Opinion ID: 440317
Heading Depth: 1
Heading Rank: 2

Heading: Interpretation of the Jewel-Pay Less Merger Agreement

Text: 37 In reviewing an order granting summary judgment, we are not limited to a consideration of the grounds on which the district court decided the issue. Rather, if the district court's order can be sustained on any ground supported by the record that was before the district court at the time of the ruling, we are obliged to affirm the district court. Calnetics Corp. v. Volkswagen of America Inc., 532 F.2d 674, 682 (9th Cir.) cert. denied, 429 U.S. 940, 97 S.Ct. 355, 50 L.Ed.2d 309 (1976); Paskaly v. Seale, 506 F.2d 1209, 1211 n. 4 (9th Cir.1974); Helena Rubinstein, Inc. v. Bau, 433 F.2d 1021, 1023 (9th Cir.1970). The trial court found only that no valid contract existed and that any interference was privileged. Northwest argued vigorously, however, that even if a contract existed it did not by its terms preclude the board from also entering into the Northwest merger agreement. There would be no point in remanding for further proceedings if it were clear as a matter of law that the provisions of the Jewel-Pay Less contract did not preclude the Pay Less board from entering into the Northwest agreement. We therefore analyze the terms of the Jewel-Pay Less merger agreement to determine if the question whether that contract required the Pay Less board to abstain from entering the later agreement with Northwest is one appropriate for disposition on a motion for summary judgment. 38 Appellants strongly urge that certain provisions of the Jewel-Pay Less merger agreement precluded Pay Less' board of directors from entering into the later merger agreement with Northwest's board. The Jewel-Pay Less merger agreement included numerous covenants which would appear to impose immediate, binding contractual obligations on Pay Less, obligations that may be inconsistent with the subsequent signing of a competing merger agreement. Article 9.2 of the agreement stipulated that [d]uring the period from the date of this Agreement to the Closing, neither the Company nor any Subsidiary shall, without the prior written consent of Jewel ... (iii) sell or transfer any of its properties or assets, or cancel, release or assign any indebtedness to it or any claims held by it, except in the ordinary course of business ... or except pursuant to contracts or agreements in force at the date of this Agreement and disclosed to Jewel ... (v) enter into or terminate any contract or agreement, or make any change in any of its leases or contracts, other than in the ordinary course of business or pursuant to contracts or agreements in force at the date of this Agreement and disclosed to Jewel ... Section 9.2(viii) of the agreement further provided that Pay Less could not agree to, or make any commitment to effect any such sale, transfer, or extraordinary action prohibited in Article 9. The Pay Less board was further required under article 9.9 of this agreement to exert its best efforts to fulfill those conditions ... over which it has control or influence and to consummate the [M]erger. 39 The question whether the Jewel-Pay Less merger agreement at issue here required that Pay Less' board abstain from entering into a later agreement with Northwest must be resolved by an examination of the intent of the parties. Generally, the intent of the parties can be inferred from the face of the instrument itself. California Civ.Pro.Code Sec. 1856 (West 1983); Molybdenum Corp. of America v. Kasey, 176 Cal.App.2d 357, 363, 1 Cal.Rptr. 400 (1959). However, the Jewel-Pay Less merger agreement is the product of protracted and detailed negotiation, is acknowledged by both parties as intended to be preliminary to a later, more complete, formal contract, and clearly contemplates the occurrence of several conditions precedent to performance. It is a well accepted proposition of contract law that a written contract which is not the complete instrument of expression of the intended rights and obligations of both parties is deemed not to be a total integration for purposes of interpretation. Under California law the parol evidence rule does not bar a court from interpreting such a contract with reference to extrinsic evidence. See Leyse v. Leyse, 251 Cal.App.2d 629, 638, 59 Cal.Rptr. 680 (1967); Corporation of Presiding Bishop of Church of Jesus Christ of Latter-Day Saints v. Cavanaugh, 217 Cal.App.2d 492, 506, 32 Cal.Rptr. 144 (1963); Pollyanna Homes, Inc. v. Berney, 56 Cal.2d 676, 679-80, 16 Cal.Rptr. 345, 365 P.2d 401 (1961); see also, California Civ.Pro.Code Sec. 1856 (West Supp.1984). Moreover, under California law, when performance of a contract is contingent upon the occurrence of a condition precedent, the parol evidence rule does not bar the court from admitting extrinsic evidence to assist in its determination as to the intended operation of the contract. Coast Bank v. Holmes, 19 Cal.App.3d 581, 590, 97 Cal.Rptr. 30 (1971); Haines v. Bechdolt, 231 Cal.App.2d 659, 661, 42 Cal.Rptr. 53 (1965); Louis Lesser Enterprises, Ltd. v. Roeder, 209 Cal.App.2d 401, 410, 25 Cal.Rptr. 917 (1962). 