Opinion
Civil No. 01cv1835-L(JFS)
February 21, 2002
ORDER RE: MOTION TO DISMISS
On January 28, 2002, this matter came on regularly for a hearing on Defendants' motion to dismiss. Timothy R. Pestotnik and Russell A. Gold of Luce, Forward, Hamilton Scripps, LLP appeared for the Plaintiffs. Jordan D. Hershman of Testa Hurwitz Thibeault, LLP and Gregory A. Vega of Seltzer Caplan McMahon and Vitek appeared for Defendants. At the hearing, the Court granted in part and denied in part Defendants' motion to dismiss, ordered Plaintiffs to file an amended complaint that incorporated the Court's ruling within 30 days of the hearing date, and ordered Defendants to file an answer to the amended complaint within 20 days after the Plaintiffs file and serve their amended complaint. At the hearing, the Court took under submission whether Plaintiffs' claim for breach of contract based on Section 5.13 of the agreement survives the motion to dismiss, and also stated it would reconsider its ruling that, for purposes of a motion to dismiss, Plaintiffs' breach of contract claim was not barred by the statute of limitations. The Court requested the parties to submit a one-page supplemental brief on the statute of limitations issue.
I. Statute of Limitations.
At oral argument, the Court found that as drafted, Section 11.01 of the Merger Agreement did not appear to set a one-year statute of limitations for breach of the Merger Agreement. The Court noted that its ruling, however, does not preclude Defendants from presenting evidence in support of a summary judgment motion indicating that the parties did in fact intend that section to provide a one-year limitations period.
In support of their argument that the statute of limitations period has expired for Plaintiffs' breach of contract claim, Defendants cite Lincoln National Corp. v. TakeCare, Inc., 1998 WL 281290 (N.D. Cal. 1998), TakeCare, Inc. v. Lincoln Nat'l Corp., 1995 U.S. Dist. LEXIS 21721 (C.D. Cal. Dec. 8, 1995), and Latek v. LeaseAmerica Corp., 1992 WL 170546 (N.D. Ill. July 16, 1992). These cases, however, are unpublished decisions from outside of this district and therefore not binding on this Court. Further, under Ninth Circuit Rule 36-3, neither parties nor courts in the Ninth Circuit may cite to an unpublished disposition as precedent. Ninth Cir.R. 36-3; Schmier v. United States Court of Appeals for the Ninth Circuit, ___ F.3d ___, 2002 Daily Journal D.A.R. 1245 (9th Cir. Feb. 1, 2002). Indeed, the Ninth Circuit recently upheld the constitutionality of this rule. Hart v. Massanari, 266 F.3d 1155, 1180 (9th Cir. 2001). Accordingly, the Court declines to consider whether Lincoln National and Latek require it to find that Plaintiffs' claims are barred by the statute of limitations at this stage of the proceedings.
Defendants have also cited several published decisions in support of their argument. However, these cases do not compel reconsideration of the Court's ruling. In Pierson Sand Gravel, Inc. v. Pierson Township, 851 F. Supp. 850 (W.D. Michigan), the Michigan court was ruling on a summary judgment motion. Further, the party challenging the three-year contractual limitations period had "not offered extrinsic evidence suggesting the existence of a latent ambiguity that might call the plain meaning of the Agreement into question," nor had it argued the agreement did not fully embody the parties' understanding. Pierson Sand, 851 F. Supp. at 859. In contrast, Plaintiffs have argued that Section 11.01 was not intended to be a statute of limitations and, because the matter comes before the Court at the motion to dismiss stage, have not had the opportunity to present extrinsic evidence on this issue.
