US HF Cellular Communications, LLC v. Rene Stiegler, III and Robert Block Survivors Trust and ShipCom, LLC

EFiled: Oct 12 2017 11:20AM EDT
Transaction ID 61234668
Case No. 11363-VCS
IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE
US HF CELLULAR :
COMMUNICATIONS, LLC, :
:
Plaintiff, :
:
v. : C.A. No. 11363-VCS
:
RENE STIEGLER, III and :
ROBERT BLOCK SURVIVORS :
TRUST, :
:
Defendants, :
:
and :
:
SHIPCOM, LLC, :
:
Nominal Party. :
:
MEMORANDUM OPINION
Date Submitted: July 25, 2017
Date Decided: October 12, 2017
Michael W. McDermott, Esquire and David B. Anthony, Esquire of Berger
Harris LLP, Wilmington, Delaware; William M. “B.J.” Lyon, Jr., Esquire of Lyon
Law Firm, P.C., Mobile, Alabama; and Patricia Clotfelter, Esquire of Baker,
Donelson, Bearman, Caldwell & Berkowitz, PC, Birmingham, Alabama, Attorneys
for Plaintiff.
Geoffrey G. Grivner, Esquire of Buchanan, Ingersoll & Rooney, P.C., Wilmington,
Delaware, Attorney for Defendants.
SLIGHTS, Vice Chancellor
Defendants, Robert Block1 and Rene Stiegler, III, are the co-founders of
ShipCom LLC, a company that specialized in maritime communications. In early
2012, Plaintiff, US HF Cellular Communications, LLC (“Cellular”), acquired an
80% interest in ShipCom LLC. The parties documented the acquisition and related
agreements with respect to ShipCom in a Membership Interest Purchase Agreement
dated February 23, 2012 (the “MIPA”). The undisputed record reflects that Cellular
was prompted to invest in ShipCom in order to capture value inherent in a waiver
ShipCom had recently obtained from the Federal Communications Commission (the
“Waiver”), which allowed ShipCom to use a particular maritime frequency
spectrum, typically restricted to maritime use, for emergency land-based
communications.2 The Waiver was granted exclusively to ShipCom and, by all
accounts, it is quite valuable.
All was well at ShipCom until May 2015, when Block and Stiegler discovered
that Cellular was making plans to exploit the Waiver outside of ShipCom and to
exclude them from the potential profits. They filed suit in Alabama alleging various
1
The caption on this Memorandum Opinion is the caption that appears above the First and
Second Amended and Supplemental Verified Complaint for Declaratory and Injunctive
Relief, filed on December 2, 2015 and November 18, 2016, respectively (D.I. Nos. 9 and
30), which removed Robert Block, individually and as trustee of Robert Block Survivors
Trust as a party. I make this note because the briefing on the cross-motions is under the
caption from the original Complaint, filed on August 3, 2015 (D.I. No. 1).
2
Pl. Cellular’s Opening Br. on Mot. for Summ. J. (“Cellular’s Opening Br.”), Ex. 3
(“Waiver”).
1
tort theories. Cellular followed by filing suit in this Court where it seeks various
declarations that Cellular breached the MIPA and related agreements.3 Block and
Stiegler then cross-claimed for counter declarations.
This Opinion resolves the parties’ cross-motions for summary judgment.4 The
motions concern two aspects of the MIPA and other related agreements. First, the
parties present differing constructions of the term “Maritime Business” within the
MIPA. Specifically, the parties dispute whether the Waiver is included within the
term “Maritime Business.” If it is, then the MIPA provides that only ShipCom may
exploit the Waiver. If it is not, then Cellular may utilize the Waiver in its businesses
outside of ShipCom. Second, the parties dispute the viability of certain provisions
of the MIPA and related agreements that grant options to Block and Stiegler to
convert their ShipCom equity into Cellular equity. Block and Stiegler maintain that
the options are still exercisable; Cellular argues that the options have expired.
