Court Opinion

ID: 3201317
Source: CourtListenerOpinion
Date Created: 2016-05-06 20:01:00.569638+00
Date Added: 2024-06-11T14:03:16.282450
License: Public Domain

FILED
                           NOT FOR PUBLICATION
                                                                           MAY 06 2016
                    UNITED STATES COURT OF APPEALS                      MOLLY C. DWYER, CLERK
                                                                         U.S. COURT OF APPEALS

                            FOR THE NINTH CIRCUIT

ACP, INC., a Delaware corporation,               No. 13-16840

              Plaintiff - Appellant,             D.C. No. 4:13-cv-01572-PJH

 v.
                                                 MEMORANDUM*
SKYPATROL, LLC, a Florida limited
liability company; GORDON HOWARD
ASSOCIATES, INC., DBA PassTime
USA, a Colorado corporation,

              Defendants - Appellees.

                  Appeal from the United States District Court
                       for the Northern District of California
                Phyllis J. Hamilton, Chief District Judge, Presiding

                    Argued and Submitted November 18, 2015
                            San Francisco, California

Before: McKEOWN, RAWLINSON, and PARKER,** Circuit Judges.

Judges McKeown and Rawlinson join as to Part I. Judges McKeown and Parker join
as to Part II. Judge Parker dissents as to Part I, and Judge Rawlinson dissents as to
Part II.

        *
             This disposition is not appropriate for publication and is not precedent
except as provided by 9th Cir. R. 36-3.
       **
            The Honorable Barrington D. Parker, Jr., Senior Circuit Judge for the
U.S. Court of Appeals for the Second Circuit, sitting by designation.
      ACP, Inc. (“ACP”) challenges the district court’s dismissal of its complaint

against Gordon Howard Associates, Inc. (“Gordon Howard”) and Skypatrol, LLC

(“Skypatrol”). ACP contends that the district court erred in holding that ACP failed

to sufficiently allege that Gordon Howard and Skypatrol entered into a unilateral

contract requiring reimbursement for ACP’s investigation of a potential investment.

ACP also maintains that the district court abused its discretion in denying leave to

amend so that ACP could allege additional facts in support of its breach of unilateral

contract claim and a promissory estoppel claim.

I.    The Unilateral Contract

      Under California law, a promisor may not seek enforcement of a unilateral

contract. See Faigin v. Signature Grp. Holdings, Inc., 150 Cal. Rptr. 3d 123, 135

(Cal. Ct. App. 2012) (articulating that “[a] unilateral contract is one in which there is

only one promisor.      Any act or forbearance by the promisee may constitute

consideration for the promise and an acceptance of the offer” (citation omitted)); see

also Asmus v. Pac. Bell, 999 P.2d 71, 75 (Cal. 2000) (observing that “[i]n a unilateral

contract, there is only one promisor, who is under an enforceable legal duty. The

promise is given in consideration of the promisee’s act or forbearance” (citation

omitted)). The district court correctly held that ACP was the promisor under the letter

agreement because ACP, using its own letterhead, conveyed an offer to Gordon

                                           2
Howard and Skypatrol concerning a potential acquisition. ACP’s performance of the

agreement did not create a binding unilateral contract. See Faigin, 150 Cal. Rptr. 3d

at 135. Thus, the district court properly dismissed ACP’s contract claim.

       The district court did not engage in impermissible fact-finding in dismissing

ACP’s complaint. The district court took judicial notice of the letter agreement relied

on in the complaint and correctly concluded that ACP was the promisor after

considering the terms of the agreement. See Gonzalez v. Planned Parenthood of Los

Angeles, 759 F.3d 1112, 1115 (9th Cir. 2014) (explaining that “[a]lthough we

normally treat all of a plaintiff’s factual allegations in a complaint as true, we need not

accept as true allegations that contradict matters properly subject to judicial notice or

by exhibit” (citations, alteration, and internal quotation marks omitted)). Any leave

to amend this claim would have been futile.

