Morton et al v. Luken et al
Filing
27
OPINION AND ORDER granting defts' 14 Motion to Dismiss pltf's amended complaint; judgment will be entered accordingly. Signed by Judge Susan Webber Wright on 1/5/12. (vjt)
IN THE UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF ARKANSAS
WESTERN DIVISION
RETRO TELEVISION NETWORK,
INC.,
Plaintiff,
vs.
LUKEN COMMUNICATIONS, LLC;
and RETRO TELEVISION, INC., f/k/a
RETRO PROGRAMING SERVICES,
INC.,
Defendants.
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No. 4:11-cv-00489-SWW
OPINION AND ORDER
Plaintiff Retro Television Network, Inc. brings this action against defendants
Luken Communications, LLC and Retro Television, Inc., f/k/a Retro Programing
Services, Inc., seeking an accounting under an Intellectual Property Agreement dated
December 22, 2005. See Am. Compl. [doc.#11]. Before the Court is defendants’ motion
[doc.#14] to dismiss plaintiff’s amended complaint. Plaintiff has responded in opposition
to defendants’ motion and defendants have filed a reply to plaintiff’s response. For the
reasons that follow, the Court grants defendants’ motion to dismiss plaintiff’s amended
complaint.
I.
A.
During the 1990s Larry E. Morton formed several limited liability companies for
the purpose of purchasing and operating full power television stations, low power
television stations, and radio stations. In June 1998, the companies were merged to form
Equity Broadcasting Corporation, an Arkansas Corporation. Henry G. Luken, III
invested in Equity Broadcasting Corporation and was involved in its operations, including
serving as a board member. Henry Luken was the owner of defendant Luken
Communications, LLC.
In the fall of 2005, Larry Morton and another individual, Neal Ardman, came up
with a concept and business plan for a new television network to go on the digital side
channels of television stations as the television industry completed the mandatory digital
conversion. The network was named Retro Television Network. Larry Morton would
later form and control plaintiff Retro Television Network, Inc., an Arkansas corporation
that broadcasts syndicated programming developed in the 1960s through the 1990s and
obtained from the CBS Network.
On December 22, 2005, Equity Broadcasting Corporation and plaintiff Retro
Television Network, Inc. entered into an Intellectual Property Agreement (IPA) that
purported to transfer to RTN Television Corporation, an Arkansas corporation and a
subsidiary of Equity Broadcasting Corporation, all its rights in and to Retro Television
Network, except for plaintiff Retro Television Network, Inc.’s “creative and intellectual
rights.” See IPA Recital D; IPA ¶ 1. In exchange for the transfer, plaintiff Retro
Television Network, Inc. retained, inter alia, “the right to receive ... royalty payments
representing ten (10%) of the net revenue received by [Retro Television Network] from
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all sources....” See IPA ¶ 1.1
Paragraph 13 of the IPA addresses the effect of the IPA on successor corporations
and third party beneficiaries. Paragraph 13 provides:
Benefit and Binding Effect. This agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective heirs,
successors, and permitted assigns. No person or entity that is not a party to
this agreement may claim any right or benefit hereunder.
On July 20th, 2006, plaintiff Retro Television Network, Inc. and Equity
Broadcasting Corporation amended the IPA to reflect that “the reference to the [Equity
Broadcasting Corporation] subsidiary in recital D is hereby changed from RTN
Television Corporation ... to Retro Programing Services, Inc.”2 Retro Programing
Services, Inc., an Arkansas corporation, would later merge with defendant Retro
Television, Inc., a Tennessee corporation. Defendant Retro Television, Inc. was the
surviving corporation of that merger.
Apparently, on April 7, 2006, Equity Broadcasting Corporation and Coconut Palm
Acquisition Corporation, a Delaware corporation, agreed to a merger to form Equity
Media Holdings Corporation. The merger was approved in March 2007. Equity Media
Holdings Corporation continued the operations of Equity Broadcasting Corporation as an
1
Although the parties to the IPA are Equity Broadcasting Corporation and plaintiff Retro
Television Network, Inc., the IPA purports to indicate on the signature page that it was also “accepted by”
Equity Broadcasting Corporation subsidiary RTN Television Corporation. The Court notes that RTN
Television Corporation did not file with the Arkansas Secretary of State until December 27, 2005.
