Opinion
Case No. 2:00-CV-936-ST
July 22, 2002
ORDER DENYING PLAINTIFF'S MOTION FOR PRELIMINARY INJUNCTION, ORDERING NOTICE OF CERTAIN CHANGES AND UNSEALING PLEADINGS AND EXHIBITS
This matter came before the court on July 17, 2001, for hearing on Plaintiff's Motion for a Preliminary Injunction.
I. Introduction
Pursuant to Kearns-Tribune's notice of non-renewal, the Management Agreement which authorizes Plaintiff to manage The Salt Lake Tribune expires on July 31, 2002. Pl.s Ex. 5(b). Plaintiff moves for an injunction preventing Kearns-Tribune and its owner, MediaNews (the MediaNews Defendants) from taking over management of The Tribune when the Management Agreement expires. For the reasons set forth below, the court finds Plaintiff has not satisfied the requirements for a preliminary injunction and will deny the Motion insofar as it seeks to enjoin the MediaNews Defendants from taking over management of The Tribune. The court will adopt MediaNews stipulation regarding no action without notice for certain assets and order that there be no final action on a new press facility before trial.
II. Positions of the Parties
Plaintiff seeks an injunction that would allow it to remain in control of the newspaper and NAC "pending completion of the closing contemplated by the Option Agreement" for the purchase of all of the Tribune Assets. Pl's Mem. at vi.
Specifically, Plaintiff requests:
[A] further injunction preventing [MediaNews Defendants] from replacing [Plaintiff's] management roles in the NAC and in the newspaper itself; from altering, damaging, or disposing of any of the physical assets used or usable in connection with the publication of The Salt Lake Tribune; or from making further amendments to the 1982 JOA.
Pl.'s Motion for Preliminary Injunction at 3.
Plaintiff contends that an injunction preventing "interference" with its management would "preserve the status quo between the parties until the validity and application of the JOA's anti-alienation provision and the enforceability of the Option Agreement through specific performance can be finally determined." Id. By "finally determined," Plaintiff means determined by this court on reconsideration, or on appeal "when such an appeal becomes appropriate." Id. at 8; Reply Br. at 10 (seeking to remain in management role for the pendency of this litigation, including any appeal). Plaintiff contends that the MediaNews Defendants have an obligation to preserve the present condition of The Tribune pending such closing. Plaintiff contends that unless enjoined, The Tribune's owners will make substantial and fundamental changes to the NAC, to the newspaper's operations, and to its news and editorial policies. Plaintiff contends that such changes would result in grievous disruption and discontinuity that threaten the nature of the asset it seeks to purchase.
Defendants all oppose any injunction. The MediaNews Defendants contend that Plaintiff fails to meet the standard for such injunction because there is no likelihood Plaintiff can (1) exercise its option or (2) has any right to continue the Management Agreement. They also contend that the balance of harm and public interest weighs against an injunction, that Plaintiff has mismanaged the NAC and that Plaintiff has used its control of the newspaper to disparage its owner.
Deseret News Publishing contends that as a result of its June 25, 2002 refusal to unconditionally waive the anti-alienation provision of the JOA, Plaintiff is unlikely to acquire the Tribune Assets. Deseret News Publishing contends the harm it would suffer through an injunction extending the Management Agreement to allow Plaintiff to indefinitely exercise control over the NAC, and thereby direct the business operations of the two newspapers, outweighs any harm to Plaintiff.
For the reasons set forth below, the court finds that Plaintiff has not satisfied the requirements for a preliminary injunction.
III. Standard for Injunction
Plaintiff has the burden of showing it meets the standard for the court to grant a preliminary injunction. It must show the following:
(1) a substantial likelihood of success on the merits of the case; (2) irreparable injury to the movant if the preliminary injunction is denied; (3) the threatened injury to the movant outweighs the injury to the other party under the preliminary injunction; and (4) the injunction is not adverse to the public interest. Because "a preliminary injunction is an extraordinary remedy, the right to relief must be clear and unequivocal." SCFC ILC, Inc. v. Visa USA, Inc., 936 F.2d 1096, 1098 (10th Cir. 1991).
* * *
For some requested preliminary injunctions a movant has an even heavier burden of showing that the four factors listed above weigh heavily and compellingly in movant's favor before such an injunction may be issued. The heightened burden applies to preliminary injunctions that (1) disturb the status quo, (2) are mandatory as opposed to prohibitory, or (3) provide the movant substantially all the relief he may recover after a full trial on the merits. Because Plaintiff's requested relief would disturb the status quo, the heightened burden requirement applies. Thus, Plaintiff must demonstrate not only that the four requirements for a preliminary injunction are met but also that they weigh heavily and compellingly in his favor.
