Court Opinion

ID: 9960536
Source: CourtListenerOpinion
Date Created: 2024-04-16 15:12:48.54476+00
Date Added: 2024-06-11T08:19:36.008038
License: Public Domain

04/16/2024
                IN THE COURT OF APPEALS OF TENNESSEE
                            AT NASHVILLE
                          October 3, 2023 Session

        CHSPSC, LLC V. THE CALIFORNIA CREDITS GROUP, LLC

               Appeal from the Chancery Court for Williamson County
                 No. 20CV-49329B      Michael Binkley, Chancellor

                             No. M2023-00040-COA-R3-CV

A tax group performed tax credit services on a contingency fee basis for a corporation that
owned several hospitals in California. Four and half years after the corporation completed
a transaction referred to as a “spinoff,” the tax group informed the corporation that the
spinoff triggered a reorganization provision of the parties’ contract that entitled the tax
group to a fee for unused tax credits related to one of the hospitals involved in the spinoff.
The corporation filed suit requesting a declaratory judgment that no fee was owed because
the spinoff did not trigger the contract’s reorganization provision. After conducting
discovery, the parties filed cross motions for summary judgment. The trial court denied
the tax group’s motion and granted summary judgment to the corporation after concluding
that the parties’ conduct prior to the dispute showed that they intended the term
“reorganization” to have a tax-based meaning that corresponded to the Internal Revenue
Code’s definition of the term and that the spinoff did not constitute a reorganization under
that definition. Discerning no error, we affirm the trial court’s judgment.

 Tenn. R. App. P. 3 Appeal as of Right; Judgment of the Chancery Court Affirmed

ANDY D. BENNETT, J., delivered the opinion of the Court, in which ARNOLD B. GOLDIN
and JEFFREY USMAN, JJ., joined.

Nancy Vincent, Nashville, Tennessee, for the appellant, The California Credits Group.

David Andrew Curtis and John R. Jacobson, Nashville, Tennessee, for the
appellee, CHSPSC, LLC.
                                                  OPINION

                              FACTUAL AND PROCEDURAL BACKGROUND

       Community Health Systems Professional Services Corporation, LLC (“CHSPSC”)
provides consulting services to hospitals that are owned by direct and remote subsidiaries
of CHSPSC’s indirect parent entity, Community Health Systems, Inc. (“CHSI”). The
California Credits Group (“CCG”) provides tax credit services with a primary focus on
identifying California Enterprise Zone tax credits.1 On June 17, 2009, CHSPSC and CCG
entered into a contract whereby CCG would identify certain tax credits available to
CHSPSC under California law in exchange for CHSPSC paying CCG a fee equal to
twenty-five percent of any credits and interest resulting from identified tax credits utilized
by CHSPSC. In other words, the contract stated that CCG would work on a contingency
fee basis because it was not entitled to payment unless CHSPSC utilized the identified
credits.

      Section xii of the contract provides one limited exception to CCG’s agreement to
work on a contingency fee basis. That section states as follows:

          Reorganization — Any reorganization by [CHSPSC] that results in the
          suspension or elimination of Credits identified by [CCG] will be treated as
          being utilized by [CHSPSC] at such time or reorganization.

Thus, two conditions must be satisfied to trigger this exception: (1) there must be a
“reorganization” by CHSPSC, and (2) that reorganization must result in the “suspension[2]
or elimination” of credits CCG identified. The contract does not define the terms
“reorganization” or “elimination.”

       After entering into the contract, CCG identified approximately $898,125 in tax
credits generated by the business activities of one of CHSI’s subsidiaries, Watsonville
Hospital Corporation (“Watsonville”), between 2000 and 2012. Watsonville utilized
approximately $685,481 of those tax credits through the 2013 tax year, and CCG received
a twenty-five percent contingency fee totaling $171,370. The parties’ dispute centers on
Watsonville’s unused tax credits.

