Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-caed-1_04-cv-06111/USCOURTS-caed-1_04-cv-06111-3/pdf.json

Nature of Suit Code: 190
Nature of Suit: Other Contract Actions
Cause of Action: 28:1332 Diversity-Other Contract

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IN THE UNITED STATES DISTRICT COURT FOR THE

EASTERN DISTRICT OF CALIFORNIA

CFM COMMUNICATIONS, LLC, ) 

 )

Plaintiff, )

)

vs. )

)

MITTS TELECASTING COMPANY, )

 )

Defendant. )

)

) 

No. CV-F-04-6111 REC DLB

ORDER GRANTING PLAINTIFF’S

MOTION FOR PARTIAL

RECONSIDERATION. 

(Doc. 37)

On July 11, 2005, the Court heard Plaintiff’s motion for

partial reconsideration of the Court’s order granting summary

adjudication as to certain issues in favor of Defendant but

denying summary judgment. Upon due consideration of the written

and oral arguments of the parties and the record herein, the

Court GRANTS the motion as set forth below.

I. Factual Background

The factual background of this case is lengthy and is set

forth in full in the “Order granting in part and denying in part

Defendant’s motion for summary judgment, or, in the alternative,

summary adjudication.” See Doc. 35 (“Summary Judgment Order”).

However, certain pertinent facts will be restated here. 

Case 1:04-cv-06111-DLB Document 68 Filed 08/30/05 Page 1 of 12
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Plaintiff CFM Communications, LLC (“CFM” or “Plaintiff”)

claims that it has a valid purchase option contract for

television station KXVO(TV) Channel 15 in Omaha, Nebraska (the

“Station”). Defendant Mitts Telecasting Company (“MTC” or

“Defendant”) argues that the option contract is unenforceable. 

Pappas Telecasting of the Midlands (“Pappas” or “PTM”) held

the FCC license for KKVO(TV). Because current FCC regulations

prohibit one owner from holding more than one license in any

given area, Pappas has had to employ middlemen to “own” the

station. Gary Cocola held the station for Pappas from 1994 -

1999, during which time Pappas held a promissory note in its

favor (the “Cocola Note”). The Cocola Note provided that the

note holder could require Mr. Cocola to form a limited

partnership with the note holder and that the note holder, who

would be the general partner, could require Mr. Cocola to convey

his interest in the station at any time with proper notice.

In 1999, Pappas assigned its interest in the Cocola Note to

Defendant MTC via a “Note Power and Assignment.” The Note Power

and Assignment gave MTC the right to force Mr. Cocola to form a

limited partnership and then sell to MTC his share of the limited

partnership, which would effectively result in MTC purchasing the

Station. MTC paid $972,500 for the assignment; the station had

an appraised value of approximately $18 million. 

At the same time, Pappas executed an “Option Agreement” with

MTC, which is the focus of this litigation. The Option Agreement

provided for three scenarios by which Pappas could exercise a

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purchase option; MTC had a put option that contained similar

language. The Option Agreement stated:

(a) MTC hereby grants to Pappas or its assignee an

exclusive and irrevocable option (the “Purchase

Option”) as follows:

(i) If, at the time the Purchase Option is exercised,

MTC has not acquired any interest in the Partnership or

the assets used in connection with the Station pursuant

to the 97% Option or the 3% Option, then Pappas shall

have the option to acquire from MTC the Note, including

all of MTC’s rights under the 97% Option and the 3%

Option, for a price equal to $425,000, plus or minus

the CPI Adjustment as defined below (the “Note Exercise

Price”); or

(ii) If, at the time the Purchase Option is exercised,

MTC has acquired, pursuant to the 97% Option, the 97%

general partner interest in the Partnership, but has

not acquired the 3% limited partner interest in the

Partnership, then Pappas shall have the option to

acquire from MTC all of MTC’s interest in the

Partnership, plus MTC’s rights under the 3% Option, for

a price equal to $425,000, plus or minus the CPI

Adjustment as defined below (the “Partnership Interest

Exercise Price”); or

(iii) If, at the time the Purchase Option is exercised,

MTC has acquired, pursuant to the 97% Option and the 3%

Option, all of the FCC authorizations and other assets

used by Cocola in the operation of the Station, then

Pappas shall have the option to acquire from MTC all of

such authorizations and other assets for a price equal

to $425,000, plus the amount for which MTC acquired the

3% interest in the Partnership from Cocola, plus or

minus the CPI Adjustment (the “Station Assets Exercise

Price”).