2
Again, although the parties to the IPA are Equity Broadcasting Corporation and plaintiff Retro
Television Network, Inc., the amendment to the IPA purports to indicate that it was also “accepted by”
Equity Broadcasting Corporation subsidiary RTN Television Corporation.
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owner of various radio and television stations and interests.
Equity Media Holdings Corporation’s financial condition deteriorated shortly after
the 2007 merger, including a working capital deficit in the millions of dollars and
repeated cash flow problems. During this time, Equity Media Holdings Corporation
began to focus its resources on increasing Retro Television Network’s affiliate
penetration and maximizing profits for each of its stations.
On June 24, 2008, defendant Luken Communications, LLC, by way of Henry
Luken’s ownership, allegedly entered into a Stock Purchase Agreement with Equity
Media Holdings Corporation in which defendant Luken Communications, LLC purchased
Equity Media Holdings Corporation’s interest in Retro Television Network. Equity
Media Holdings Corporation allegedly sold its interest in Retro Television Network to
Henry Luken and defendant Luken Communications, LLC for approximately sixteen
percent of the November 2007 valuation of Retro Television Network of $115.8 million.
Some five months later, Equity Media Holdings Corporation began a voluntary petition
for bankruptcy protection.3
The following chart of the entities referenced in this Opinion and Order and the
3
The allegations concerning Equity Media Holdings Corporation’s financial condition following
the 2007 merger and the Stock Purchase Agreement between Equity Media Holdings Corporation and
Luken Communications, LLC, included herein for background purposes only, are not set forth in plaintiff
Retro Television Network, Inc.’s amended complaint but are set forth in an Order issued by Chief Judge
Holmes in a seemingly related case, Rice v. Luken Communications, LLC, No. 4:11-cv-00386-JLH,
although no notice of related case has been filed (the Clerk’s Office, however, has docketed Rice v. Luken
Communications as related to this action). Yet another seemingly related case, Rice v. Rochon, No. 4:11cv-00483-SWW, is assigned to this Court by random draw.
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relevant dates surrounding those entities (as set forth by plaintiff Retro Television
Network, Inc. or revealed by the record) is provided for easy reference:4
DATE
ENTITY/ACTION
COMMENT
May 29, 1998
Not a party to this action;
Equity Broadcasting
Corporation filed with the party to the IPA
Arkansas Secretary of State
November 2, 2005
Retro Television
Network, Inc. filed with
the Arkansas Secretary of
State
Plaintiff to this action and
party to the IPA
December 22, 2005
IPA entered into between
plaintiff Retro Television
Network, Inc. and Equity
Broadcasting
Corporation
IPA purports to transfer
plaintiff Retro Television
Network, Inc.’s noncreative rights in Retro
Television Network to an
Equity Broadcasting
Corporation
subsidiary–RTN
Television
Corporation–that would
later file with the Arkansas
Secretary of State
December 27, 2005
Subsidiary of Equity
RTN Television
Corporation filed with the Broadcasting
Arkansas Secretary of State Corporation; not a party
to this action or the IPA
4
Defendants’ observation that the “Retro” entities are “confusingly” named is an understatement.
It is for this reason that the Court formulated the chart for easy reference. It is also for this reason that the
Court refers to all entities by their full name in this Opinion and Order.
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April 7, 2006
Equity Broadcasting
Corporation agreed to
merger with Coconut Palm
Acquisition Corporation to
form Equity Media
Holdings Corporation;
approval of merger
occurred in March 2007
The surviving corporation
following the merger is
Equity Media Holdings
Corporation
July 20, 2006
IPA amended to change
Equity Broadcasting
Corporation/Equity
Media Holdings
Corporation subsidiary
RTN Television
Corporation in the IPA to
Retro Programing
Services, Inc.
Retro Programing
Services, Inc., subsidiary
of Equity Broadcasting
Corporation/Equity
Media Holdings
Corporation and
defendant to this action;
would later file with the
Arkansas Secretary of State
September 26, 2006
Retro Programing
Services, Inc. filed with
the Arkansas Secretary of
State
Subsidiary of Equity
Broadcasting
Corporation/Equity
Media Holdings
Corporation and
defendant to this action;
did not exist when IPA was
entered into or amended
April 2, 2008
Luken Communications,
LLC filed with the
Tennessee Secretary of
State
Defendant to this action;
not a party to the IPA and
did not exist when IPA was
entered into or amended
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June 24, 2008
Luken Communications,
LLC allegedly acquired
Retro Programing
Services, Inc. pursuant to a
Stock Purchase Agreement
with Equity Media
Holdings Corporation,
C.A.S.H. Services, Inc.,
and Retro Programing
Services, Inc.
