Court Opinion

ID: 3047617
Source: CourtListenerOpinion
Date Created: 2015-10-13 23:21:51.852146+00
Date Added: 2024-06-11T07:38:09.396792
License: Public Domain

FOR PUBLICATION
  UNITED STATES COURT OF APPEALS
       FOR THE NINTH CIRCUIT

J&J CELCOM; LUPE AZEVEDO;              
WOODROW W. HOLMES, JR.;
LUCILLE HOSS; DANIEL MURRAY;
RAJIVE OBEROI; KENNETH L.
RAMSEY; GARY R. ROBBINS; JOANNE
ROBBINS; S&D PARTNERSHIP; CELL-
CAL IX-T9; NANCY DONNELLY;
RODGER D. FRIZ; SID DANNY HOFF;
OM PARKASH KALRA; RONALD
WILSON; DELCHI CORPORATION,
              Plaintiffs-Appellants,
                v.
AT&T WIRELESS SERVICES, INC.;                No. 05-35567
MCCAW CELLULAR INTERESTS INC.;
AT&T WIRELESS SERVICES OF                     D.C. No.
                                           CV-03-02629-MJP
COLORADO LLC; AT&T WIRELESS
                                               ORDER
SERVICES OF IDAHO INC.; AT&T
WIRELESS SERVICES OF WASHINGTON
LLC; BOISE CITY CELLULAR
PARTNERSHIP, formerly known as
New Boise City Cellular
Partnership; FORT COLLINS-
LOVELAND CELLULAR TELEPHONE
CO., formerly known as New Fort
Collins-Loveland Cellular
Telephone Company; GREELEY
CELLULAR CO., formerly known as
New Greeley Cellular Company;
YAKIMA CELLULAR TELEPHONE
                                       

                            2539
2540        J&J CELCOM v. AT&T WIRELESS SERVICES

COMPANY, formerly known as New        
Yakima Cellular Telephone
Company; MCCAW
COMMUNICATIONS OF WHEELING,
INC.; MCCAW COMMUNICATIONS OF         
TEXARKANA, INC.; AT&T WIRELESS
SERVICES OF CALIFORNIA,
             Defendants-Appellees.
                                      
                     Filed March 7, 2007

       Before: Pamela Ann Rymer, Marsha S. Berzon, and
               Richard C. Tallman, Circuit Judges.

                         COUNSEL

John Oitzinger, Helena, Montana, Thomas W. Hayton, Robert
G. Nylander, Philip Edgerton Cutler Cutler Nylander & Hay-
ton, Seattle, Washington, for the plaintiffs-appellants.

Brendan T. Mangan, Heller Ehrman LLP, Seattle, Washing-
ton, for the defendants-appellees.

                           ORDER

   In this diversity action, J&J Celcom and other former own-
ers of fractional interests in nine general cellular telephone
partnerships (“minority owners”) appeal an adverse summary
judgment of the United States District Court for the Western
District of Washington in favor of AT&T Wireless Services
and several of its wholly owned subsidiaries (“AWS”). The
minority owners also appeal the district court’s denial of their
motion for partial summary judgment.
              J&J CELCOM v. AT&T WIRELESS SERVICES                    2541
   We have jurisdiction pursuant to 28 U.S.C. § 1291. In a
Memorandum Disposition filed on December 26, 2006, we
disposed of the minority owners’ challenge to the district
court’s order excluding their late-filed expert witness report
and grant of summary judgment on their claims for breach of
contract, breach of implied duty of good faith and fair dealing,
and breach of the fiduciary duty of care as to the service fees.

   This order certifies to the Supreme Court of Washington
the remaining dispositive question of state law, namely,
whether the Revised Uniform Partnership Act allows a con-
trolling partner to sell all of the partnership’s assets to an
affiliated party at a price determined by a third-party
appraisal, where the partnership agreement authorizes sale of
assets by majority or supermajority vote but is silent on the
subject of sale to a related party.