For the reasons I explain below, Block and Stiegler’s motion for summary
judgment on the Maritime Business issue is GRANTED. The MIPA clearly and
unambiguously provides that the Waiver is included in the definition of Maritime
3
The MIPA contains a Delaware choice of forum provision for claims arising under the
MIPA.
4
Cellular filed a motion for partial summary judgment. Block and Stiegler filed a cross-
motion for summary judgment. Thereafter, the parties resolved by stipulation all of the
other claims and cross-claims in this action. Thus, this decision addresses all extant claims.
2
Business and that it cannot, therefore, be exploited outside of ShipCom. As to the
option issue, Cellular’s motion for summary judgment is GRANTED. Block and
Stiegler failed to exercise the option in the time allowed by the relevant contracts.
I. BACKGROUND FACTS
I have drawn the facts from the admissions in the pleadings, uncontested facts
presented in the motions, the Stipulation and Order of Declaratory Judgment and
those matters of which the Court may take judicial notice. Unless otherwise
indicated, I have determined that these facts are undisputed.
A. The FCC Grants the Waiver and Cellular Makes its Investment
Before 2012, Block and Stiegler owned 100% of ShipCom. ShipCom’s
business focused initially on operating a network that facilitated ship-to-ship and
ship-to-shore communications using a spectrum of high frequency (“HF”) radio
waves. The FCC license that permitted ShipCom to utilize this spectrum of HF radio
waves limited its use to maritime communications; the license did not permit
ShipCom to use the radio waves terrestrially. That changed after Hurricane Katrina
hit the Gulf Coast in 2005. Katrina knocked out much of the terrestrial
communication infrastructure, so first responders turned to ShipCom’s HF spectrum
to coordinate their rescue efforts. The FCC temporarily authorized ShipCom to use
its HF spectrum terrestrially given the exigent circumstances.
3
After the FCC saw the benefits of ShipCom’s HF spectrum in terrestrial
applications, it granted ShipCom the Waiver in 2010.5 The Waiver allows ShipCom
to use its HF spectrum terrestrially “in the event of a disaster that renders normal
communications unavailable.”6 With the resulting expansion of its operations,
ShipCom was suddenly an attractive investment target. Enter Cellular and its agent,
Edward Bayuk. They saw the Waiver’s value (later appraised at $2 billion),7 pursued
an investment in ShipCom and ultimately entered into the MIPA with Block and
Stiegler. The MIPA required Cellular to pay Block and Stiegler $5 million in
exchange for an 80% ownership interest in ShipCom.8 The parties later executed
the First Amended Membership Interest Purchase Agreement (“FAMIPA”)9 and a
Note Payoff Letter Agreement (“Letter Agreement”).10
5
Waiver at 1.
6
Id. at 3.
7
Defs. Block and Stiegler’s Opening Br. in Supp. of Mot. for Summ. J. (“Defs.’ Opening
Br.”), Ex. J (Brattle Group, Valuation of the Spectrum Related Assets of ShipCom (July 18,
2012)); Ex. K (Letter from Brattle Group to Cellular as Addendum to July Report at 1
(Dec. 17, 2012)).
8
Cellular’s Opening Br., Ex. 1 (“MIPA”) § 2.02. The MIPA also required Cellular to make
substantial pre-closing payments. Id. at 1 (Recitals).
9
Cellular’s Opening Br., Ex. 2 (“FAMIPA”).
10
Cellular’s Opening Br., Ex. 6 (“Letter Agreement”).
4
B. The Relevant Contract Provisions
As noted, the cross-motions for summary judgment involve only two aspects
of the parties’ various agreements. The first is the meaning of “Maritime Business”
as defined in the MIPA. The specific issue is whether the Waiver is included in the
definition of “Maritime Business.” The second relates to Block and Stiegler’s
contractual right to options to convert their 20% interest in ShipCom into a 10%
interest in Cellular (the “Option”). I address the relevant contractual provisions
below.
