Edwards v. Wyatt ( 2003 )

Opinions of the United
2003 Decisions States Court of Appeals
for the Third Circuit
7-18-2003
Edwards v. Wyatt
Precedential or Non-Precedential: Precedential
Docket No. 02-3448
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PRECEDENTIAL
Filed July 18, 2003
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
No. 02-3448
JOHN JOSEPH EDWARDS,
Appellant
v.
A. WESLEY WYATT
On Appeal from the United States District Court
for the Eastern District of Pennsylvania
(D.C. Civ. No. 01-cv-01333)
District Judge: Honorable James McGirr Kelly
Argued: Thursday, April 24, 2003
Before: SCIRICA, Chief Judge, AMBRO and
GARTH, Circuit Judges
(Opinion Filed: July 18, 2003)
Stephen L. Braga (argued)
Rebecca H. Ewing
Baker Botts
1299 Pennsylvania Avenue, N.W.
The Warner
Washington, DC 20004-2400
Counsel for Appellant
2
Jeffrey A. Zucker (argued)
Fisher & Zucker
121 South Avenue of the Arts
Suite 1200
Philadelphia, PA 19107
Counsel for Appellee
OPINION OF THE COURT
GARTH, Circuit Judge:
This case involves a dispute between two businessmen,
John J. Edwards, the plaintiff-appellant, and A. Wesley
Wyatt, the defendant-appellee, concerning control over Pilot
Air Freight Corporation (“Pilot”), an air freight forwarding
company.
Edwards and Wyatt were introduced to one another by a
Philadelphia attorney, Richard Phillips, who represented
both businessmen separately. Phillips became involved in
the business as well, and a conflict over the company’s
management and control ensued. The dispute has been
marked by shifting alliances and agreements among these
three individuals.
This appeal arises from Edwards’ action against Wyatt for
breach of an oral contract. Edwards appeals from the
district court’s judgment in favor of Wyatt after a non-jury
trial. The district court held that, though there was a
contract, Wyatt had established a defense of anticipatory
repudiation.
Edwards has argued, however, that Wyatt waived any
defense of repudiation and denies, in any event, that an
anticipatory repudiation occurred. Of even greater
significance, Edwards contends that the district court did
not consider the evidence of events that took place after a
July 31, 1998 letter, which the district court held had
constituted Edwards’ repudiation of the agreement with
Wyatt. These events, Edwards claims, either nullified any
“repudiation” or reconstituted an agreement between
Edwards and Wyatt.
3
Finally, Edwards complains that the district court failed
to address or resolve Edwards’ alternative claim that he
was entitled to relief against Wyatt based on the doctrine of
promissory estoppel. That claim was pleaded in Count Two
of Edwards’ Complaint.
Our review leads us to conclude that, indeed, the district
court did not consider material trial evidence — or if it did,
it failed to refer to any such evidence in its opinion. Nor did
the district court make findings of fact relating to that
evidence, which pertained to events that took place after
July 31, 1998. Moreover, the district court failed in its
opinion to express its reasoning or findings having to do
with the alternate count which Edwards pleaded — the
promissory estoppel count. It is for these reasons that we
will reverse the district court’s judgment and remand for a
new trial.
I.
These parties have had a long and convoluted
relationship. At various times, Edwards aligned himself
with Wyatt and against Phillips. At other times, Wyatt
aligned himself with Phillips and against Edwards. At still
other times, Edwards and Wyatt were aligned with one
another against Phillips. In each instance, the efforts were
designed to gain control of Pilot. These shifting alliances did
little credit to any of these three individuals. Eventually,
however, Edwards’ and Wyatt’s meetings came down to an
April 1998 oral agreement, known as the “Handshake
Agreement.”
Therefore, we will first describe, as briefly as possible, the
relevant events that occurred prior to the formation of the
Handshake Agreement. We will then discuss in fuller detail
the Handshake Agreement, followed by Edwards’ purported
repudiation of that agreement on July 31, 1998, and then
the events that took place following the “repudiation.”1
1. There are several other meetings, dealings, and events that are
described in the trial testimony, occurring both before and after the
Handshake Agreement and the July 31, 1998 “repudiation.” The district
court, in its opinion, discussed some — but not all — of this evidence.
4
A. Activities Prior to the Handshake Agreement
Edwards was the president of Pilot, and owned one-third
of the one hundred total issued shares of stock in Pilot. The
remaining shares were owned by Edwards’ cousins.
Edwards v. Wyatt, No. 01-cv-1333, 2002 WL 1832814, at
*1 (E.D. Pa. Aug. 5, 2002) (Findings of Fact ¶¶ 4, 5). In
1993, Phillips, who was counsel to both Edwards and
Wyatt, introduced the two, because he believed that Wyatt
might be able to help Edwards and Pilot by investing in
Pilot. Id. (Finding of Fact ¶ 6). Both Wyatt and Phillips
invested in Pilot, and Phillips became Pilot’s chairman.
Shortly thereafter, “Edwards decided to adopt an exit
strategy from Pilot because of Phillips’ approach to running
it.” Id. (Finding of Fact ¶ 10). At first, Wyatt and Edwards
agreed to push Mr. Phillips out of Pilot. Wyatt, however,
changed his mind, and in April 1995 realigned “with
Phillips to vote Edwards out of Pilot and put Phillips back
in charge of the company.” Id. at *2 (Finding of Fact ¶ 15).
Following his removal from Pilot, Edwards filed for
bankruptcy. The assets of Edwards’ bankruptcy estate
included his one-third interest in Pilot as well as claims
Edwards had against Wyatt, Pilot and Phillips. Id. (Finding
of Fact ¶ 18).
Edwards, who had been acting pro se, retained Stephen
L. Braga as counsel to represent him in the bankruptcy
proceeding.2 JA 685 (Stipulation of Facts ¶ H).
Inasmuch as we are reversing the district court’s judgment and
remanding for a new trial, the parties may produce evidence of these
events at the new trial for the district court’s edification. Hence, we do
not mean, by our abbreviated recitation of the evidence adduced at trial,
to indicate that these discussions and dealings may not be relevant
before the district court on remand.