"[When the other three requirements for a preliminary injunction are satisfied, it will ordinarily be enough that the plaintiff has raised questions going to the merits so serious, substantial, difficult and doubtful, as to make them a fair ground for litigation." Otero Say. Loan Ass'n v. Fed. Reserve Bank of Kansas City, Mo., 665 F.2d 275, 278 (10th Cir. 1981) This court, however, has previously addressed the interplay between the heightened burden plaintiff's must meet for some requested preliminary injunctions and the relaxed standard for showing a substantial likelihood of success on the merits once the movant has met the other three requirements for a preliminary injunction. In SCFC this court stated that "in cases where the requested preliminary injunction alters the status quo . . . the movant will ordinarily find it difficult to meet its heavy burden of showing that the four factors, on balance, weigh heavily and compellingly in its favor, without showing a substantial likelihood of success on the merits." SCFC, 936 F.2d at 1101 n. 11.
Kikumura v. Hudey, 242 F.3d 950, 955 (10th Cir. 2001) (citations partially omitted).
This is the same standard previously applied in this case for the February 21, 2001 injunction. Salt Lake Tribune Publishing v. ATT Corp., 2001 WL 670928 *2-3 (D. Utah February 21, 2001) (granting in part and denying in part Plaintiff's motion for a preliminary injunction).
The MediaNews Defendants argue that Plaintiff seeks a mandatory injunction, to which the heightened burden applies. Plaintiff contends that this court's February 21, 2001 Order on preliminary injunction already determined that an injunction in this case is not a mandatory injunction. Id. at *3.
The court finds and concludes that the February 21, 2001 Order is not controlling for the present motion. The earlier injunction prevented implementation of some, but not all, provisions of the 2001 JOA in order to allow Plaintiff to exercise its rights under the Management Agreement and prevent transfer of Tribune Assets in violation of the Option Agreement. Before the court on the present motion is the different issue of whether the existence of the Option Agreement requires that this court effectively re-write the Management Agreement to prevent its expiration, extend its term indefinitely or impose some form of undefined equitable authority for business operations. This motion seeks a much broader injunction than was considered by the court in February 2001. Further, the court has evidence before it on the present motion that was not before the court at the February 2001 preliminary injunction hearing.
The court finds that this case does not involve a mandatory injunction in the sense that it would command the MediaNews Defendants to perform some positive act or acts. However, the court finds that the injunction sought against the MediaNews Defendants generally managing their newspaper and the NAC would alter the status quo and thus the heightened burden applies in this instance.
Plaintiff seeks to remain in control of the newspaper and of the NAC after July 31, 2002, pursuant to theories of equitable conversion and "preservation of its rights under the option" Plaintiff contends that the only way for the Tribune Assets to be maintained until the option is exercised is to prevent the MediaNews Defendants from displacing the Plaintiff as manager. Plaintiff relies on language from the February 21, 2001 injunction order noting that the "holder of an asset has the duty to maintain the asset until the option is exercised" and a finding that the enjoined 2001 JOA's changes to management structure irreparably harmed Plaintiff by changing the nature of the asset to which it had an option. February 21, 2001 Order at 46-47.
The extent and nature of Plaintiff's authority as manager are now all strictly contractual as Kearns-Tribune's agent. That agency contract was not renewed. Plaintiff contests neither the January 30, 2002 non-renewal notice nor that the Management Agreement's express term ends on July 31, 2002. Thus, the anticipated August 1, 2002, "status quo" Plaintiff refers to is its expectation, not the reality. C.f. Bristol Technology, Inc., v. Microsoft Corp., 42 F. Supp.2d 153, 160 (D. Conn. 1998) (finding that where contract had expired, to require defendant to again act as it had under the completed contract would alter status quo and be mandatory injunction).
As a result, the proposed injunction seeking to impose a new management authority would change the reality of the existing status and relationships of the parties— regardless of the ultimate decision on the parties' legal rights under the Option Agreement. SCFC ILC, Inc., v. Visa USA, Inc., 936 F.2d 1096, 1099-1100 (10th Cir. 1991). This is especially true where the asserted authority for the court to impose management after July 31, 2002 are the principals of preservation of option property and a beneficial interest through equitable conversion. These principals are not broad enough or specific enough to provide authority or guidelines for operating a business. As such, a change in the nature of the management right would change the status quo and the heightened standard is applicable. However, the standard applied does not make a difference, because the court finds that Plaintiff has not shown it is entitled to an injunction even under the ordinary standard, much less the heightened standard.