1. Maritime Business
The MIPA delineated the parties’ intent with regard to ShipCom’s anticipated
operations and Cellular’s permitted operations outside of ShipCom. ShipCom
retained all operations related to its “Maritime Business.”11 Cellular retained the
right to pursue business opportunities in the communications space outside of
ShipCom’s Maritime Business.12 Specifically, the MIPA provides:
Simultaneous with the Closing, the Company [ShipCom] shall form an
operating subsidiary with the name ShipCom Maritime, LLC in the
State of Delaware, with the Chief Operating Officer to be Stiegler, to
operate the portion of the business of the Company that is currently
engaged in the operation of the maritime FCC licenses and Waiver, and
to expand the maritime business surrounding the maritime FCC
licenses and Waiver (the “Maritime Business”). The Purchaser
[Cellular] intends to commence business operations in other
11
MIPA at 2–3 (Recitals).
12
Id.
5
communications related markets unrelated to the current Maritime
Business by use of the new wholly-owned subsidiaries of Purchaser,
and it is further the intent of the parties hereto that [Block and Stiegler]
may only participate in those other entities by [] exercising their
Option . . . .13
As stated in this clear and unambiguous Recital, the parties agreed that ShipCom
(through a newly created subsidiary) would continue to operate and expand “the
maritime business surrounding the maritime FCC licenses and Waiver (the
‘Maritime Business’).”14 The MIPA defines “Waiver” as the waiver the FCC
granted to ShipCom in 2010.15 The MIPA’s definition section provides that
“‘Maritime Business’ shall have the meaning ascribed to such term in the Recitals
hereof.”16
2. The Options
The MIPA originally provided that Block and Stiegler had 60 days from the
date of closing to exercise the Option.17 The parties amended this aspect of the
13
Id.
14
Id.
15
Id. (“‘Waiver’ shall mean the FCC Order WT Docket No. 10-2, in the matter of
SHIPCOM LLC Request for Waiver, adopted by the FCC May 10, 2010, released May 12,
2010, and issued to the Company allowing among other things, the waiver of certain
restrictions held on the maritime FCC licenses over land during emergencies and disasters
as described therein.”).
16
Id. § 1.01.
17
Id. § 5.11(a).
6
MIPA when they executed the FAMIPA.18 The FAMIPA reflects the parties’
agreement that Cellular would not pay its $5 million investment at closing, but
instead would deliver a secured note for the purchase price (the “Note”) following
closing.19 Given this deferred payment, the FAMIPA also provided that the Option
would remain open for 60 days after two conditions are satisfied: (i) Cellular has
paid the Note in full; and (ii) Cellular has delivered its operating agreement to the
Option holders (Stiegler and Block). Specifically, the applicable provision of the
FAMIPA reads:
Exercise of Option. Subsection 5.11 (a) of the [MIPA] is hereby
amended to provide that the time period during which the Option shall
be exercisable shall commence on the date that the Note is paid in full
by Purchaser and shall continue thereafter until 11:59 PST on the 60 th
day following the date that the Note is paid in full by
Purchaser. Additionally, the provisions of (i) Section 5.11 (e) of the
[MIPA] are hereby amended to require that the Purchaser deliver the
USHFCC Operating Agreement to Sellers on or before the Purchaser’s
payment of the Note in full, and (ii) the provisions of Subsection 5.11(f)
of the [MIPA] are hereby amended, such that from and after the Closing
and continuing until the Note paid in full, the Company shall not
become a subsidiary of any other entity other than the Purchaser, and
the domicile of the Company’s organization shall not be moved from
the State of Alabama.20
18
FAMIPA § 9.
19
Id. § 2.
20
Id. § 9.
