Case 16.1 & 18.7 – Online Homework Help

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Facts

Among other assets, Turner Broadcasting System, Inc. (Turner) owned the Atlanta Hawks professional basketball team, the Atlanta Thrashers professional hockey team, and the Philips Arena located in Atlanta, Georgia (collectively “assets”). Turner publicly announced its intent to sell the assets to reduce its mounting debt. David McDavid expressed an interest in purchasing the assets and entered into negotiations with Turner.

On April 30, the parties entered into a “Letter of Intent” outlining the proposed sale terms. The parties held meetings and engaged in telephone conference calls to resolve any outstanding issues, particularly a tax issue raised by Turner. During a conference call on July 30, McDavid agreed to Turner’s resolution of the tax issue, after which Turner’s Chief Executive Officer (CEO) Phil Kent, agreed and announced “we have a deal.” On August 1, Turner drafted an internal memo to its employees and planned a press conference to publicly announce the deal with McDavid. During August, Turner consulted with McDavid and his advisors on team management decisions, including hiring a general manager and head coach for the Hawks, assistant coaches, a trainer and scouts.

On or about August 16, as the drafting process of a final written agreement continued, Turner’s executive and principal negotiator, James McCaffrey, told McDavid that the “deal was done” and that “they were ready to close the deal.” On August 19, the directors of Time Warner, Inc., Turner’s parent company, approved the sale of the assets to McDavid based on the agreed-upon terms. However, Ted Turner, a member of Time Warner’s board of directors, opposed the deal. Ted Turner’s son-in-law, Rutherford Seydel, the son of a member of the Hawks board of directors, approached Turner about purchasing the assets on behalf their company, Atlanta Spirit, LLC.

While Turner continued to prepare the written agreement with McDavid, Turner began negotiations with Atlanta Spirit. On or about September 12, during a conference call, Turner and McDavid verbally reached a final agreement for the written agreement and Turner’s principal negotiator announced “the deal is done. Let’s get documents we can sign and we’ll meet in Atlanta for a press conference and a closing early next week.” But later the same day, Turner’s principal negotiator signed an agreement to sell the assets to Atlanta Spirit on substantially the same terms agreed upon by Turner and McDavid. On September 15, as McDavid was preparing to travel to Atlanta for the closing and a press conference to announce the sale, he was notified that Turner was selling the assets to Atlanta Spirit.

McDavid sued Turner for breach of contract. Turner denied the existence of any binding contract with McDavid, arguing that the parties had not executed a final written agreement. Following an eight-week trial, the jury returned a verdict in favor of McDavid, finding that Turner had breached their contract, and awarded $281 million in damages to McDavid. Turner appealed.

Issue

Is there an enforceable contract between McDavid and Turner?

Language of the Court

In determining whether there was a mutual assent, courts apply an objective theory of intent whereby one party’s intention is deemed to be that meaning a reasonable man in the position of the other contracting party would ascribe to the first party’s manifestations of assent.

The parties’ objective manifestations of their mutual assent and intent to be bound to the McDavid acquisition deal included testimony that Turner’s CEO formally announced, “we have a deal” during the parties’ July 30th conference call. On or about August 16, Turner’s principal negotiator further confirmed the existence of an agreement during discussions pertaining to the deal by stating that the “deal was done,” and that “they were ready to close on the deal.” And yet again, on or about September 12, during the course of another conference call to confirm the parties’ final agreement on the terms to be incorporated into the written agreements, Turner’s principle negotiator announced, “the deal is done. Let’s get documents we can sign and we’ll meet in Atlanta for a press conference and a closing early next week.”

Furthermore, in August, Turner consulted with McDavid and his advisor on team management decisions, including the hiring of a general manager and head coach for the Hawks. It is undisputed that the parties intended to sign written documents that memorialized the terms of their oral agreement. McDavid and his advisors testified that in accordance with the customary deal-making process, the parties first had to reach an oral agreement upon the material terms, and then the lawyers were expected to prepare the written documents that memorialized the parties’ agreed upon terms. There was evidence from which the jury could conclude that the parties entered into a binding oral agreement with the intent to sign written documents that memorialized the terms, but failed to do so as a result of Turner’s breach.

Decision

The court of appeals affirmed the trial court’s judgment that found that Turner had breached an oral agreement with McDavid and that awarded $281 million in damages against Turner.

Case Questions

Critical Legal Thinking

What is the objective theory of contracts? Do you think Turner manifested its intent to enter into a contract with McDavid?

Ethics

Did Turner act ethically in this case? Why did Turner back out of its deal with McDavid and enter into a deal with Atlanta Spirit?

Contemporary Business

Should oral agreements be enforced regarding business deals of this magnitude and complexity? Should business people be bound to their word?

(Cheeseman 267-269)

Cheeseman, Henry R. Business Law, VitalSource for DeVry University, 8th Edition. Pearson Learning Solutions, 02/2013. VitalBook file.

The citation provided is a guideline. Please check each citation for accuracy before use.

Case 18.7

18.7 Good or Service Frances Hector entered Cedars-Sinai Medical Center (Cedars-Sinai), Los Angeles, California, for a surgical operation on her heart. During the operation, a pacemaker was installed in Hector. The pacemaker, which was manufactured by American Technology, Inc., was installed at Cedars-Sinai Medical Center by Hector’s physician, Dr. Eugene Kompaniez. The pacemaker was defective, causing injury to Hector. Hector sued Cedars-Sinai Medical Center under Article 2 (Sales) of the UCC to recover damages for breach of warranty of the pacemaker. Hector alleged that the surgical operation was primarily a sale of a good and therefore covered by the UCC. Cedars-Sinai Medical Center argued that the surgical operation was primarily a service and therefore the UCC did not apply. Who wins? Hector v. Cedars-Sinai Medical Center, 180 Cal.App.3d 493, 225 Cal.Rptr. 595, Web 1986 Cal. App. Lexis 1523 (Court of Appeal of California) What is the public policy that supports the mixed sale doctrine?

(Cheeseman 313)

Cheeseman, Henry R. Business Law, VitalSource for DeVry University, 8th Edition. Pearson Learning Solutions, 02/2013. VitalBook file.

The citation provided is a guideline. Please check each citation for accuracy before use.