Luken Communications,
LLC and Retro
Programing Services, Inc.
defendants to this action;
not parties to the IPA and
did not exist when IPA was
entered into or amended
December 16, 2008
Equity Media Holdings
Corporation filed for
bankruptcy
Not a party to this action or
the IPA
June 17, 2009
Retro Television, Inc.
filed with the Tennessee
Secretary of State
Defendant to this action;
not a party to the IPA and
did not exist when IPA was
entered into or amended
December 23, 2009
Retro Programing
Services, Inc. merged with
Retro Television, Inc.;
Retro Television, Inc.
became the surviving
corporation.
Retro Television, Inc. a
defendant to this action;
not a party to the IPA and
did not exist when IPA was
entered into or amended
B.
This action was originally filed on May 20, 2011 in the Circuit Court of Pulaski
County, Arkansas but it was removed to this Court by defendants on June 16, 2011. After
defendants filed a motion to dismiss the complaint, plaintiff Retro Television Network,
Inc. filed its amended complaint, which provides as follows:
1. That Plaintiff Retro Television Network, Inc. (“RTN Team”) is an
Arkansas corporation that is wholly owned by Sandra Morton.
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2. That Defendant Retro Television, Inc. (“Retro”) is a Tennessee
corporation, and was F/K/A Retro Programming Services, Inc. (“RPS”).
3. That Defendant Luken Communications, LLC (“Luken”) is a
Tennessee limited liability company.
4. That the Agreement in this case was executed in the State of
Arkansas, by parties that at the time of such execution were all Arkansas
companies.
5. That jurisdiction herein is based upon diversity.
6. That on or about December 22, 2005, RTN Team entered into an
Intellectual Property Agreement with Equity Broadcasting Corporation
(“EBC”); that a copy of such Agreement is attached to Plaintiffs’ original
Complaint and is adopted and incorporated herein.
7. That pursuant to such Agreement, the RTN Team created the
Retro Television Network (“RTN”) and agreed to transfer all RTN rights
other than the creative rights to a subsidiary corporation of EBC, to wit,
RTN Television Corporation (“RTC”).
8. That in exchange for such transfer, the RTN Team shall receive a
royalty payment of ten percent (10 %) of the net revenue for RTN, which is
currently being operated by Defendant Retro and owned by Defendant
Luken.
9. That on or about July 20, 2006, the Parties referred to hereinabove
in paragraph 6 executed an amendment to such Agreement: “ . . . that the
reference to the EBC subsidiary company in recital D is hereby changed
from RTN Television Corporation (“RTC”) to Retro Programming
Services, Inc. (“RPS”) . . . .”; that a copy is attached to Plaintiffs’ original
Complaint and is adopted and incorporated herein.
10. That Defendant Luken acquired RPS, including its assets and
liabilities.
11. That Defendant Retro is a party and a third party beneficiary to
the aforementioned 2005 Agreement.
12. That Defendants have failed and/or refused to pay any such
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royalty fees to Plaintiff.
13. That Plaintiff should be entitled to an accounting of all funds
received related to RTN.
14. That Defendants are indebted to Plaintiff in a sum that exceeds
$75,000.00.
15. That Defendants are jointly and severally liable to Plaintiff.
WHEREFORE, Plaintiff prays for an accounting in regard to all
income received by Defendant Retro and for payment of past, present, and
future royalty fees for which Defendants should be held jointly and
severally liable, plus pre-judgment and post judgment interest, court costs,
and a reasonable attorney’s fee.5
II.
Defendants argue that the sole claim in plaintiff Retro Television Network, Inc.’s
amended complaint is based on an alleged contract–the IPA–to which neither of the
defendants is a party. Defendants argue that as a matter of law, they have no obligation
under the contract to which they are not parties, and the language of the contract confirms
that principle. Defendants argue that the amended complaint thus fails to state a claim to
relief that is plausible on its face and the Court should dismiss it under Fed.R.Civ.P.
12(b)(6).