7
On May 29, 2013, Cellular delivered the Letter Agreement to Block and
Stiegler. Here, the parties state that they “entered into” the Letter Agreement “in
connection with the payoff in full of the Note” delivered by Cellular to Block and
Stiegler at closing.21 They further agree that “[t]he final payment under the Note”
would be wired to Block’s and Stiegler’s attorneys into a specified account.22
Paragraph 1 of the Letter Agreement makes clear that “payment in full” of the Note
means the $5 million acquisition price less certain offsets as set forth in Section 7.07
of the MIPA.23
Block and Stiegler agreed in the Letter Agreement that Cellular had not
breached or defaulted under the MIPA, Note or other related agreements.24 They
also agreed that there were no existing conditions that would lead to default.25
No Default. The Holders [Block and Stiegler] and ShipCom Nevada,
LLC a Nevada limited liability company, on behalf of themselves and
each of their heirs or assigns, hereby agrees and acknowledges that
except as set forth in Section 4 below (the “Exclusion Items”), as of the
date hereof there are no existing events of default by USHF or ShipCom
21
Letter Agreement at 1.
22
Id. ¶ 8.
23
Id. ¶ 1; see also MIPA § 7.07. The MIPA required Cellular to pay Block and Stiegler
$4,250,000, and to hold back $750,000 of the payment price to pay tax liens and specified
losses (the “Holdback” amount). MIPA § 2.02(a). The MIPA later provides that the
Offsets mentioned in the Letter Agreement are to be applied to the Holdback amount.
Id. § 7.07.
24
Letter Agreement ¶ 3.
25
Id.
8
nor are there any events, conditions or acts which may result in a breach
of, conflict with, constitute (with or without due notice or lapse of time
or both) a default (collectively an “Event of Default”), under, or give
rise to any right of termination, cancellation, or acceleration under the
Agreement, Note, Pledge Agreement, Escrow Agreement, or that
certain Commercial Lease between ShipCom Nevada LLC and
ShipCom dated as of May 21, 2012. 26
And, importantly, they “acknowledge[d] and agree[d] that they ha[d] . . . received a
copy of the [Cellular LLC] Agreement in satisfaction of the covenants of [Cellular]
in Section 5.11(e) of the [MIPA] and Section 9 of the [FAMIPA].”27
C. The Alleged Breaches
After the deal closed, Cellular began to market its acquisition of the Waiver
and its potential uses outside of ShipCom. For instance, Cellular stated in a private
offering memorandum that it was “authorized by a FCC Waiver to operate on land
when all existing forms of communication fail.”28 Cellular also admits that it entered
into two agreements outside of ShipCom pursuant to which it intended to use “the
FCC licenses and Waiver.”29 Block and Stiegler allege that the MIPA prohibits
26
Id.
27
Id. ¶ 7.
28
Defs.’ Opening Br., Ex. H at 11.
Cellular’s Second Am. Compl. ¶ 20; see also Defs.’ Opening Br., Ex. I (Network
29
Management Agreement) at 1.
9
Cellular from pursuing these business opportunities outside of ShipCom and they
seek a declaration from the Court to that effect.
As for the Option issue, Block and Stiegler allege that the Option remains
open because Cellular failed to deliver an operating agreement that complied with
Section 5.11 of the MIPA. Specifically, they argue that the operating agreement
tendered by Cellular lacked the capital structure referenced in Section 5.11(b) and
lacked specific rights referenced in Section 5.11(e) of the MIPA. Since the delivery
of a proper operating agreement is a condition to the running of the Option’s 60-day
expiration period, they seek a declaration that Cellular must honor their Options.
D. Procedural History
On May 29, 2015, two years after the parties finalized their deal, Block and
Stiegler sued Cellular in Alabama. They alleged that Cellular planned to exploit the
Waiver for its purposes without ShipCom’s permission. They also alleged that
Cellular was not allowing ShipCom (and thus Block and Stiegler) to share in any
potential profits related to the Waiver.
