Centennial Broadcasting, LLC v. Burns

UNPUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
No. 06-2098
CENTENNIAL BROADCASTING, LLC,
Plaintiff - Appellee,
versus
GARY E. BURNS; 3 DAUGHTERS MEDIA,
INCORPORATED,
Defendants - Appellants.
Appeal from the United States District Court for the Western
District of Virginia, at Lynchburg. Norman K. Moon, District
Judge. (6:06-cv-00006-nkm)
Submitted: September 19, 2007 Decided: November 16, 2007
Before WILLIAMS, Chief Judge, SHEDD, Circuit Judge, and Joseph F.
ANDERSON, Jr., United States District Judge for the District of
South Carolina, sitting by designation.
Affirmed by unpublished per curiam opinion.
Mark J. Prak, Coe W. Ramsey, Charles E. Coble, BROOKS, PIERCE,
MCLENDON, HUMPHREY & LEONARD, L.L.P., Raleigh, North Carolina, for
Appellants. Virginia W. Hoptman, Jerry W. Boykin, Erin Roberts,
WOMBLE, CARLYLE, SANDRIDGE & RICE, Tysons Corner, Virginia, for
Appellee.
Unpublished opinions are not binding precedent in this circuit.
PER CURIAM:
Appellants Gary E. Burns and 3 Daughters Media, Inc. (“3
Daughters”) (collectively “Appellants”) appeal the district court’s
grant of a permanent injunction to Centennial Broadcasting, LLC
(“Centennial”) enforcing a covenant not to compete between Burns
and Centennial. Appellants argue that the district court erred in
concluding that the covenant’s terms are unambiguous and that Burns
failed to comply with those terms. They also challenge the
validity of the non-competition agreement on a number of grounds.
For the reasons that follow, we affirm.
I.
In October 2004, Centennial and Burns entered into an
agreement (the “Asset Purchase Agreement” or “APA”) pursuant to
which Burns was to sell Centennial substantially all of the assets,
property, and rights of the radio station WLNI-FM (“WLNI”),
“licensed by the Federal Communications Commission (“FCC”) to
Lynchburg, Virginia.”1 (J.A. at 10.)2 On February 28, 2005,
Centennial closed on the purchase of WLNI for approximately $4.4
1
The APA initially provided for the sale of two additional
radio stations, WMNA-FM and WMNA-AM, “licensed by the FCC to
Gretna, VA” (the “Gretna stations”) as well. (J.A. at 10.) In
January 2005, however, the parties amended the APA to exclude the
Gretna stations from the transaction.
2
Citations to the “J.A.” refer to the contents of the joint
appendix filed by the parties to this appeal.
2
million. The parties allocated $4.135 million for WLNI’s FCC
license, $180,000 for the broadcasting equipment, $50,000 for the
tower antenna, and $35,000 for office and miscellaneous equipment.
As a condition of the sale, the parties entered into an
ancillary agreement entitled the “Non-Solicitation and Consulting
Agreement.” Centennial paid Burns $25,000 as consideration for his
compliance with the covenants contained in the agreement. Only one
of the Non-Solicitation and Consulting Agreement’s three primary
restrictions is relevant to this appeal. Paragraph 2 (“the non-
competition agreement”) provides that:
Except as provided in the next sentence, Covenantor
[Burns] further agrees that at no time during the
Restricted Period will he directly or indirectly, whether
as owner licensee, principal, agent, consultant,
employee, proprietor, partner, lender, or shareholder,
director or officer of a corporation (or similar position
in any other entity), or in any other capacity, other
than as employee or contractor of Buyer, engage in, own,
manage, operate, control or otherwise participate in or
be in any manner connected with the ownership, operation,
management or control of any commercial AM or FM
broadcast business at any radio broadcasting station that
is included in the Roanoke-Lynchburg Arbitron Metro radio
market if such station utilizes a programming format
substantially similar to any format used by the Station
on the date Buyer acquires the Station; provided,
however, that ownership of less than 5% of the
outstanding stock of any publicly traded corporation
shall not be prohibited solely by reason thereof.
