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HANSON v. MCCAW CELLULAR COMMUNS.

April 7, 1995

SUZANNE M. HANSON and PETER C. HANSON, Plaintiffs, against McCAW CELLULAR COMMUNICATIONS, INC. and McCAW COMMUNICATIONS OF FLORIDA, INC., Defendants.


The opinion of the court was delivered by: LEWIS A. KAPLAN

 KAPLAN, District Judge

 This commercial dispute, which is governed by California law, turns on the parol evidence rule, underpinnings of which sharply divided two of the great judges of this century, Judge Learned Hand and Chief Justice Roger Traynor of California. In the final analysis, I conclude that both would have reached the same result in this case, albeit by different paths. In consequence, defendants' motion to dismiss the complaint, which has been converted into a motion for summary judgment pursuant to FED. R. Civ. P. 12(b), is granted.

 Facts

 In June 1988, plaintiffs sold their interest in a potentially lucrative cellular telephone system and license in the Melbourne-Titusville-Palm Bay, Florida, area (the "Interest") to McCaw Communications of Florida, Inc. ("McCaw Florida"), a wholly owned subsidiary of McCaw Cellular Communications, Inc. ("MCC"). The contract, as amended, provided for an adjustment in the purchase price in the event McCaw "sold or transferred" the Interest to an unaffiliated third party within six years. In August 1993, prior to the expiration of the six year period, MCC entered into an Agreement and Plan of Merger with American Telephone & Telegraph Company ("AT&T") and applied to the Federal Communications Commission ("FCC") for approval of the transaction. *fn1" Following a lengthy delay, the FCC granted approval and the merger was consummated in 1994, after expiration of the six year period.

 The plaintiffs claim that the McCaw-AT&T merger constituted a "sale or transfer" of the Interest and that the application to the FCC, which occurred within the six year adjustment period, triggered the right to a price adjustment allegedly in excess of $ 16 million. Defendants argue that the price adjustment was not triggered because the merger, even assuming it constituted a sale or transfer of the Interest, did not occur until after expiration of the six year period. I therefore turn to the contracts and other evidence presented.

 The 1987 Option Agreement

 In 1987, the Hansons owned one hundred percent of the partnership interests in P & S Hanson Communications ("P&S"), a partnership that held a construction permit issued by the FCC for the non-wireline (Frequency Block A) cellular mobile telephone system in the Melbourne-Titusville-Palm Beach, Florida, Metropolitan Statistical Area. On May 23, 1987, they entered into an Option Agreement (the "Option Agreement") pursuant to which they granted McCaw Florida an option to purchase, and McCaw Florida gave them the right to put to it, their interest in P&S for $ 3.75 million during a period that was to begin on the sixth monthly anniversary of the date on which the cellular system would become operational and end three years later. (Cpt Ex. A, §§ 2, 4, 5) The price was payable $ 750,000 at or before the execution of the Option Agreement and $ 3 million at the closing following exercise of the option. (Id. § 6) The transaction was structured as an option rather than an outright sale because the FCC at that time would not permit the purchase of interests in mobile cellular systems prior to construction and operation. (Id. Ex. B, at 1)

 The Option Agreement afforded the Hansons some protection against the possibility that McCaw Florida would resell the Hansons' Interest at a higher price. The relevant provision stated in pertinent part:

 Thus, it provided, roughly speaking, that the Hansons were to receive one-third of the amount by which the price McCaw Florida received on any resale of the Interest within five years exceeded the price McCaw Florida paid to the Hansons.

 The Option Agreement, it should be noted, contains a California choice of law clause and provides that it and a concurrently executed construction agreement (which is not material to this case) "embody the entire agreement and understanding of the parties hereto relating to the subject matter hereof and supersede any and all prior agreements and understandings relating to the subject matter hereof." (Id. §§ 25, 21). It provides also that it may not be amended, supplemented or modified except by a writing signed by all parties. (Id. § 21)

 The 1988 Amendment

 Subsequent to the execution of the Option Agreement, the FCC changed its policies in a manner that permitted the purchase of the Hansons' Interest prior to construction and operation of the system. In re Application of Madison Cellular Telephone Co., 2 FCC Rcd 5397, 1987 FCC LEXIS 3173 (1987). On or about January 20, 1988, the parties entered into a written amendment of the Option Agreement (the "Amendment"). (Cpt. P 6 & Ex. B) The Amendment recited that the "Optionors [the Hansons] wish to take advantage of this change in FCC policy to accelerate the exercise of the Call Option" (id., at 1), and went on to provide that the option period began on the date of the Amendment, that McCaw Florida simultaneously exercised the option, and that a closing would take place "as soon as practicable after FCC approval . . ." (id., § 3). One effect of this transaction, of course, was to accelerate the payment by McCaw Florida to the Hansons of $ 3 million. (Cpt Ex. A, § 6; id. Ex. B, § 5)

 The Amendment contained also the following paragraph, which is at the heart of this case:

 
"Section 9 of the Option Agreement is amended to specify that the period during which the Purchase Price may be adjusted shall be six (6) years from the Closing Date, instead of five (5) years. For the duration of this period Optionee [McCaw Florida] agrees to notify Optionors [the Hansons] of the impending sale or transfer of any interest in the System acquired as a result of the exercise of the Call Option at the time application is made to the FCC for authority to conduct such sale or ...

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