Court Opinion

ID: 9497673
Source: CourtListenerOpinion
Date Created: 2023-08-05 16:57:02.746238+00
Date Added: 2024-06-11T17:58:20.609612
License: Public Domain

PAULINE NEWMAN, Circuit Judge,
dissenting in part.
I cannot agree with the ruling that an enforceable contract can be found to have been entered into between Mr. Lamle and Mattel, for the parties agreed (twice) in writing that any obligation would be contained in a “formal written contract.” As a matter of law, there can have been no patent license and manufacturing and sales agreement between Mattel and Mr. Lamle, when no such license and no manufacturing and sales agreement were ever entered into. Thus I must, respectfully, dissent from the court’s decision, for it is founded on incorrect principles of law.
Mr. Lamle signed two standard Product Disclosure Forms, first with Mattel and then with Spears’ Games, a Mattel subsidiary. Both of the signed Forms were as follows:
I understand that this submission to you is not made in confidence and that no obligation is assumed by [Mattel, Inc./ Spears’ Games] unless and until a formal written contract is agreed to and entered into, and then the obligation shall be only that which is expressed in the formal, written contract.
The Product Disclosure Form is not ambiguous; it makes the plain statement that any obligation shall be expressed only in a “formal written contract” that is “agreed to and entered into.” It is undisputed that no such contract existed. The majority’s remand so that a trier of fact can try to piece together an e-mail and oral testimony to ascertain where the parties were in their negotiations when Mattel decided not to develop the Lamle invention is contrary to the law of contracts and is a distortion of the practices of commerce.
Statute and precedent uniformly hold that when parties agree that their relationship shall take a certain form, that form is binding. See Ambler v. Whipple, 87 U.S. (20 Wall.) 546, 556, 22 L.Ed. 403 (1874) (“it is very clear that both parties intended to have a written instrument signed by each as the evidence of any contract they might make on that subject, and neither considered any contract concluded until it was fully executed. Under these circumstances ... he was not bound by it.”) *1364Applying California law, indeed applying any law, if the parties .agree that only a formal written contract will create an obligation, then there is no obligation other than by formal written contract. See, e.g., C.L. Smith Co. v. Roger Ducharme, Inc., 65 Cal.App.3d 735, 135 Cal.Rptr. 483, 487-88 (1977) (no contract as a matter of law where parties intended agreement to be reduced to writing and agreement was not signed); Apablasa v. Merritt & Co., 176 Cal.App.2d 719, 1 Cal.Rptr. 500, 507 (1959) (no contract where contract was “to be reduced to writing, and signed by the parties” and no written contract was signed); Durst v. Jolly, 35 Cal.App. 184, 187, 169 P. 449 (1917) (“where parties agree to reduce to writing contracts of a certain character whereby and wherein they propose to set forth the terms and conditions of the agreement verbally made with respect thereto, and fail to put their agreement in writing, there is a failure to make a completed contract or one that is binding upon either of the parties, and that an action on such an agreement cannot be maintained”).
It is undisputed that there was no formal written contract to manufacture and license and sell Mr. Lamle’s game, and that there were matters still unresolved when Mattel decided not to proceed. The panel majority’s theory is that a cordial email from a Mattel employee, stating some of the terms under discussion, can form an enforceable contract with' material gaps filled by disputed oral testimony. Whether such a concoction can" make a contract under any circumstances is highly debatable, but what is not debatable is that the parties agreed to be bound only by a formal written contract, and that a formal written contract did not exist.
The panel majority holds that the written commitment to a formal written contract can be disregarded, and that a trier of fact can assess damages based on whatever terms were agreed to in the course, of the uncompleted negotiations. Precedent is uniformly contrary. See, e.g., Spinney v. Downing, 108 Cal. 666, 668, 41 P. 797 (1895) (“It is a general rule, to which this case presents no exception, that when it is a part of the understanding between the parties that the terms of their compact are to be reduced to writing, and signed by the parties, the assent to its terms must be evidenced in the manner agreed upon, or it does not become a binding obligation upon either.”). New York law, the applicability of which is suggested by Mr. Lamie, is equally strong. See, e.g., Patrolmen’s Benevolent Ass’n of the City of New York, Inc. v. City of New York, 27 N.Y.2d 410, 318 N.Y.S.2d 477, 267 N.E.2d 259, 261 (1971) (no contract where parties intended agreement to be reduced to a complete written contract). . The Restatement of Contracts Second records the universal rule:
§ 27, comment b.... If either party knows or has reason to know that the other party regards the agreement as incomplete and intends that no obligation shall exist until other terms are assented to or until the whole has been reduced to another written form, the preliminary negotiations and agreements do not constitute a contract. '
The record shows various oral and written exchanges between Mr. Lamie and Mattel representatives. As the negotiations continued, two additional formal written agreements were executed, in addition to the two signed Product Disclosure forms: there was a “standstill” agreement with a $25,000 payment by Mattel to Lam-ie, and there was a written extension of the standstill agreement. Neither of these agreements cancelled the requirement of a formal written contract; to the contrary, they illustrate the parties’ intent and practice that any obligation, and any payment of money, would be placed in a formal written contract. Further to this intent *1365and practice, a draft of a proposed patent license and manufacturing/sales agreement was submitted by Lamle, captioned “Draft Licensing Agreement.” This draft agreement contained some provisions that were not reached by the negotiators, and others that were rejected, such as a term relating to computers that Lamle called a “deal-breaker” and that Mattel had rejected. On any criteria, there was not a completed contract.