       On April 29, 2016, CHSI completed a transaction the parties refer to as “the
spinoff.” In the spinoff, CHSI distributed to its public shareholders the stock of a
subsidiary, Quorum Health Corporation (“Quorum”). Quorum was an indirect parent
    1
     The record contains little explanation regarding the nature of these tax credits, but the parties’ contract
indicates that they are “hiring credits and equipment based credits” that businesses may acquire under
California law.
    2
        Neither party contends that a “suspension” of tax credits occurred in this case.
                                                      -2-
entity of Watsonville, and it continued to indirectly own Watsonville after the spinoff.
After the spinoff, however, Watsonville was no longer a part of CHSI’s and its subsidiaries’
unitary tax group for income tax purposes under California law. Instead, Watsonville was
then part of Quorum’s unitary tax group.

       The spinoff was structured in a way as to be tax free by not meeting the definition
of “reorganization” under the Internal Revenue Code. Section 355 of the Internal Revenue
Code governs the distribution of stock and securities of a controlled corporation and
expressly states that no gain or loss shall be recognized on such a distribution so long as
the distribution is not part of a “reorganization.” 26 U.S.C. § 355(c)(1). Section 368 of
the Internal Revenue Code sets out seven transactions that constitute a “reorganization.”
26 U.S.C. § 368. Transactions falling within the definition of “reorganization” include a
statutory merger, recapitalization, change in place of organization or corporate form, or
transfer by a corporation of its assets to another corporation in bankruptcy under certain
circumstances. None of the seven transactions meeting the definition of “reorganization”
describes the spinoff.

        Seven months before the spinoff occurred, Chad Courtright, Senior Manager of Tax
Controversy at CHSPSC, sent an email to Aaron Valle, Project Coordinator at CCG, to
inform CCG that Watsonville would be spun off. In the email, Mr. Courtright asked what
impact, if any, the spinoff would have on Watsonville’s unused tax credits. Mr. Valle
responded, “Regarding what happens to the credits, they’ll be spun out with Watsonville.
It’s actually an issue we see fairly often.” Following the spinoff, the credits did, in fact,
spinoff with Watsonville and continued to exist. For the next four years, CCG
communicated with Quorum about the credits and made no claim to CHSPSC that the
spinoff triggered the contract’s reorganization provision.

        In February 2020, when it became apparent that Quorum was unlikely to be able to
use Watsonville’s unused tax credits before they expired, CCG, for the first time, suggested
to CHSPSC that there “may be” some fee implications due to the spinoff after all.
Thereafter, CCG began referring to the spinoff as a “reorg” and claiming that the spinoff
resulted in the “elimination” of Watsonville’s unused tax credits because CHSI’s unitary
tax group had been “dispossessed of the Credits.” On April 2, 2020, CCG sent CHSPSC
a letter claiming that CCG had “recently discovered” that Watsonville “spun off from
[CHSI] on April 29, 2016.” The letter went on to inform CHSPSC that the spinoff
constituted a “reorganization” that resulted in the elimination of the tax credits, entitling
CCG to payment of its twenty-five percent contingency fee under Section xii of the
contract. Thus, CCG demanded that CHSPSC “immediately remit $107,563” as CCG’s
fee for the Watsonville tax credits.

      After receiving the April 2, 2020 letter, CHSPSC initiated this lawsuit by filing a
complaint requesting a declaratory judgment that it did not owe CCG any additional fees
under the contract. CCG filed an answer and counter-complaint asserting, among other

                                            -3-
things, a claim for breach of contract. CCG also filed a third-party complaint against CHSI
but, on June 20, 2022, the trial court entered an agreed order dismissing the third-party
complaint against CHSI with prejudice.