2. This case involves the unusual circumstance in which Braga, a key
witness for Edwards, simultaneously served as his lead trial counsel,
and indeed, represents him on appeal. Edwards’ brief explains that
Edwards “agreed to stipulate to a bench, rather than a jury, trial in
exchange for Wyatt’s agreement to waive whatever objection he might
have under the advocate-witness rule to Braga’s participation as trial
counsel in the case.” Edwards Br. at 3 n.2.
5
Because of the bankruptcy proceeding, the control of
Pilot stock, as it stood by the fall of 1997, was as follows:
“Wyatt owned forty-five percent of the issued and
outstanding stock of Pilot, Edwards’ Chapter 7 Trustee
controlled his thirty-three and one-third percent of Pilot’s
stock, and the balance of Pilot’s stock was owned or
controlled by Phillips, who also served as Pilot’s President
and Chief Executive Officer.” Edwards, 2002 WL 1832814,
at *2 (Finding of Fact ¶ 22). Therefore, Wyatt or Phillips
could secure control of Pilot if they were able to obtain
control over Edwards’ stock in Pilot.
In December 1997, one of Wyatt’s lawyers, Jay Ochroch,
met with Edwards’ lawyer, Braga, “to discuss a potential
alignment between Edwards and Wyatt and the possibility
of trying to effect a sale of Pilot.” Id. (Finding of Fact ¶ 23).
Following this meeting, Braga testified that a dinner
meeting was held in Philadelphia in early January 1998
among Wyatt; his counsel, Ochroch; and Braga. JA 949. At
this meeting, Braga sought to determine “why Mr. Edwards
should trust” Wyatt given Wyatt’s switch to side with
Phillips in April 1995. Id.Braga then arranged for a face-to-face meeting between
Edwards and Wyatt. Edwards testified that, at that
meeting, Wyatt explained his reasons for seeking to realign
with Edwards. JA 755-56.
Following this meeting, Edwards and Wyatt entered into
a Settlement Agreement on February 18, 1998. Edwards,
2002 WL 1832814, at *2 (Finding of Fact ¶ 25). The
Settlement Agreement provided that Edwards and Wyatt
“use their best efforts to cause Pilot to sell either all or
substantially all of the assets of Pilot, the stock of Pilot, or
cause an initial public offering [IPO] of the Pilot stock,” and
required that Edwards and Wyatt “attempt” to file a “Joint
Motion” to secure the sale or initial public offering of Pilot
or the conversion of the bankruptcy case to a Chapter 11
case. JA 30.3
After the Settlement Agreement was reached, Edwards
3. The Settlement Agreement contained a number of other provisions,
one of which provided for compensation for Edwards. See JA 49, 51.
6
and Wyatt made concerted efforts to secure the Trustee’s
backing for an IPO of Pilot. The Trustee rejected the
proposal, and the district court denied Edwards’ and
Wyatt’s joint motion for the bankruptcy court to approve
the IPO proposal. See Edwards, 2002 WL 1832814, at *3
(Findings of Fact ¶¶ 28, 30).
Instead, the Trustee determined that Edwards’ stock in
Pilot should be sold to Phillips: “On March 12, 1998, the
Trustee filed her . . . ‘Sale Motion’. . . . [T]he Trustee sought
the sale of Edwards’ Pilot stock to Phillips for $3.4 million
and mutual releases by the estate and Pilot for various
claims pending between the estate and Pilot.” Id. (Findings
of Fact ¶¶ 31-32).
B. The Unwritten “Handshake Agreement”
Following these events, Edwards and Wyatt entered into
an unwritten “Handshake Agreement” on April 30, 1998,
which Edwards claims Wyatt has breached.
[W]hen it became apparent that Wyatt and Phillips
were now involved in a bidding contest for Edwards’
stock to avoid being in a minority position, Wyatt and
Edwards agreed that neither would enter into any
agreement with Phillips to settle the bankruptcy sale
proceeding without the participation of the other party
(the “Handshake Agreement”).
Id. (Finding of Fact ¶ 33). This agreement “was never
reduced to writing.” Id. (Finding of Fact ¶ 35). The
motivation for the Handshake Agreement differed from the
purpose of the Settlement Agreement:
The Handshake Agreement was totally different from
the February 18th written [S]ettlement [A]greement. As
Braga put it at trial: “By the time of the [H]andshake
[A]greement, it was clear the two options in the written
agreement, the IPO motion and [a] Chapter 7 to 11
conversion motion, were not going to work, so the
written agreement . . . was fulfilled by that point in
time. The [H]andshake [A]greement was an additional
agreement made in light of the changed circumstances
that those two things didn’t work.”
7
Id. (Finding of Fact ¶ 36). The Handshake Agreement
involved a mutual exchange of promises: “The mutual
consideration underlying this new agreement was: Wyatt
did not want Edwards to reach an agreement with Phillips
any more than Edwards wanted Wyatt to reach an
agreement with Phillips. By standing together, they were
each stronger.” Id. (Finding of Fact ¶ 37) (emphasis added).
The district court found that, according to the testimony
of Ira B. Silverstein, one of Wyatt’s attorneys, “under the
Handshake Agreement, if either Wyatt or Edwards took an
unreasonable position, the other party would no longer be
bound by the Handshake Agreement.” Id. (Finding of Fact
¶ 34).
Wyatt testified that the Handshake Agreement meant that
Wyatt “would not settle the matter behind” Edwards’
“back.” JA 900. The district court then held that the
Handshake Agreement was binding, and that “[t]he facts at
trial established that Wyatt’s agreement with Phillips,
without the participation of Edwards, would have been a
breach of the Handshake Agreement.” Edwards, 2002 WL
1832814, at *5 (Conclusion of Law ¶ 2) (emphasis added).
C. Wyatt and Phillips Make Competing Bids
for Edwards’ Stock
In early May 1998, Wyatt tendered a bid of $3.6 million
for Edwards’ assets, but, as noted, the Trustee favored and
supported Phillips’ $3.4 million bid. Id. at *3 (Findings of
Fact ¶¶ 38-39).
Over Edwards’ objection, the bankruptcy court
established procedures for a sale to go forward, and Wyatt
submitted a new bid of $5 million. Id. at *3-*4 (Findings of
Fact ¶¶ 40-41).