                                     I

   Before turning to the issue to be certified, we provide the
following summary of facts.1 The minority owners acquired
fractional interests in nine regional cellular telephone partner-
ships through a lottery for the cellular radio frequency spec-
trum conducted by the Federal Communications Commission.
The agreements governing the nine partnerships at issue are
substantially similar. The key asset in each was the right to
own licenses for various frequencies and the customer base
and call volume in each market served. At the time of the
forced asset sales, the minority partners owned less than five
percent of each partnership, and AWS owned the remainder.
AWS provided wireless service to the partnerships’ customers
  1
    Certain facts remain disputed at the summary judgment phase. The
Supreme Court of Washington may supplement this statement of facts
with any additional information that it deems important from the certified
record in order to resolve the certified question. The parties are obviously
free to discuss the factual record in support of their legal positions when
they brief the issue before the Supreme Court of Washington.
2542        J&J CELCOM v. AT&T WIRELESS SERVICES
and all technical and administrative services related to the
partnerships. The latter included detailed accounting of costs
and revenues attributable to the minority partners. In 2001,
AWS estimated that the administrative and accounting costs
totaled about $150,000 annually for each of the partnerships
with minority interests, and that the net present value of ser-
vicing all partnerships with minority interests amounted to
$9.6 million.

   AWS decided to eliminate those costs by invoking its
majority interest in each partnership to buy out the minority
owners. AWS retained Arthur Andersen (“AA”) to prepare
appraisals of four partnerships as of September 30, 2001.
After AA disbanded, AWS retained Kroll, Inc. to prepare
appraisals of the remaining five partnerships as of certain
dates in 2002. Carlyn Taylor, AWS’s valuation expert
engaged for purposes of this lawsuit, reviewed the AA/Kroll
reports. She found that they comported with professional
appraisal standards and that the values were reasonable and
represented the partnerships’ fair value at the time of the asset
sales. Charles Walters, the minority owners’ valuation expert
for the litigation, challenged the inputs and methodology of
the AA/Kroll appraisals.

   Initially, AWS offered to buy out the minority partners at
a price slightly higher than the AA/Kroll appraised values.
AWS sent letters to the minority partners offering a last
opportunity to sell voluntarily. The letters stated that, if any
minority owner declined the offer, the AWS subsidiary would
vote to sell the assets of its partnership to an affiliated entity
at the appraised value, dissolve the partnership, and pay the
minority partners their pro rata share of the purchase price.
Because some minority partners declined (including all but
two of the minority owners who are plaintiffs-appellants
here), AWS proceeded with the involuntary asset sales in July
2002 and February 2003. AWS rejected a suggestion that it
retain independent counsel and an investment banking firm to
negotiate better terms on behalf of the minority owners.
            J&J CELCOM v. AT&T WIRELESS SERVICES              2543
   Before each asset sale, AWS established a new partnership
to buy the assets of the old partnership. This new partnership
was wholly owned by the AT&T Wireless Group. Partnership
formalities were followed. When each old partnership
received an offer for the purchase of its assets, it conducted
a partnership meeting, and the relevant AWS subsidiary voted
its entire interest in favor of the sale. As a result of the sales,
the minority owners received about $3.5 million in total for
their fractional interests. This amount represented a com-
pound annual return ranging from 17.1% to 25.1% for the
approximately fifteen years over which they held their inter-
ests.

   In October 2004, Cingular Wireless LLC acquired AT&T’s
wireless business. According to estimates prepared by the
minority owners’ expert witness, as of that time, the nine part-
nerships were valued at approximately $750 million to $1 bil-
lion. Counsel admitted at argument that there is no evidence
that this particular transaction was under consideration by
AWS in 2002 and early 2003, when the buyouts were com-
pleted.

   In the meantime, believing that the asset sales were
improper, the minority owners filed suit in the district court
against AWS alleging breach of contract, breach of the
implied covenant of good faith and fair dealing, breach of
fiduciary duties, and claims of misrepresentation, tortious
interference, and unjust enrichment. After fifteen months of
discovery, AWS moved for summary judgment. The minority
owners cross-moved for partial summary judgment on liabil-
ity. The district court granted AWS’s motion and denied the
minority owners’ motion. As to the asset sales, the minority
owners appealed claims of breach of contract, breach of the
implied covenant of good faith and fair dealing, and breach of
fiduciary duties. On the issue of excessive service fees, the
minority owners appealed their claims of breach of the fidu-
ciary duty of care and of the implied covenant of good faith.
2544        J&J CELCOM v. AT&T WIRELESS SERVICES
They also challenged the district court’s exclusion of a late-
filed expert witness report.