        On July 13, 2022, CHSPSC filed a motion for summary judgment asserting that the
spinoff was not a “reorganization” under the contract because it did not constitute a
“reorganization” under the Internal Revenue Code. Even if it was a reorganization,
CHSPSC argued, the spinoff did not result in the “suspension or elimination” of the tax
credits, as they remained in existence following the spinoff. That same day, CCG filed its
own motion for summary judgment arguing that Section xii of the contract had been
triggered because the spinoff constituted a “reorganization” that “eliminated” CHSPSC’s
ability to utilize Watsonville’s credits.

        After hearing arguments on the motions, the trial court entered an order denying
CCG’s motion and granting summary judgment to CHSPSC because the court concluded
that the spinoff did not trigger Section xii of the contract. The court explained as follows:

              The Court finds the parties’ subsequent conduct demonstrates the
       parties’ intention, at the time the Agreement was executed, that the term
       “reorganization” be construed in accordance with 26 U.S. Code § 355.
              As the parties agree [the] spin-off of Watsonville did not qualify as a
       “reorganization” under the Internal Revenue Code, and the Court has found
       the Agreement contemplated “reorganization” being construed in accordance
       with the Internal Revenue Code, Section xii of the Agreement cannot be
       triggered, regardless of whether the Credits were “eliminat[ed],” because the
       Plaintiff’s “reorganization” is a condition precedent to the “elimination” of
       the Credits.
              Finally, the Court finds, because Plaintiff did not breach the
       Agreement by refusal to pay fees as Section xii of the Agreement was not
       triggered by the spin-off of Watsonville, Defendant’s breach of contract
       counterclaim fails.

       CCG appealed and presents the following issue for our review: whether the trial
court erred in denying its motion for summary judgment and granting summary judgment
to CHSPSC.

                                  STANDARD OF REVIEW

       We review a trial court’s summary judgment determination de novo, with no
presumption of correctness. Rye v. Women’s Care Ctr. of Memphis, MPLLC, 477 S.W.3d
235, 250 (Tenn. 2015). This means that “we make a fresh determination of whether the
requirements of Rule 56 of the Tennessee Rules of Civil Procedure have been satisfied.”
Id. We “must view the evidence in the light most favorable to the nonmoving party and

                                            -4-
must draw all reasonable inferences in that party’s favor.” Godfrey v. Ruiz, 90 S.W.3d 692,
695 (Tenn. 2002); see also Acute Care Holdings, LLC v. Houston Cnty., No. M2018-
01534-COA-R3-CV, 2019 WL 2337434, at *4 (Tenn. Ct. App. June 3, 2019).

        Summary judgment is appropriate “if the pleadings, depositions, answers to
interrogatories, and admissions on file, together with the affidavits, if any, show that there
is no genuine issue as to any material fact and that the moving party is entitled to a judgment
as a matter of law.” TENN. R. CIV. P. 56.04. A disputed fact is material if it is determinative
of the claim or defense at issue in the motion. Martin v. Norfolk S. Ry. Co., 271 S.W.3d
76, 84 (Tenn. 2008) (citing Byrd v. Hall, 847 S.W.2d 208, 215 (Tenn. 1993)). When a
party moves for summary judgment but does not have the burden of proof at trial, the
moving party must submit evidence either “affirmatively negating an essential element of
the nonmoving party’s claim” or “demonstrating that the nonmoving party’s evidence at
the summary judgment stage is insufficient to establish the nonmoving party’s claim or
defense.” Rye, 477 S.W.3d at 264. Once the moving party has satisfied this requirement,
the nonmoving party “‘may not rest upon the mere allegations or denials of [its] pleading.’”
Id. at 265 (quoting TENN. R. CIV. P. 56.06). Rather, the nonmoving party must respond
and produce affidavits, depositions, responses to interrogatories, or other discovery that
“set forth specific facts showing that there is a genuine issue for trial.” TENN. R. CIV. P.
56.06; see also Rye, 477 S.W.3d at 265. If the nonmoving party fails to respond in this
way, “summary judgment, if appropriate, shall be entered against the [nonmoving] party.”
TENN. R. CIV. P. 56.06. If the moving party fails to show that he or she is entitled to
summary judgment, however, “‘the non-movant’s burden to produce either supporting
affidavits or discovery materials is not triggered and the motion for summary judgment
fails.’” Martin, 271 S.W.3d at 83 (quoting McCarley v. W. Quality Food Serv., 960 S.W.2d
585, 588 (Tenn. 1998)).

