Teamsters, Local 396 v. Nasa Services, Inc. ( 2020 )

FOR PUBLICATION
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
INTERNATIONAL BROTHERHOOD OF No. 19-55166
TEAMSTERS, LOCAL 396,
Petitioner-Appellee, D.C. No.
2:18-cv-03681-
v. SVW-E
NASA SERVICES, INC.,
Respondent-Appellant. OPINION
Appeal from the United States District Court
for the Central District of California
Stephen V. Wilson, District Judge, Presiding
Submitted March 31, 2020 *
Pasadena, California
Filed May 1, 2020
Before: Consuelo M. Callahan, Kenneth K. Lee,
and Lawrence J. VanDyke, Circuit Judges.
Opinion by Judge VanDyke
*
The panel unanimously concludes this case is suitable for decision
without oral argument. See Fed. R. App. P. 34(a)(2).
2 INT’L BHD. OF TEAMSTERS V. NASA SERVS.
SUMMARY **
Labor Law
The panel reversed the district court’s order compelling
arbitration of a labor dispute and remanded.
A waste management company and a union signed a
Labor Peace Agreement containing an arbitration clause.
The LPA’s terms were conditioned upon the company
entering into an exclusive franchise agreement with the City
of Los Angeles by December 31, 2016. The franchise
agreement was signed by the President of the Board of
Public Works on January 31, 2017.
The panel held that under California contract law, the
LPA clearly and unambiguously contained a condition
precedent to formation, rather than a condition precedent to
performance. If the condition precedent failed, then there
was no contract. The panel remanded for the district court
to determine in the first instance whether the city and the
company entered an exclusive franchise agreement by
December 31, 2016. The panel held that if that condition
failed, then the district court could not compel arbitration.
**
This summary constitutes no part of the opinion of the court. It
has been prepared by court staff for the convenience of the reader.
INT’L BHD. OF TEAMSTERS V. NASA SERVS. 3
COUNSEL
L. Brent Garrett and April L. Szabo, Atkinson Andelson
Loya Ruud & Romo, Cerritos, California, for Respondent-
Appellant.
Paul L. More and F. Benjamin Kowalczyk, McCracken
Stemerman & Holsberry LLP, San Francisco, California, for
Petitioner-Appellee.
OPINION
VANDYKE, Circuit Judge:
The City of Los Angeles created an exclusive franchise
system for the collection and handling of municipal solid
waste. L.A. Mun. Code § 66.33 (Apr. 8, 2014). To prevent
the City’s waste collection services from being disturbed by
picketing, work stoppages, or other interruptions, the
Franchise Ordinance requires each franchisee to be party to
a labor peace agreement with a union that represents or seeks
to represent its employees. NASA Services, Inc., a waste
management company, wished to be selected as a franchisee
for one or more of the City’s eleven franchise zones.
NASA and Teamsters Local 396 signed a Labor Peace
Agreement on October 27, 2014. The LPA contained a
broad arbitration clause covering any disputes over its
interpretation or application. But all the LPA’s terms were
“expressly conditioned” upon the City entering into an
exclusive franchise agreement with NASA by December 31,
2016. NASA submitted the LPA to the City with its
franchisee proposal. On January 31, 2017, the President of
4 INT’L BHD. OF TEAMSTERS V. NASA SERVS.
the Board of Public Works signed NASA’s franchise
agreement.
The parties’ underlying dispute amounts to this: NASA
believes that, because its franchise agreement with the City
was not signed until after December 31, 2016, the LPA’s
condition precedent failed and therefore no contract with
Local 396 was formed; Local 396 believes the condition
precedent did not fail, but even if it did, a contract was still
formed. This case regards the proper mechanism to resolve
the dispute. NASA contends the condition precedent related
to the LPA’s formation, and that, due to the condition’s non-
occurrence, no contract ever materialized between the
parties. Local 396, on the other hand, argues the dispute
should be submitted to an arbitrator, because even if the
condition precedent failed, the condition precedent related to
the parties’ performance under the LPA, meaning a contract
was duly formed and the arbitration clause is thus severable
and binding under federal arbitration law.