Covenantor’s ownership and operation of Radio Stations
WMNA-FM and WMNA(AM), Gretna, Virginia, are specifically
excluded from the restrictions in this paragraph.3
3
The “Restricted Period” represents a five-year period running
from the date the parties signed the Non-Solicitation and
Consulting Agreement until the fifth anniversary of the closing
under the APA.
3
(J.A. at 23 (emphasis added).) At the time of the sale, WLNI’s
programming consisted primarily of talk shows, although the station
also sometimes broadcasted sports events.
In November 2005, Centennial learned through a newspaper
article that Burns, acting through 3 Daughters, a company he owns,
had purchased the radio station WBLT-AM (“WBLT”) in Bedford,
Virginia. WBLT’s signal reached into the area encompassed by the
Roanoke-Lynchburg Arbitron Metro radio market.4 And, although WBLT
had been one of the few music stations remaining on the AM dial,
Burns shifted its programming to primarily talk radio upon
purchasing the station. Burns told the article’s author that he
instituted the format change because he had “been very successful
with news and talk radio.” (J.A. at 40.)
Centennial believed that Burns’s operation of WBLT as a talk
radio station violated the non-competition agreement. Accordingly,
on February 17, 2006, Centennial filed a complaint for damages and
injunctive relief against Appellants in the United States District
Court for the Western District of Virginia, claiming diversity of
citizenship between itself and Appellants and an amount in
controversy over $75,000. Centennial’s complaint asserted claims
4
“‘Arbitron’ is a national radio audience measurement company”
that relies on biannual “sweeps” of radio listeners to measure the
market share of radio stations. (J.A. at 301.) Arbitron defines
the Roanoke-Lynchburg radio market “as encompassing the cities of
Roanoke, Lynchburg, Bedford, and Salem, and six Virginia counties:
Roanoke, Boutetourt, Bedford, Campbell, Amherst and Appomattox.”
(J.A. at 301.)
4
against Burns for breaches of the non-competition agreement, the
APA, and the APA’s implied covenant of good faith and fair dealing
(Counts I-III) and a claim against 3 Daughters for violations of
Centennial’s rights under the APA and the non-competition agreement
(Count IV). On the same day, Centennial filed a Motion for
Temporary Restraining Order (TRO) and a Motion for Preliminary
Injunction enjoining Appellants “from further use of a Talk
programming format” on WBLT. (J.A. at 28, 30.)
On March 13, 2006, the district court conducted a hearing on
Centennial’s motions for a TRO and for a preliminary injunction.
Centennial provided evidence that it had monitored WBLT for 24
hours and learned that “it ha[d] 21 hours of syndicated talk and
three hours of music.” (J.A. at 128.) Moreover, WBLT was
“duplicating a number of talk show programs broadcast on WLNI.”
(J.A. at 35.) Burns did not dispute that a number of the talk
programs aired on WBLT were the same as those aired on WLNI. He
also admitted that the bulk of WBLT’s programming on Monday through
Friday was syndicated talk shows. (J.A. at 240.) Burns took
issue, however, with Centennial’s assertion, grounded in a list of
radio formats set forth in “Radio & Records” (which Centennial
described as “the leading magazine in the radio industry,” (J.A. at
138)), that there existed a single talk radio format which both
WLNI and WBLT employed. Burns supplied an article from “Talkers
Magazine” (whose slogan is “the [B]ible of the talk radio
5
business,” (J.A. at 207)) that “broke[] down on-air talk talent to
nine major categories,” (J.A. at 73); he argued that each category
represented a distinct radio format and that when these categories
were used to define WBLT and WLNI’s respective formats, the two
were not substantially similar. At the close of the hearing, the
district court determined that Burns had clearly violated the non-
competition agreement and issued a TRO. On March 20, 2006, the
district court granted Centennial’s motion for a preliminary
injunction.