   In a previously filed Memorandum Disposition, we
affirmed the district court’s grant of summary judgment in
favor of AWS on the minority owners’ claims for breach of
contract, breach of implied duty of good faith and fair dealing,
and breach of the fiduciary duty of care as to the service fees.
We also affirmed the district court’s order excluding the
minority owners’ late-filed expert witness report. We deferred
decision on the minority owners’ challenge to the district
court’s grant of summary judgment on the minority owners’
claim of breach of the fiduciary duty of loyalty.

                               II

   We first resolve the issue of whether the price paid by
AWS represented the fair value of the partnerships at the time
of the asset sales. As noted, the minority owners submitted an
expert report offering a limited critique of the AA/Kroll
appraisals. Because we agree with the district court that the
report sets forth no coherent opinion of what the fair value
was or why the price paid was not fair market value, we hold
that this report was insufficient to create a triable issue as to
whether the price paid was fair as of the time of the asset
sales. Thus, we must assume that the price paid was fair at the
time, as a matter of law.

   This does not resolve the appeal, however, because if the
sales nevertheless violated the duty of loyalty, see infra, the
minority owners may be entitled to their share of a construc-
tive trust on the partnership assets and any profits made there-
upon. See Wash. Rev. Code § 25.05.165(2)(a); Bassan v. Inv.
Exch. Corp., 524 P.2d 233, 236-38 (Wash. 1974).
             J&J CELCOM v. AT&T WIRELESS SERVICES                2545
                                  III

   We now turn to the issue that is the basis of our certifica-
tion order:2 the scope of a partner’s fiduciary duty of loyalty
in the context of a self-dealing transaction that was disclosed
but not specifically authorized by the partnership agreement.
No Washington court has had occasion to harmonize state
case law concerning the fiduciary duty of loyalty with the
Revised Uniform Partnership Act. See Wash. Rev. Code
§§ 25.05.005-.907. Whether a trial on the minority owners’
fiduciary duty of loyalty claim is necessary depends entirely
upon the answer provided by the Supreme Court of Washing-
ton to our certified question. The answer to the certified ques-
tion thus “is necessary . . . to dispose of” this appeal. Wash.
Rev. Code § 2.60.020.

   The two Washington cases of which we are aware that are
relevant to a partner’s fiduciary duty of loyalty in the context
of a sale between partners, Karle v. Seder, 214 P.2d 684
(Wash. 1950), and Bassan v. Investment Exchange Corp., 524
P.2d 233 (Wash. 1974), seem to point in different directions.
Karle holds that full disclosure, fair price, and good faith suf-
fice to satisfy a partner’s fiduciary duty in the context of a
consensual sale of partnership assets. 214 P.2d at 687-88. But
Bassan holds that, where a partnership agreement is silent as
to the specific transaction, a general partner may not sell
property to a limited partnership and reap a profit, even where
all partners expect that this kind of transaction will occur, the
price is fair, and the amount of profit is reasonable. 524 P.2d
at 236-38.

  Critically, both cases predate Washington revisions to the
  2
   Even though this course of action was not suggested by either party,
we may properly certify a question sua sponte. See Wash. Rev. Code
§ 2.60.030(1) (“Certificate procedure may be invoked by a federal court
upon its own motion.”); Keystone Land & Dev. Co. v. Xerox Corp., 353
F.3d 1093, 1095 n.2 (9th Cir. 2003).
2546          J&J CELCOM v. AT&T WIRELESS SERVICES
Uniform Partnership Act, which appear to have made four
important, relevant changes. First, the statute now states that
the only fiduciary duties owed by a partner to the partnership
or other partners are the duties of loyalty and care, as defined
in the statute. Wash. Rev. Code § 25.05.165(1). Second, it
expands the definition of the duty of loyalty to include “re-
frain[ing] from dealing with the partnership in the conduct or
winding up of the partnership business as or on behalf of a
party having an interest adverse to the partnership.” Id.
§ 25.05.165(2)(b). Third, the statute clarifies that a partner
does not violate a fiduciary duty merely because he furthers
his own interest and that he may transact business with the
partnership. Id. § 25.05.165(5), (6). Fourth, it permits the per-
centage of partners specified in the partnership agreement to
authorize transactions that would otherwise violate the duty of
loyalty. Id. § 25.05.015(2)(c)(ii).