The Option Agreement provides that the purchase option is

exercisable for seven years after the effective date, which is on

or about November 5, 1999.

After the assignment was completed, MTC notified Mr. Cocola

of its intent to exercise its rights under the Cocola Note such

that the limited partnership would be formed and MTC would

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exercise its right to compel Mr. Cocola to sell his interest,

approximately 3%, to MTC. The partnership was never formed and

Mr. Cocola separately conveyed his interest in the Station to

MTC. One of the conditions of the single step transaction was

the approval of Pappas. Pappas gave its consent and the

transaction was finalized on August 4, 2000.

In August of 2003, Pappas sent a letter to MTC purporting to

exercise the purchase option. In February of 2004, Pappas

assigned its rights under the Option Agreement to Plaintiff CFM. 

Sometime after MTC was notified of Pappas’ assignment, MTC

informed CFM that the Option Agreement was unenforceable.

II. Procedural Background & Current Motion

MTC moved for summary judgment on the grounds that the

Option Agreement became unenforceable as a matter of law after

the agreement between MTC and Cocola was finalized because the

formation of the Cocola Limited Partnership was a condition

precedent to the Purchase Option being exercisable. MTC also

argued that the CFM’s theories of novation, waiver, and estoppel

failed as a matter of law.

The Court granted the motion as to the issues of condition

precedent, novation and estoppel, and denied it as to the issues

of waiver and modification. CFM moves the Court to reconsider

only the first issue on which summary adjudication was granted. 

CFM argues that 1) it was improper that summary adjudication as

to discrete issues was awarded when only summary judgment was

requested; 2) the Court failed to consider the overall intent of

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the option contract, which was to facilitate the sale of the

station; 3) the Court failed to consider the fact that the same

language existed in the Put Option, and the effect of that on the

overall interpretation of the contract; and 4) forfeiture or

manifest injustice will result if the contract language is viewed

a condition precedent. 

MTC argues that although it did not entitle its motion as

one for summary judgment or, in the alternative, summary

adjudication, it was nonetheless apparent that MTC sought

determination of discreet issues. MTC also argues that the Court

properly interpreted the Option Agreement and that the formation

of the Cocola Limited Partnership was a condition precedent to

the Purchase Option being exercisable.

III. Legal Standard

Local Rule 78-230(k) governs motions for reconsideration of

non-final orders. The party moving for reconsideration must set

forth the material facts and circumstances surrounding the motion

including:

(3) what new or different facts or circumstances are

claimed to exist which did not exist or were not shown

upon such prior motion, or what other grounds exist for

the motion, and

(4) why the facts or circumstances were not shown at

the time of the motion.

E.D. Cal. R. 78-230(k). 

A court is also guided by the principles generally

applicable to motions for reconsideration. Although motions for

reconsideration are disfavored, reconsideration is appropriate if

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the court “committed clear error or if the initial decision was

manifestly unjust.” School District No. 1J, Multnomah County v.

ACandS, Inc., 5 F.3d 1255, 1263 (9th Cir. 1993). However, a

motion for reconsideration is not the place for a party to make

new arguments that were not raised earlier or to rehash earlier

arguments. See Christie v. Iopa, 176 F.3d 1231, 1239 n.5 (9th

Cir. 1999); Northwest Acceptance Corp. v. Lynnwood Equip., Inc.,

841 F.2d 918, 925-26 (9th Cir. 1988); United States v. Navarro,

972 F. Supp. 1296, 1299 (E.D. Cal. 1997).

IV. Discussion

A. Propriety of Summary Adjudication as to Discrete Issues

CFM argues that MTC did not seek summary adjudication as to

discreet issues and that the Court erred in granting it. CFM

acknowledges that a district court has the inherent power to

grant summary judgment sua sponte, but asserts that the Summary

Judgment Order was inappropriate because it did not state that

the Court was relying on this inherent power.