5
Plaintiff Retro Television Network, Inc.’s original complaint asserted ten counts and included
555 pages of exhibits. However, as “[i]t is well-established that an amended complaint supercedes an
original complaint and renders the original complaint without legal effect,” In re Wireless Tel. Fed. Cost
Recovery Fees Litig., 396 F.3d 922, 928 (8th Cir. 2005), the amended complaint, which seeks only an
accounting and incorporates by reference only the IPA and its amendment, is now the sole basis of this
action. Parties to the original complaint also included Larry Morton and Henry Luken. These parties
were dismissed from this action without objection by Order entered August 5, 2011 [doc.#17]. In
accordance with the parties’ request, the style of the case was changed as set forth above.
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A.
In reviewing a motion to dismiss, the Court must accept as true all factual
allegations in the complaint, but is “not bound to accept as true a legal conclusion
couched as a factual allegation.” Ashcroft v. Iqbal, 556 U.S. 662, 129 S.Ct. 1937, 1950
(2009) (quoting Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555 (2007)). “Threadbare
recitals of the elements of a cause of action, supported by mere conclusory statements, do
not suffice.” Id. 556 U.S. 662, 129 S.Ct. at 1949. “Nor does a complaint suffice if it
“tenders ‘naked assertion[s]’ devoid of ‘further factual enhancement.’” Id. (quoting
Twombly, 550 U.S. at 557). To survive a motion to dismiss, a complaint must plead
“enough facts to state a claim to relief that is plausible on its face.” Twombly, 550 U.S. at
570. “A claim has facial plausibility when the plaintiff pleads factual content that allows
the court to draw the reasonable inference that the defendant is liable for the misconduct
alleged.” Iqbal, 556 U.S. 662, 129 S.Ct. at 1949. “The plausibility standard is not akin to
a ‘probability requirement,’ but it asks for more than a sheer possibility that a defendant
has acted unlawfully.” Id. (quoting Twombly, 550 U.S. at 556). A well-pleaded
complaint may proceed even if it appears that actual proof of those facts is improbable
and that recovery is very remote and unlikely. Twombly, 550 U.S. at 556. A complaint
cannot, however, simply leave open the possibility that a plaintiff might later establish
some set of undisclosed facts to support recovery. Id. at 561. Rather, the facts set forth in
the complaint must be sufficient to nudge the claims across the line from conceivable to
plausible. Id. at 570. “[W]here the well-pleaded facts do not permit the court to infer
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more than the mere possibility of misconduct, the complaint has alleged – but it has not
‘show[n]’ – ‘that the pleader is entitled to relief.’” Iqbal, 556 U.S. 662, 129 S.Ct. at 1950
(quoting Fed.R.Civ.P. 8(a)(2)).6
B.
It is undisputed that neither defendant and neither entity which plaintiff Retro
Television Network, Inc. argues is a third party beneficiary of the IPA was even in
existence when the IPA was entered into in 2005. Rather, plaintiff Retro Television
Network, Inc. argues that “through one or more mergers, an amendment to the IPA,
and/or a stock purchase agreement, defendants became responsible under the IPA.”7
Plaintiff Retro Television Network, Inc. states as follows:
that pursuant to the IPA, plaintiff Retro Television Network, Inc. created
6
Generally, consideration on a motion under Rule 12(b)(6) is limited to initial pleadings, and if
the court considers matters outside the pleadings, the motion must be treated as one for summary
judgment under Rule 56. Van Zee v. Hanson, 630 F.3d 1126, 1128-29 (8th Cir. 2011). Here, the Court is
considering the IPA and an amendment thereto, which are attached to the original complaint and
incorporated into the amended complaint by reference, and uncontroverted Arkansas and Tennessee
Secretary of State public records, which are attached to defendants’ motion to dismiss amended
complaint. See Noble Systems Corp. v. Alorica Central, LLC, 543 F.3d 978, 982 (8th Cir. 2008) (court
may consider some public records, materials that do not contradict the complaint, or materials that are
necessarily embraced by the pleadings when ruling on a motion to dismiss under Rules 12(b)(6) or 12(c)).
Accordingly, the Court is not required to treat defendants’ motion to dismiss as one for summary
judgment.
7
“The Supreme Court of Arkansas has condemned the construction ‘and/or’ saying that it is ‘at
best ... equivocal, obscure, and meaningless, at worst slovenly, improper and a linguistic abomination.’”
