Richie Co., LLP v. Lyndon Ins. Group

United States Court of Appeals
FOR THE EIGHTH CIRCUIT
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No. 02-1071
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Richie Company, LLP, *
*
Plaintiff - Appellant, *
* Appeal from the United States
v. * District Court for the District
* of Minnesota.
Lyndon Insurance Group, Inc., *
*
Defendant - Appellee. *
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Submitted: October 10, 2002
Filed: January 9, 2003
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Before RILEY, RICHARD S. ARNOLD, and SMITH, Circuit Judges
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SMITH, Circuit Judge.
Richie Company, LLP (“Richie”), appeals the District Court’s1 summary
judgment in favor of Lyndon Insurance Company, Inc. (“Lyndon”), in Richie’s
breach-of-contract lawsuit. The District Court determined that a letter of agreement
between the parties was an unenforceable “agreement to agree” rather than an
enforceable contract under Minnesota law. We affirm.
1
The Honorable David S. Doty, United States District Court Judge for the
District of Minnesota.
I.
The dispute in this case centers around a document referred to as a “letter of
agreement” between Richie and Lyndon. Richie and Lyndon began negotiating plans
for Lyndon to acquire ownership of or an interest in one or two extended-warranty
service-contract companies--First Protection Corporation (“FPC”) and Mechanical
Breakdown Protection, Inc. (“MBPI”). Richie conceived the acquisition plan while
doing business with MBPI through a July 1998 agreement. Under that agreement,
MBPI paid Richie a $12.50 fee for each service contract issued, sold, or administered
by MBPI or an MBPI affiliate for a period of twenty-five years.
In the letter of agreement signed April 16, 1999, Richie initially proposed two
acquisition scenarios2. Richie sought compensation from Lyndon for bringing the
opportunities to Lyndon in a fee-per-contract arrangement “substantially identical”3
to that in Richie’s contract with MBPI. In the letter, the parties set forth general terms
of compensation that would be included in a subsequently-drafted “Service Contract
Agreement” between Lyndon and Richie.4 On March 6, 2000, Lyndon closed on the
2
The letter detailed the possible acquisition scenarios. The first involved
Lyndon acquiring FPC and an equity interest in MBPI by means of a contribution of
FPC and cash to MBPI. The second, and the one at issue in this case, involved
Lyndon acquiring FPC but not contributing it to MBPI. These provisions were subject
to both parties’ due diligence, and there was no requirement that Lyndon consummate
any transaction.
3
The term “substantially identical” was not defined in the April 16, 1999,
letter. According to Richie’s minority stockholder, Paul Ravich, the parties never
discussed the meaning of the term.
4
The letter provided that in the second situation, “Lyndon has agreed that it
will enter into a Service Contract Agreement with Richie substantially identical to the
Service Contract Agreement between Richie and MBPI and pay Richie $12.50 for
each Service Contract created by FPC for a period of 25 years.” The letter also
indicated that the parties would enter into this agreement within 180 days after
Lyndon acquired FPC.
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FPC acquisition, and FPC has since been operated as one of Lyndon’s subsidiaries.
The parties never entered into a final “Service Contract Agreement”as anticipated in
the April 16 letter.
Richie filed suit on August 28, 2000, claiming that Lyndon breached a contract
by failing to enter into a “Service Contract Agreement” that was “substantially
identical” to the Richie/MBPI agreement noted in the April 16 letter. For relief,
Richie sought either performance on the contract or payment of damages for failure
to perform. Lyndon responded that the parties never entered into a binding agreement
requiring that they contract at a later date. Furthermore, Lyndon noted that Richie
never negotiated or presented the contemplated “Service Contract Agreement” for
signature and never asked Lyndon to begin paying any of the fees detailed in the
letter.
The parties filed cross-motions for summary judgment, and Lyndon filed a
motion for partial summary judgment on Richie’s claim for anticipatory breach of
contract. On December 5, 2001, the District Court granted Lyndon’s motion, denied
Richie’s motion, and dismissed Richie’s claims with prejudice. The District Court
determined that the “letter of agreement” did not constitute a valid contract under
Minnesota law but was instead an “agreement to agree." As such, the District Court
dismissed Richie’s breach-of-contract claim.
II.
Standard of Review
We review a grant of summary judgment de novo, viewing the evidence in the
light most favorable to the non-moving party and upholding summary judgment
where there are no genuine issues of material fact and the moving party is entitled to
judgment as a matter of law. Wayne v. Genesis Med. Ctr., 140 F.3d 1145, 1147 (8th
Cir. 1998) (per curiam); Fed. R. Civ. P. 56(c). Contract interpretation and
interpretation of an unambiguous contract is a question of law. Simeone v. First Bank
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Nat’l Ass’n, 971 F.2d 103, 106 (8th Cir. 1992); McCormack v. Citibank, N.A., 100
F.3d 532, 538 (8th Cir. 1996). Under Minnesota law, whether a letter of agreement
constitutes an enforceable contract is a question of law that is reviewed de novo. See
Lindgren v. Clearwater Nat’l Corp., 517 N.W.2d 574 (Minn. 1994).
III.
The dispositive issue is whether the April 16 letter of agreement is an
unenforceable agreement to agree or an enforceable contract under Minnesota law.