MTC argues that it sought summary judgment as to two

discrete issues: 1) that the Option Agreement was unenforceable

as a matter of law, and 2) that CFM’s arguments regarding waiver,

estoppel and novation failed as a matter of law. 

 Rule 56 of the Federal Rules of Civil Procedure

“anticipates that a court may decide only some of the claims, or

even merely parts of claims” on a motion for summary judgment. 

11 Moore’s Federal Practice, § 56.40[1] (3d ed. 2005). In

California Dep’t of Toxic Substances Control v. Intersate NonCase 1:04-cv-06111-DLB Document 68 Filed 08/30/05 Page 6 of 12
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Ferrous Corp., 298 F. Supp. 2d 930, 939 (E.D. Cal. 2003), the

court stated:

The purpose of Rule 56(d) is to salvage some results

from the judicial effort involved in evaluating a

summary judgment motion and to frame narrow triable

issues if the court finds that the order would be

helpful with the progress of litigation.

 

A court has “authority to grant summary judgment on specific

issues and need not adjudicate all of the claims in the case.” 

Mateo v. M/S Kiso, 805 F. Supp. 792, 798 (N.D. Cal. 1992).

CFM’s argument for reconsideration on this basis is

unpersuasive. MTC made separate and discreet arguments in its

motion and sought summary judgment as to various issues. To the

extent CFM is correct that the Summary Judgment Order may have

mistitled MTC’s motion, it is irrelevant. It is unarguable that

when faced with a motion for summary judgment, a district court

may grant the motion in part, i.e. partial summary judgment. 

Partial summary judgment is synonymous with summary adjudication. 

See Black’s Law Dictionary (8th ed. 2004). Reconsideration on

this basis is DENIED.

B. Purpose and Structure of the Option Agreement

1. The Prior Ruling

MTC was granted summary adjudication (partial summary

judgment) as to the issue of whether the formation of the Cocola

Limited Partnership was a condition precedent to the option being

exercisable. See Summary Judgment Order at 12. The Court found

that the “if . . . then” language in the Option Agreement

indicated the existence of a condition precedent and rejected

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CFM’s argument that the Pappas could acquire substantially all of

the Station’s assets other than through the formation of the

Partnership. Id. 

2. The Parties’ Positions

CFM argues that the Court misapplied applicable law by

strictly construing the “if . . . then” language as words of

condition because conditions precedent are disfavored and there

are no “magic words” that create such conditions. CFM argues

that the Court’s interpretation goes against the intent of the

parties and a forfeiture or inequity would result. CFM also

asserts that the existence of the Put Option and the language of

the subsections at issue indicate that those clauses were merely

a framework for the transfer of assets and that the parties

intended that both options “could be exercised at any time,

irrespective of MTC’s interest in the station at the time the

Options were exercised.” Pl.’s Mot. at 3. 

CFM further argues that “[w]ords literally appropriate for

condition have often not been given their natural meaning,

especially where the result of such an interpretation would lead

to injustice and a violation of the probable intent of the

parties.” 13 Williston on Contracts § 38:13 at 427-28 (4th ed.

2000). CFM argues that the literal language of an instrument

should be construed against finding a condition where a

forfeiture will result. CFM characterizes the Purchase Option as

a right subject to forfeiture and asserts that if MTC is allowed

to acquire the Station for a fraction of its value and, at the

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same time, deprive CFM of its Purchase Option, it would be both

inequitable and a forfeiture.

MTC argues in response that the Court’s construction of the

language was correct and that CFM is rehashing the arguments it

raised in opposition to summary judgment. MTC asserts that the

“words of a contract are to be understood in their ordinary and

popular sense. We interpret the intent and scope of the

agreement by focusing on the usual and ordinary meaning of the

language used and the circumstances under which the agreement was

made.” Def.’s Opp’n at 10 (quoting Founding Members of the

Newport Beach Country Club v. Newport Beach Country Club, Inc.,

109 Cal. App. 4th 944, 955 (2003)). MTC points out that the

intent of the parties is determined from the time the contract is

made and is not influenced by subsequent changes in

circumstances, i.e. Mr. Cocola’s desire to forego the formation

of the limited partnership.