Rice v. Luken Communications, LLC, No. 4:11-cv-00386-JLH (E.D.Ark. June 24, 2011) (quoting
Kennedy v. Papp, 294 Ark. 88, 92, 741 S.W.2d 625, 628 (1987); Boren v. Qualls, 284 Ark. 65, 68, 680
S.W.2d 82, 83 (1984)). See also Moran v. Shern, 60 Wis.2d 39, 47 n.4, 208 N.W.2d 348, 351, 352 (Wis.
1973) (characterizing the construction “and/or” as “‘that befuddling, nameless thing, that Janus-faced
verbal monstrosity, neither word nor phrase ... now commonly used by lawyers in drafting legal
documents, through carelessness or ignorance or as a cunning device to conceal rather than express
meaning with a view to furthering the interests of their clients’”) (quoting Employers’ Mut. Liability Ins.
Co. v. Tollefsen, 219 Wis. 434, 437, 438, 263 N.W. 376, 377 (1935)).
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the Retro Television Network and agreed to transfer all Retro Television
Network rights other than the creative rights to RTN Television
Corporation, a subsidiary corporation of Equity Broadcasting Corporation;
that although not identified as one of the parties to the IPA, RTN Television
Corporation acquired the non-creative rights that plaintiff Retro Television
Network, Inc. had in the Retro Television Network concept and programing
model and therefore received the benefits, and as such became a third party
beneficiary of the IPA;
that following the merger between Equity Broadcasting Corporation and
Coconut Palm Acquisition Corporation to form Equity Media Holdings
Corporation, the successor corporation, Equity Media Holdings Corporation
became the party responsible for all obligations under the IPA, including
the royalty payment of 10% of the net revenue to plaintiff Retro Television
Network, Inc.;
that pursuant to the July 2006 amendment to the IPA, RTN Television
Corporation changed to Retro Programing Services, Inc. and the parties
clearly intended for Retro Programing Services, Inc. to become the third
party beneficiary of the IPA and to receive all non-creative rights of
plaintiff Retro Television Network, Inc. in the Retro Television Network;
that on June 24, 2008, defendant Luken Communications, LLC acquired
Retro Programing Services, Inc. pursuant to a Stock Purchase Agreement
with Equity Media Holdings Corporation, C.A.S.H. Services, Inc. and Retro
Programing Services, Inc. and Luken Communications, LLC thereby
stepped into the shoes of Retro Programing Services, Inc. and became a
third party beneficiary of the IPA and responsible for its debts and
liabilities, including the 10% royalty of the net revenue to plaintiff Retro
Television Network, Inc.;
that although the June 24, 2008 Stock Purchase Agreement states that it
supercedes the entirety of the IPA, plaintiff Retro Television Network, Inc.
was not a party to the Stock Purchase Agreement and such agreement does
not and cannot terminate the IPA;
that on June 17, 2009, defendant Retro Television, Inc. filed with the
Tennessee Secretary of State following which Retro Programing Services,
Inc., on December 23, 2009, merged with defendant Retro Television, Inc.,
with defendant Retro Television, Inc. becoming the surviving corporation;
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that since defendant Retro Television, Inc. was the surviving corporation, it
acquired plaintiff Retro Television Network, Inc.’s rights to Retro
Television Network under the IPA, and defendant Retro Television, Inc.
also became a third party beneficiary and as a result has an obligation to pay
the 10% royalty to plaintiff Retro Television Network, Inc.
Plaintiff Retro Television Network, Inc. goes on to argue that if the Court
determines that the June 24, 2008 Stock Purchase Agreement controls, then defendants
Retro Television, Inc. and Luken Communications, LLC breached the subsequent
agreements (the “Transaction Documents”), which are referred to in such Agreement(s),
and as set out in the original complaint (¶¶ 58 et seq.), which plaintiff Retro Television
Network, Inc. states is incorporated in its response to defendants’ motion to dismiss by
reference. In that the 2008 Agreement(s) were breached by defendants, argues plaintiff
Retro Television Network, Inc., the parties’ contractual relationship would therefore
revert in any event to the IPA. Alternatively, plaintiff Retro Television Network, Inc.
requests that this action be stayed and removed to arbitration pursuant to paragraph 7.b. of
the IPA.
1.
The Court first addresses plaintiff Retro Television Network, Inc.’s argument that
since defendant Retro Television, Inc. was the surviving corporation following the merger
with Retro Programing Services, Inc. (which itself had changed from RTN Television
Corporation following the July 2006 amendment to the IPA), it acquired plaintiff Retro
Television Network, Inc.’s non-creative rights to Retro Television Network under the
IPA, and defendant Retro Television, Inc. also became a third party beneficiary and as a
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result has an obligation to pay the 10% royalty to plaintiff Retro Television Network, Inc.