IV. Substantial Likelihood of Success
Plaintiff must establish a substantial likelihood of success on the merits. Plaintiff contends it shows this element because it does have a valid option and it will have a beneficial interest in the Tribune Assets if it exercises the option. Defendants contend that as a result of the Deseret News Publishing letter refusing to waive the antialienation clause, Plaintiff has little or no chance of ever obtaining the Tribune Assets through specific performance. They further contend that Plaintiff has not established a likelihood of success that it will prevail on its claim of right to continue operating the newspaper beyond the express term of the Management Agreement.
It is true that Plaintiff will have a beneficial ownership interest if it exercises the option. The Option Agreement provides that it may be exercised by giving notice. MediaNews' Ex. L-2 ¶ 4. Payment is not then required until the closing date— which closing can be, as discussed below, a significant of amount of time later. Id. at ¶ 5.
An option providing for such a mode of acceptance creates a bilateral agreement upon the exercise of such notice acceptance. Eddington v. Turner, 38 A.2d 738, 739-40 (De. 1944) (option for purchase of land); Freeman v. Fabiniak, 1995 Del. Ch. LEXIS 486, *21 (De. Ch. 1985) (option to purchase stock); 3 Eric M. Holmes, Corbin on Contracts § 11.8, at 520 (rev. ed. 1996); Walter Jaeger, 8 Williston on Contracts (3rd ed. 1964) at 339. It is operative without any tender of the price. 3 Corbin on Contracts § 11.8 at 520 (collecting cases).
During the option period, equitable conversion results in the option holder having a beneficial interest in property while the seller retains legal interest. Eddington, supra, Freeman, supra, (citing Martindell v. Fiduciary Counsel, Inc., 30 A.2d 281, 284-85 (N.J. 1943).
That beneficial interest between when it has exercised its option and is attempting to close is not dependent on the eventual success of its claim for specific performance. A party may hold a beneficial interest in stock or other assets even through it is eventually found not be entitled to specific performance at trial. See Cook v. Fusselman, 300 A.2d 246 (Del.Ch. Dec 08, 1972) (finding holders of beneficial interests not entitled to specific performance).
Thus, Plaintiff has shown it will be the beneficial owner in the period between exercise of the option and either the closing or failure to close. But Plaintiff has not shown any likelihood of success on its claim of right to continue operating the newspaper after the end of the express term of the Management Agreement.
The plain language of the Management Agreement provides for the delinking of the Management Agreement and the Option Agreement during the exercise of the option. The Management Agreement provides for a five-year term unless it is renewed. MediaNews' Ex. L -2 at ¶ 2.01. The option is exercisable at any time after its fifth anniversary (July 31, 2002) and thereafter for so long as the Management Agreement remains in effect and for a period of ten days thereafter. Ex. L-1 at ¶ 3. The option is exercised by giving notice and specifying a closing date no later than 120 days later. Id. at ¶ 4. During the 120-day period, the parties may engage in a procedure to determine the option price. Thus, there is necessarily what Plaintiff characterizes as a "significant gap" between the end of the Management Agreement and the exercise of the option, and the eventual closing of the option.
The MediaNews Defendants submit substantial evidence that the date of the termination of the Management Agreement and its failure to coincide directly with the exercise of the Option was calculated by the drafters for the purposes of issuing a "will opinion" on tax consequences. Pl.'s Exs. 8 and 9. However, it is not necessary to rely on such extrinsic evidence where the plain language of the agreements is already clear.
In support of its position that it is entitled to retain management authority and control, Plaintiff relies on cases holding that a legal owner is not entitled to vote stock against the wishes of its beneficial owner. Freeman, supra. See also Insituform of North America, Inc. v. Chandler, 534 A.2d 257 (Del.Ch. 1987) (exception to general rule stock cannot be voted contrary to wishes of beneficial owners where beneficial interest holders had been given notice and failed to appear to object).
However, rights necessary for possession of and operation of a business are not synonymous with the much more limited right to not have stock voted against the interests of its beneficial owners. Plaintiff has provided no authority for its assertion that in the absence of either an express provision in the Option Agreement or an agreement by the parties, the beneficial owner of property pursuant to an exercised option is entitled to possession and control of the optioned property prior to the closing.