   In the instant case, we have construed the partnership
agreements to allow for sale of all assets by either majority or
supermajority vote.3 None of them restricts the parties to
whom assets may be sold. However, the partnership agree-
ments do not specifically authorize sale of all assets to a
related party as they do, for example, specifically authorize
AWS to provide services to the partnership under certain con-
ditions. If the Supreme Court of Washington holds that the
asset sales would violate the duty of loyalty, and that the lan-
guage in the partnership agreements is insufficient to contract
around this duty under Wash. Rev. Code § 25.05.015(2)
(c)(ii), then we must reverse the district court’s grant of sum-
mary judgment on this issue. Otherwise, we will affirm.
  3
    Three of the nine partnership agreements (Boise, Rochester, and Texar-
kana) expressly permit the sale of all or substantially all of the partner-
ship’s assets upon a 66.6% vote. The remaining six agreements provide
for dissolution of the partnership upon the sale or assignment of substan-
tially all of the partnership’s assets, and state that every act other than cer-
tain listed acts not relevant here may be accomplished by majority vote.
           J&J CELCOM v. AT&T WIRELESS SERVICES                2547
   Because this question of state partnership law is not settled
in Washington, and because, if clarified definitively by the
Supreme Court of Washington, the answer will have far-
reaching effects on those who contract in Washington, or are
subject to Washington law, we have concluded that the appro-
priate course of action is to certify this issue to the Supreme
Court of Washington.

                           ORDER

   In light of our foregoing discussion, and because the
answer to this question is “necessary . . . to dispose” of this
appeal, Wash. Rev. Code § 2.60.020, we respectfully certify
to the Supreme Court of Washington the following question:

    Does a controlling partner violate the duty of loyalty
    to the partnership or to dissenting minority partners
    where the controlling partner causes the partnership
    to sell all its assets to an affiliated party at a price
    determined by a third-party appraisal, when the
    appraisal and the parties to the transaction are dis-
    closed and the partnership agreement allows for sale
    of assets upon majority or supermajority vote, but
    the partnership agreement is silent on the subject of
    sale to a related party?

We do not intend, by the phrasing of this question, to restrict
the Supreme Court of Washington’s consideration of this
issue. We acknowledge that the Supreme Court of Washing-
ton may, in its discretion, reformulate the question. Broad v.
Mannesmann Anlagenbau AG, 196 F.3d 1075, 1076 (9th Cir.
1999); Lenhardt v. Ford Motor Co., 683 P.2d 1097, 1098
(Wash. 1984).

   If the Supreme Court of Washington accepts review of the
certified question, we designate appellants (the minority own-
ers) to file the first brief pursuant to Wash. R. App. P.
16.16(e)(1).
2548       J&J CELCOM v. AT&T WIRELESS SERVICES
   The Clerk of Court is hereby ordered to transmit forthwith
to the Supreme Court of Washington, under official seal of
the United States Court of Appeals for the Ninth Circuit, a
copy of this order and all briefs and excerpts of record pursu-
ant to Wash. Rev. Code §§ 2.60.010(4), 2.60.030(2), and
Wash. R. App. P. 16.16.

   Further proceedings in this Court on the certified question
are stayed pending the Supreme Court of Washington’s deci-
sion whether it will accept review, and, if so, receipt of the
answer to the certified question. The case is withdrawn from
submission, in pertinent part, until further order from this
Court. The panel will resume control and jurisdiction upon
receipt of an answer to the certified question or upon the
Supreme Court of Washington’s decision to decline to answer
the certified question. When the Supreme Court of Washing-
ton decides whether or not to accept the certified question, the
parties shall file a joint report informing this Court of the
decision. If the Supreme Court of Washington accepts the cer-
tified question, the parties shall file a joint status report
informing this Court when the Supreme Court of Washington
issues its answer.

  It is so ORDERED.
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The summary, which does not constitute a part of the opinion of the court, is copyrighted
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