Ruling on Local 396’s motion to compel arbitration, the
district court found certain phrases in the LPA’s conditional
provisions “inherently incompatible” and “impossible to
reconcile” such that the agreement was ambiguous as to
whether it contained a condition precedent to formation or to
performance. Faced with this perceived irreconcilable
ambiguity, the district court concluded the LPA contained a
condition precedent to performance, because, the court
reasoned, conditions precedent to formation are
comparatively disfavored in the law. To aid in construing
this ambiguous contract language, the district court
considered extrinsic evidence that, it concluded, reaffirmed
INT’L BHD. OF TEAMSTERS V. NASA SERVS. 5
its interpretation of the LPA. 1 As a result, the district court
concluded the arbitration clause was severable and directed
the arbitrator to resolve the parties’ dispute over whether the
City and NASA entered a franchise agreement by December
31, 2016. The district court also concluded the arbitrator
should decide whether NASA waived its right to enforce the
LPA’s conditions, rejected NASA’s statute of limitations
defense, and awarded Local 396 attorney fees and costs.
Jurisdiction & Standards of Review
NASA timely appealed, and we have jurisdiction under
28 U.S.C. § 1291 and 29 U.S.C. § 185(a). We review de
novo the district court’s order compelling arbitration,
Quackenbush v. Allstate Ins. Co., 121 F.3d 1372, 1380 (9th
Cir. 1997), the interpretation of a contract’s language, U.S.
v. 1.377 Acres of Land, 352 F.3d 1259, 1264 (9th Cir. 2003),
and the principles of law applied to facts adduced from
extrinsic evidence, DP Aviation v. Smiths Indus. Aerospace
& Def. Sys. Ltd., 268 F.3d 829, 836 (9th Cir. 2001). When
a district court makes factual findings derived from extrinsic
evidence used to interpret a contract, we review for clear
error. DP Aviation, 268 F.3d at 836. Whether a contract is
ambiguous is a matter of law we also review de novo. Cachil
Dehe Band of Wintun Indians v. Cal., 618 F.3d 1066, 1075
1
As explained below, the LPA was not ambiguous, so the district
court should not have considered extrinsic evidence at all. See CAL. CIV.
CODE § 1639. Even so, the district court’s findings derived from that
evidence were clearly erroneous. Instead of construing all facts and
reasonable inferences that can be drawn from those facts in a light most
favorable to the non-moving party, Three Valleys Mun. Water Dist. v.
E.F. Hutton & Co., Inc., 925 F.2d 1136, 1141 (9th Cir. 1991), it did the
opposite. The extrinsic evidence, properly construed in NASA’s favor
as the non-moving party, clearly supports its position.
6 INT’L BHD. OF TEAMSTERS V. NASA SERVS.
(9th Cir. 2010); Benach v. Cty. of L.A., 149 Cal. App. 4th
836, 847 (2007).
Discussion
I
“Arbitration is strictly a matter of consent, and thus is a
way to resolve . . . only those disputes . . . the parties have
agreed to submit to arbitration.” Granite Rock Co. v. Int’l
Bhd. of Teamsters, 561 U.S. 287, 299 (2010) (citations and
quotation marks omitted). Because of this “axiomatic”
principle, “a party cannot be required to submit [to
arbitration] any dispute which he has not agreed so to
submit.” Sanford v. MemberWorks, Inc., 483 F.3d 956, 962
(9th Cir. 2007). Thus, courts may compel arbitration only
after determining that an agreement to arbitrate has been
formed. Granite Rock, 561 U.S. at 299. Importantly, the
federal policy favoring arbitration of labor disputes plays a
role only after a court has been satisfied that an arbitration
agreement was “validly formed.” Id. at 303; see also id. at
301 (explaining that courts apply an arbitrability
presumption “only where a validly formed and enforceable
arbitration agreement is ambiguous about whether it covers
the dispute at hand”) (emphasis added). In sum, the federal
policy favoring arbitration is no substitute for party
agreement, or lack thereof.
Accordingly, we “must determine whether a contract
ever existed; unless that issue is decided in favor of the party
seeking arbitration, there is no basis for submitting any
question to an arbitrator.” Camping Const. Co. v. Dist.
Council of Iron Workers, 915 F.2d 1333, 1340 (9th Cir.
1990). To determine whether the parties formed an
agreement to arbitrate, courts “apply ordinary state-law
principles that govern the formation of contracts.” First
INT’L BHD. OF TEAMSTERS V. NASA SERVS. 7
Options of Chi., Inc. v. Kaplan, 514 U.S. 938, 944 (1995). 2
Under California law, Local 396, the moving party, must
prove by a preponderance of the evidence that an agreement
to arbitrate exists. Knutson v. Sirius XM Radio Inc., 771 F.3d
559, 565 (9th Cir. 2014).
