Wharf (Holdings) Ltd. v. United Intern. Holdings, Inc.

532 U.S. 588 (2001)

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Nature of the Case

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Facts

In 1991, the Hong Kong government announced that it would accept bids for the award of an exclusive license to operate a cable television system in Hong Kong. D decided to prepare a bid. D found a business partner with cable system experience. P sent several employees to Hong Kong to help prepare D's application, negotiate contracts, design the system, and arrange financing. P asked to be paid for its services with a right to invest in the cable system if D should obtain the license. D prepared a draft letter of intent that contemplated giving P the right to become a co-investor, owning 10% of the system. But the parties did not sign the letter of intent. When D submitted its bid, it told the Hong Kong authorities that D would be the system's initial sole owner. In early October 1992, P told D that it would continue to help only if P got an enforceable right to invest. D's agent orally granted P an option with the following terms: (1) P had the right to buy 10% of the future system's stock; (2) the price of exercising the option would be 10% of the system's capital requirements minus the value of P's previous services (including expenses); (3) P could exercise the option only if it showed that it could fund its 10% share of the capital required for at least the first 18 months; and (4) the option would expire if not exercised within six months of the date that D received the license. The parties continued to negotiate about how to write documents that would embody these terms, but they never reduced the agreement to writing. D was granted the franchise rights. P then raised $66 million designed to help finance its 10% share. D refused to permit P to buy any of the system's stock. Internal documents suggested that D had never intended to carry out its promise. Internal documents, along with other evidence, convinced the jury that D's agent had orally sold P an option to purchase a 10% interest in the future cable system while secretly intending not to permit P to exercise the option, in violation of §10(b) of the Securities Exchange Act and various state laws. P got compensatory damages of $67 million and punitive damages of $58.5 million on the state-law claims. the Court of Appeals upheld the jury's award. The Supreme Court granted certiorari to determine whether D's oral sale of an option it intended not to honor is prohibited by §10(b).