Opinion ID: 4530961
Heading Depth: 4
Heading Rank: 2

Heading: The LPA clearly and unambiguously contains

Text: 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.
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.
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.
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.