II.    Dismissal Without Leave to Amend

       ACP also sought leave to amend its complaint to add a claim for promissory

estoppel. The district court denied ACP’s motion to amend its complaint; the majority

reverses that ruling. Given the liberal rules of amendment endorsed by the Supreme

Court and this circuit, see Eminence Capital, LLC v. Aspeon, Inc., 316 F.3d 1048,

1052 (9th Cir. 2003) (quoting Forman v. Davis, 371 U.S. 178, 182 (1962)), ACP

should have been afforded that opportunity.

                                            3
      To state a claim for promissory estoppel, a plaintiff must show: “(1) a promise

clear and unambiguous in its terms; (2) reliance by the party to whom the promise is

made; (3) [the] reliance must be both reasonable and foreseeable; and (4) the party

asserting the estoppel must be injured by his reliance.” Aceves v. U.S. Bank, N.A., 120
Cal. Rptr. 3d 507, 514 (Cal. Ct. App. 2011) (internal quotation marks omitted)

(quoting Advanced Choices, Inc. v. State Dep’t of Health Servs., 107 Cal. Rptr. 3d
470, 479 (Cal. Ct. App. 2010)). Indeed, the unamended complaint already comes

close to pleading the necessary elements.

      ACP’s complaint sufficiently alleged a “clear and unambiguous” promise and

that ACP was injured by its reliance on that promise by incurring expenses pursuing

the transaction. The missing elements—reasonableness and foreseeable reliance—in

fact are alluded to in the original complaint, which alleges that the promise to

reimburse served as an “inducement to ACP’s investigation of the potential

transaction.” To the extent these elements are not inherently obvious, there is no

reason they cannot be added in an amended pleading, and such a claim would not have

been futile. For these reasons, leave to amend should not have been denied.

      The judgment of the district court is affirmed as to dismissal of the unilateral

contract claim and reversed with respect to the denial of leave to amend to add a

                                            4
promissory estoppel claim. On remand, ACP should be permitted to amend its

pleadings with respect to promissory estoppel.

      Each party shall bear its own costs on appeal.

      AFFIRMED in part, REVERSED in part, and REMANDED.

                                         5
                                                                               FILED
ACP Inc v Skypatrol et al 13-16840
                                                                               MAY 06 2016
PARKER, J., dissenting as to Part I:                                        MOLLY C. DWYER, CLERK
                                                                             U.S. COURT OF APPEALS

      Because the complaint plausibly alleges that Appellees Gordon Howard

Associates and Skypatrol, LLC (the “Companies”) promised to reimburse

Appellant ACP, Inc. for the expenses it incurred in pursuit of the proposed

transaction and failed to do so, I respectfully dissent. The majority correctly

concludes that a unilateral contract only binds the promisor, and thus only the

promisee, once it has performed, can seek to enforce the contract. But at this

point, I part ways with the majority because the fact that the transaction may have

been proposed by ACP does not mean that ACP was the promisor. Rather, the

language of the letter agreement—and even the arguments of the parties—indicates

that the Companies were the promisors, and ACP the promisee. Once ACP

performed, the Companies were bound and, having failed to pay, are liable to ACP.

Consequently, ACP’s complaint, which contains these assertions, states a claim

that should not have been dismissed under Rule 12(b)(6).

      Although we assume that the parties are familiar with the relevant facts, I lay

out some of the key ones alleged by ACP. The dispute arises from a letter

agreement sent by ACP to the Companies in January 2012. The letter references

an “indication of [ACP’s] interest” in the “potential acquisition of [the

Companies].” The final paragraph of the letter clarifies that the “letter agreement
is an expression of mutual intent only and is non-binding, except for the terms

related to Exclusivity and Expenses, which will be binding upon each of the

undersigned.” The “Expenses” provision, which frames the dispositive issue in

this litigation, provides that the Companies “shall reimburse [ACP] for its actual

out-of-pocket expenses incurred in pursuit of the Transaction.” It is undisputed

that the Companies signed and returned the letter.