Further, this court found on summary judgment that Plaintiff has a valid and enforceable option to purchase the Tribune Assets. However, in view of the events that have transpired since then, the court finds that Plaintiff has not shown a substantial likelihood of success on the merits of its claim to eventual ownership of the Tribune Assets because it has not provided the court with a clear roadmap as to how Plaintiff intends to overcome the current hurdles to ownership.
In sum, the court further finds that Plaintiff has not met the substantial likelihood of success requirement for its claim to be entitled to manage the newspaper or on its claim of eventual ownership of the Tribune Assets by "raising questions going to the merits so serious, substantial, difficult and doubtful, as to make them a fair ground for litigation." Kikumura, 242 F.3d at 955. That standard is only applicable where the other three elements for an injunction are shown. Id. In this case, Plaintiff has not shown the elements of irreparable harm or that the balance of harm does not weight against Defendants.
V. Irreparable Harm to Plaintiff
In view of the express contractual provisions providing for the termination of the Management Agreement and a substantial gap in control before closing the option, the court does not find Plaintiff has shown a risk of irreparable harm from the lack of operational and management control. Much of what it claims as harm are intangibles such as the personal loss to Plaintiff's owners of control over an asset in their family for three generations, the loss of the right to provide a local voice in managing the newspaper, and the loss of an editorial voice.
However, these losses are inherent in the loss of the right to day-to-day management of the assets covered by its option and are part of what Plaintiff bargained for under the express language of its contracts. Loss of editorial voice and control in the gap period is part of that bargain. Plaintiff is not irreparably harmed by being forced to abide by the terms of the contracts that it negotiated at arm's length, relying on sophisticated legal advice, with great care over a long period of time. Plaintiff's owners knew there was a risk in giving up legal ownership. See Pl.'s Ex. 29 (statement from Sarah McCarthy). Injunctive relief is not warranted where it would merely insulate Plaintiff from the consequences of its deliberate business decisions.
Plaintiff contends it has shown irreparable harm because it is threatened now with the same harm that the court previously found to be irreparable when issuing its previous injunction — a change in the nature of the assets subject to the option. However, as conceded by counsel for the MediaNews Defendants, the February 2001 Order enjoining those changes is still in effect. Thus, the same potential harm is not at issue.
The court finds that, unlike the previously enjoined 2001 JOA sections, with three exceptions, Plaintiff has not show potential changes at issue in the present Motion are of a nature that would irreparably change the Tribune Assets.
Plaintiff lists specific changes it contends that the MediaNews Defendants will make. Plaintiff alleges Kearns-Tribune may fire management or reduce staff. These are speculative harms and therefore do not constitute irreparable harm. Chemical Weapons Working Group, Inc. v. United States Dept. of Army, 963 F. Supp. 1083, 1095 (D. Utah 1997) ("To constitute irreparable harm, an injury must be certain, great, and actual."). Further, staff changes are ordinary business decisions and do not constitute "irreparable" harm.
Similarly, newsprint purchases, delivery policies, on-line services, and union contracts are ordinary business decisions. Any damages arising from those ordinary business decisions are compensable by money damages and have not been shown to constitute a threat of irreparable harm.
Plaintiff does raise three matters that it shows would arguably interfere with its option by changing the nature of the Tribune Assets: (1) amendments to the JOA; (2) a sale of significant Tribune Assets; and (3) commitment to substantial expense for a new printing facility and press. Dean Singleton, CEO of MediaNews and Chairman of Kearns-Tribune, represents that, pending resolution of this lawsuit, the MediaNews Defendants will not amend the JOA's or dispose of Tribune Assets without 30 days prior notice to Plaintiff. MediaNews Ex. A ¶ 17. Such notice allows time for Plaintiff to assert any claim that Kearns-Tribune has the duty to maintain intact the Tribune Assets pending its option in the context of any actual intent to do otherwise. Where there is a stipulation to not do an act, it is not imminent or certain.
Mr. Singleton's stipulation as to the 30-day notice will be incorporated in the order on this motion. The court intends to watch carefully to make certain that he abides by his promises. As a result of this stipulation, there is no need for injunctive relief as to the first two matters.
The third matter is the new press facility. The court finds that the proposed changes would result in a change in the Tribune Assets that is arguably irreparable because it would work a substantial change in the nature of the Tribune's operations. The parties strongly dispute whether this change would be a "harm." The court need not decide that issue because during the 120-day period after the exercise of the Option, Plaintiff will be the beneficial owner of the property, and as discussed below, Kearns-Tribune must hold the Tribune Assets intact. Therefore, the court will order that the acquisition of land and building of a new press facility, as explained in Mr. Singleton's Declaration at¶ 7(j) not be irrevocably acted upon during the beneficial ownership period.