Under Arkansas law, a contract is actionable by a third party when there is
substantial evidence of a clear intention to benefit that third party. Simmons Foods, Inc.
v. H. Mahmood J. Al-Bunnia & Sons Co., 634 F.3d 466, 469-470 (8th Cir. 2011) (internal
quotation marks and citation omitted). The presumption is that parties contract only for
themselves and a contract will not be construed as having been made for the benefit of a
third party unless it clearly appears that such was the intention of the parties. Id. at 470.8
Plaintiff Retro Television Network, Inc. acknowledges that neither of the
defendants and no predecessor of either defendant is a party to the IPA, and the Court
finds that the IPA does not meet the standard for making defendant Retro Television, Inc.
or any predecessor a third party beneficiary. Rather, the IPA expressly rules out that
possibility, stating in paragraph 13 that “[n]o person or entity that is not a party to this
agreement may claim any right or benefit hereunder.” The IPA unambiguously precludes
the Equity Broadcasting Corporation/Equity Media Holdings Corporation subsidiary,
which plaintiff argues is a third party beneficiary, from claiming any right or benefit
under the IPA.9 Indeed, plaintiff Retro Television Network, Inc. acknowledges that at
the time of the merger between Equity Broadcasting Corporation and Coconut Palm
8
Paragraph 8 of the IPA provides that the IPA “shall be construed and governed in accordance
with the laws of Arkansas....”
9
The court ascertains the plain and ordinary meaning of a contract, and when a contract is
unambiguous, the court determines its meaning as a matter of law. Southern Implement Co., Inc. v. Deere
& Co., 122 F.3d 503, 506-07 (8th Cir. 1997) (citation omitted).
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Acquisition Corporation to form Equity Media Holdings Corporation, Equity Media
Holdings Corporation “became the party responsible for any and all obligations under the
IPA, including but not limited to, the royalty payment of ten percent (10%) of the net
revenue to Plaintiff [Retro Television Network, Inc.] for the transfer of its rights, other
than creative rights, in and to Retro Television Network to RTN Television Corporation.”
Equity Media Holdings Corporation, however, is not a party to this action (presumably
because it is in bankruptcy) and plaintiff Retro Television Network, Inc. cites no authority
for the proposition that an Equity Broadcasting Corporation/Equity Media Holdings
Corporation subsidiary was a third party beneficiary of the IPA. As noted by defendants,
this conclusion is bolstered by a reading of the complete IPA, which makes clear that any
transfer was to be for the benefit of Equity Broadcasting Corporation, the actual party to
the IPA, and not for the benefit of any subsidiary, and that Equity Broadcasting
Corporation was to provide all of the consideration for any such transfer and to be the
only obligor for such consideration.10
10
The IPA is titled “EBC-RTN Intellectual Property Agreement” and the introductory paragraph
to the IPA provides that “[t]his intellectual Property Agreement is made this 22nd day of December 2005,
by and among [plaintiff] Retro Television Network, Inc. ... and Equity Broadcasting Corporation ...,
collectively know[n] as ‘the Parties.’” The recitals to the IPA likewise make clear that Equity
Broadcasting Corporation is the party which contracted with plaintiff Retro Television Network, Inc. See
Recitals B ("allow [Equity Broadcasting Corporation] to pursue the development of a national broadcast
network in exchange for certain royalty rights") and C ("[Equity Broadcasting Corporation] desires to
acquire RTN"). Plaintiff Retro Television Network, Inc. notes that paragraph 13 of the IPA also provides
that “[t]his agreement shall be binding upon and inure to the benefit of the parties hereto and their
respective heirs, successors, and permitted assigns” but the covenants of the IPA confirm that plaintiff
Retro Television Network, Inc. and Equity Broadcasting Corporation are the only ones which have
obligations under the IPA. For example, paragraphs 1(b) and (c) refer to certain things being "jointly
agreed upon by [Equity Broadcasting Corporation] and [plaintiff Retro Television Network, Inc.]" and to
"all expenses advanced by [Equity Broadcasting Corporation]" and provide that "[Equity Broadcasting
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As further noted by defendants, the fact that Equity Broadcasting Corporation was
able to substitute one fungible subsidiary for another in the amendment to the IPA makes
clear that the IPA was for the benefit of Equity Broadcasting Corporation rather than for
any particular subsidiary. Thus, it is clear, not only from the express identification of the
parties in the IPA but also from a reading of the IPA as a whole, that there are only two
parties to the alleged contract on which plaintiff Retro Television Network, Inc. is suing
and that defendant Retro Television, Inc. is not one of them. Accordingly, plaintiff Retro
Television Network, Inc. fails to plead enough facts against defendant Retro Television,
Inc. to state a claim to relief that is plausible on its face.