MTC argues that CFM’s argument regarding forfeiture fails

because the parties contemplated the condition and that “the

parties are entitled to the benefit of their bargain, and the

mere fact it turns out to have been a bad bargain for one of the

parties does not justify, through artful interpretation, changing

the clear meaning of the parties’ words.” Id. (quoting 13

Williston on Contracts § 38:13).

3. Analysis

CFM’s assertion as to the legal issue regarding words of

condition is persuasive. California law supports a presumption

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against creating a condition precedent. 8-30 Corbin on Contracts

§ 30.14. As stated by the California Court of Appeal:

Conditions precedent are not favored in the law and the

provisions of a contract will not be construed as

conditions precedent absent language plainly requiring

such construction. This is particularly true when a

strict construction works a forfeiture. Whether a

provision constitute[s] a condition or a covenant is

determined from the whole document, its purpose and the

intention of the parties.

Pacific Allied v. Century Steel Products, Inc., 162 Cal. App.2d

70, 80 (1958) (citations omitted) (emphasis added).

The Supreme Court has held that the phrase “upon condition

that” does not necessarily create a condition. Green County v.

Quinlan, 211 U.S. 582, 594 (1909). Similarly, the California

Supreme Court in Diepenbrock v. Luiz, 159 Cal. 716, 718 (1911),

stated that terms such as “upon the express condition” and

“provided” do not always result in a condition. Rather, a

purported conditional clause in a contract “is to be construed

from the words employed and from the purpose of the parties,

gathered from the whole instrument.” Id. (emphasis added).

Here, the purpose of the Option Agreement was to grant a

Purchase Option and a Put Option in favor of Pappas (CFM) and

MTC, respectively. As stated in the Option Agreement, “MTC now

desires to grant to Pappas an irrevocable option to acquire . . .

substantially all the assets . . . used in the operation of the

station.” Owdom Decl. Ex. E at 1. This language supports the

claim that the subsections specifying the transfer, including the

one at issue here, were merely a framework for payment rather

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than a condition. Additionally, withholding a determination as

to the existence of a condition precedent is especially

appropriate where, as here, a forfeiture could result from such

determination. The forfeiture here is speculative because, as

the Summary Judgment Order discussed, there are questions of fact

relevant to the issues of modification and waiver of any

condition.

A closer inspection of the Option Agreement also reveals the

following inconsistency regarding the intent of the parties. 

Section (1)(c) of the Agreement specifies that the Purchase

Option “shall be exercisable at any time during the period (the

‘Option Period’) beginning on the date of this Agreement (the

‘Effective Date’) and ending” in seven years. Owdom Decl. Ex. E

at 4 (emphasis added). This section contains no restrictions or

conditions. To the contrary, it affirmatively defines the Option

Period as being seven years, thereby undermining the assertion

that formation of the Cocola Limited Partnership was a condition

precedent. This inconsistency within the four corners of the

document renders relevant an inquiry into the parties’ intent in

drafting and adopting the Option Agreement.

In sum, based on the presumption against conditions

precedent and the purpose and terms of the Option Agreement, it

was inappropriate for the Court to grant summary adjudication as

to the condition precedent issue. It was also unnecessary to the

determination of the issues on which summary adjudication was

awarded; the issue should have been assumed for purposes of

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deciding the motion.

ACCORDINGLY, Plaintiff’s motion for reconsideration is

hereby GRANTED.

FURTHER ORDERED that the Summary Judgment Order, Doc. 35, is

reconsidered to the extent that Defendant’s request for summary

judgment is hereby DENIED IN PART as to the issue of the

existence of a condition precedent. 

IT IS SO ORDERED.

Dated: August 29, 2005 /s/ Robert E. Coyle 

ia40ij UNITED STATES DISTRICT JUDGE

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