Fundamental precepts of contract interpretation under
California law (and not unique to California) guide our
disposition of this case. The courts’ superseding objective
when interpreting a contract is to “give effect to the mutual
intention of the parties as it existed at the time of
contracting.” Cal. Civ. Code § 1636. “When a contract is
reduced to writing, the intention of the parties is to be
ascertained from the writing alone, if possible . . . .” Id.
§ 1639; MacKinnon v. Truck Ins. Exch., 31 Cal. 4th 635, 647
(2003). Next, and most importantly, “[t]he whole of a
contract is to be taken together, so as to give effect to every
part, if reasonably practicable, each clause helping to
interpret the other.” Cal. Civ. Code § 1641. California case
law consistently reaffirms the primacy of this principle:
It is a primary rule of interpretation that
contracts must be construed as a whole[,] that
is, from their four corners, and the intention
of the parties is to be collected from the entire
instrument and not detached portions thereof,
it being necessary to consider all of the parts
to determine the meaning of any particular
part as well as of the whole. Individual
clauses and particular words must be
2
Both parties take the position that there is no inconsistency
between the California rules of contract interpretation and federal
common law under Section 301 of the Labor Management Relations Act,
29 U.S.C. § 185. We agree.
8 INT’L BHD. OF TEAMSTERS V. NASA SERVS.
considered in connection with the rest of the
agreement, and all of the writing and every
word of it will, if possible, be given effect.
Ajax Magnolia One Corp. v. S. Cal. Edison Co., 167 Cal.
App. 2d 743, 748 (1959); Moore v. Wood, 26 Cal. 2d 621,
630 (1945) (same).
Local 396 correctly notes that ambiguous contract
provisions should be construed against the drafter. See
Penthouse Int’l, Ltd. v. Barnes, 792 F.2d 943, 948 (9th Cir.
1986); Jacobs v. Freeman, 104 Cal. App. 3d 177, 189
(1980). But that rule of construction applies only where
contract language is ambiguous and unresolved by the more
fundamental principles of interpretation. Cal. Civ. Code
§ 1654. Foremost among those preceding principles, for our
purposes, is the mandate that contracts be construed as a
whole. Id. § 1641.
“[P]arties may make the creation of a contract subject to
a condition precedent.” Taylor Bus Serv., Inc. v. San Diego
Bd. of Educ., 195 Cal. App. 3d 1331, 1345 (1987). “[A]
condition precedent is either . . . an uncertain event that must
happen before the contractual right accrues or the contractual
duty arises.” Platt Pac., Inc. v. Andelson, 6 Cal. 4th 307, 313
(1993). “The existence of a condition precedent normally
depends upon the intent of the parties as determined from the
words they have employed in the contract.” Realmuto v.
Gagnard, 110 Cal. App. 4th 193, 199 (2003).
There are two species of conditions precedent:
conditions precedent to formation and conditions precedent
to performance. Jacobs, 104 Cal. App. 3d at 189–90.
Essentially, “[w]here a condition precedent to formation is
not satisfied, the proposed bargain between the parties does
not become a binding contract.” Kum Tat Ltd. v. Linden Ox
INT’L BHD. OF TEAMSTERS V. NASA SERVS. 9
Pasture, LLC, No. 14-cv-02857, 2014 WL 6882421, at *7
(N.D. Cal. Dec. 5, 2014) (citing Taylor Bus Serv., 195 Cal.
App. at 1345). Indeed, “[e]ven where the contract is
complete and signed, it may be shown that the parties orally
agreed that it should not become binding until the happening
of some event.” Clyde Bldg. Ass’n, Inc. v. Walsh, 248 Cal.
App. 2d 513, 515 (1967); Bravo v. Sharkey, 97 Cal. App. 2d
883, 887 (1950) (holding the same, where the parties agreed
to the condition precedent to formation in writing).
Conversely, if a condition precedent to performance fails,
the parties still have a contract, but they lose the right to
enforce at least some of its terms. Kadner v. Shields, 20 Cal.
App. 3d 251, 258 (1971). Courts will neither infer nor
construe a condition precedent “absen[t] . . . language
plainly requiring such construction.” Rubin v. Fuchs, 1 Cal.
3d 50, 53 (1969); Frankel v. Bd. of Dental Exam’rs, 46 Cal.