       Because any party may move for summary judgment under Tenn. R. Civ. P. 56,
cases sometimes involve cross-motions for summary judgment. CAO Holdings, Inc. v.
Trost, 333 S.W.3d 73, 82 (Tenn. 2010). As the Tennessee Supreme Court explained in
CAO Holdings v. Trost:

               Cross-motions for summary judgment are no more than claims by
       each side that it alone is entitled to a summary judgment. The court must
       rule on each party’s motion on an individual and separate basis. With regard
       to each motion, the court must determine (1) whether genuine disputes of
       material fact with regard to that motion exist and (2) whether the party
       seeking the summary judgment has satisfied Tenn. R. Civ. P. 56’s standards
       for a judgment as a matter of law. Therefore, in practice, a cross-motion for
       summary judgment operates exactly like a single summary judgment motion.

Id. at 83 (citations omitted).

                                             -5-
                                          ANALYSIS

       I. Applicable law

        The contract contains a choice of law provision stating that the terms of the contract
“shall be governed by, and construed in accordance with, the laws of the State of
California.” Under California law, a party must prove the following elements to establish
a claim for breach of contract: “(1) the existence of the contract, (2) plaintiff’s performance
or excuse for nonperformance, (3) defendant’s breach, and (4) the resulting damages to the
plaintiff.” Oasis W. Realty, LLC v. Goldman, 250 P.3d 1115, 1121 (Cal. 2011) (citing
Reichert v. Gen. Ins. Co., 442 P.2d 377, 381 (Cal. 1968)). The parties agree that the first
two elements have been established. Their disagreement centers on the third element—
whether CHSPSC breached the contract by refusing to pay CCG a fee for Watsonville’s
unused tax credits.

       To answer this question, we must interpret the contract. Under California law,
“‘[t]he interpretation of a contract is a judicial function.’” Brown v. Goldstein, 34 Cal.
App. 5th 418, 432 (Cal. Ct. App. 2019) (quoting Wolf v. Walt Disney Pictures & Television,
162 Cal. App. 4th 1107, 1125-26 (Cal. Ct. App. 2008)). When engaging in this function,
courts “‘give effect to the mutual intention of the parties as it existed’ at the time the
contract was executed.” Wolf, 162 Cal. App. 4th at 1126 (quoting Cal. Civ. Code § 1636).
“Ordinarily, the objective intent of the contracting parties is a legal question determined
solely by reference to the contract’s terms.” Id. (citing Cal. Civ. Code § 1639).

       A court construing a contract must apply the “‘“clear and explicit” meaning of [the
contract’s terms], interpreted in their “ordinary and popular sense,” unless “used by the
parties in a technical sense or a special meaning is given to them by usage[.]”’” Hewlett-
Packard Co. v. Oracle Corp., 65 Cal. App. 5th 506, 531 (Cal. Ct. App. 2021) (quoting AIU
Ins. Co. v. Super. Ct., 799 P.2d 1253, 1264 (Cal. 1990) (quoting Cal. Civ. Code § 1644)).
Terms used in a technical sense “are to be interpreted as usually understood by persons in
the profession or business to which they relate, unless clearly used in a different sense.”
Cal. Civ. Code § 1645.

       II. Intended meaning of the term “reorganization”

        CCG takes issue with the trial court’s determination that the parties intended the
term “reorganization” to have a technical, tax-based meaning that corresponded to the
Internal Revenue Code’s definition of “reorganization.” According to CCG, the contract
contains no language indicating the parties intended for the term to have any sort of
technical meaning. Thus, CCG urges, the only reasonable construction of “reorganization”
is its “ordinary and popular” meaning, which CCG avers is “any type of different order,

                                             -6-
composition or structure of the corporation.”3 CCG argues that, under this interpretation,
the spinoff constituted a reorganization because it resulted in a change to the composition
or structure of CHSPSC. For the reasons discussed below, we respectfully disagree.