When Mattel decided not to proceed with the Farook game Mr. Lamle may well have been disappointed, but the law is clear that no binding contract was created. “When it is clear ... that both parties contemplated that acceptance of the contract’s terms would be signified by signing it, the failure to sign the agreement means no binding contract was created.” Banner Entertainment, Inc. v. Superior Court of Los Angeles County, 62 Cal.App.4th 348, 72 Cal.Rptr.2d 598, 603-04 (1998). See also, e.g., Stromer v. Browning, 65 Cal.2d 421, 55 Cal.Rptr. 18, 22, 420 P.2d 730 (1967) (no oral contract “in view of the parties’ agreement that no one would be bound until written documents were executed”). Indeed, any oral patent license and manufacturing agreement would be subject to the California Statute of Frauds, discussed post, for the contract under negotiation could not be performed in one year.
The document that my colleagues describe as proving a binding oral contract, the June 26, 1997 e-mail from Mr. Bucher of Mattel, states that the terms included therein are “subject to contract,” again negating the panel majority’s proposition that Mattel somehow agreed that a formal written contract would no longer be needed. The intention to abrogate an important written safeguard, and replace the requirement for a formal contract with an e-mail and oral testimony, must be mutual and clear. Such an exotic step would itself have to be accompanied by sufficient formality to assure mutuality of understanding of the abrogation of the signed Product Disclosure Forms. See Kessinger v. Organic Fertilizers, Inc., 151 Cal.App.2d 741, 750, 312 P.2d 345 (1957) (“[Wjhen the parties to a proposed contract have themselves fixed the manner in which their assent is to be manifested, an assent thereto, in any other or different mode, will not be presumed.”)
The record contains no objection by Mr. Lamle to entering into and complying with the written obligation that only a formal written agreement would be binding. On remand, no trier of fact could find that this condition was somehow tacitly abrogated. None of the cases cited by the majority supports this position. The majority cites McKeon v. Giusto, 44 Cal.2d 152, 280 P.2d 782, 783-84 (1955), which was concerned with a quite different situation: a written agreement had expired and there was debate about whether the parties intended that an oral agreement would become immediately effective; it was held that the parties entered into a valid oral agreement when the written agreement expired. In contrast, the Lamle/Mattel written agreement that required a formal written contract had not expired, but was in full force and was being respected in negotiation and draft.
The majority also cites Pearsall v. Henry, 153 Cal. 314, 317, 95 P. 159 (1908), which addressed the situation where a later written agreement replaced an earlier written agreement, and the court held that oral testimony was admissible as evidence of whether the second written agreement effected ■ a novation. The Pearsall case does not suggest that a written commitment to place any future obligation in writing can be negated by disputed oral testimony. There is a large difference between the admission of parol evidence to *1366explain what the parties intended when they entered an ambiguous contract, and the admission of parol evidence-to abrogate a clear written provision that was critical to the entire relationship and fully understood.
Nor does McCreary v. Mercury Lumber Distributors, 124 Cal.App.2d 477, 483, 268 P.2d 762 (1954), provide support 'for the majority’s' novel approach to the- law of contracts. In McCreary there was testimony by -both parties, accompanied by the undisputed behavior of both parties, on the issue of whether the plaintiff repudiated a written contract for access when he “locked the gate in the fence” after defendant did not pay plaintiff and did • not remove timber from the land. The question of repudiation of a written contract upon material failure of consideration is not relevant to the case at bar.
The fourth case relied on by the majority, Tiburzi v. Dep’t of Justice, 269 F.3d 1346, 1352 (Fed.Cir.2001), disfavors their position. In Tiburzi the ex-employee and ex-employer entered into an oral settlement at a hearing before the Merit Systems Protection Board, and the settlement terms were read' into the hearing record by the administrative judge and accepted on the record by both sides. Thereafter the ex-employee refused to sign the written agreement that was proffered, stating that the- terms were- changed. This, court held -that he was bound by the agreement that he accepted as recorded in the hearing record. Here too, Lamle accepted the original Disclosure agreement, and is bound by it. The majority’s purported analogy is obscure, for Lamle did not refuse to sign the two written Disclosure agreements, and the district court correctly held that he was bound by them. When Mattel decided not to license and market Mr. Lamle’s' game, and no formal written agreement had been entered into, Mattel was not liable for breach of a non-existent agreement.