The conflict spilled into Delaware on August 3, 2015, when Cellular filed its
complaint in this Court. In that complaint, Cellular sought declaratory and injunctive
relief relating to the MIPA’s substantive provisions and its Delaware forum selection
clause. Block and Stiegler fired back in their answer and counterclaims, asserting
claims for declaratory relief on the Maritime Business and Option issues. Various
10
motions and amended pleadings followed. I need not review this history, or the full
scope of the claims and counterclaims because, as noted, the parties have now
stipulated to resolve all of the MIPA-related issues in dispute, except for those raised
in their cross-motions for summary judgment. Thus, this decision will mark an end
to their conflict, at least in the Chancery theater.
II. ANALYSIS
I first address the standard of review applicable to these cross-motions for
summary judgment. I then address the two requests for declaratory judgment that
remain in dispute.
A. Summary Judgment Standard
“There is no ‘right’ to a summary judgment.”30 Rather, summary judgment is
only appropriate when “there is no genuine issue as to any material fact and . . . the
moving party is entitled to a judgment as a matter of law.”31 “When the issue before
the Court involves the interpretation of a contract, summary judgment is appropriate
only if the contract in question is unambiguous.”32 In the procedural context of
30
Telxon Corp. v. Meyerson, 802 A.2d 257, 262 (Del. 2002).
31
Ct. Ch. R. 56(c).
32
United Rentals, Inc. v. RAM Hldgs., Inc., 937 A.2d 810, 830 (Del. Ch. 2007).
11
cross-motions for summary judgment, in order to prevail, one of the parties “must
establish that [its] construction is the only reasonable interpretation.”33
Delaware “is more contractarian than many other states.”34 Our courts first
and foremost look “to the four corners of the contract to conclude whether the intent
of the parties can be determined from its express language.”35 “[T]he presumption
that the parties are bound by the language of the agreement they negotiated applies
with even greater force when the parties are sophisticated entities that have engaged
in arms-length negotiations.”36
B. “Maritime Business” Includes the Waiver
The MIPA unambiguously includes the Waiver in the definition of “Maritime
Business.”37 This means that ShipCom, and only ShipCom, retained the right to
expand and develop its business operations surrounding the Waiver. If Cellular has
33
Id. (emphasis in original).
34
GRT, Inc. v. Marathon GTC Tech., Ltd., 2011 WL 2682898, at *12 (Del. Ch. July 11,
2011).
35
Paul v. Deloitte & Touche, LLP, 974 A.2d 140, 145 (Del. 2009).
36
W. Willow-Bay Ct., LLC v. Robino-Bay Ct. Plaza, LLC, 2007 WL 3317551, at *9 (Del.
Ch. Nov. 2, 2007).
37
MIPA at 2–3 (Recital); id. § 1.01.
12
utilized the Waiver in its business outside of ShipCom, then Block and Stiegler are
entitled to share in any profits Cellular received from any such use of the Waiver.38
The analysis of this issue begins with the MIPA’s Recitals where the parties
agreed that ShipCom shall continue to operate and expand its “Maritime Business”:
Simultaneous with the Closing, the Company [ShipCom] shall form an
operating subsidiary with the name ShipCom Maritime, LLC in the
State of Delaware, with the Chief Operating Officer to be Stiegler, to
operate the portion of the business of the Company that is currently
engaged in the operation of the maritime FCC licenses and Waiver, and
to expand the maritime business surrounding the maritime FCC
licenses and Waiver (the “Maritime Business”).39
This Recital language identifies two aspects of ShipCom’s business: its “maritime
FCC licenses” and the “Waiver.” It unequivocally joins these two business
components and places them squarely within ShipCom’s “Maritime Business”—not
once, but twice (as reflected in the highlighted text). Then, in its definition section,
the MIPA refers to and incorporates the Recital language as the definition of
“Maritime Business.” Thus, the Waiver is included in the definition of Maritime
Business. The MIPA’s language on this point is clear and unambiguous. No other
construction is justified under Delaware’s strict contractarian regime.
