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Note: In 2000, Galesburg 67 and DM Partners (Sellers) agreed to withdraw their respective applications for TV Channel 53 in exchange for payments from Northwest Television (Buyer). Sellers agreed to withdraw their applications from the Federal Communications Commission (FCC), so that Buyer would prevail as the only remaining applicant for the Channel 53 FCC broadcast license. Buyer agreed to pay USD 600,000 to one Seller and USD 450,000to the other. The opinion does not provide details of the payment arrangement beyond stating that Buyer agreed to “place in escrow irrevocable letters of credit to be disbursed as described in the Escrow Agreements”.

After finalizing the agreements, Sellers withdrew their applications for Channel 53 in a joint FCC filing with Buyer in 2000. The FCC filing was delayed several years because of an unexpected third-party petition to deny; however, Buyer’s standby letters of credit were due to expire in 2001. Buyer was finally issued a broadcast license in 2012for Channel 8; Channel 53 was repurposed by the FCC for unexplained reasons. Shortly after acquiring the license, Buyer sold the license to a third party in exchange for a USD 300,000 wire transfer and forgiveness of a USD 825,000 debt.

Sellers claimed that before the letters of credit expired, Buyer made a verbal promise over the phone to provide a cash payment to Sellers so that the deal could move forward. Buyer denied the promise was made. Sellers sued Buyer claiming breach of contract, fraudulent wire transfer, and unjust enrichment. The United States District Court for the Northern District of Illinois, Eastern Division, Rowland, J., ruled in favor of Buyer on the claims of breach of contract and fraudulent transfer, and found Buyer liable for USD 1,025,000 on the claim of unjust enrichment.

Sellers argued that the Buyers breached the contract to provide an irrevocable LC because the LC had an expiration date and was, therefore, not irrevocable. The Judge rejected this point, noting that no authority was cited and that U.S. UCC §5-106 states that a LC is revocable “only if it so provides”.

The Judge ruled that Sellers did not provide sufficient evidence of their breach of contract and fraudulent transfer claims. The Judge determined that arguments questioning the irrevocable nature of the letter of credit were not relevant to the issue. The Judge doubted the credibility of witness testimony describing the alleged phone call modifying the parties’ agreement. The Judge found this testimony did not meet the requisite “clear and convincing evidence” standard to prove an oral modification to the contract. The Judge further found that Buyer’s immediate sale of the license only showed three “badges of fraud”, which was not sufficient to indicate a fraudulent wire transfer.

The Judge found the Buyer liable for unjust enrichment because it benefited at the expense of Sellers in violation of “the fundamental principles of justice, equity, and good conscience”. Buyer argued that there was no unjust enrichment because there was no “underlying breach of contract”, however, the Judge ruled that an underlying breach of contract is not required for unjust enrichment. Buyer further contended that the change of TV channel position from 53 to 8 was a material adverse change which significantly decreased the value of the license. The Judge ruled that the benefit received by Buyer was unjust regardless of the fact that the original intended TV channel would have been more lucrative.

Comment: The Sellers should have taken better care of their rights under the standbys.

[EHM]

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