D. The Bankruptcy Court Hearing of July 29, 1998
The Bankruptcy Court set a hearing date for July 29,
1998, for the purpose of selling Edwards’ Pilot stock. Braga
testified that, two days prior to the hearing, an attorney,
Alan Davis, had entered the case. Davis represented Pilot’s
franchisees and employees and managers of Pilot (including
8
Phillips). JA 1020-21. Braga further testified that on July
28th, he received a call from Silverstein, Wyatt’s counsel, in
which Silverstein told him that Davis sought agreement of
a continuance of the next day’s hearing “so they could
pursue global settlement talks.” JA 1021. According to
Braga, Silverstein asked Braga to agree to the continuance
at the bankruptcy hearing, and Braga agreed to do so
“because Mr. Wyatt and Mr. Edwards were aligned.” JA
1021-22.
Phillips, in collaboration with Pilot’s franchisees, offered
a bid of $5.1 million. Edwards, 2002 WL 1832814, at *4
(Finding of Fact ¶ 42).
The bankruptcy court issued a continuance at the
request of counsel for the Pilot franchisees and of Braga. Id.(Finding of Fact ¶ 43); see also JA 1478-80 (Tr. of
Bankruptcy Court Hearing of July 29, 1998).
Edwards argues that this continuance request triggered
new fissures in the relationship between Wyatt and him.
According to the testimony of Kevin Brinkworth (Edwards’
associate), Wyatt, who was present at the bankruptcy court
hearing, “seemed somewhat confused,” and said, “ ‘Why is
this happening? Why is there a continuance? I wasn’t
aware of this. I wanted to buy this stock today.’ ” JA 840.
Brinkworth testified that he informed Braga of Wyatt’s
reaction. Id. As Braga testified, “I was approached by Kevin
Brinkworth who told me that he had just had a very
disturbing conversation with Mr. Wyatt, who was upset
about my agreeing to the continuance and blaming me for
his inability for buying the shares that day.” JA 1022.
Wyatt testified that he did not agree completely with
Brinkworth’s account of the meeting:
My recollection is, I was confused by the continuance
and still am and didn’t understand why the
continuance happened, but I do not recall speaking
with you [Braga] and telling you that you ruined
everything. I don’t recall that conversation at all. I am
not saying it didn’t take place, but I don’t recall that.
. . .
9
What I said to Mr. Brinkworth is I didn’t understand
the procedure that was taking place. I didn’t
understand what was going on.
JA 903.
Edwards testified that, at some time following the
hearing, Wyatt
told me that he was fully prepared to bid on the stock.
That he had authorized his attorney, Mr. Ochroch, to
bid up to $10 million and that he told me that he had
a facility at Republic Bank for another $20 million and
that the bidding didn’t take place because he [Braga]
screwed it up.
JA 775.
The district court found that “[a]lthough Braga claims
there was some confusion over Wyatt’s understanding of
the July 29th continuance, Braga admitted at the time that
Edwards would not have been prejudiced as a result of the
continuance so long as the bids in place at the time were
made irrevocable.” Edwards, 2002 WL 1832814, at *4
(Finding of Fact ¶ 44). The district court also found that, as
Edwards testified, “Wyatt had authorized Ochroch to bid up
to $10 million for the Pilot stock.” Id. (Finding of Fact ¶ 45).
E. Braga’s Letter of July 30
On July 30, 1998, Braga wrote
to Ochroch and Silverstein expressing his concern
about the relationship between Wyatt and Edwards
because, “as a result of the July 29th hearing . . . Mr.
Silverstein had instructed Mr. Wyatt not to talk to Mr.
Edwards anymore and it’s hard for two people to have
an alignment going forward if you’re not talking to each
other.”
Edwards, 2002 WL 1832814, at *4 (Finding of Fact ¶ 46).
In greater detail, this letter stated:
I write to provide you with the benefit of my client’s
thoughts on where we are at this new juncture of our
case. John [Edwards] perceives that the essential point
10
of your negotiations with the franchisees has to be to
effectively offer his stock to the franchisees, in
exchange for their agreement to participate in the
management of the company as Wes [Wyatt] would like
and to pursue Wes’ idea of “rolling” them “up” into the
company. John can understand why Wes might believe
that these are valid business objectives to pursue,
although John disagrees with them. Nonetheless, if
this is the objective . . . then it fundamentally changes
the very premise of the cooperating relationship between
John and Wes, which was designed to insure that John
retained the benefit of his Pilot stock and then assisted
Wes in controlling the company’s future. Neither John
nor I would dispute that legitimate business-based
beliefs might justify such a shift in the parties’
relationship, but we both think that this apparent
fundamental change in the nature of the relationship
between he and Wes needs to be recognized up front
and dealt with as such.
The reality of the events over the past twenty-four
hours only heightens John’s belief (and, in this case,
mine as well) that something fundamental has changed.
In fact, those events confirm that there really is no
ongoing relationship between John and Wes at this
point in time. By declining to continue John’s
consulting contract with Wes, by declining to make a
good faith payment toward John’s legal fees, by
declining to allow John to speak with Wes, and by
declining — as of the time of this writing — to have
Wes confirm to me . . . that he understands that
everything that happened in Court yesterday morning
happened at Ira [Silverstein]’s direction, John believes
that you have effectively severed the relationship. In
particular, John believes that he and Wes had an
express understanding that Wes would take care of
John financially until this matter reached its
conclusion; in John’s view, that understanding has now
been breached by the foregoing actions.
In the few hours since we have spoken, and as a result
of my communicating the results of our conversation
this morning to John (combined with yesterday’s
11
results), John has gone over the edge. I have never
seen him like this before, and I do not know if I can
control him. Nothing would surprise me at this point.
If your plan is as John perceives it to be, then I would
suggest that you make negotiating an endgame result
with John your first and immediate priority. Otherwise,
the game may be over as far as he is concerned, if it is
not already.
JA 67-68 (emphasis added).
