Opinion ID: 777182
Heading Depth: 2
Heading Rank: 4

Heading: Evidence of Immateriality

Text: 33 El-Khoury presented several pieces of evidence tending to show that his underpayment of California sales tax was not important to the franchise relationship. First, Chevron's executives could not identify how the violation harmed Chevron. Second, Chevron deleted a specific reference to its right to audit tax records from the final Dealer Agreements. Third, El-Khoury remedied his tax-law violation.
34 El-Khoury deposed several of Chevron's executives and asked all of them what harm Chevron suffered due to El-Khoury's breach. None of those witnesses could identify a particular harm. Several responded that they did not know what harm Chevron would suffer from a violation like El-Khoury's. One of Chevron's executives went further and testified that a failure like El-Khoury's would be between the Dealer and the state. 35 On the other hand, Chevron presented testimony from executives who testified that a franchisee's failure to pay all state sales tax when due could harm the company's public reputation. That may be so. However, at summary judgment, all inferences must be drawn in favor of the nonmoving party. 36
37 As a preliminary matter, the district court decided that it could not consider the earlier drafts of the Dealer Agreements because of the parol evidence rule. We note, first, that the parol evidence rule is a doctrine of contract law, not of evidence law. Chavez v. Dir., Office of Workers Comp. Programs, 961 F.2d 1409, 1413 (9th Cir.1992). 38 Generally, extrinsic evidence cannot be used to contradict the terms of an integrated unambiguous written agreement. See Gumport v. AT & T Techs., Inc. (In re Transcon Lines), 89 F.3d 559, 568 (9th Cir.1996); Wilson Arlington Co. v. Prudential Ins. Co. of Am., 912 F.2d 366, 370 (9th Cir.1990). However, El-Khoury sought to introduce the earlier agreements not to contradict the terms of the agreement but, instead, to shed light on the parties' intent as to the importance of a sales-tax violation to their franchise relationship. The parol evidence rule does not bar consideration of the earlier drafts of the contract for that purpose. See 3 Arthur L. Corbin, Corbin on Contracts § 576, at 384 (West 1960) (stating that the parol evidence rule does not bar evidentiary consideration of earlier draft agreements in deciding issues other than the terms of the agreement). 39 In other words, we consider the earlier agreements not in deciding whether Chevron had a right to audit tax records, but only in deciding whether Chevron thought that right was so important that it must be spelled out separately in the Dealer Agreements. Of course, many inferences could be drawn from Chevron's elimination of the provision. However, drawing all inferences in El-Khoury's favor, a jury could conclude that Chevron agreed to delete the mention of tax records because it did not think that tax compliance was important to the franchise relationship.
40 The district court did not consider the fact that El-Khoury paid the sales-tax deficiency because it reasoned that El-Khoury had no right to cure his violation under the PMPA. Whether El-Khoury had such a statutory right is a question that we need not, and do not, decide. 41 But the fact that El-Khoury eventually paid the tax and returned to a status of good standing with the state authorities is material to analyzing how important the sales-tax violation was to the franchise relationship. In other words, El-Khoury's belated compliance with state sales-tax law is relevant to the materiality of the breach. 42 The facts that El-Khoury eventually paid all the sales tax due, that one of Chevron's executives testified that the issue in such a circumstance would be between the Dealer and the state rather than between the Dealer and Chevron, and that Chevron agreed to remove a proposed provision from its Dealer Agreements that had given special attention to tax returns and schedules — taken together — create a genuine issue of fact about the importance to the franchise relationship of El-Khoury's breach. 43 REVERSED and REMANDED.