Even were defendant Retro Television, Inc. a third party beneficiary under the
IPA, the IPA does not impose any obligations upon it and plaintiff Retro Television
Network, Inc. provides no basis for concluding that the subsidiary became responsible for
Equity Broadcasting Corporation’s obligations under the IPA simply by virtue of its
status as a third party beneficiary. Accordingly, plaintiff Retro Television Network, Inc.
would still fail to plead enough facts against defendant Retro Television, Inc. to state a
claim to relief that is plausible on its face.
Corporation] will be responsible for all expenses relating to the development of the RTN Broadcast
network." Paragraph 2 permits an audit of books and accounts "maintained by [Equity Broadcasting
Corporation]." Id. Paragraph 3 makes clear that Equity Broadcasting Corporation is the obligor to
plaintiff Retro Television Network, Inc., permitting Equity Broadcasting Corporation to assign the
agreement "as long as [Equity Broadcasting Corporation] guarantees the performance of this Agreement
in writing." Id. Paragraph 7(b) concerns disputes between plaintiff Retro Television Network, Inc. and
Equity Broadcasting Corporation and an assessment of costs and expenses between plaintiff Retro
Television Network, Inc. and Equity Broadcasting Corporation. Paragraph 7(d) provides that "[i]n no
event shall either [plaintiff Retro Television Network, Inc.] or [Equity Broadcasting Corporation] be
liable" for certain kinds of damages. Id.
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2.
Plaintiff Retro Television Network, Inc.’s argument that defendant Luken
Communications, LLC is liable for any obligations of defendant Retro Television, Inc.
because it owns the stock of defendant Retro Television, Inc. is likewise without merit.
In its amended complaint, plaintiff alleges only that defendant Luken Communications,
LLC “acquired” Retro Programming Services, Inc. “including its assets and liabilities.”
Am. Compl. ¶ 10. In its brief in response to defendants’ motion to dismiss, plaintiff
Retro Television Network, Inc. argues that defendant Luken Communications, LLC
acquired Retro Programing Services, Inc. pursuant to the June 24, 2008 Stock Purchase
Agreement. Plaintiff Retro Television Network, Inc. notes that the Stock Purchase
Agreement states that it supercedes the entirety of the IPA but argues that since it did not
sign the Stock Purchase Agreement, it does not and cannot terminate the IPA and its
amendment. Plaintiff Retro Television Network, Inc. argues, however, that “[i]n a stock
purchase agreement, the purchaser acquires the debts and liabilities of the company the
purchaser is acquiring” and “steps into the shoes of the seller(s),” and that pursuant to the
same June 24, 2008 Stock Purchase Agreement that purports to supercede the IPA and its
amendment (but does not do so according to plaintiff Retro Television Network, Inc.),
defendant Luken Communications, LLC “stepped into the shoes” of Retro Programing
Services, Inc. (which later became defendant Retro Television, Inc.) and thereby “became
a third party beneficiary to the IPA, and is therefore responsible for its debts and
liabilities, including paying the 10% royalty of the net revenue to plaintiff Retro
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Television Network, Inc. as a result of the transfer of non-creative rights to Retro
Programing Services, Inc. under the July 2006 amendment to the IPA.
Plaintiff Retro Television Network, Inc. does not attach a copy of the June 24,
2008 Stock Purchase Agreement to its amended complaint or otherwise specifically refer
to it in that document, and it cannot be said that the Stock Purchase Agreement constitutes
“some public records, materials that do not contradict the complaint, or materials that are
necessarily embraced by the pleadings” such that the Stock Purchase Agreement may be
considered when ruling on a motion to dismiss under Rule 12(b)(6). See Alorica Central,
543 F.3d at 982. Accordingly, the Court may not consider the Stock Purchase Agreement
in ruling on defendants’ motion to dismiss.