VI. Balance of Harm
Plaintiff contends that Defendants have no risk of harm if Kearns-Tribune is enjoined from managing The Tribune and the NAC because it would merely extend the status quo and delay managerial change. Defendants allege the harm to them of the injunction outweighs any harm to Plaintiff in denying the injunction. Deseret News Publishing contends that any harm to Plaintiff is outweighed by the harm it would suffer in continuing to do business with a entity that is not a party to the JOA and that disclaims any accountability for its decisions in managing the NAC.
The court finds that the threatened injury to the MediaNews Defendants and Deseret News Publishing of an injunction that would require them to permit Plaintiff to operate The Tribune and the NAC outside the confines of a contractual agency relationship would far outweigh any threatened injury to Plaintiff in abiding by its contracts which provide for a "significant gap" in such management. As noted above, Plaintiff has not even proposed any concrete framework under which such a management could operate.
When the Management Agreement ends, Plaintiff will have no contractual basis for exercising power in the NAC or at the Newspaper. Enjoining the MediaNews Defendants from taking action would not by itself confer on Plaintiff the right to conduct Kearns-Tribune's and the NAC's businesses absent an order extending the terms of its status as agent under the Management Agreement. As discussed above, the court is not willing to re-write the parties' commercial contract simply because Plaintiff has had a falling out with the subsequent owner of Kearns-Tribune. Absent an extension of the express term of the Management Agreement, a right to manage would be under the equitable power of this court. It is only the Management Agreement that authorizes Plaintiff to perform numerous responsibilities of business such as dealing with employees, maintaining bank accounts and incurring and paying debts. The potential harm to Deseret News Publishing and Kearns-Tribune and MediaNews of requiring them to do business with a company operating The Tribune's business and directing the business of the NAC in those ambiguous circumstances far outweighs the harm to Plaintiff.
In this regard, the court cannot ignore the fact that Plaintiff's owners were largely in charge of their own destiny. They chose to enter into the 1997 merger, to create their own company, to enter into a Management Agreement that could be terminated by notice, and to enter into agreements that result in a substantial gap between the Management Agreement and close of the Option. They did not have to, but did accept the transactions as structured by their attorneys for their tax benefit.
However, the court finds no harm to the MediaNews Defendants in delaying by a matter of weeks their ability to push ahead with the new press facility. Where there is a beneficial owner of the property, Kearns-Tribune has the duty to maintain the asset until the option is closed or terminated. McCarroll v. Newsham, 278 F.4, 7 (5th Cir. 1922) (duty to maintain the property in its then condition). Thus, a short further delay in the press facility during this period is only what Kearns-Tribune is already required to do. The court will not relieve Kearns-Tribune of the consequences of the period of beneficial ownership which it agreed to under the Option Agreement. MediaNews, of course, bought Kearns-Tribune with full knowledge of the Option Agreement and that it was disputed.
The court finds no harm to Deseret News Publishing in delaying a few more weeks to resolve that long-standing dispute over the new press facility because the parties are now close to resolution of their disputes by trial.
VII. Public Interest
The parties have not shown that either side's editorial viewpoint is, or would be, adverse to the public interest. The court finds that the public interest is not implicated negatively or positively by this motion.
VIII. Conclusion and Order
In conclusion the court finds Plaintiff has not shown the elements for an injunction. It is therefore
ORDERED that until final judgment after trial, MediaNews and Kearns-Tribune shall not amend the JOAs or dispose of Tribune Assets exceeding $250,000 in value without 30 days prior notice to Plaintiff. It is further
ORDERED that from the date of Plaintiff's notice of exercise of the option until ten days after the entry of judgment, MediaNews and Kearns-Tribune shall not proceed with irrevocable acts to acquire land and build a new press facility. Provided, however, that nothing herein prevents Plaintiff, MediaNews, Kearns-Tribune and Deseret News Publishing from jointly stipulating to actions in furtherance of acquisition of land and the building of a new press facility during that time. It is further
ORDERED that Plaintiff's Motion for an Injunction is DENIED. It is further
ORDERED that the briefs and attached exhibits filed under seal in connection with Plaintiff's Motion for a Preliminary Injunction are UNSEALED.