App. 4th 534, 550 (1996) (“[C]ourts shall not construe a
[contract’s terms] so as to establish a condition precedent
absent plain and unambiguous contract language to that
effect.”). 3 Conditions precedent must be expressed in plain,
clear, and unambiguous language, but parties need not
3
The district court relied upon Antonelle v. Kennedy & Shaw
Lumber Co., 140 Cal. 309, 315 (1903), for the proposition that where
ambiguity in a contract’s terms make it unclear what type of condition
precedent the parties intended to create, the condition should be strictly
construed against the party seeking to avail itself of a condition precedent
to formation. But in Antonelle, strict enforcement of the condition
precedent would have worked a significant forfeiture (a factor we may
consider when construing ambiguous contract language), and the party
urging its enforcement apparently caused the condition precedent to fail.
140 Cal. at 316. So Antonelle is different than this case, where Local
396 would suffer no cognizable forfeiture should the LPA have never
materialized. Antonelle would be inapplicable even if the LPA’s terms
were ambiguous.
10 INT’L BHD. OF TEAMSTERS V. NASA SERVS.
invoke any “required magical incantation.” Roth v. Garcia
Marquez, 942 F.2d 617, 626 (9th Cir. 1991).
Though the law generally disfavors conditions
precedent, courts must still “consider all of the terms” of an
agreement to determine what the parties intended and give
effect to that intent. In re Marriage of Hasso, 229 Cal. App.
3d 1174, 1180–81 (1991) (finding no condition precedent
where “the agreement” lacked “language that it is ‘subject
to’ or ‘conditioned on’” some event). Party intent remains
paramount.
“A [contract] provision will be considered ambiguous
when it is capable of two or more constructions, both of
which are reasonable. But language in a contract must be
interpreted as a whole, and in the circumstances of the case,
and cannot be found to be ambiguous in the abstract.”
MacKinnon, 31 Cal. 4th at 648 (quoting Waller v. Truck Ins.
Exch., Inc., 11 Cal. 4th 1, 18 (1995)) (applying the California
rules of contract interpretation to construe an insurance
policy). 4 Moreover, “courts will not strain to create an
ambiguity where none exists.” Waller, 11 Cal. 4th at 18–19.
Nor is “[t]he language of a contract . . . made ambiguous
simply because the parties urge different interpretations.”
4
Because in our analysis below we discuss a New York case cited
favorably by WILLISTON ON CONTRACTS (4th ed.), we note that the
contract interpretation rules we apply in this case do not differ from New
York’s rules. See Bayerische Landesbank v. Aladdin Capital Mgmt.
LLC, 692 F.3d 42, 53 (2d Cir. 2012) (applying New York law:
“ambiguity exists where a contract term could suggest more than one
meaning when viewed objectively by a reasonably intelligent person
who has examined the context of the entire integrated agreement”)
(emphasis added).
INT’L BHD. OF TEAMSTERS V. NASA SERVS. 11
Seiden Assocs., Inc. v. ANC Holdings, Inc., 959 F.2d 425,
428 (2d Cir. 1992).
II
The district court correctly observed that the threshold
question is whether the LPA contains a condition precedent
to formation. To answer this question, we must examine the
LPA’s language. Realmuto, 110 Cal. App. 4th at 199.
A. Paragraph 1
Paragraph 1 of the LPA states that the “terms of this
Agreement shall only become operative if all of the
conditions set forth in paragraph 15 are satisfied.” This
language clearly and unambiguously makes Paragraph 15’s
stipulations a condition precedent to formation. As the
district court recognized, “[t]his language is clear and
unambiguous in its intent[:] if the conditions in Paragraph 15
are not met, then purportedly the LPA never ‘becomes’
operative in the first instance.” The legal definition of
“operative” is “[b]eing in or having force or effect.”
Operative, Black’s Law Dictionary (10th ed. 2014). Thus,
the plain reading of Paragraph 1 is that no “terms of this
Agreement” shall “become” an instrument “having force or
effect” unless all of Paragraph 15’s conditions are satisfied.
Unless the prescribed stipulations occur, there is no LPA
“having force or effect.” See, e.g., Paratore v. Scharetg,
53 Cal. App. 2d 710, 712 (1942) (using “operative” and
“effective” interchangeably to describe the contingent nature
of a contract containing an express condition precedent to
formation). Given that the “Agreement” itself—and not
merely any particular obligations to perform under it—“shall
only become operative” if Paragraph 15’s conditions are
satisfied, it would be strange to conclude that the parties
intended anything by this language other than a condition
12 INT’L BHD. OF TEAMSTERS V. NASA SERVS.
precedent to formation. Paragraph 1 is clear: the LPA
contains a condition precedent to formation, not
performance.