Prior to the March 13, 2006 hearing, the district court had
notified the parties that it would “be considering the possibility
of consolidating the request for a preliminary injunction with
trial on the merits of the request for a permanent injunction,” but
understood that because expert witnesses might be unavailable at
the hearing, the parties might need to submit deposition testimony
relevant to the merits within a reasonable period after the
hearing.5 (J.A. at 326.) A subsequent Opinion and Order provided
that in considering whether consolidation was appropriate, the
district court would consider only the evidence offered at the
March 13, 2006 hearing, the deposition testimony of Appellants’
expert witness, and Centennial’s rebuttal evidence, if any was
5
Pursuant to Fed. R. Civ. P. 65(a)(2), “Before or after the
commencement of the hearing of an application for a preliminary
injunction, the court may order the trial of the action on the
merits to be advanced and consolidated with the hearing of the
application.”
6
offered. If, after considering that evidence, the district court
concluded that the language of the non-competition agreement was
unambiguous, it would decide the merits of the request for a
permanent injunction. If, however, it determined that disposition
of the merits required further development of the record, it would
permit the parties to conduct further discovery.
Accordingly, Burns submitted the deposition testimony of
expert witness Michael Harrison, publisher of “Talkers Magazine.”
Harrison identified eleven different talk radio formats, but
suggested that there were “probably more.” (J.A. at 576.)
According, to Harrison, “radio is a minute to minute competition,”
so stations should be compared on a minute to minute basis. (J.A.
at 599.) He had not, however, compared WLNI and WBLT in this
manner. When asked if it was “a fair statement to say that both of
these formats for WBLT and for WLNI are general issues political
talk even under [Harrison’s] definitions,” (J.A. at 612), Harrison
acknowledged that “[i]t [wa]s possible,” (J.A. at 613), but stated
that “it all depends on actually analyzing the actual number of
hours that they do the different shows,” and that he had not
conducted that analysis. (J.A. at 612-13.)
As rebuttal evidence, Centennial submitted the deposition
testimony of Walter Sabo, CEO of Sabo Media, a programming and
management company specializing in profitable contents solutions
for talk-radio stations. Sabo listed five formats that he believed
7
existed within the talk radio format and indicated that there were
“probably more.” (J.A. at 733.) Sabo opined that WLNI and WBLT
had substantially similar formats, basing his conclusion on “[t]wo
things” -- “that many of the[] shows cover the same subject area,
and . . . the way the shows are scheduled.” (J.A. at 707.) He
described the content of both stations as being primarily political
and the structure of the two stations as “amazingly similar.”
(J.A. at 709.)
After the deposition testimony was taken, Centennial filed a
Motion for a Permanent Injunction Pursuant to [Federal Rule of
Civil Procedure] 65(a)(2) and to Render Final Judgment in Favor of
Plaintiffs on the Merits. On September 29, 2006, the district
court granted Centennial’s motion to consolidate trial on the
merits with the preliminary injunction hearing and issued an
opinion and order permanently enjoining Burns from “participating
in or being in any manner connected with the ownership, operation,
management or control of any commercial AM or FM broadcast business
at any broadcasting station that is included in the Roanoke-
Lynchburg Arbitron Metro radio market for a period of five years if
that business station uses the following programming formats . . .
: All talk, News/Talk, Full Service Talk, or Specialized Talk with
a focus on current events and/or politics.” (J.A. at 941-42.)6 3
6
In crafting the injunction, the district court sought to use
terms that reflected Burns’s understanding of the different types
of radio station programming formats. The district court’s Opinion
8
Daughters Media was permanently enjoined “from the same” so long as
Burns remained affiliated with the company. (J.A. at 942.) In a
separate order, the district court referred Centennial’s claim for
costs and attorneys’ fees to a magistrate judge.
Burns and 3 Daughters timely appealed the district court’s
order granting Centennial a permanent injunction. We have
jurisdiction pursuant to 28 U.S.C.A § 1292(a)(1) (West 2006).
II.
“[W]e review the grant of a permanent injunction for abuse of
discretion.” Virginia Soc’y for Human Life, Inc. v. F.E.C., 263
F.3d 379, 392 (4th Cir. 2001). In so doing, we review the district
court’s underlying factual findings for clear error and its
conclusions of law de novo. Id. “[A] mistake of law by a district
court is per se an abuse of discretion.” Dixon v. Edwards, 290
F.3d 699, 718 (4th Cir. 2002).