F. The Braga Letter of July 31, 1998
Braga testified that he sent another letter on the
following day because he had received no response to the
prior day’s letter. JA 1026. In relevant part, this letter
stated:
When I arrived at my office this morning, John
Edwards was here and still very upset. We spent the
morning discussing the circumstances in which John
presently finds himself, and as a result of those
discussions, it is clear that there is no turning back
from what John views as the breach of his relationship
with Wes.
In light of the foregoing, John has asked me to
endeavor to negotiate his own independent settlement
in this matter. I have been authorized to give you (and,
thus, Wes) a one-week period within which to conclude
a settlement agreement with John. If such an agreement
has not been concluded within that time, then I have
been directed to provide the same opportunity to Mr.
Phillips, which I will initiate on Friday, August 7th, if
necessary.
JA 69 (emphasis added).
Ochroch testified that, in his view, the July 30 letter and
the July 31 letter:
together meant that there was going to be no
cooperation between Mr. Edwards and Mr. Wyatt, all
bets were off and Mr. Edwards could not force Wes
Wyatt to pay him some amount of money beyond what
12
he was bidding in open court, that Mr. Edwards was
going to go to Mr. Phillips and try to make a deal for
himself.
JA 1154. Silverstein, Ochroch’s then-partner, testified that
“[a]s I read this [July 31] letter, it terminated” the
Handshake Agreement. JA 1221.
The district court found that “Wyatt understood the July
31, 1998 letter to mean that the ‘Handshake Agreement’
was terminated.” Edwards, 2002 WL 1832814, at *4
(Finding of Fact ¶ 48) (emphasis added). The district court
held that this letter constituted a repudiation of the
Handshake Agreement. Id. at *5 (Conclusion of Law ¶ 4).
G. Post-Letter Meeting in Early August
Edwards identifies several events that occurred after the
July 31 letter. He argues that these events would constitute
either a retraction of the repudiation or a new set of
promises by Wyatt. The district court, however, made no
findings related to these events, nor did it refer to them in
its opinion. Accordingly, we are obliged to refer to evidence
in the record as it relates to these events.
The first of these events was an August meeting. Braga
testified that in response to his July 31 letter, he received
a call from Ochroch inviting him to “come up to
Philadelphia for a meeting to discuss the issues.” JA 1027.
This meeting occurred, according to Braga, in the “second
week of August.” Id.4
Braga testified that in addition to Ochroch and himself,
this meeting was attended by Brinkworth; Wyatt; and
Wyatt’s counsel, Ochroch and Lane Fisher. Id. Edwards
was not present, nor was Silverstein, another counsel for
Wyatt. Id.
According to Braga, “[w]e talked through the issues and
4. In his proposed findings of fact submitted to the district court after
trial, Wyatt stated that this meeting occurred on August 10, 1998.
Defendant’s Proposed Findings of Fact and Conclusions of Law at 10
(Proposed Finding of Fact ¶ 52).
13
there was in effect what I call a compromise resolution.” JA
1027.
Ochroch testified that he remembered the meeting
differently:
Mr. Braga told us . . . that Mr. Wyatt was not
supporting Mr. Edwards the way he should and he
needed Mr. Edwards and if he wouldn’t do it he was
going to go over to Mr. Phillips and try to make a deal
with Mr. Phillips. . . . We did not make a deal. We did
not patch everything up. Everybody went their separate
ways . . . .
JA 1156.
H. August Meeting in Coffee Shop Between
Edwards and Wyatt
Sometime in August, there was a meeting at a coffee
shop in the building where Edwards resided. The district
court did not discuss this meeting in its opinion.
Wyatt testified that at this coffee shop meeting, he and
Edwards “discussed the possibility of my [outbidding] Mr.
Phillips.” JA 907. According to Edwards’ testimony, at this
meeting Wyatt said that
everything is back on track and he said basically what
transpired in this entire blowup or bump, it was
lawyers [posturing]. Lawyers have to justify their fees.
. . . He said nothing changed in his mind [with respect
to] what he wanted to do[. He] was still on board and
he was fully prepared to go forward and bid on the
stock, so we can go forward with what he had
proposed in February. [i.e., the Settlement Agreement
to sell the stock or assets of Pilot, see supra]
JA 776-77 (emphasis added).
Wyatt also agreed that he had made a comment that the
lawyers were posturing. See JA 898-99 (Wyatt Testimony).
Edwards testified that at this coffee shop meeting, Wyatt
“asked me to arrange a meeting with [Braga] in
Washington. He said he would like to go down and talk to
[Braga] in Washington.” JA 777.
14
I. September 1998 Meeting in Washington with
Edwards, Braga, Wyatt, and Phil Fisher
Edwards and Wyatt agree that such a meeting in
Washington occurred in early September 1998. The district
court did not discuss this meeting in its opinion, nor did it
make findings.
Braga testified that several things were discussed at this
meeting, including that:
. . . we talked about Mr. Phillips and what he was up
to and we talked about the possibility of a settlement.
Mr. Wyatt told me that they were trying to have talks
with the franchisees and if there was a global
settlement they would have to include Mr. Edwards[,]
which is what I understood, anyway.
JA 1032 (emphasis added).
Edwards testified that at the meeting in Washington they
discussed “basically just reiterating that there were no
problems and that the game plan was the same as it had
been since February, that is, Mr. Wyatt’s intention was to
go forward and bid on and acquire the stock.” JA 779.
Wyatt’s testimony acknowledged that this meeting
occurred. Wyatt’s responses to questions asked by Braga
(acting as counsel) provided Wyatt’s view of the meeting:
Q. Do you recall in that discussion or in any other
discussion with Mr. Edwards asking him to
arrange for you to come down to Washington and
meet with me?
A. I remember[ going] to Washington to meet with
you.
Q. Do you remember that you requested Mr. Edwards
to set that up?
A. I believe I did, yes, sir.
Q. In fact you submitted an affidavit . . . that
indicated that you came to Washington as a
courtesy to me?
A. I was trying to come up with some way, if there
was [a way], to make this thing work [ ] out.
15
Q. Do you recall what we discussed in Washington?
A. Before lunch, we discussed where we were and
what was going on with Mr. Phillips and I think I
was trying to find out — just explore, not find out,
just explore, any options that I had discovered to try
and figure out how to get this matter resolved. . . .