B. Paragraph 15
Paragraph 15, in its entirety, contains the following
language:
All of the paragraphs of this Agreement are
expressly conditioned on the City of Los
Angeles entering into an exclusive franchise
agreement or franchise agreements with the
Employer for the collection of solid waste
pursuant to City of Los Angeles Municipal
Code, Article 6, Chapter VI, § 66.33.1 et seq.
If the City enters into an exclusive franchise
agreement for the collection of solid waste
with the Employer, then the terms of this
Agreement shall remain in effect for three
(3) years following the effective date of the
exclusive franchise agreement between the
City and the Employer. If the City fails to
enter into an exclusive franchise agreement
for the collection of solid waste with the
Employer by December 31, 2016, then this
Agreement shall become null and void.
Read together, the district court correctly concluded that
Paragraph 15’s three sentences clearly and unambiguously
form one condition precedent: that the LPA shall only be
operative if the City enters an exclusive franchise agreement
with NASA by December 31, 2016. But the district court
read the second and third sentences in Paragraph 15 as
conflicting with Paragraph 1, and therefore concluded the
INT’L BHD. OF TEAMSTERS V. NASA SERVS. 13
language, taken together, was ambiguous as to whether it
was a condition precedent to formation or performance.
1. The district court’s analysis of Paragraph 15
To be clear, reading Paragraph 1 alone, the district court
would have concluded that the parties’ condition precedent
unambiguously applied to formation, not performance. But
the court concluded that Paragraph 15’s language
“contradicts” the “clear and unambiguous” language of
Paragraph 1, therefore creating ambiguity. The district court
reasoned that the phrase “become null and void” in the third
sentence of Paragraph 15 could only mean that the LPA was
operative before the satisfaction of the condition precedent:
“[a]n agreement cannot ‘become’ null and void if it was
never operative or in effect in the first place.” The court thus
concluded Paragraph 15’s “become null and void” language
was “impossible to reconcile” and “inherently incompatible”
with Paragraph 1’s “become operative” language.
The district court then identified support for this position
in Paragraph 15’s first two sentences by plucking phrases
from the context of the entire, integrated agreement. The
district court concluded that the first sentence (“All of the
paragraphs of this Agreement are expressly conditioned on”
the City and NASA entering a franchise agreement) “does
not clearly and unambiguously state that the express
condition pertains to the formation of the agreement as a
whole.” And the district court read the paragraph’s second
sentence (the LPA “shall remain in effect for three (3) years”
as of the effective date of the City-NASA franchise
agreement) as a party acknowledgment that the LPA was
effective prior to the commencement of the three-year term.
14 INT’L BHD. OF TEAMSTERS V. NASA SERVS.
2. The LPA clearly and unambiguously contains
a condition precedent to formation.
The district court reached its conclusions by isolating
Paragraph 15’s conditional clauses from the rest of the LPA,
in violation of the fundamental canon requiring courts to
construe contract terms in harmony, where possible. See
Cal. Civ. Code § 1641. It read the contract’s terms in the
abstract, construed them against NASA, and created the
conflict it deemed irreconcilable. The district court did not
consider particular words within “the context of the entire
integrated agreement.” Bayerische Landesbank, 692 F.3d
at 53 (emphasis added). Nor did it use the whole agreement
to help interpret the words and phrases it found ambiguous.
Cal. Civ. Code § 1641. Rather, the court arrived at a
superficial understanding of the words it deemed troubling,
construed them against NASA, and made no attempt to
harmonize all the LPA’s provisions. The district court
therefore violated the “primary rule of interpret[ing]”
contracts under California law: to give effect to the parties’
mutual intent gathered from the entire document. Ajax,
167 Cal. App. 2d at 748; Cal. Civ. Code § 1641. Essentially,
it applied interpretive canons out of order. See Cal. Civ.
Code § 1654 (“In cases of uncertainty not removed by the
preceding rules, the language of a contract should be
interpreted most strongly against the party who caused the
uncertainty to exist.”) (emphasis added). Had the district
court applied them in order, it would have encountered no
ambiguity at all.
Armed with the proper contract interpretation canons
properly ordered, we analyze Paragraph 15 afresh. First, as
stated above, and as recognized by the district court,
Paragraph 1 clearly indicates that Paragraph 15 contains a
condition precedent to formation. Next, we turn to
INT’L BHD. OF TEAMSTERS V. NASA SERVS. 15
Paragraph 15 to analyze its conditions, understanding that
we must read the instrument “as a whole.” Waller, 11 Cal.