      The complaint alleges that although ACP undertook an investigation into the

transaction, thus triggering the Companies’ promise to reimburse ACP, the

Companies refused to honor that promise. ACP argued below and on appeal that

the letter agreement is a unilateral contract and that the Companies promised to

reimburse ACP in exchange for the investigation it conducted in pursuit of the

transaction. The Companies argue that the contract is an unenforceable unilateral

contract because ACP, the offeror, offered no consideration. But this argument is

an incorrect one that is not consistent with basic contract principles.

      In a unilateral contract, the promisor makes a promise in exchange for

performance by another party, the promisee. Sateriale v. R.J. Reynolds Tobacco

Co. 697 F.3d 777, 785 (9th Cir. 2012). The majority is correct in its fundamental

premise that only the promisor in a unilateral contract is under an enforceable legal

duty to perform and that the promisor’s obligation to fulfill its promise is triggered

                                           2
once the promisee renders performance. Asmus v. Pac. Bell, 999 P.2d 71, 75 (Cal.

2000). The majority also correctly recognizes that the pertinent inquiry is which

party is the “promisor” (and thus bound by an enforceable legal duty), and which

party is the “promisee” (and thus free of any legal duty to perform).1 The majority

errs, however, in concluding that ACP must be the promisor merely because it

initiated the transaction and proposed the agreement.

      The majority summarily concludes that ACP was the promisor, and thus

may not seek enforcement of the contract, reasoning that “ACP was the promisor

under the letter agreement because ACP, using its own letterhead, conveyed an

offer to Gordon Howard and Skypatrol concerning a potential acquisition.” Maj.

Op. at 2–3. But this conclusion is wrong because it is irrelevant which party

initially proposed the transaction. The dispositive question under California law is

which party made a promise to perform. Here, indisputably, the Companies did so.

      1
        The district court and the parties focus intensely on the identity of the
offeror. But neither the district court nor the Companies provide support for the
proposition that the identity of the offeror has any bearing on whether a contract
was properly formed, and the majority notably abandons that rhetoric, asking
instead which party was the promisor. At any rate, the purpose of examining the
offeror/offeree relationship is to determine whether there is “mutual assent,” a
necessary element of any contract. Donovan v. RRL Corp., 27 P.3d 702, 709 (Cal.
2001). We see no credible argument that the Companies, in signing a letter that
unambiguously bound them to reimburse ACP for its due diligence costs, failed to
assent to the formation of the agreement.

                                          3
      Both parties invoke the “Brooklyn Bridge” example of a unilateral contract

well known to all first year law students. The promisor tells the promisee, “I will

pay you $100 if you walk across the Brooklyn Bridge.” The promisee walks

across the Brooklyn Bridge, and is now entitled to her $100. But the respective

obligations would be no different merely because it was the promisee who

proposed the transaction. For example, the promisee asks the promisor, “Will you

pay me $100 if I cross the Brooklyn Bridge?” The promisor says, “Yes, I will pay

you,” and the promisee walks across the Brooklyn Bridge. The promisee, by

soliciting the promise, is no less the promisee, and is no less entitled to the $100

reward.

      The confusion stems from the mistaken belief by the parties and the majority

that offeror and promisor are synonymous terms. They are not. It may very well

be the case, as it was here, that the party proposing the transaction did so by

soliciting a promise conditioned on its performance of some act. If the other party

agrees and makes a promise, a unilateral contract is formed. In none of the cases

cited by the majority or the Companies have California courts suggested that a

promisee in a unilateral contract is not entitled to enforce the contract merely

because he solicited the promise, rather than waiting for one to arrive at his

doorstep.