40 Where extrinsic evidence is required to interpret a contract, and that evidence is either not available to the district court or has not been fully litigated by the parties, disposition of the contract claim on a motion for summary judgment is inappropriate. See U.S. v. Sacramento Municipal Utility Dist., 652 F.2d 1341, 1344 (9th Cir.1981); 10A C. Wright and A. Miller, Federal Practice and Procedure Sec. 2730.1 (1983). For this reason, courts have held that merger agreements are generally not susceptible to summary disposition. 41 In American Cyanamid Co. v. Elizabeth Arden Sales Corp., 331 F.Supp. 597 (S.D.N.Y.1971) the court considered the question whether it is proper to interpret a merger agreement similar to the Jewel-Pay Less Agreement when considering a motion for judgment on the pleadings under Fed.R.Civ.P. 12(c), or alternatively a motion for summary judgment under Rule 56. Ruling that a determination of whether the parties intended to be bound by the initial merger agreement required an examination of the history of the negotiations and the contemporaneous utterances of the principal negotiators, the district court in Arden held that the question whether the merger agreement was void was not appropriate for disposition by summary judgment: These are matters that may not be resolved on a summary judgment motion. We have been admonished that even where the so-called evidentiary facts are not in dispute but the inferences of fact to be drawn from them are disputed the court may not award summary judgment ... [a]nd summary judgment is inappropriate where extrinsic evidence may be admissible. Id. at 606 (citations omitted). See also Mid-Continent Telephone Corp. v. Home Telephone Company, 319 F.Supp. 1176, 1189 (N.D.Miss., 1970) (Whether contracting parties are bound by an informal [merger] agreement prior to the execution of a contemplated formal writing is a matter of intention to be determined by the surrounding facts and circumstances of each particular case.); Pennzoil Co. v. Getty Oil Co., No. 7425 slip. op. at 24-25 (Del.Ch. Feb. 6, 1984) (such a determination must be premised on the totality of all such expressions and deeds given the attendant circumstances and objectives that the parties are attempting to attain). 42 Disposition of plaintiff's claims on a motion for summary judgment is inappropriate here. While we have held that under California law the Pay Less board may lawfully commit itself to submit the Jewel proposal to its shareholders on an exclusive basis, the record on appeal does not make it clear whether such an exclusive arrangement was intended by the parties to the transaction at issue. In particular, the record does not demonstrate conclusively whether the parties intended that the Jewel-Pay Less agreement would obligate the Pay Less board to abstain from negotiating or executing a competing merger agreement with the board of another firm. 43 While the specific provisions of the Jewel-Pay Less contract, if taken literally, would appear to preclude the board's entering into a competing arrangement, their effect here is not entirely clear. 14 The history of the particular negotiations and the custom and practice in the field of corporate acquisitions may well determine in large part the purpose and effect of these provisions. The question of the intent of the parties may ultimately be resolved by inferences of fact to be drawn from [evidentiary facts that are not in dispute]. American Cyanamid Co. v. Elizabeth Arden Sales Corp., 331 F.Supp. at 606. 44 We are persuaded by the briefs and arguments of both parties that the preliminary question of the intent of the parties and the ultimate question of the meaning of the contract can best be resolved by the district court on remand following a trial on the merits. That way the district court will have the opportunity to examine thoroughly the documents generated during the Jewel-Pay Less negotiations, evaluate the testimony of the parties to those negotiations, and consider evidence relating to customary corporate practice in such takeover battles. 45 We therefore hold that because material issues of fact await resolution the district court erred in disposing of this issue on a motion for summary judgment. Smith v. United States, 362 F.2d 366, 368 (9th Cir.1966); Gould v. American-Hawaiian S.S. Co., 535 F.2d 761, 785-6 (3d Cir.1976). See generally 10 C. Wright & A. Miller, Federal Practice and Procedure Sec. 2716 (1982).