4th at 18 (“language in a contract . . . cannot be found to be
ambiguous in the abstract”). Read in light of Paragraph 1,
we presume Paragraph 15’s terms combine to form one
condition precedent to formation. Cal. Civ. Code § 1641.
That presumption yields only if we find plainly contrary
language or ambiguity unresolvable by the fundamental
rules of contract interpretation.
i. Paragraph 15, Sentence 1
Paragraph 15’s first sentence restates the conditional
language from Paragraph 1 even more forcefully: “All of the
paragraphs of this Agreement are expressly conditioned on”
the City entering a franchise agreement with NASA under
the City’s new ordinance. The district court concluded
(without explanation) that this sentence stopped short of
expressly self-identifying as a condition precedent to
formation. Not so. “All paragraphs of this agreement” in
Paragraph 15 mimics and accentuates “terms of this
Agreement” used in Paragraph 1. Moreover, this sentence
says the entirety of the Agreement’s content is “expressly
conditioned” on the City awarding NASA a franchise. It
emphatically restates Paragraph 1’s condition by even more
clearly and unambiguously (and now, repetitively)
stipulating the LPA’s very existence on a timely franchise
agreement. This formation-contingent language “is too
definite to be ignored. It jumps out at you. The words
employed are too strong to permit of ambiguity.” Los
Angeles Rams Football Club v. Cannon, 185 F. Supp. 717,
722 (S.D. Cal. 1960).
16 INT’L BHD. OF TEAMSTERS V. NASA SERVS.
ii. Paragraph 15, Sentence 2
Paragraph 15’s second sentence provides that the LPA
shall “remain in effect for three (3) years following the
effective date” of the City-NASA franchise agreement. The
word “remain” naturally describes the length of the LPA’s
life upon commencement. It need not, contrary to the district
court’s assertion, speak to the LPA’s vitality before
execution of the City-NASA franchise agreement. Indeed,
even assuming arguendo that the district court’s
interpretation is plausible, Paragraph 15’s second sentence
cannot carry that alternative meaning when read as a part of
the whole contract. Cal. Civ. Code § 1641. Because the
LPA elsewhere contains clear formation-contingent
language, “remain” “must be considered in connection with
the rest of the agreement,” which resolves any potential
ambiguity. Ajax, 167 Cal. App. 2d at 748. Moreover, the
clause immediately preceding “shall remain” reaffirms this
point: “If the City enters into an exclusive franchise
agreement for the collection of solid waste with the
Employer, then. . . .” Thus, “remain,” within its own
sentence’s context, means the LPA will continue in effect for
three years after its operative date.
iii. Paragraph 15, Sentence 3
Paragraph 15’s third sentence, which bore the brunt of
the district court’s attention, states as follows: “If the City
fails to enter into an exclusive franchise agreement for the
collection of solid waste with the Employer by December
31, 2016, then this Agreement shall become null and void.”
It makes sense to read “become” here the same way we read
it in Paragraph 1 (“become operative”). But that does not
put the two paragraphs in conflict. Rather, reading them “as
a whole,” if the condition is satisfied, the potential
agreement “become[s] operative”; if the condition fails, the
INT’L BHD. OF TEAMSTERS V. NASA SERVS. 17
potential agreement “become[s] null and void”—that is, it
no longer can become operative. Contrary to the district
court’s conclusions, the parties’ use of “become” here does
not lead to the unavoidable conclusion that there existed an
operative contract before the franchise agreement was
awarded, nor does it create irreconcilable conflict with the
LPA’s other conditional sentences.
First, the district court’s interpretive logic evidently
originates from confusion over the nature of a signed
instrument containing a condition precedent to formation. In
short, such a document is a pre-negotiated agreement that
will become effective if some articulated event occurs. It is
a proposed contract, not a contract. “Thus, when the parties
to a proposed contract have agreed that the contract is not to
be effective or binding until certain conditions are performed
or occur, no binding contract will arise until the conditions
specified have occurred or been performed.” 13 Williston
on Contracts § 38:7 (4th ed.). Here, if the City and NASA
entered into a franchise agreement by December 31, 2016,
the LPA would “become” binding and operative.