                                           4
      The simple facts of this transaction have not been lost on the parties.

Indeed, the Companies admit that by receipt of the letter agreement, “the

Companies were asked to make a promise.” Later, the Companies assert that “[i]f

the sale had gone through, we would not be here today,” suggesting that their

promise to reimburse ACP would be enforceable if the Companies had been

satisfied with the result of the investigation.2 In any event, the terms of the

promise were clear: As alleged in the complaint, the Companies promised to

reimburse ACP for expenses incurred in investigating the transaction.

      The Companies and the majority stop short of considering the practical

implications of failing to enforce a garden variety contract such as this one.

Intercompany transactions take place only because each side has made a calculated

decision that the potential benefit of the transaction outweighs the costs—legal

fees, due diligence, efforts to obtain financing, etc. But a party can induce a

counterparty to consider a transaction that would ordinarily be undesirable by

agreeing to displace some of those costs. These types of commercial agreements

are quite common, and allow parties who otherwise would be uninterested in a

      2
         This assertion also illuminates the Companies’ motivation for objecting to
the reimbursement—they are simply unhappy that the transaction did not go
through. Neither the majority nor the Companies point to any language in the
letter agreement suggesting that the Companies’ obligation was only enforceable if
the transaction closed.

                                           5
joint transaction to reallocate costs such that the transaction has the potential to be

mutually beneficial.

      That is the situation contemplated here: ACP was apparently drawn to the

transaction in part because it knew that the costs would be partially borne by the

Companies. It drafted (allegedly with the Companies’ input) an agreement

reflecting an allocation of costs under which the Companies’ promise to pay arose

when ACP undertook the investigation. The Companies contend that as the

transaction proceeded, they became dissatisfied with the level of the costs and the

quality of the investigation, and once the transaction did not close, they were

unwilling to absorb those costs. But while this dissatisfaction may at some point

cause the parties to litigate the issue of damages, it has nothing to do with the

existence of an enforceable contract. In sum, whatever the law of contract may say

about the offeror/offeree relationship, the fundamental goal of contract law “is to

give effect to the mutual intention of the parties.” Powerine Oil Co., Inc. v. Super.

Ct., 118 P.3d 589, 597–98 (Cal. 2005). ACP—and the Companies—are entitled to

have that intention given effect.

                                            6
                                                                              FILED
ACP Inc v Skypatrol et al 13-16840
                                                                               MAY 06 2016
RAWLINSON, J., dissenting as to Part II:                                   MOLLY C. DWYER, CLERK
                                                                             U.S. COURT OF APPEALS

      The district court did not abuse its discretion in denying leave to amend

because any amendment premised on a promissory estoppel claim would have

been futile. See Chinatown Neighborhood Ass’n v. Harris, 794 F.3d 1136, 1144

(9th Cir. 2015) (“Although leave to amend shall be freely given when justice so

requires, it may be denied if the proposed amendment either lacks merit or would

not serve any purpose because to grant it would be futile in saving the plaintiff’s

suit. . . .”) (citation and internal quotation marks omitted).

      Under California law, “promissory estoppel is an alternative theory of

recovery that enforces promises because the promisee has justifiably and

foreseeably relied on the promise . . .” Douglas E. Barnhart, Inc. v. CMC

Fabricators, Inc., 211 Cal. App. 4th 230, 243 (2012) (citation and internal

quotation marks omitted) (emphasis added). Only the promisor is bound on a

promissory estoppel claim. See Garcia v. World Sav., FSB, 183 Cal. App. 4th
1031, 1041 (2010). As discussed in Part I, ACP was the promisor in the letter

agreement rather than the promisee. Accordingly, ACP could not have been

induced to its detriment as a promisee, as required to state a promissory estoppel

claim. See Douglas E. Barnhart, Inc., 211 Cal. App. 4th at 243. Because ACP

cannot, consistent with the facts, assert that it is a promisee under the letter
agreement, amendment would have been futile. See Chinatown Neighborhood

Ass’n, 794 F.3d at 1144. I would affirm the district court decision in its entirety.

                                           2