Even were the Stock Purchase Agreement properly before the Court, plaintiff
Retro Television Network, Inc. cites no authority for the general proposition that “[i]n a
stock purchase agreement, the purchaser acquires the debts and liabilities of the company
the purchaser is acquiring” and “steps into the shoes of the seller(s).” Rather, under
Arkansas law, a shareholder is not liable for the liabilities of a corporation in which the
shareholder owns stock. See Ark. Code Ann. § 4-27-622(b) (“Unless otherwise provided
in the articles of incorporation, a shareholder of a corporation is not personally liable for
the acts or debts of the corporation except that he may become personally liable by reason
of his own acts or conduct”); Scott v. Central Arkansas Nursing Centers, Inc., 101 Ark.
App. 424, 435, 278 S.W.3d 587, 595 (2008) (noting that shareholders are not ordinarily
liable for the acts of their corporation or LLC) (citing Ark. Code Ann. § 4-27-622(b)).
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While parties to a given stock purchase agreement may certainly provide in their
agreement that the purchaser of a company is acquiring its debts and liabilities, plaintiff
Retro Television Network, Inc. does not discuss or cite to any of the Stock Purchase
Agreement’s provisions allegedly at issue in this action (either in its amended complaint
or response to defendants’ motion to dismiss) concerning the terms under which the
purchaser may have assumed the seller's preexisting debts or liabilities. Accordingly,
there is no basis for any such construction of the Stock Purchase Agreement that plaintiff
Retro Television Network, Inc. states is at issue in this action (but does not, according to
plaintiff Retro Television Network, Inc, supercede the IPA and its amendment). As
plaintiff Retro Television Network, Inc. does not allege any facts which would make
defendant Luken Communications, LLC responsible for the liabilities of Retro
Programming Services, Inc. or defendant Retro Television, Inc., plaintiff Retro Television
Network, Inc. fails to plead enough facts against defendant Luken Communications, LLC
to state a claim to relief that is plausible on its face.
3.
As an alternative to dismissal, plaintiff Retro Television Network, Inc. requests
that this action be “stayed and removed to arbitration” pursuant to paragraph 7(b) of the
IPA. The Court rejects this request as plaintiff Retro Television Network, Inc. and Equity
Broadcasting Corporation are the only two parties to the IPA and the arbitration provision
in the IPA applies only to disputes between plaintiff Retro Television Network, Inc. and
Equity Broadcasting Corporation. IPA ¶ 7(b).
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Even were defendants Retro Television, Inc. and Luken Communications, LLC
parties to the IPA and subject to its arbitration provision, a right to compel arbitration
may be waived by filing a complaint in court and engaging in litigation. Erdman Co. v.
Phoenix Land & Acquisition, LLC, 650 F.3d 1115, 1118 (8th Cir. 2011). The Eighth
Circuit applies a uniform three-factor test in determining whether a party has waived its
right to arbitration, finding waiver when the party seeking arbitration (1) knew of its
existing right to arbitration; (2) acted inconsistently with that right; and (3) prejudiced the
other party by its inconsistent actions. Id. at 1117 (citation and internal quotation marks
omitted).
In this case, plaintiff Retro Television Network, Inc. filed an 18-page, 10-count
complaint against defendants Retro Television, Inc. and Luken Communications, LLC
and another individual. After defendants moved to dismiss that complaint, plaintiff Retro
Television Network, Inc. filed the amended complaint now at issue against these two
defendants. In the face of a motion to dismiss the amended complaint, plaintiff Retro
Television Network, Inc. argues against dismissal of the amended complaint. Plaintiff
Retro Television Network, Inc. obviously knew of the existence of the right to
arbitration–specifically invoking the arbitration provision in the IPA in its response to
defendants’ motion to dismiss–and yet has acted inconsistently with that right by
instituting this litigation and arguing against the dismissal of this action, forcing
defendants to expend time and effort defending against the allegations of this action. By
doing so, plaintiff Retro Television Network, Inc. has waived any right to compel
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arbitration. See id. at 1118.
III.
For the foregoing reasons, the Court grants defendants’ motion to dismiss plaintiff
Retro Television Network, Inc.’s amended complaint. Judgment will be entered
accordingly.
IT IS SO ORDERED this 5th day of January 2012.
/s/Susan Webber Wright
UNITED STATES DISTRICT JUDGE
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