Appellants argue that the district court abused its discretion
in granting Centennial a permanent injunction because the district
and Order defined, in a footnote, the formats that Burns was
enjoined from using. It took both the format categories and their
definitions from a website on which Burns had relied in an
affidavit supporting his response in opposition to Centennial’s
motion for a preliminary injunction. In the affidavit, Burns used
the website in asserting that “All Talk” and “News Talk” were
distinct formats and that WLNI used an “All Talk” format at the
time that he sold it. Accordingly, the district court concluded
that Burns “accept[ed] [the website]’s breakdown of talk
programming formats into All Talk, News/Talk, Full Service,
Specialized, and Sports.” (J.A. at 933.)
9
court’s decision rests on erroneous legal conclusions.
Specifically, Appellants contend that the district court erred in
concluding that the non-competition agreement’s reference to a
“programming format substantially similar [to that of WLNI],” (J.A.
at 23), was unambiguous. The ambiguity of the contract language,
according to Appellants, not only compels reversal of the district
court’s conclusion that no reasonable jury could find that WLNI and
WBLT did not have substantially similar programming formats, but
also renders the non-competition agreement unenforceable as
violative of Virginia public policy and Burns’s First Amendment
rights. Appellants further contend that the Federal Communications
Act (“FCA”), 47 U.S.C.A. § 310(d) (West 2001), and FCC decisions
and policy preempt enforcement of the non-competition agreement.
Because Appellants’ contention that the non-competition agreement
is ambiguous permeates their arguments on appeal, we first address
Appellant’s challenge to the district court’s conclusion to the
contrary before considering the question of preemption.
A.
Because this is a diversity suit, we apply the substantive law
of the state of Virginia. See Wells v. Liddy, 186 F.3d 505, 527-28
(4th Cir. 1999).7 Under Virginia law, when the terms of a contract
are clear and unambiguous, the interpretation of those terms
7
The Non-Solicitation and Consulting Agreement contains a
choice of law provision specifying that Virginia law governs the
parties’ disputes.
10
presents a question of law. Musselman v. Glass Works, L.L.C., 533
S.E.2d 919, 921 (Va. 2000). Whether a contractual provision is
ambiguous is also a question of law. Id.Virginia considers the language of a contract ambiguous “if it
may be understood in more than one way or when it refers to two or
more things at the same time.” Video Zone, Inc. v. KF & F
Properties, L.C., 594 S.E.2d 921, 923 (Va. 2004) (internal
quotation marks omitted). “Such an ambiguity, if it exists, must
appear on the face of the instrument.” Id. at 924. “Parol
evidence cannot be used to first create an ambiguity and then
remove it.” Cohan v. Thurston, 292 S.E.2d 45, 46 (Va. 1982).
Moreover, “a document is not ambiguous merely because the parties
disagree as to the meaning of the language employed by them in
expressing their agreement.” Amos v. Coffey, 320 S.E.2d 335, 337
(Va. 1984) (internal quotation marks omitted).
Appellants argue that the district court’s finding that the
relevant sworn statements and expert testimony were “mutually
incompatible and irreconcilable” reveals that the term “programming
format” in the non-competition agreement is ambiguous. (J.A. at
939.) For further support, they cite to F.C.C. v. WNCN Listeners
Guild, 450 U.S. 582 (1981), in which the Supreme Court upheld the
FCC’s decision to abandon regulation of radio station formats, a
policy change grounded in part in the difficulty the FCC had
experienced in defining and categorizing programming formats. See
11
Dev. of Policy re: Changes in the Entm’t Formats of Broad.
Stations, 57 F.C.C.2d 580, 583 ¶ 12 (1976) (concluding that
labeling radio station formats is a difficult task because
“[d]istinctions in this field are extremely hazy and subjective”).
The district court rejected Appellants’ invitation to look to
external sources, rather than the contract itself, to resolve the
issue. It found that “[t]he contract refers to the programming
format of [WLNI] on the date of transfer of ownership,” and “[o]n
that date, [WLNI] had a programming format known to both parties.”