38
Specifically, the revenue should have gone through ShipCom. After expenses, ShipCom
would then distribute funds to the interest holders, which are Cellular, Block and Stiegler.
39
Id. 2–3 (Recitals) (emphasis supplied).
13
Cellular argues that Maritime Business does not include the Waiver because
ShipCom was not “currently engaged” in the operation of businesses involving the
Waiver at the time the parties entered into the MIPA.40 This argument blinks at
reality by ignoring the MIPA. The Recitals state that “[t]he first Beta Test [with
respect to the Waiver] was performed [by ShipCom] at the 2012 Rose Bowl Parade”
on January 2, 2012.41 The parties go on to acknowledge that a “subsequent Beta
Test is intended to be conducted in the near future . . . .”42 Thus, the MIPA itself
reveals that ShipCom was engaged in business activities related to the Waiver at the
time the parties entered into the MIPA and that it intended to continue doing so.
Section 3.02 of the MIPA provides further evidence that ShipCom was
“currently engaged” in developing business around the Waiver.43 In Section 3.02(h),
40
See Cellular’s Opening Br. at 7–8; Pl. Cellular’s Answering Br. in Opp’n to Defs.’
Opening Br. 10–14. Cellular raises other arguments that are not persuasive in light of the
MIPA’s clear language. For instance, it argues that ShipCom did not actually use a
subsidiary to operate its Waiver business. This argument relies on extrinsic evidence that
the Court cannot consider to alter the plain meaning of the MIPA. See Eagle Indus., Inc.
v. DeVilbiss Health Care, Inc., 702 A.2d 1228, 1232–33 (Del. 1997) (holding that extrinsic
evidence may not be offered to create an ambiguity in an unambiguous contract).
41
MIPA at 2 (Recitals).
42
MIPA at 2 (Recitals) (“A subsequent Beta Test is intended to be conducted in the near
future and prior to the Beta Test, the administering federal agency or municipality and/or
subdivision shall provide a Beta Test protocol in order that the Company [ShipCom] and
Sellers can prepare and allow for an objective analysis of the Beta Test performance and
results.”).
43
Id. § 3.02.
14
the MIPA provides that “Schedule 3.02(h) sets forth a correct and complete list and
description of all Permits required to conduct the Business, as conducted on the date
hereof including without limitation all FCC permits, licenses and waivers.”44 The
MIPA defines “Business” as “the business of [ShipCom] as conducted as of
Closing.”45 Schedule 3.02(h) includes the Waiver.46
Based on the foregoing, it is clear that ShipCom has the sole right under the
MIPA to exploit the Waiver. This conclusion does not leave Cellular empty handed.
Cellular bargained for and obtained an 80% interest in ShipCom. Thus, Cellular
enjoys a substantial interest in profits derived from ShipCom’s Maritime Business,
including its Waiver-related operations. Block and Stiegler are entitled to share in
those profits as well, however, as agreed to by the parties in the MIPA.47
44
Id. § 3.02(h).
45
MIPA § 1.01 (emphasis supplied). Notably, Cellular’s Manager, Ed Bayuk, admitted in
his deposition that ShipCom was actively marketing the Waiver before the parties executed
the MIPA. Defs.’ Opening Br., Ex. Q at 78:4–8 (Bayuk).
46
Defs.’ Opening Br., Ex. S (Schedule 3.02(h)).
47
As previously noted, the MIPA requires that the parties pursue damages claims for
breach of the MIPA in Delaware. MIPA § 9.09. This choice of forum provision is fully
enforceable under Delaware law. See Nat’l Indus. GP Hldg. v. Carlyle Inv. Mgmt. LLC,
67 A.3d 373, 387–88 (Del. 2013) (confirming enforceability of Delaware forum selection
clauses and endorsing the anti-suit injunction as a means to enforce the clause). Block and
Stiegler do not seek damages in this action, however. Defs. Block and Stiegler’s Am.