Q. You had a [meeting] couple of weeks earlier with
the franchisees that did not go very well?
A. Are you referring to the New York meeting. . . .
A. That meeting did not go well.
Q. We also discussed, what, if anything, Mr. Edwards
might be able to do to help you in the Camden
case?
A. That’s correct.
Q. You were frustrated that case had not been
resolved yet?
A. That’s correct. . . .
Q. You brought counsel with you to Washington.
A. I brought Mr. Fisher. . . .
Q. Do you recall saying to me at the meeting in
Washington that if there was going to be a
settlement as a result of the talks with the
franchisees they would have to include Mr.
Edwards?
A. Yes.
Q. You said that to me?
A. I said that to you.
Q. In Washington?
A. I think I said it more than once.
JA 907-909 (emphasis added).
J. Wyatt-Phillips Realignment and October 30 Hearing in
Bankruptcy Court
Braga testified that at the October 30 bankruptcy court
hearing, outside the courtroom, Silverstein informed him
that Wyatt and Phillips had settled. JA 1042.
16
The district court found that Wyatt and Phillips had
made a joint bid: “On October 30, 1998, Wyatt and Phillips
jointly offered a cash bid of $5.2 million, plus the claims
settlement . . . pursuant to a Settlement Agreement entered
into between Wyatt, Phillips and others.” Edwards, 2002
WL 1832814, at *4 (Finding of Fact ¶ 51).
Later, over Edwards’ objection, the Bankruptcy Court
granted the Trustee’s motion to sell Edwards’s assets
pursuant to Wyatt’s and Phillips’ joint bid. Id. at *5 (Finding
of Fact ¶¶ 55-56).
II.
Following these events, Edwards filed a complaint against
Wyatt in the United States District Court for the District of
Columbia on December 29, 1999, alleging breach of
contract, promissory estoppel, and fraud and
misrepresentation. See Compl. ¶¶ 58-76.5 The case was
transferred to the Eastern District of Pennsylvania. See
Edwards Br. at 3 n.1. Wyatt filed an answer that denied
most of the Complaint’s allegations. The answer also listed
several defenses, although, significantly, it did not identify
nor specify repudiation as an affirmative defense. Wyatt
also raised certain counterclaims, which the district court
dismissed, see JA 209-23, and which are not the subject of
any cross-appeal before us.
Following pre-trial proceedings, the district court held a
four-day bench trial from May 6 to May 9, 2002. After
receiving post-trial submissions from the parties, the
district court issued its ruling on August 5, 2002, based on
fifty-eight separate findings of fact and six conclusions of
law.
The district court made no findings of fact based upon the
events and actions which took place subsequent to the July
31, 1998 letter, except for facts related to the October 30
bankruptcy hearing. Nor did the district court address
5. The district court did not address Edwards’ claim for fraud and
misrepresentation. On appeal, Edwards has not challenged the district
court’s entry of judgment for Wyatt on this claim. Accordingly, this claim
not having been raised before us, we do not discuss it.
17
Edwards’ alternate claim for relief based upon promissory
estoppel.
We reproduce the text of the district court’s conclusions
of law:
1. The Handshake Agreement represented an
enforceable promise. Wyatt and Edwards each
mutually agreed not to enter into any agreement
with Phillips without the participation of the other
party. . . .
2. The facts at trial established that Wyatt’s
agreement with Phillips, without the participation
of Edwards, would have been a breach of the
Handshake Agreement.
3. Braga’s July 30, 1998 letter did not establish that
Wyatt had already breached the Handshake
Agreement.
4. The Handshake Agreement was repudiated by
Braga’s July 31, 1998 letter. An anticipatory
breach of a contract occurs whenever there has
been a definite and unconditional repudiation of a
contract by one party communicated to another.
. . . A statement by a party that he will not or
cannot perform in accordance with agreement
creates such a breach. . . . Braga’s letter made
clear Edwards’ intent to terminate the Handshake
Agreement before the time to perform had arrived.
Braga threatened to negotiate with Phillips if Wyatt
did not reply to the letter. Wyatt did not reply, and
understood the letter to mean that the Handshake
Agreement was terminated.
5. The Handshake Agreement was not reformed, and
a new agreement between Edwards and Wyatt was
not reached.
6. Wyatt did not waive his defense of repudiation.
Wyatt was not required [to] raise repudiation as an
affirmative defense in pre-trial pleadings. . . .
Edwards, 2002 WL 1832814, at *5 (Conclusions of Law
¶¶ 1-6) (citations omitted).
18
Based on these conclusions, the district court entered its
final judgment in favor of Wyatt on August 5, 2002.
Edwards filed a timely notice of appeal.
The district court had subject matter jurisdiction of this
diversity action under 28 U.S.C. § 1332. We have
jurisdiction over this appeal from the district court’s final
judgment pursuant to 28 U.S.C. § 1291.
Edwards raises a number of challenges to the district
court’s decision. We review the district court’s factual
findings for clear error, but have plenary review of the
district court’s conclusions of law. See Lanning v.
Southeastern Pennsylvania Transp. Authority, 308 F.3d 286,
290 (3d Cir. 2002).
III.
The linchpin of the district court’s ruling in favor of Wyatt
is that Edwards, by Braga’s transmittal of the July 31,
1998, letter, repudiated the Handshake Agreement.
Edwards denies that the July 31 letter constituted an
anticipatory repudiation that discharged Wyatt’s obligations
to perform under the Handshake Agreement.
A.
Prior to challenging the district court’s holding that the
letter was a repudiation on the merits, however, Edwards
argued that, procedurally, Wyatt’s defense of repudiation
was not properly before the district court. Edwards took the
position that, contrary to the district court’s holding, under
Pennsylvania law6 repudiation is an affirmative defense that
must be pled in a defendant’s answer. Because Wyatt did
not plead repudiation as a defense, Edwards argues that he
was denied an opportunity to undertake trial preparation
6. In this diversity case, we apply Pennsylvania’s contract law. See, e.g.,
Mellon Bank Corp. v. First Union Real Estate Equity and Mortg.
Investments, 951 F.2d 1399, 1405 (3d Cir. 1991); see also Charpentier v.