(J.A. at 939.) Accordingly, the district court concluded that just
because “the experts . . . [did] not agree on the proper pigeonhole
into which that format should be placed d[id] not make the contract
ambiguous.” (J.A. at 939.) The court reasoned that “[WLNI]’s
format may (or may not) defy categorization, but it is possessed of
some format which Burns is forbidden to imitate.” (J.A. at 939.)
It further determined that the phrase “substantially similar” was
unambiguous, as “[i]ts ordinary and plain meaning can be gleaned by
resort to dictionary definitions and common usage.” (J.A. at 939.)
We agree with the reasoning of the district court. The
dictionary defines “format” in the media context as a “general plan
of organization, arrangement, or choice of material (as for a
television show).” Merriam-Webster’s Collegiate Dictionary 492
(11th ed. 2004). The non-competition agreement identified a
particular general plan of organization or choice of material –-
12
that of WLNI’s programming format on the date Burns sold the
station to Centennial -- with which both parties were familiar.
The difficulty of affixing a mutually-agreeable label to the
programming format identified in the non-competition agreement does
not render the agreement itself ambiguous.
We also agree with the district court that, however the two
stations’ formats are categorized, no reasonable jury could find
that they are not substantially similar. Appellants argue that,
under Harrison’s approach to format categorization, the stations’
programming formats could be found to differ because Harrison’s
testimony indicates that WLNI and WBLT broadcasted substantially
different programs during as many as eleven hours of the day. They
offer no basis, however, on which to refute the district court’s
finding that because “‘programming’ is distinct from ‘programming
format,’” different programs may share the same programming format.
(J.A. at 933.) That the two stations did not air the same programs
at the same time during a substantial portion of the day does not
demonstrate that they do not utilize the same or substantially
similar programming formats. The district court found that, under
Harrison’s approach, “both WLNI and WBLT use a General
Issues/Political Talk programming format, because each airs talk
shows with current events and politics subject matters for a
majority of the time and with significant hour-by-hour overlap.”
(J.A. at 934.) Appellants’ arguments regarding the differences
13
between the particular programs do not render this finding clearly
erroneous.
We therefore agree with the district court that Appellants
breached the non-competition agreement, and the differences in the
format definitions and modes of comparison advanced by the parties
do not render the violation any less clear. Because we conclude
that the language of the non-competition agreement is unambiguous,
we need not address Appellants’ argument that, under Virginia law,
an ambiguous restrictive covenant offends public policy and cannot
be enforced. For the same reason, we decline to address
Appellants’ contention that the non-competition agreement
represents a waiver of their First Amendment rights that cannot be
enforced because it is ambiguous.
B.
We next address Appellants’ contention that federal law
preempts the enforcement of the non-competition agreement under
state contract law. Under the Supremacy Clause, federal statutes
and regulations displace conflicting state law. See U.S. Const.
art. VI, cl. 2; English v. Gen. Elec. Co., 496 U.S. 72, 79 (1990)
(explaining that “state law is pre-empted to the extent that it
actually conflicts with federal law”). Such a conflict exists in
two circumstances -- where “compliance with both federal and state
regulations is a physical impossibility,” Florida Lime & Avocado
Growers, Inc. v. Paul, 373 U.S. 132, 142-43 (1963), and where state
14
law “stands as an obstacle to the accomplishment and execution of
the full purposes and objectives of Congress,” Hines v. Davidowitz,
312 U.S. 52, 67 (1941); Gade v. Nat’l Solid Wastes Mgmt. Ass’n, 505
U.S. 88, 103 (1992).
Burns argues that both circumstances are present in this case
because enforcement of the non-competition agreement would (1)
conflict with and frustrate the purpose of § 310(d) of the FCA and
(2) violate the FCC policy of prohibiting contractual restrictions
on radio-formatting discretion. Section 310(d) of the FCA provides
that “[n]o construction permit or station license, or any rights
thereunder, shall be transferred, assigned, or disposed of in any
manner, voluntarily or involuntarily, directly or indirectly, . .