If the condition failed, the LPA’s potential to become a
binding, operative agreement became extinguished—“null
and void.” The LPA was an agreement to agree—operative,
binding, and enforceable according to its terms if the City
and NASA timely entered a franchise agreement. It was
similar to an option contract, which has the potential to
become a broader agreement, but also has the potential to
become nullified by its expiration. There is nothing
anomalous in the law about such contractual forks in the
road. The district court’s interpretation of “become null and
void” overlooks this, effectively insisting that “become” in
18 INT’L BHD. OF TEAMSTERS V. NASA SERVS.
Paragraph 15 can only be read as an exit ramp, not a fork in
the road. 5
Second, and relatedly, the district court could only
interpret “become null and void” as it did by ignoring the
LPA’s other conditional language that clearly and
unambiguously establishes the opposite proposition—that
the LPA remained inoperative until the satisfaction of the
condition. See Cal. Civ. Code § 1650 (“Particular clauses of
a contract are subordinate to its general intent.”). As the
district court observed, Paragraph 1 clearly and
5
That NASA relied upon the signed LPA in its franchise proposal
to the City is of no moment. First, we pass no judgment about whether
the condition precedent was satisfied. If the district court on remand
concludes it was, Local 396’s equities argument dissolves entirely.
Second, Local 396’s equities argument fails to convince regardless. It is
almost certainly true that NASA benefited from the signed LPA; parties
don’t usually sign a contract unless they perceive a resulting benefit. But
that hardly means that Local 396, a professional contract negotiating
entity, got hoodwinked at the bargaining table. Local 396 received a
benefit too—a contingent benefit. It bargained for a labor peace
agreement with NASA if the condition precedent was satisfied. Like
every condition precedent in every contract, there was some risk that the
condition precedent to this contract could fail—a risk that Local 396
voluntarily agreed to take. This is exactly how a clearly and
unambiguously expressed condition precedent to formation works:
Freedom of contract prevails in an arm’s length
transaction between sophisticated parties such as
these, and in the absence of countervailing public
policy concerns there is no reason to relieve them of
the consequences of their bargain. If they are
dissatisfied with the consequences of their agreement,
the time to say so was at the bargaining table.
13 WILLISTON ON CONTRACTS § 38:7 (4th ed.) (internal quotation marks
omitted) (quoting Oppenheimer & Co. v. Oppenheim, Appel, Dixon &
Co., 660 N.E.2d 415, 421 (N.Y. 1995)).
INT’L BHD. OF TEAMSTERS V. NASA SERVS. 19
unambiguously announces a condition precedent to
formation which consists of all the conditions in Paragraph
15. This makes Paragraph 15 subordinate to Paragraph 1.
The word “become” in Paragraph 15 should not be read in a
way that upheaves the parties’ clearly established intent in
Paragraph 1 (and Paragraph 15, by reference in Paragraph
1), if it can be reasonably avoided. California law thus
compels the court to interpret “become” as NASA urges: “to
undergo change or development.” The district court’s
dubious interpretation of “become” needlessly creates
ambiguity where none exists. Moreover, its reasoning
means the LPA’s two explicit references to the conditional
efficacy of the entire “Agreement” apparently refer to
something less than the entire agreement.
Williston cites Oppenheimer, a New York case, when
illustrating a condition precedent to formation. 13 Williston
on Contracts § 38:7 (4th ed.) (discussing Oppenheimer,
660 N.E.2d at 688–95). In Oppenheimer, the underlying
agreement stated that if the condition was not satisfied by a
specific date, the agreement would be “deemed null and void
and of no further force and effect.” 660 N.E.2d at 416. The
Oppenheimer court concluded that the agreement contained
a condition precedent to formation. Id. at 421. Oppenheimer
is pertinent here because its conditional language is
effectively identical to that at issue in this case, except here
the parties agreed that, upon failure of a condition precedent,
the contract would “become null and void,” while in
Oppenheimer, the parties agreed the contract would “be
deemed null and void.” Id. at 416. If Williston and
Oppenheimer are right (as we believe they are), the marginal
difference between “deemed” and “become” must bear the
full weight of the argument that Paragraph 15 can only have
“the opposite meaning” of Paragraph 1. But the words
“deemed” and “become” just aren’t that different in this
20 INT’L BHD. OF TEAMSTERS V. NASA SERVS.
context. Before the point in time where the condition
precedent is satisfied or fails (here, before the end of
December 31, 2016), the parties’ signed contract is capable
of “becom[ing] operative.” After the point in time when the
condition precedent can no longer be satisfied (here, January
1, 2017), the parties’ signed contract is “null and void”—that
is, no longer capable of “becom[ing] operative.” The key
point is that the signed document has changed from one thing
(capable of “becom[ing] operative”) to another (incapable of
“becom[ing] operative”). In this context, whether you speak
of that change as the signed document “becom[ing] null and
void” or being “deemed null and void” is a distinction
without a difference. If “shall be deemed null and void”
evinced a condition precedent to formation “in the clearest
language” in Williston and Oppenheimer, 660 N.E.2d at 421,
so does “shall become null and void” in this case.