       In interpreting a contract’s terms, courts apply “the meaning a layperson would
ascribe to contract language” if unambiguous, Santisas v. Goodin, 951 P.2d 399, 405 (Cal.
1998), but courts also recognize the “‘interpretational principle that a contract must be
understood with reference to the circumstances under which it was made and the matter to
which it relates.’” Mountain Air Enters., LLC v. Sundowner Towers, LLC, 398 P.3d 556,
561 (Cal. 2017) (quoting Xuereb v. Marcus & Millichap, Inc., 3 Cal. App. 4th 1338, 1344
(Cal. Ct. App. 1992)); see also Cal. Civ. Code § 1647. The threshold question under
California law is whether the terms of a contract are ambiguous—“that is, reasonably
susceptible to more than one interpretation.” Scheenstra v. Cal. Dairies, Inc., 213 Cal.
App. 4th 370, 389 (Cal. Ct. App. 2013) (citing Winet v. Price, 4 Cal. App. 4th 1159, 1165
(Cal. Ct. App. 1992)). Although a court begins with the contract’s terms to determine
whether they are ambiguous, the court may consider extrinsic evidence to determine
whether a material term is “reasonably susceptible to a particular meaning.” Scheenstra,
213 Cal. App. 4th at 390. As one California court explained:

                “The interpretation of a contract involves ‘a two-step process: First
        the court provisionally receives (without actually admitting) all credible
        evidence concerning the parties’ intentions to determine “ambiguity,” i.e.,
        whether the language is “reasonably susceptible” to the interpretation urged
        by a party. If in light of the extrinsic evidence the court decides the language
        is “reasonably susceptible” to the interpretation urged, the extrinsic evidence
        is then admitted to aid in the second step – interpreting the contract.” (Wolf
        v. Superior Court (2004) 114 Cal. App. 4th 1343, 1351, 8 Cal. Rptr. 3d 649
        (Wolf II) [citing and quoting Winet v. Price (1992) 4 Cal.App.4th 1159, 1165,
        6 Cal. Rptr. 2d 554 (Winet)]; see also Wolf, supra, 162 Cal. App. 4th at p.
        1126, 76 Cal. Rptr. 3d 585.)

        3
          In its appellate brief, CCG contends that this is the “ordinary and popular” meaning of the term
“reorganization” based on certain dictionary definitions:

        “Reorganization” is “the action or process of reorganizing; fresh organization; an instance
        of this” (Oxford English Dictionary Online (2014)); “the act or process of reorganizing;
        the state of being reorganized” (Merriam-Webster’s Collegiate Dictionary (11th ed. 2007));
        “the state of being reorganized; especially: the financial reconstruction of a business
        concern” (Merriam-Webster Online, www.merriam-webster.com/dictionary (accessed July
        11, 2022), with the term “reorganize” meaning simply “to organize again or anew” (OED
        Online) or “to undergo or make changes in organization” (Merriam-Webster’s Collegiate
        Dictionary, supra).
                                                   -7-
                “When there is no material conflict in the extrinsic evidence, the trial
       court interprets the contract as a matter of law. This is true even when
       conflicting inferences may be drawn from the undisputed extrinsic evidence
       or that extrinsic evidence renders the contract terms susceptible to more than
       one reasonable interpretation. If, however, there is a conflict in the extrinsic
       evidence, the factual conflict is to be resolved by the jury.” (Wolf, supra, 162
       Cal. App. 4th at pp. 1126-1127, 76 Cal. Rptr. 3d 585; see id. at p. 1134, 76
       Cal. Rptr. 3d 585 [“that extrinsic evidence may reveal an ambiguity
       subjecting a contract to more than one reasonable interpretation does not
       mean resolution of that ambiguity is necessarily a jury question. Absent a
       conflict in the evidence, the interpretation of the contract remains a matter of
       law”].).