Countercl. ¶¶ 50–54. Thus, I have no basis to award damages in connection with the
declaratory judgments that will issue in connection with this Opinion. With that said, if
any such claims are to be prosecuted, assuming they remain viable, they must be brought
in Delaware.
15
C. The Option has Expired and is no Longer Exercisable
To address the Option issue, the Court must traverse through three agreements
between the parties: the MIPA, FAMIPA and Letter Agreement. As explained
below, the clear and unambiguous language of these agreements reveal that the
Option’s 60-day clock was triggered years ago, but Block and Stiegler did not act to
exercise their rights on time.
The MIPA originally provided for the Option in Section 5.11. Section 5.11(a)
states that “[f]ollowing Closing, the Sellers [Block and Stiegler] shall each have a
several option . . . which shall not exceed sixty (60) days following the Closing
Date [] at which time such Option shall terminate . . . .”48 The Option is tied to
investment thresholds. Accordingly, Section 5.11(b) expressly incorporates
language from the Recitals that requires Cellular to use its “best efforts” to obtain
third-party investment in Cellular.49 At Section 5.11(e), Cellular agrees that it “shall
deliver to [Block and Stiegler] the limited liability company agreement of
[Cellular] . . . in order that [they] may review [sic] in anticipation of exercising the
48
MIPA § 5.11(a).
49
Id. at 2 (Recitals) (“The Purchaser [Cellular] shall use its best efforts prior to Closing, to
bring in a private equity third party investor or investors (the ‘Third Party Investor’) that
shall commit to funding Purchaser with up to an aggregate of Thirty Million Dollars
($30,000,000) whereby the Purchaser shall be then owned [in specified percentages].”);
id. § 5.11(b) (“As stated in the Recitals to this Agreement, the Purchaser [Cellular] at the
time of Closing, shall be owned [by the Third Party Investor and others in the specified
percentages].”).
16
Option.”50 This section further provides that the operating agreement “shall not be
subject to change or negotiation as a condition to the exercise of the Option . . . .”51
The FAMPIA reflects the parties’ agreement that the Purchase Price, as
defined in the MIPA, would be paid by a Note rather than by “wire transfer of
immediately available funds.”52 It also amends Section 5.11 of the MIPA by
providing that “the time period during which the Option shall be exercisable shall
commence on the date that the Note is paid in full by [Cellular]” and shall continue
for 60 days.53 It retains the requirement in the MIPA, as a precondition to the trigger
of the 60-day clock, that Cellular “deliver the [Cellular] Operating Agreement to
[Block and Stiegler] on or before [Cellular’s] payment of the Note in full.”54
The Letter Agreement, dated May 29, 2013, is the final agreement relevant to
the Option issue. It confirms that Block and Stiegler had received the operating
agreement specified in the MIPA and FAMIPA,55 and that Cellular was wiring funds
50
Id. § 5.11(e).
51
Id. The parties agreed that the Cellular operating agreement shall provide Block and
Stiegler with certain rights, such as the right to participate in future issuances. Id.
As discussed below, the Letter Agreement expressly states that the Cellular operating
agreement delivered to Block and Stiegler satisfied this provision. Letter Agreement ¶ 7.
52
MIPA § 2.02; FAMIPA § 2.
53
FAMIPA § 9.
54
Id.
55
Letter Agreement ¶ 7.
17
to Block and Stiegler as “payment in full” of the Note.56 It appears that the wire
transfer occurred on May 30, 2013.57 Block and Stiegler signed the Letter
Agreement on May 31, 2013.58 It is indisputable, therefore, that the two events
required to start the 60-day “Option clock,” as specified in the FAMIPA, had
occurred by May 30, 2013.59 Block and Stiegler took no action within 60 days of
May 30, 2013; indeed, they still have not properly attempted to exercise the Option.60
Thus, the Option clock ran out long ago, and the Option is no longer exercisable.