Godsil, 937 F.2d 859 (3d Cir. 1991) (“Matters treated as affirmative
defenses under state law are generally treated in the same way by federal
courts in diversity cases.”) (citations omitted).
19
with this defense in mind. Edwards claims that the district
court should have held that Wyatt had waived his defense
of repudiation by failing to plead it.
While Edwards and Wyatt argued and briefed the issues
of affirmative defense and waiver, our disposition of this
appeal, in which we reverse and remand on the merits on
other grounds, makes it unnecessary for us to decide these
uncertain issues of Pennsylvania law.7 We therefore decline
to predict how Pennsylvania courts would resolve these
issues.
B.
The district court drew the legal conclusion that the July
31 letter was a repudiation of the Handshake Agreement.
See Edwards, 2002 WL 1832814, at *5 (Conclusion of Law
¶ 4). Edwards argues that the district court erred in holding
that the letter constituted a repudiation, and that we
should reverse the district court’s judgment.
“[T]o constitute anticipatory breach under Pennsylvania
law there must be ‘an absolute and unequivocal refusal to
perform or a distinct and positive statement of an inability
to do so.’ ” 2401 Pennsylvania Ave. Corp. v. Federation of
Jewish Agencies, 489 A.2d 733, 737 (Pa. 1985) (quoting
McClelland v. New Amsterdam Casualty Co., 185 A. 198,
200 (Pa. 1936)) (emphasis added). As the Pennsylvania
Supreme Court has said, though “[t]he rationale behind the
rule of anticipatory repudiation is the prevention of
economic waste,” “we reject any argument suggesting a
7. See State Farm Mut. Auto. Ins. Co. v. Coviello, 233 F.3d 710, 716 (3rd
Cir. 2000) (“review of Pennsylvania precedent demonstrates that we lack
clear direction on this . . . issue . . . [A]s a federal court sitting in
diversity, our task is to apply state law and not to form it . . . [and so]
we will decline to make a prediction on this unsettled issue of state
law.”); cf. Graphic Sales, Inc. v. Sperry Univac Div., Sperry Corp., 824
F.2d 576, 581 (7th Cir. 1987) (“As a federal court whose jurisdiction is
based on diversity of citizenship, we are particularly hesitant to decide
unsettled questions of state law unnecessarily.”).
20
dilution of our long recognized standard of an ‘absolute and
unequivocal refusal to perform.’ ” Id. at 737.8
The district court’s assessment of the July 31 letter, and
its rationale in holding that Edwards had repudiated his
agreement with Wyatt, does not meet the standard set by
Pennsylvania of an “absolute and unequivocal refusal to
perform.” The district court found only that: (1) “Wyatt
understood the July 31, 1998 letter to mean that the
‘Handshake Agreement’ was terminated,” Edwards, 2002
WL 1832814, at *4 (Finding of Fact ¶ 48);9 and (2) that
“Braga’s letter made clear Edwards’ intent to terminate the
Handshake Agreement before the time to perform had
arrived. Braga threatened to negotiate with Phillips if Wyatt
did not reply to the letter.” Id. at *5 (Conclusion of Law ¶ 4).
However, neither of these determinations suffice to
support a conclusion that Braga’s July 31 letter should be
viewed objectively as an absolute, unequivocal refusal to
perform. Hence, the district court’s holding that Edwards
had repudiated the Handshake Agreement cannot be
sustained.
8. As we have observed, Pennsylvania courts frequently follow the
Restatement of Contracts. See Livingstone v. North Belle Vernon Borough,
91 F.3d 515, 539 (3d Cir. 1996), cert. denied, 520 U.S. 1142 (1997). The
Pennsylvania Supreme Court has emphasized that Pennsylvania contract
law imposes stricter requirements than does the Restatement for an
anticipatory repudiation defense. See 2401 Pennsylvania Ave., 489 A.2d
at 737 n.7. Even so, Pennsylvania courts have relied upon the
Restatement with respect to several issues relating to anticipatory
repudiation. See Empire Properties, Inc. v. Equireal, Inc., 674 A.2d 297,
305 (Pa. Super. Ct. 1996); Oak Ridge Constr. Co. v. Tolley, 504 A.2d
1343, 1346-47 (Pa. Super. Ct. 1985); Jonnet Development Corp. v.
Dietrich Industries, Inc., 463 A.2d 1026, 1031-32 & 1031 n.6 (Pa. Super.
Ct. 1983).
9. Wyatt’s subjective belief does not suffice to demonstrate repudiation.
Pennsylvania courts would follow the Restatement and hold that
repudiation must be apparent in an objective sense. The Restatement
(Second) of Contracts requires that, “to constitute a repudiation, a party’s
language must be sufficiently positive to be reasonably interpreted to
mean that the party will not or cannot perform.” RESTATEMENT (SECOND) OF
CONTRACTS § 250 cmt. b (1981) (emphasis added).
21
Moreover, even if the district court had found that the
July 31 letter represented an absolute, unequivocal refusal
to perform, on this record such a finding alone would still
be insufficient to support the district court’s conclusion
that there was a repudiation.
The record reveals that the events that followed the July
31 letter are highly significant and material in determining
whether there was an anticipatory repudiation by Edwards.
Even if the district court had considered these events —
which bore on the issue of repudiation or reconstitution of
an agreement — we cannot determine whether it did so. We
are clear, however, that the district court failed to make
any findings of fact which specifically relate to these events
occurring between the July 31 letter and the October 30
bankruptcy hearing.10 Most significantly, the district court’s
opinion makes no mention of Ochroch’s telephone call to
Braga following the July 31 letter and the subsequent
meeting in Philadelphia during the second week of August
among Ochroch, Braga, Wyatt, and others;11 the coffee shop
encounter between Edwards and Wyatt in August;12 or the
Washington meeting in September between Edwards and
Wyatt and their counsel.13
The district court’s failure to consider this evidence and
to make the requisite findings concerning these post-July
31 events renders the district court’s legal conclusion of
repudiation erroneous.