Minnesota law provides that an “agreement to agree” is not enforceable. See Ohio
Calculating, Inc. v. CPT Corp., 846 F.2d 497, 501 (8th Cir. 1988).5 Such agreements
are generally unenforceable because they provide neither a basis for determining the
existence of a breach nor for giving an appropriate remedy. Ohio Calculating, Inc.,
846 F.2d at 502. Furthermore, where the parties have agreed that an “agreement to
negotiate” or letter of intent, in its entirety, is not a binding legal agreement,
Minnesota courts have refused to enforce an individual provision of the letter as a
freestanding “contract” promise. Huber and Sons, Inc., 2002 WL 1338036 (citing
Hansen, 487 N.W.2d at 927). As the Minnesota Court of Appeals noted in Hansen,
no contract exists "where two parties consider the details of a proposed agreement,
5
See also Lindgren v. Clearwater Nat’l Corp., 517 N.W. 2d 574 (Minn. 1994)
(concluding that “letter of intent” was unenforceable agreement to negotiate);
Mohrenweiser v. Blomer, 573 N.W.2d 704, 706 (Minn. App. 1998) (referring to
“letter of agreement” as “an unenforceable agreement to agree in the future”), review
denied (Minn. Feb. 19, 1998). No contract is formed by the signing of an instrument
when one party knows the other does not intend to be bound by the document.
Hamilton v. Boyce, 48 N.W.2d 172, 174 (Minn. 1951); Hansen v. Phillips Beverage
Co., et al., 487 N.W.2d 925, 927 (Minn. Ct. App. 1992). A letter creating an
agreement to negotiate in good faith in the future is not enforceable where the parties
have contemplated that the agreement is not the complete and final agreement
governing the transaction at issue. Huber and Sons, Inc. v. Service Corp. Int’l, 2002
WL 1338036 (D. Minn. June 17, 2002); Lindgren, 517 N.W.2d at 574; Consolidated
Grain & Barge Co. v. Madgett, 928 F.2d 816, 817-818 (8th Cir. 1991) (citing Ohio
Calculating, Inc., 846 F.2d at 501).
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perhaps settling them one by one, with the understanding during this process that the
agreement is to be embodied in a formal written document and that neither party is
to be bound until he executes the document." Hansen, 487 N.W.2d at 927 (citing
Northway v. Whiting, 436 N.W.2d 796, 799 (Minn. App. 1989) (quoting 1 A. Corbin,
Contracts, § 30 at 97 (1973 ed.)). However, the parties need not agree on every point,
but only that the parties’ intent as to fundamental terms be reasonably certain. Hill v.
Okay Construction Co., Inc., 252 N.W.2d 107, 114 (Minn. 1977). But where
substantial and necessary terms are left open for future negotiation, the purported
contract is void. King v. Dalton Motors, Inc., 109 N.W.2d 51, 52-53 (Minn. 1961).
In Lindgren, the parties drafted a letter of intent for the sale of town homes.
The letter contained a specific provision stating that "the parties shall enter into a
definite purchase agreement which shall be drafted by the buyers within 30 days."
Lindgren, 517 N.W.2d at 574. The Minnesota Supreme Court determined that this
language created only an agreement to negotiate in good faith in the future and was
not the complete and final agreement that would govern the conveyance of property.
Id. Despite the inclusion of precise sale terms, such as the property's legal description,
the purchase price, the terms of the mortgage, and a closing date, the court
nonetheless held that the agreement was unenforceable as a contract. In sum, the court
determined that if a letter of agreement merely represents a summary of negotiations
and contains an expression of willingness to enter into a binding agreement at a future
date, such an agreement is unenforceable as a contract under Minnesota law. See
Lindgren, 517 N.W.2d at 574; Mohrenweiser, 573 N.W.2d at 706; Metro Office Parks
Co. v. Control Data Corp., 205 N.W.2d 121, 125 (Minn. 1973) (holding that as a
matter of law letter of intent not binding unless parties manifest an intent that it be
so).
Given similar facts, this court has reached the same conclusion. See Consol.
Grain and Barge Co., 928 F.2d at 817-818 (holding that an agreement to negotiate
in good faith over profit-sharing issue was unenforceable as a contract); Ohio
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Calculating, Inc., 846 F.2d at 501; C & S Acquisitions Corp. v. Northwest Aircraft,
Inc., 153 F.3d 622, 626 (8th Cir.1998) ("[u]nder Minnesota law, agreements to
negotiate in good faith in the future are unenforceable as a matter of law."). See also
Schoffman v. Cent. States Diversified, Inc., 69 F.3d 215, 221 (8th Cir.1995) (holding
that a letter employer gave to employees regarding information about their
employment and compensation was too vague to be enforceable under Minnesota law
because it merely represented a summary of negotiations and a willingness to enter
into a future binding agreement).
We agree with the District Court’s determination that the April 16 letter was
not a contract but an unenforceable agreement to agree. The letter provided that in the
event Lyndon acquired FPC and did not transfer it to MBPI within 180 days, "Lyndon
has agreed that it will enter into a service contract agreement with Richie
substantially identical" to the Richie/MBPI agreement. (Emphasis added.) The
District Court noted that the language in the April 16 letter is nearly identical to the
language that the Minnesota Supreme Court considered in Lindgren, providing that
"[t]he parties shall enter into a definite purchase agreement which shall be drafted ...
within 30 days." That language, like the language in the April 16 letter, spoke of
future actions and agreements contemplated but not yet completed by the parties, and
showed that the letter "was not the complete and final agreement the parties
contemplated would govern" but "merely created an agreement to negotiate in good
faith." Lindgren, 517 N.W.2d at 574; see also Hansen, 487 N.W.2d at 927 ("[the]
letter creates merely an agreement to negotiate in good faith. Under Minnesota law
such an agreement is unenforceable where the agreement evidences nothing more
than an intention to negotiate in the future."); Schoffman, 69 F.3d at 221.
Finally, because we affirm the District Court’s determination that the April 16
letter of agreement is not a contract under Minnesota law, we do not address Richie’s
argument that the April 16 letter is an unambiguous contract that need not be
interpreted by a jury.
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A true copy.
Attest:
CLERK, U.S. COURT OF APPEALS, EIGHTH CIRCUIT.
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