Oregon Rsa No. 6, Inc. v. Castle Rock Cellular of Oregon Limited Partnership, a Colorado Limited Partnership Cellular, Inc., a Colorado Corporation, Pacific Telecom Cellular, Inc., a Delaware Corporation, Oregon Rsa No. 6, Inc. v. Castle Rock Cellular of Oregon Limited Partnership, a Colorado Limited Partnership Cellular, Inc., a Colorado Corporation, Pacific Telecom Cellular, Inc., a Delaware Corporation, Oregon Rsa No. 6, Inc. v. Castle Rock Cellular of Oregon Limited Partnership, a Colorado Limited Partnership, and Pacific Telecom Cellular, Inc., a Delaware Corporation, Oregon Rsa No. 6, Inc. v. Castle Rock Cellular of Oregon Limited Partnership, a Colorado Limited Partnership Cellular, Inc., a Colorado Corporation, Oregon Rsa No. 6, Inc. v. Castle Rock Cellular of Oregon Limited Partnership, a Colorado Limited Partnership Cellular, Inc., a Colorado Corporation Pacific Telecom Cellular, Inc., a Delaware Corporation
Docket: 95-35168
Court: Court of Appeals for the Ninth Circuit; February 12, 1996; Federal Appellate Court
Oregon RSA No. 6, Inc. (Oregon RSA) is the plaintiff-appellee in a legal case against Castle Rock Cellular of Oregon Limited Partnership (CRCO), Cellular, Inc., and Pacific Telecom Cellular, Inc. (PTCI), who are the defendants and appellants. The case involves appeals from a judgment and sanctions imposed by the United States District Court for the District of Oregon, presided over by Judge Owen M. Panner. The central legal issue pertains to the interpretation of first refusal rights as outlined in a partnership agreement under Oregon law.
The background involves the Crook County RSA Limited Partnership, formed in 1989 to provide cellular services in Oregon, with ownership split among Oregon RSA, U.S. West NewVector, CRCO, and PTCI. By August 1992, negotiations were underway for Cellular to acquire interests in CRCI and CRCO, culminating in a Purchase Agreement by October 28, 1992. The court found that CRCO and CRCI functioned primarily as "shells," with their value tied to their interest in the partnership. The court's ruling on the application of Oregon law was deemed accurate, while the sanctions related to discovery abuse were addressed in greater detail.
Section 11.1 of the Partnership Agreement stipulates that before a General Partner or Limited Partner can transfer their Partnership Interest to a non-Affiliate, they must first offer it to other Partners at the price and terms proposed by the non-Affiliate. In November 1992, NewVector invoked this provision, offering its interest to its partners, including CRCO, which initially declined the offer. In December 1992, CRCO sought to rescind its refusal, claiming a conversation with Oregon RSA's lawyer indicated it could resubmit its request. Oregon RSA contested this assertion, denying any agreement to revive CRCO's first refusal rights.
In January 1993, Oregon RSA filed a lawsuit to clarify its rights regarding NewVector's interest and later amended the complaint to enforce the first refusal provisions against CRCO, CRCI, and Cellular after discovering a Purchase Agreement concerning the sale of CRCO and CRCI to PTCI. The district court granted summary judgment to Oregon RSA in December 1993, affirming its first refusal rights regarding CRCO's share. A subsequent ruling in March 1994 dismissed CRCO's claims related to the revival of its first refusal rights.
Oregon RSA later sought sanctions against the defendants for their inadequate responses to discovery requests, which the court granted, awarding $30,604.75 in attorneys' fees due to violations of Federal Rule of Civil Procedure 26(g)(3) and findings of bad faith. The defendants, including Cellular, CRCI, CRCO, and PTCI, appealed both the judgment on the merits and the sanctions.
Regarding CRCO's attempted rescission, the court found that the evidence provided was insufficient to establish a clear offer and acceptance, lacking consideration and clarity necessary for a valid contract under Oregon law. Consequently, the court ruled that CRCO's rescission attempt was ineffective.
Oregon RSA asserts a right of first refusal concerning an interest offered to PTCI, with defendants arguing that no transaction occurred under § 11.1 of the Partnership Agreement since CRCO would still be a partner. Instead, the transfer involved Cellular's control of CRCO. The district court found a violation of the implied covenant of good faith and fair dealing inherent in Oregon contracts, as allowing the transfer of a shell company undermines legitimate contractual expectations. The defendants also cite Swanson v. Warner, claiming it prevents examining the Partnership Agreement's intent; however, Swanson pertains to restrictive covenants, not partnership agreements, which are interpreted differently under Oregon law. The district court's interpretation of Oregon law was deemed correct, as was its dismissal of the defendants' estoppel argument referencing a Wisconsin case with different parties and issues.
In terms of discovery sanctions, Cellular, CRCO, and PTCI appealed the district court's sanctions for discovery abuses under Federal Rule of Civil Procedure 26(g). The court can impose sanctions for improper discovery responses or for willful abuse of the judicial process, which necessitates a finding of subjective bad faith. While due process requires notice and an opportunity for a hearing, the defendants contested the sanctions under the court's inherent powers due to a lack of a hearing. The court ruled a hearing was necessary to assess potential bad faith by the defendants and reversed the inherent powers sanctions. The ongoing dispute includes Oregon RSA's attempts since July 1993 to obtain an unredacted copy of the Purchase Agreement, which the defendants have delayed under claims of confidentiality.
Defendants failed to inform the plaintiff that the unredacted Purchase Agreement had been filed with the Federal Communications Commission and was publicly available, undermining their claims of confidentiality. Counsel for PTCI sought to avoid sanctions under Rule 26(g) by stating that he believed the public filing was equivalent to the redacted document. While this may mitigate a charge of bad faith against him, it does not absolve PTCI of its failure to comply with discovery requests or justify the inadequacy of its confidentiality claims. Cellular also did not advise the plaintiff or the court of the public filing, leading to appropriate sanctions by the district court under Rule 26(g).
Additionally, Cellular belatedly provided an August 1992 letter of intent, which was relevant to the relationship between Cellular and CRCO during the discovery process, despite Cellular's claims of irrelevance. Cellular's general counsel's excuse for not receiving the court's May 1994 order does not exempt the company from its failure to comply with court directives. The district court's sanctions against Cellular and CRCO were justified due to their objective unreasonableness in not producing the letter of intent.
PTCI argued against joint and several sanctions for the defaults of Cellular and CRCO, but the district court had reason to believe the defendants acted in concert. However, without evidence that PTCI advised withholding the document, the sanctions against PTCI could not be upheld. The district court's judgment on the merits and sanctions under Rule 26(g) were affirmed, but the issue of apportioning the sanctions between CRCO, Cellular, and PTCI was remanded for further determination, while the inherent powers sanctions were reversed.