Brown, 34 Cal. App. 5th at 432-33 (internal citations omitted).

       CCG is correct that the plain language of the contract does not reference the Internal
Revenue Code. But, CHSPSC presented extrinsic evidence showing that the term
“reorganization” is “reasonably susceptible” to having a technical, tax-based meaning that
corresponds to the Internal Revenue Code’s definition. See Scheenstra, 213 Cal. App. 4th
at 390 (stating that contract terms are ambiguous if “reasonably susceptible to more than
one interpretation” and that the court may consider extrinsic evidence to make its ambiguity
determination). Therefore, we agree with the trial court that the term “reorganization” is
ambiguous. Because there is no material conflict in the extrinsic evidence, most of which
consisted of emails the parties exchanged after signing the contract, we may rely on it to
interpret the contract as a matter of law. See Brown, 34 Cal. App. 5th at 433 (quoting Wolf,
162 Cal. App. 4th at 1127) (“‘Absent a conflict in the evidence, the interpretation of the
contract remains a matter of law.’”).

       Generally, there are two types of extrinsic evidence that California courts consider
when interpreting a contract as a matter of law. The first type is evidence regarding the
“‘circumstances surrounding the making of the agreement . . . including the object, nature
and subject matter of the writing . . .’ so that the court can ‘place itself in the same situation
in which the parties found themselves at the time of contracting.’” Pac. Gas & Elec. Co.
v. G. W. Thomas Drayage & Rigging Co., 442 P.2d 641, 645 (Cal. 1968) (quoting
Universal Sales Corp. v. Cal. Press Mfg. Co., 128 P.2d 665, 671 (Cal. 1942); Lemm v.
Stillwater Land & Cattle Co., 19 P.2d 785, 788 (Cal. 1933)). The second type is evidence
of the parties’ subsequent conduct before the dispute arose, known as “the rule of practical
construction.” Warner Constr. Corp. v. City of Los Angeles, 466 P.2d 996, 1003 (Cal.
1970). According to the California Supreme Court, the parties’ understanding of the
contract’s terms, as shown by their conduct before any dispute arises, “‘is entitled to great
weight and will, when reasonable, be adopted and enforced by the court.’” Warner, 466
P.2d at 1003 (quoting Woodbine v. Van Horn, 173 P.2d 17, 22 (Cal. 1946)). Indeed,
California courts have held that “[i]ntent may be inferred from a party’s acts and conduct

                                              -8-
even in the face of his express declarations to the contrary.” H. S. Crocker Co. v.
McFaddin, 307 P.2d 429, 435 (Cal. Ct. App. 1957) (citing Trevaskis v. Peard, 44 P. 246,
248 (Cal. 1896)). Thus, the rule of practical construction generally bars the admission of
inconsistent statements after the date on which the parties “reached a stage of clear
disagreement on the crucial question.” Warner Constr., 466 P.2d at 1003.

        Regarding the first type of extrinsic evidence, the record shows that “the nature and
subject matter” of the contract was tax-based. The contract concerns identifying and
realizing California Enterprise Zone tax credits, and the contract uses the term
“reorganization” in the context of whether an event has occurred that has a specific effect
on those tax credits. Furthermore, the contract states that CCG’s services are provided by
“professionals” that “work exclusively in [the] specialized area” of California Enterprise
Zone tax credits, and CHSPSC’s in-house tax professionals reviewed and signed the
contract. This evidence indicates that, despite not referencing the Internal Revenue Code,
the parties intended “reorganization” to have a tax-based meaning.