The panel majority makes much of a June 26 e-mail from Mr. Bucher of Mattel, for that e-mail contained some of the provisions that the parties were negotiating. This e-mail explicitly says “subject to contract.” Agreement cannot here be imposed when there was no signed formal agreement. It is irrelevant whether some of the contemplated terms were worked out and orally agreed to on June 11, for there was never a “formal written contract.” The parties to, a written contract are not free to modify it by a subsequent oral one, Cal.. Civ.Code § 1698, and may not orally abrogate a written contract unless both sides-show a clear and unambiguous mutual intent to do so. The record does not support, or even hint at, such intent. • .
California law, indeed all contract law, is clear that when the parties intend to be bound only by a signed writing, there is no contract until a writing is signed. Spinney v. Downing, 108 Cal. 666, 41 P. 797 (1895); see also Albany Peanut Co. v. Euclid Candy Co. of Cal., Inc., 30 Cal.App.2d 35, 85 P.2d 471, 473 (1938) (“A mere promise to execute a written contract, followed by refusal to do so, is not sufficient to create an estoppel [with the effect of .a contract], even though reliance is placed on such promise and damage is occasioned by such refusal.”) It is unsupportable for one. party retrospectively to select an interim negotiation stage at which .some of the contract terms were worked out, and impose a final and enforceable oral contract as to those terms. The parties guarded against such uncertainty by requiring, in a signed writing, that there be a “formal written contract.” It is not legally available' to nullify that commitment.
*1367The panel majority unreasonably imposes the inference that soon after Mr. Lamle signed the Disclosure Agreements with Mattel and with its subsidiary Spears’ Games, that Mattel abandoned these safer guards, sub silentio and without discussion. Indeed, even as terms were resolved during negotiation, Mattel explicitly pointed out that the arrangement was “subject to contract.” There is no evidence at all, or any basis for inference, that Mattel intended to discard its written requirement of a written contract, and intended instead to be bound by piecemeal oral negotiations. The district court was correct in its grant of summary judgment, for no commercial entity would deem the June 11 oral negotiations to be a binding contract when the parties had previously agreed that any obligation would only be by “formal written contract.”
In addition, such an arrangement is barred by Cal. Civ.Code § 1624(a)(1), for in order to produce the royalties and profits that Lamle seeks as damages 'for performance over more than one year, the Statute of Frauds requires a writing and that the writing contain all of the material terms of the contract. “Recovery may not be predicated upon parol proof of material terms omitted from the written memorandum” for purposes of the Statute of Frauds. Ellis v. Klaff, 96 Cal.App.2d 471, 216 P.2d 15, 19 (1950). See also, e.g., Burge v. Krug, 160 Cal.App.2d 201, 325 P.2d 119, 123 (1958) (“The whole object of the statute would be frustrated if any substantive portion of the agreement’ could be established by parol evidence.”).
It is undisputed that neither the June 11 conversation nor the Bucher e-mail contained all of the material terms of the patent license and manufacturing/sales arrangement that was being discussed. Nonetheless, this court holds that once the parties had agreed on some of the payment terms, the contract was made and damages may be due on whatever those terms embrace. It is not disputed that major terms were unresolved. California law negates this court’s holding that a trier of fact can find an enforceable contract and award damages for its breach based on uncompleted negotiations:
The California law is clear that there is no contract until there has been a meeting of the minds on all material points, despite the fact some terms have been agreed orally, or some action has been taken.
Grove v. Grove Valve & Regulator Co., 4 Cal.App.3d 299, 84 Cal.Rptr. 300 (1970); see also, e.g., Devereaux v. Harper, 210 Cal.App.2d 519, 26 Cal.Rptr. 837 (1962) (no contract if “an essential element is reserved for the future agreement of both parties.”)
The integrity of commerce requires fidelity to the rules of contract. Contracts are the foundation of commercial relationships, and are powerfully supported in the law. Business would come to a standstill if parties who are in negotiation will now risk that the Federal Circuit will allow an enforceable contract to arise at some unknown oral point during the negotiation. Routine contractual safeguards should be preserved, hot negated, for contracts promote objectively reliable and enforceable trust, which in turn allows business to proceed. See F.H. Buckley, The Fall and Rise of Freedom' of Contract 6-7 ■ (Duke University Press 1999) (“in commercial contracts, trust is an instrumental goal”). There can be no trust, no reliability, if the parties’ agreement as to how they will work together is subject to judicial rear-rangemént. When the parties agree in writing that any commercial arrangement will be by formal written contract, the obligation of the court is to respect and enforce that commitment. From my col*1368leagues’ contrary ruling, I respectfully dissent.