with the implied covenant of good faith and fair dealing when they terminated the Agreement. Whether Plaintiffs breached the implied covenant and whether Defendant suffered damages as a result of the breach remain issues of fact for trial. Accordingly, Plaintiffs' Motion for Summary Judgment is GRANTED in part and DENIED in part.

FACTUAL AND PROCEDURAL BACKGROUND

On August 31, 2011, Plaintiffs and Defendant entered into the Agreement.[1]Under the Agreement, Plaintiffs agreed to pay a compensation package to Defendant worth approximately $16 million, including two FM radio stations in Charlotte, North Carolina (WQNC and WPZS), access to a Plaintiffs-owned translator station in Atlanta, and $2, 000, 000 in cash.[2] In exchange, Defendant agreed to move its Atlanta radio station, WLKQ, to a new location in northern Georgia, which permitted Plaintiffs to upgrade their Atlanta radio station, WPZE, from an FCC designated Class A to an FCC designated Class C3 station.[3]WLKQ's relocation would increase WPZE's audience reach.[4]

Plaintiffs and Defendant acknowledged that the Agreement could be completed only if the Federal Communications Commission ("FCC") approved the station transmitter relocations, changes in community of license, channel upgrades, and station assignments.[5] The Agreement provided that each party would file simultaneous facilities modification applications (the "FMAs") with the FCC for approval.[6] The FMAs required engineering exhibits to be completed by both parties, which included maps identifying the potential relocations as well as the available allotment sites that would provide the required signal strength to comply with FCC regulations.[7] The FMAs could not be finalized unless the engineering exhibits were complete.[8]

At the time of the Agreement, neither party had completed their engineering exhibits.[9] Nevertheless, both parties showed a willingness to enter into the Agreement. Accordingly, the parties agreed to add a termination provision, provided in Section 15.1, which permitted either party-in its sole discretion-to terminate the Agreement if the engineering exhibits were unacceptable (the "Engineering Clause").[10] Under Sections 1.1 and 1.2, the parties agreed to file the FMAs along with the engineering exhibits on the "Filing Date."[11] It is undisputed that the Filing Date is defined in the Agreement to occur no later than September 15, 2011.[12]

On or about September 8, 2011, a few days after the parties entered into the Agreement, but before the Filing Date, Plaintiffs learned that Clark Atlanta University filed an application with the FCC on August 31, 2011 to relocate its radio station transmitter.[13] The University's filing effectively precluded the Agreement between the parties because the Agreement's WPZE proposed relocation would violate FCC spacing regulations.[14] The parties presumed the FCC would not consent to the relocation after the University's filing because the University filed its application first.[15]

It is undisputed that, pursuant to the Engineering Clause, Plaintiffs could have terminated the Agreement immediately after learning the University's filing interfered with the Agreement.[16] However, despite the University's filing, the parties were eager to complete the Agreement. The parties agreed to delay filing the FMAs until they could determine whether the obstacle created by the University's filing could be removed.[17] The Filing Date passed without either party filing the FMAs.

For several months Plaintiffs negotiated with the University in an effort to persuade it to relocate its station, which would enable the engineering exhibits to comply with FCC regulations.[18] Plaintiffs met with the University in person on several occasions as well as negotiated via email and telephone.[19] After the meetings and correspondences, Plaintiffs offered the University a compensation package valued at approximately $1.3 million, including a $500, 000 cash payment.[20] Defendant was informed of the communications; however, Defendant did not directly negotiate with the University and only offered to contribute $100, 000 in installments over a three-year period for the University's station relocation.[21] However, the parties were unable to reach an agreement.[22]

Plaintiffs next determined that the parties could obtain FCC approval of the engineering exhibits without relocating the University's station by negotiating with another third party, Educational Media Foundation ("EMF").[23] If EMF filed an application with the FCC to change the allotment point for its radio station, then WPZE could be upgraded while remaining in compliance with the FCC's spacing regulations.[24] Among other things, EMF requested 10 percent of the value of the proposed WPZE upgrade, estimated to be approximately $500, 000.[25] Unlike the University option, EMF would not be required to relocate its station in any potential agreement.[26] Similar to the University negotiations, Defendant was informed of the communications, but it was not directly involved in the communications.[27] However, the parties were unable to reach an agreement.[28]

On April 13, 2012-after approximately seven months of attempting to remove the obstacles to the filing of an acceptable engineering exhibit, Plaintiffs provided written notice to Defendant terminating the Agreement pursuant to the Engineering Clause.[29] The termination notice stated that the engineering exhibits were not acceptable because the specified community of license was not feasible from a technical perspective and failed to comport with applicable FCC rules.[30]Despite the termination notice, the parties continued to attempt to salvage the deal, which ultimately proved unsuccessful.

On June 1, 2012, Defendant informed Plaintiffs that the termination was invalid[31] and subsequently sent a default letter in July.[32] On August 17, 2012, Plaintiffs filed suit in the Court of Chancery seeking a declaratory judgment that they properly terminated the Agreement and used commercially reasonable efforts in attempting to complete the Agreement.[33] On April 8, 2013, the Court of Chancery dismissed the case for lack of jurisdiction and transferred the matter to this Court.[34]

On April 15, 2013, Plaintiffs filed the instant action with this Court. Plaintiffs seek a declaratory judgment that they (1) properly terminated the Agreement; and (2) used commercially reasonable efforts in attempting to complete the Agreement. On May 9, 2013, Defendant filed its Answer and Counterclaims. Defendant seeks Counterclaims for (1) breach of contract for failure to diligently prosecute and failure to use commercially reasonable efforts; (2) breach of the implied covenant of good faith and fair dealing; (3) breach of contract for wrongful termination; and (4) specific performance as provided as a remedy in the Agreement. Trial is scheduled to begin on July 13, 2015.

STANDARD OF REVIEW

In reviewing a motion for summary judgment pursuant to Rule 56, the Court must determine whether any genuine issues of material fact exist.[35] The moving party bears the burden of showing that there are no genuine issues of material fact so that he is entitled to judgment as a matter of law.[36] The Court must view all factual inferences in a light most favorable to the non-moving party.[37] Summary judgment will not be granted if it ...


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