        The record also contains evidence of the parties’ conduct before any dispute arose—
the second type of extrinsic evidence—that shows they understood “reorganization” to
have a tax-based meaning. For instance, seven months before the spinoff occurred,
CHSPSC informed CCG that Watsonville would be spun off and specifically asked what
impact, if any, that would have on the unused tax credits. CCG responded that the tax
credits would spinoff with Watsonville, and CCG acted consistently with this
understanding for over four years. Notably, for four years after the spinoff, CCG neither
sent an invoice to CHSPSC for the unused tax credits nor told CHSPSC that the
reorganization provision had been triggered. Rather, after the spinoff was completed on
April 29, 2016, CCG promptly contacted Quorum to inform it that the Watsonville tax
credits were available for Quorum’s use. CCG also informed Quorum that “[s]ince the
Credits spun out of CHS[I] and into QHC, the Credits—along with the attached
agreement—are inherited by QHC.” For the next several years, CCG regularly
communicated with Quorum, requested copies of Quorum’s tax filings, and reviewed
Quorum’s SEC filings to determine whether Quorum had utilized, or would be in a position
to utilize, the credits. CCG even admitted that, if Quorum had used the tax credits, it would
have invoiced Quorum. It was not until four and a half years later, after Quorum informed
CCG that it did not anticipate being able to use the tax credits in the foreseeable future, that
CCG changed its tune and began claiming that the spinoff constituted a “reorganization”
under the plain meaning of the contract.4

   4
       CCG contends that its relationship with Quorum should not be considered evidence indicating it
believed the spinoff did not trigger the reorganization provision because it was merely attempting to
“mitigate” its damages. We, like the trial court, question the accuracy of CCG’s characterization of its
relationship with Quorum as an attempt to mitigate damages. For four and a half years, CCG never claimed
it had suffered any damages from the spinoff. We are not persuaded by this argument.

                                                 -9-
       Based on the foregoing, we agree with the trial court that CCG’s subsequent conduct
of informing CHSPSC that, as CCG interpreted the contract, the tax credits would be spun
off with Watsonville in addition to CCG’s silence on the topic of owed fees for over four
years after the spinoff occurred, shows that CCG did not interpret the contract to entitle it
to fees resulting from the spinoff of Watsonville. In other words, CCG did not consider
the spinoff to constitute a reorganization under the contract because the spinoff did not
meet the Internal Revenue Code’s definition of “reorganization.” Because the spinoff did
not constitute a “reorganization” under the Internal Revenue Code, the reorganization
provision of the contract was not triggered, and CHSPSC did not breach the contract by
refusing to pay CCG for Watsonville’s unused tax credits. Therefore, CCG cannot
establish the third element of its breach of contract claim. We affirm the trial court’s
decision granting summary judgment to CHSPSC and denying summary judgment to CCG.

                                              CONCLUSION

       The judgment of the trial court is affirmed. Costs of this appeal are assessed against
the appellant, the California Credits Group, for which execution may issue if necessary.

                                                            /s/ Andy D. Bennett
                                                            ANDY D. BENNETT, JUDGE

    CCG also asserts that interpreting “reorganization” as having a technical, tax-based meaning violates
the canon against surplusage because it renders the reorganization provision meaningless as it would never
be triggered. See surplusage canon, BLACK’S LAW DICTIONARY (11th ed. 2019) (defining “surplusage
canon” as “[t]he doctrine that, if possible, every word and every provision in a legal instrument is to be
given effect); see also Cal. Civ. Code § 1641 (“The 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.”). CCG’s reliance
on the surplusage canon is misplaced. Just because the spinoff did not constitute a “reorganization” under
the technical, tax-based meaning of the term does not necessarily render the reorganization provision
surplusage. It is possible for the provision to be triggered when applying a technical, tax-based meaning.
For instance, bankruptcy constitutes a “reorganization” under the Internal Revenue Code, and a bankruptcy
could result in the elimination of tax credits. In such a situation, the two conditions precedent to the
reorganization provision would be met, and CCG would be entitled to a fee. We find this argument
unpersuasive.
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