The district court’s insistence that “become null and
void” must mean a contract already existed runs into another
conflict with Williston and Oppenheimer. In Oppenheimer,
the condition precedent stated, inter alia, “this letter
agreement and the Sublease shall be deemed null and void
and of no further force and effect.” 660 N.E.2d at 416
(emphasis added). The New York Court of Appeals held
that the Oppenheimer condition was a condition precedent
to formation, despite the fact that “further” could be read the
same way the district court here reads “become null and
void”; namely, to admit the existence of a binding agreement
before the satisfaction of the condition precedent. Yet the
Oppenheimer court did not pin all its analysis on “no further
force and effect” and conclude that a contract existed before
the occurrence of the condition precedent. Id. Quite the
opposite, the court determined the parties had agreed to a
condition precedent to formation, stated in the “clearest
language.” Id. at 421. That Williston finds Oppenheimer
INT’L BHD. OF TEAMSTERS V. NASA SERVS. 21
illustrative of a condition precedent to formation reinforces
the observations above regarding the nature of potential
contracts. An agreement containing a condition precedent to
formation is potentially operative until the failure of the
condition, at which point it “becomes” null and void—
incapable of becoming operative.
Similarly, in Bravo the California Court of Appeals
discussed an agreement containing the following condition
precedent to formation: “[I]n the event the parties, after
reasonable effort, are unable to agree on plans and
specifications, this Agreement and the lease agreed to be
executed by the parties hereto shall ipso facto, . . . become
null and void.” 97 Cal. App. 2d at 886 (emphasis added).
The parties never agreed on plans and specifications, and the
court concluded that the agreement was “nothing more than
an agreement to agree concerning a lease to be subsequently
executed and as such it cannot be made the basis of an action
either in law or in equity.” Id. at 887. Thus, like the present
situation, “[e]ven when a written contract is complete and
signed it may be shown that the parties agreed that it would
not be binding until the happening of some future event, a
condition precedent . . . .” Haines v. Bechdolt, 231 Cal. App.
2d 659, 661 (1965); see also Clyde Bldg. Ass’n, 248 Cal.
App. 2d at 515 (same).
Local 396 argues Oppenheimer doesn’t apply because
the court there repeatedly referenced different conditional
language (“unless and until”) not extant in the LPA. The
district court likewise criticized NASA’s language choices.
But parties need not deploy fine-tuned incantations to
successfully create a condition precedent to formation. See
Roth, 942 F.2d at 626. What matters is that the parties—
both parties—were clear enough about their intent to create
a condition precedent to formation. Here, as the district
22 INT’L BHD. OF TEAMSTERS V. NASA SERVS.
court acknowledged, Paragraph 1’s “language is clear and
unambiguous in its intent to designate the conditions in
Paragraph 15 as necessary conditions to the terms of the LPA
‘becoming’ operative.” And, as discussed, nothing in
Paragraph 15’s language must be read as undermining
Paragraph 1’s clear and unambiguous intent. There is no
“stark contrast” among the LPA’s provisions. To the
contrary, its provisions, read as a whole, are quite clear.
Conclusion
The district court’s unnecessary reading of Paragraph 15
frustrated the intention of the parties clearly expressed in the
LPA read as a whole. Under California law, “[a] contract
must be so interpreted as to give effect to the mutual
intention of the parties as it existed at the time of contracting,
so far as the same is ascertainable and lawful.” Cal. Civ.
Code § 1636. The LPA contains a condition precedent to
formation that is both ascertainable and lawful. Consistent
with the LPA’s plain language and fundamental canons of
contract interpretation, if the condition precedent failed, the
potential LPA has become null and void. This reading best
honors “the intention of the parties . . . collected from the
entire instrument.” Ajax, 167 Cal. App. 2d at 748.
We therefore reverse the district court’s order
compelling arbitration. From October 17, 2014 to December
31, 2017, NASA and Local 396 were parties to a proposed
agreement that would become operative, effective, and
enforceable if and only if the condition precedent therein was
satisfied. If the condition precedent failed, there is no
contract. We reach no other issues and remand for the
district court to determine in the first instance whether the
City and NASA entered an exclusive franchise agreement by
INT’L BHD. OF TEAMSTERS V. NASA SERVS. 23
December 31, 2016. If that condition failed, the court may
not compel arbitration. Granite Rock, 561 U.S. at 299.
REVERSED and REMANDED.