First, though “[m]ere expression of doubt as to . . .
willingness or ability to perform is not enough to constitute
a repudiation,” RESTATEMENT § 250 cmt. b, the recipient of a
doubt-creating statement may seek adequate assurances
that the other party will perform. Id. § 251. The telephone
10. As we have explained in Part I, supra, the record contains evidence
of these events. Moreover, both Edwards and Wyatt discussed these
events in their post-trial submissions. See Plaintiff ’s Findings of Fact
and Conclusions of Law at 13-17; Defendant’s Proposed Findings of Fact
and Conclusions of Law at 10-12 (Proposed Findings of Fact ¶¶ 52-59).
11. See Part I(G), supra.
12. See Part I(H), supra.
13. See Part I(I), supra.
22
call by Ochroch following the July 31 letter and the
subsequent August 10 meeting bear heavily on attempts to
secure adequate assurances, and the record may well be
read to reflect that such assurances were given. But the
district court’s opinion does not refer to these events, and
therefore we must conclude that the district court did not
consider this issue.
Second, even if the July 31 letter constituted an effective
repudiation — which we seriously doubt in light of the lack
of findings to the effect that it was absolute and
unequivocal — the events that occurred after Braga faxed
the July 31 letter may well have been deemed, if
considered, a “nullification” of the “repudiation.” As the
Restatement explains, a repudiation may be nullified by a
retraction if the injured party is made aware of the
retraction before he has prejudicially changed his position:
(1) The effect of a statement as constituting a
repudiation under § 250 or the basis for a repudiation
under § 251 is nullified by a retraction of the statement
if notification of the retraction comes to the attention of
the injured party before he materially changes his
position in reliance on the repudiation or indicates to the
other party that he considers the repudiation to be final.
(2) The effect of events other than a statement as
constituting a repudiation under § 250 or the basis for
a repudiation under § 251 is nullified if, to the
knowledge of the injured party, those events have
ceased to exist before he materially changes his
position in reliance on the repudiation or indicates to
the other party that he considers the repudiation to be
final.
RESTATEMENT § 256 (emphasis added).
The record is replete with evidence of events that, if
considered by the district court, could lead to a holding
that any “repudiation” was nullified. See also RESTATEMENT
§ 256 cmt. b (“It is not necessary for the repudiator to use
words in order to retract his statement. Conduct, such as
an offer of performance, may be adequate to convey the
idea of retraction to the injured party.”). In particular, the
August meeting in Philadelphia; Wyatt’s statement at the
23
coffee shop meeting that “everything is back on track” and
that “nothing [had] changed in his mind,” JA 776-77
(Edwards Testimony — not disputed by Wyatt);14 and the
September meeting in Washington at which Wyatt stated
that Edwards would be included in a settlement involving
the franchisees, see JA 909 (Wyatt Testimony), is
significant and material evidence that Wyatt recognized that
the repudiation (if any) had been nullified and retracted.
While we do not find as a fact,15 and do not hold, that
these post-July 31 events were equivalent to a nullification
of repudiation (if repudiation there was), we can, and do
hold, that the district court was required to consider the
record evidence of these events before concluding that a
repudiation had occurred. See Logue v. Int’l Rehabilitation
Assocs., Inc., 837 F.2d 150, 155 (3d Cir. 1988) (district
court must consider all relevant evidence in order to make
its findings of fact and conclusions of law).
Since the district court did not refer to the relevant
evidence we have cited, and did not make findings of fact
concerning the post-July 31 events, it could not determine
whether the “repudiation” that it had found had been
nullified. Because the district court did not consider all of
the material evidence, its conclusions were necessarily
erroneous.
C.
Edwards also contends that even if the district court did
not err in concluding that the July 31 letter constituted a
repudiation, it erred in holding that Edwards and Wyatt did
14. According to Edwards’ testimony, Wyatt said that
everything is back on track and he said basically what transpired in
this entire blowup or bump, it was lawyers [posturing]. Lawyers have
to justify their fees. . . . He said nothing changed in his mind [with
respect to] what he wanted to do[. He] was still on board and he was
fully prepared to go forward and bid on the stock, so we can go
forward with what he had proposed in February.
JA 776-77 (emphasis added).
15. See In re LifeUSA Holding Inc., 242 F.3d 136, 149 (3d Cir. 2001) (“we
[appellate courts] are not factfinders”).
24
not reach a new, enforceable agreement after the July 31
letter.
Upon our review of the record, we hold that the district
court erred in concluding that “[t]he Handshake Agreement
was not reformed, and a new agreement between Edwards
and Wyatt was not reached.” Edwards, 2002 WL 1832814,
at *5 (Conclusion of Law ¶ 5). As we have explained, the
district court did not make any findings of fact concerning
the dealings among Edwards, Wyatt, and their counsel
following the July 31 letter. The district court made only
one, conclusory finding that could form the basis of this
conclusion: “There is no evidence that Wyatt and Phillips
[sic] entered into a new agreement following Braga’s July
31, 1998 repudiation letter.” Id. at *4 (Finding of Fact ¶ 50).16
Even assuming that the July 31 letter was a repudiation
— and that such a repudiation was not nullified by
subsequent communications or conduct between Edwards
and Wyatt — the district court was obliged to determine
whether a new contractual agreement was reached on the
basis of the post-July 31 meetings of the parties and their
counsel.
As we have recounted, the district court made no
reference in its opinion or findings to the relevant post-July
31 evidence, although the record reveals substantial and
material evidence taken at trial. A fair reading of the record
can only lead to the conclusion that the testimony adduced
at trial was highly relevant not only to the issue of
nullification, but also as to whether the parties had formed
a new contract. The district court therefore erred because,
indeed, there was evidence in the record which bears on the
formation of a new agreement.
We have required that the district court make
“subordinate” factual findings in support of its “ultimate”
findings so as to allow us to ascertain “what evidence the
district judge accepted as credible or what he rejected.”
O’Neill v. United States, 411 F.2d 139, 146 (3d Cir. 1969).
We went on to say that subordinate
16. Presumably the district court meant to refer to Wyatt and Edwards,
not Wyatt and Phillips.
25
findings may not be left unarticulated. If they actually
were reached in the process of arriving at the ultimate
factual conclusion, they must be stated. If they did not
enter into the process by which the ultimate factual
finding was made, then it was without any supporting
foundation. In either case, therefore, it is necessary
that the trial court specify these subordinate facts upon
which the ultimate factual conclusion must rest.