Block and Stiegler now argue that they could not exercise the Option because
Cellular did not satisfy a condition precedent. Specifically, they argue that the
operating agreement Cellular delivered did not reflect the capital structure described
56
Id. ¶ 8.
See Defs. Block and Stiegler’s Answering Br. in Opp’n to Cellular’s Opening Br., Ex. A;
57
Cellular’s Opening Br. at 19 (quoting Stiegler Deposition 16:13–17:3).
58
Letter Agreement at 4 (Signature Pages).
59
I note that the parties recently stipulated that the Note was “paid in full” as of August 10,
2015. Stipulation and Order of Declaratory Judgment 1. Block and Stiegler disputed how
much they were owed from the holdback amount after tax liens and other expenses were
paid. But they conceded that their disagreement regarding the amount owed was not a
material fact for the Court to consider in evaluating the Option issue. Defs. Block and
Stiegler’s Answering Br. in Opp’n to Cellular’s Opening Br. at 5 n.1. Nevertheless, even
if the Court uses August 10, 2015 as the start date of the 60-day clock, the Option is still
long past expired. And Block and Stiegler have not presented any evidence that they
attempted to exercise the Option within 60 days from that date.
60
See supra note 59. Indeed, Stiegler testified at deposition that he and Block consciously
decided not to exercise the Option. Cellular’s Opening Br. at 19 (quoting Stiegler Dep. at
104:18–105:15).
18
in Section 5.11(b) and did not contain rights described in Section 5.11(e) of the
MIPA. I reject that argument because (i) it has no bearing on the FAMIPA’s express
terms regarding the Option clock; (ii) Section 5.11(b) of the MIPA only required
Cellular to use its “best efforts” to secure investments;61 (iii) Block and Stiegler
agreed that the operating agreement as delivered would not be subject to change;62
and (iv) they have already agreed that the operating agreement they received
satisfied the covenants set forth in the MIPA and FAMIPA.63
Even if I ignore the “best efforts” language, Block and Stiegler would only
have a claim for breach of contract if Cellular had not achieved the capital structure
as described in Section 5.11(b) of the MIPA. But they have already acknowledged,
in a signed agreement, that Cellular has met this (and all other) conditions relating
to the Option.64 Moreover, the operative 60-day clock is the one set forth in
61
See MIPA at 2 (Recitals), § 5.11(b). Block and Stiegler have not alleged and do not
argue that Cellular failed to use its best efforts.
62
MIPA § 5.11(e).
63
Letter Agreement ¶¶ 3, 7. Paragraph 3 of the Letter Agreement states that Cellular had
satisfied all conditions under the MIPA. And Paragraph 7 states that the operating
agreement Cellular delivered satisfied the covenants in Section 5.11(e) of the MIPA and
Section 9 of the FAMIPA (which sets forth the 60-day clock).
64
Block and Stiegler agreed in the Letter Agreement, after they acknowledged receipt of a
proper operating agreement, that Cellular had satisfied all conditions under MIPA and was
not in breach of the MIPA. Letter Agreement ¶¶ 3, 7.
19
Section 9 of the FAMIPA, and Section 9 does not mention capital structure.65
Finally, I reiterate that the MIPA expressly states that the Cellular operating
agreement (as delivered) was not subject to change or negotiation.66 Based on these
unambiguous provisions of the operative agreements, it is clear that the Option has
expired and is no longer exercisable.
III. CONCLUSION
Based on the foregoing, Block and Stiegler’s motion for summary judgment
on the Maritime Business issue is GRANTED. Cellular’s motion for summary
judgment on the Option issue is also GRANTED. The parties shall confer and
submit an implementing order rendering final judgment within the next ten (10)
days.
IT IS SO ORDERED.
65
FAMIPA § 9.
66
MIPA § 5.11(e); FAMIPA § 12 (stating that provisions of the MIPA not amended “shall
remain in full force and effect.”).
20