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10/01/91 EDM & ASSOCIATES v. GEM CELLULAR

October 1, 1991

EDM & ASSOCIATES, INC., APPELLANT
v.
GEM CELLULAR, ET AL., APPELLEE



Appeal from the Superior Court of the District of Columbia; (Honorable Henry F. Greene, Trial Judge)

Ferren and Schwelb, Associate Judges, and Pryor, Senior Judge.

The opinion of the court was delivered by: Schwelb

I

This appeal requires us to explore the world of "state of the art" cellular telephones, as well as some astonishingly informal and free-wheeling alleged dealings among entrepreneurs who were competing for the substantial profits which these devices can generate. Appellant EDM & Associates, Inc. is a closely held corporation controlled by its president, Early D. Monroe, Jr., who owns almost all of its stock. Appellant GEM Cellular (GEM) is a sole proprietorship of appellee George E. Murray. *fn1 Appellee Metro Mobile CTS, Inc. (Metro Mobile) is a corporation. The controversy in this case has its inception in the efforts of each of these three businesses to obtain from the Federal Communication Commission (FCC) a cellular telephone construction permit for the New London, Connecticut area.

Prior to 1984, the FCC selected cellular licensees by holding hearings regarding their comparative qualifications. In that year, the Commission inaugurated a system of random selection by lottery. See Cellular Radio Service (Lottery Section), 101 FCC 2d 577 (1985). In 1986, GEM won the lottery conducted by the FCC and thus became the tentative recipient for the New London permit.

Under the applicable FCC Regulation, see 47 C.F.R. § 22.917(b) (1986), GEM was then required to demonstrate its financial capacity to construct the proposed cellular system, and to operate it for one year, by obtaining a "firm financial Commitment letter." EDM alleged that GEM was unable, without EDM's help, to obtain such a commitment letter within the time provided by the Commission. EDM further claimed that, pursuant to an oral contract with the GEM defendants, EDM secured the necessary financial commitment letter for GEM from Motorola, Inc. In return for securing that letter and for "various other services, administrative fees, and application expenses," according to EDM, the GEM defendants orally agreed to assign EDM a 49% interest in that permit. The alleged oral agreement further provided, as an alternative means of compensation (hereinafter the second alternative) that if EDM could not lawfully own a 49% share of the permit, then the GEM defendants would be required to pay EDM in an amount for its services which, according to EDM's subsequent invoice, exceeded 6.2 million dollars. *fn2 EDM claimed that after the FCC granted the license to GEM, the GEM defendants breached the oral contract and engaged in tortious conduct against EDM *fn3 by refusing either to assign EDM a 49% share in the permit or to compensate it for its services pursuant to the second alternative. EDM further alleged that Metro Mobile intentionally and tortiously interfered with EDM's contractual rights by subsequently purchasing GEM's permit for 8.9 million dollars. *fn4

Following numerous motions and extensive discovery, *fn5 the trial Judge granted the motions of both defendants for summary judgment dismissing the complaint. The Judge ruled that the alleged oral contract to assign to EDM a 49% share of GEM's permit was "plainly in violation" of the FCC's "one percent rule," which provides in pertinent part that

no party may have an ownership interest, direct or indirect, in more than one application for the same MSA . . . . market, except that interests of less than one percent will not be considered [to be such an interest].

47 C.F.R. § 22.921(b)(1) (1986). He further held, with little elaboration, that the illegality of the provision granting EDM a 49% share carried over to the second alternative of payment of direct compensation. The Judge additionally held that EDM had failed to present any triable issue of material fact with respect to its various tort claims against the GEM defendants, and that as to these claims the defendants were therefore entitled to summary judgment as a matter of law.

On appeal, EDM contends that the trial Judge erred in holding that the provision of the alleged oral contract giving EDM a 49% interest in the permit was illegal; that even if that provision was illegal, the second alternative was valid; and that the Judge incorrectly applied Super. Ct. Civ. Rules 12(I)(k) and 56(e), as well as the applicable case law, in granting summary judgment. We agree with the trial Judge with respect to the first and third issues. We hold, however, that the invalidity of the alleged agreement to transfer a 49% interest to EDM did not carry over to the second alternative of monetary compensation for services allegedly rendered. Accordingly, we affirm the order granting summary judgment in favor of Metro Mobile, *fn6 vacate in part the order granting summary judgment to the GEM defendants, and remand the case for further proceedings consistent with this opinion.

II

EDM contends that its alleged oral agreement with GEM did not violate the one percent rule. According to EDM, that rule was designed only to ensure fairness in the lottery process. EDM claims that the alleged contract was negotiated after the lottery had been completed, and that the one percent rule therefore has no application.

EDM also argues that under the terms of the alleged oral contract, it was entitled to an interest only in the construction permit, but no interest in the application. Since EDM's interest in the application filed by EDM Cellular (but controlled by Monroe) terminated when GEM was awarded the permit, and since EDM's interest in GEM's venture was purportedly only in the permit but not in the application, EDM claims that the two interests did not exist at the same time, so that the one percent rule was not transgressed.

Although EDM's contentions in this regard have been expertly briefed and argued, we find them unpersuasive. The one percent rule by its terms proscribes interests in more than one application, not in more than one participant in the lottery. As long as an application remains pending, the plain language of the one percent rule applies, regardless of whether or not a lottery has already been conducted. The controlling question, therefore, is whether ...


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