Id. (emphasis added). Here, the district court failed to
comply with the requirements leading to appropriate factual
findings and conclusions of law. Hence, we cannot sustain
the district court’s holding that no new agreement was
reached, just as we cannot sustain, without more, the
district court’s determination that the July 31 letter
constituted a repudiation.
IV.
Count Two of Edwards’ Complaint contains an alternative
promissory estoppel claim. See Compl. ¶ 65-71. In that
count, Edwards asserts that “Wyatt intended or knew — or
reasonably should have expected — that those promises
would induce action or forbearance from action by Wyatt,”
and that “Wyatt’s promises to Edwards did in fact induce
both action and forbearance from action by Edwards.” Id.
¶¶ 66, 67. Edwards further asserted that “Wyatt benefited
greatly through the action and forbearance from action that
his promises induced in Edwards.” Id. ¶ 68.
Edwards now argues that the district court erred in
failing to address his promissory estoppel issue, and that,
even if we were to uphold the district court’s conclusion
that Edwards had repudiated the Handshake Agreement —
which we have not done — we must remand the case for
the district court to resolve the promissory estoppel claim.
On the other hand, Wyatt argues that the district court
implicitly addressed that issue.17
17. At oral argument, Wyatt’s counsel responded to our questions about
the promissory estoppel issue:
THE COURT: . . . [S]hould [the district court] have done something
about the promissory estoppel count? Or is that also implicit in
what he has said?
26
We reject Wyatt’s argument that we should presume that
the district court must have considered the promissory
estoppel issue notwithstanding its failure to mention it
anywhere in its opinion. The issue of promissory estoppel
was properly before the district court. As noted previously,
Edwards’ Complaint contained a second count based on
promissory estoppel. Both Edwards and Wyatt referred to
promissory estoppel in their respective pre-trial
memoranda. Edwards’ Proposed Findings of Fact and
Conclusions of Law, filed with the district court at the
conclusion of evidence, identified the elements of
promissory estoppel, see Plaintiff ’s Findings of Fact and
Conclusions of Law at 19, and sought relief on the
promissory estoppel claim. See id. at 23. Wyatt also
responded to the promissory estoppel issue in his Proposed
Findings of Fact and Conclusions of Law.18
Thus, the issue was properly before the district court. We
can only assume that the district court neither considered
the elements of this issue, nor the evidence that bore on
this issue, inasmuch as the district court’s opinion is
completely silent respecting the claim of promissory
estoppel. In the absence of factual findings or any legal
MR. ZUCKER: I think it’s implicit in what he said. It would have
been —
THE COURT: In other words, district judges can[ ]not say
anything, but we are to find their reasoning, their findings of fact
and their conclusions of law from what they don’t say.
MR. ZUCKER: Honestly, I would have been happier with a more
detailed recitation. . . .
THE COURT: Don’t you think he should have at least ruled on it,
right, wrong, or indifferent?
MR. ZUCKER: Yes, it would have been nice. It would have been
nice.
Tr. of Oral Arg. at 24-25.
18. See Defendant’s Proposed Findings of Fact and Conclusions of Law
at 14 (Proposed Conclusion of Law ¶ 2); id. at 16 ((Proposed Conclusion
of Law ¶ 20).
27
conclusions related to promissory estoppel, we cannot
review the district court’s judgment as to this issue.
Moreover, we conclude that there was evidence in the
record that could support Edwards’ promissory estoppel
claim. Pennsylvania has adopted the Restatement view of
promissory estoppel. As the Pennsylvania Supreme Court
has explained:
[U]nder the doctrine of promissory estoppel . . . “[a]
promise which the promisor should reasonably expect
to induce action or forbearance on the part of the
promisee or a third person and which does induce
such action or forbearance is binding if injustice can
be avoided only by enforcement of the promise.”
Thatcher’s Drug Store of West Goshen, Inc. v. Consolidated
Supermarkets, Inc., 636 A.2d 156, 160 (Pa. 1994) (quoting
RESTATEMENT § 90(1)). Under Pennsylvania law, to make a
claim for promissory estoppel,
the aggrieved party must show that 1) the promisor
made a promise that he should have reasonably
expected to induce action or forbearance on the part of
the promisee; 2) the promisee actually took action or
refrained from taking action in reliance on the promise;
and 3) injustice can be avoided only by enforcing the
promise.
Crouse v. Cyclops Industries, 745 A.2d 606, 610 (Pa. 2000).
The evidence at trial discloses that there is a factual
basis for Edwards’ promissory estoppel claim. The alleged
promises could have arisen from Wyatt’s statements post-
dating the purported repudiation letter. Edwards testified
that, at the August coffee shop meeting, Wyatt said that
things were “back on track” and that “nothing [had]
changed.” JA 776-77 (Edwards Testimony). Such
statements, as well as statements made during the August
meeting in Philadelphia and the September meeting in
Washington, could well constitute promises that induced
Edwards’ reliance. Furthermore, Edwards did testify that he
relied on Wyatt’s promises to his detriment by forbearing
from other negotiating opportunities. See JA 782-83.
28
Again, we are not stating that the record requires the
district court to hold that Edwards has met the burden of
establishing promissory estoppel. We venture no opinion on
that subject. Rather, our review is unavailable, and must
lead to a remand, because the district court failed to
address this claim in the first instance.
V.
We have been obliged to reverse the judgment of the
district court entered on August 5, 2002. Our review of the
district court’s opinion and the record reveals to us that the
district court could not have rendered a judgment in favor
of Wyatt based upon either repudiation or the absence of a
new agreement, without considering the entire record, and
without furnishing us with the findings of fact and
conclusions of law as required by our precedents. Moreover,
Edwards’ alternative claim based on promissory estoppel
was nowhere addressed by the district court, although it
was a viable issue in the pleadings and at trial.
Accordingly, we will REVERSE the judgment of the
district court and will REMAND this case for a new trial in
accordance with the foregoing opinion.
A True Copy:
Teste:
Clerk of the United States Court of Appeals
for the Third Circuit