. to any person except upon application to the Commission and upon
finding by the Commission that the public interest, convenience,
and necessity will be served thereby.” 47 U.S.C.A § 310(d).
Further, the FCC has a longstanding policy of requiring that a
licensee “retain control over programming content at all times.”
In re Cosmopolitan Broadcasting Corp., 59 F.C.C.2d 558, 561 (1976).
Accordingly, it will not grant licenses to applicants whose
contractual obligations limit their ability to maintain ultimate
control over programming decisions. See Cumulus Licensing L.L.C.,
21 F.C.C.R. 2998, 3005 (2006) (finding that a contractual provision
prohibiting a buyer of a radio station (and any successor in
interest) from “instituting an adult contemporary or country
15
program format, or any similar or derivative format . . . for a
period of five years” improperly infringed upon the buyer’s
programming responsibilities and conditioning approval of the
parties’ application to transfer the station’s license on the
deletion of the restriction).
The district court rejected both arguments. It concluded that
neither the FCA nor FCC policy preempts the enforcement of the non-
competition agreement, because although the FCC will not approve
license applications from or transfers to would-be licensees whose
programming discretion is unduly inhibited by contractual terms, no
FCC rules or decisions purport to alter state contract law or to
bind the courts. (J.A. at 937.) To the contrary, the FCC has
stated that “there is no conflict between State and Federal policy
as to the covenant not to compete.” (J.A. at 937 (quoting In re
Roman, 38 F.C.C. 290 (1965)); see also In re Cmty. Broad. of
Coastal Bend, Inc., 4 F.C.C.R. 3619, 3621 (1989) (stating that
“there is no conflict between state and federal policy as to a
covenant not to compete”).
Again, we agree with the reasoning of the district court. As
the district court explained, the FCC has conditioned approval of
license transfers on the transferee’s ability to extract himself
from non-competition agreements that limit programming discretion
precisely because these types of agreements are enforceable. See
Regents of Univ. Sys. of Ga. v. Carroll, 338 U.S. 586, 600 (1950)
16
(stating that “[t]he [FCC] may impose on an applicant conditions
which it must meet before it will be granted a license, but the
imposition of the conditions cannot directly affect the applicant’s
responsibilities to a third party dealing with the applicant”).8
Thus, whether the non-competition agreement would unduly
infringe upon Appellants’ ability to program WBLT was a question
for the FCC to resolve in determining whether to approve the
transfer of the station’s license. It is not a ground to
invalidate the non-competition agreement. We agree with the
district court that any conflict between 3 Daughters’s duties as a
licensee and Burns’s contractual obligations resulted from
Appellants’ failure to inform the FCC of the non-competition
agreement’s restrictions and is thus of their own making. We
8
Appellants rely heavily on In re Citicasters Co., 16 F.C.C.R.
3415 (2001). Citicasters, however, is not contrary to Regents of
University System of Georgia v. Carroll, 338 U.S. 586 (1950). In
Citicasters, the FCC stated that
Where a contractual dispute is before a court, the
licensee must retain actual control of essential station
functions unless the Commission gives prior consent to
the assignment or transfer of control of the station.
Thus, it is a violation of the Communications Act to
invoke remedies for breach, including injunctive or other
equitable relief, that impinge on such control, without
obtaining prior Commission consent.
16 F.C.C.R. at 3420. That a party may violate the FCA by invoking
equitable remedies for breach of contract without obtaining the
FCC’s consent has no bearing on the enforceability of the
underlying contract.
17
therefore conclude that the district court did not abuse its
discretion in granting Centennial a permanent injunction.
III.
In sum, we conclude that the non-competition agreement’s
reference to a “programming format substantially similar to [that
of WLNI on the date of its sale to Centennial],” (J.A. at 23), was
unambiguous. We further conclude that no reasonable jury could
find that WBLT’s format was not substantially similar to WLNI’s
programming format, and that federal law does not preempt
enforcement of the non-competition agreement. Accordingly, the
judgment of the district court is
AFFIRMED.
18