Defendants' reliance on Graphic Tech., Inc. v. Pitney Bowes, Inc., 968 F. Supp. 602 (D. Kan. 1997) and Woodward Communications, Inc. v. Shockley Communications, Corp., 622 N.W.2d 756 (Wis.Ct.App. 2000) is also unpersuasive. In Graphic Tech., the court analyzed whether the plaintiff's claims for breach of contract and reformation were barred under Kansas' statute of limitations period. Graphic Tech., 968 F. Supp. at 605-07. The plaintiff claimed that a section in the contract which provided for the survival of representations and warranties for a period of one year from and after the Closing date tolled and/or waived the statute of limitations period. Id. at 606-07. The Kansas district court disagreed, finding that the survival provision did not extend the applicable limitations period, and found the plaintiff's breach of contract claim time-barred under Kansas' five-year statute of limitations period. Id. at 607. Accordingly, "that case is inapposite as the court in that case did not consider whether the survival clause created a statute of limitations, but rather whether it extended the period in which the plaintiff could sue.
In Woodward Communications, the Wisconsin Court of Appeals was reviewing a motion for summary judgment. Woodward Communications, 622 N.W.2d at 759-62. There, subsection 19(c) of the contract provided that "the representations and warranties of Seller made in this Agreement will survive the Closing for a period of two (2) years, except that the warranties of title to the real estate described in Appendix 1(a) shall survive the Closing for a period of three (3) years." Id. at 761 n. 6. Notably, the parties in that case " agree[d] that subsection 19(c) [was] a statute of limitations clause, meaning a suit for a breach of subsection 13(h) must be brought within two years of the Closing." Id. (emphasis added). In contrast, the parties in this case do not agree that Section 11.01 is a statute of limitations clause, rendering Woodward Communications inapposite.
Finally, in State Street Bank Trust Co. v. DenMan Tire Corp., 240 F.3d 83 (1st Cir. 2001), the court held that the agreement, which stated that the "representations and warranties "shall expire on the second (2nd) anniversary of the Closing. . . ." constituted a statute of limitations period. State Street, 240 F.3d at 87-88. Significantly, however, the court decided the matter under Illinois law, where parties are free to contract to a limitations period. Id. at 87. In contrast, as noted by Plaintiffs, in California "[c]ontractual stipulations which limit the right to sue to a period shorter than that granted by statute, are not looked upon with favor because they "are in derogation of the statutory limitation. Hence, they should be construed with strictness against the party invoking them." Lewis v. Hopper, 140 Cal.App.2d 365, 367 (1956) (internal quotations omitted) (alteration in original). Nevertheless, California courts will enforce a parties' agreement to shorten California's four-year statute of limitations for breach of a written contract provided it is reasonable. See Hambrecht Quist Venture Partners v. American Med. Int'l Inc., 38 Cal.App.4th 1532, 1548 (1995). Whether it would be reasonable to construe Section 11.01 as imposing a statute of limitations period cannot be decided on a motion to dismiss.
First, as discussed above, Defendants have not cited any persuasive or binding authority compelling this Court to read Section 11.01 as a statute of limitations clause. Second, although in dicta, at least one California court discussing a similar contractual provision that stated, "[a]ll representations, warranties and covenants by the parties herein shall survive the Closing and shall cease to be of force and effect five years from the date of the Closing" found the provision did not create a statute of limitations period in part because "a provision specifying the life of a warranty has no bearing on the time period for filing suit after the warranty has been breached." Id. at 1544 n. 10 (alteration in original). Further, in California, a court is required to consider extrinsic evidence to determine whether a contract term is ambiguous. See A. Kemp Fisheries, Inc. v. Castle Cooke, Inc., 852 F.2d 493, 496 (9th Cir. 1988) (noting that "[t]he parol evidence rule requires courts to consider extrinsic evidence to determine whether the contract is ambiguous" and that where a contract is integrated, extrinsic evidence is admissible only where the offered evidence is relevant to prove a meaning to which the language of the contract is reasonably susceptible"); Trident Center v. Connecticut General Life Ins. Co., 847 F.2d 564, 569 (9th Cir. 1988) (same); Pacific Gas Elec. Co. v. G. W Thomas Drayage R. Co., 69 Cal.2d 33 (1968) (same). Accordingly, at this stage of the proceedings, in light of the absence of authority indicating that Section 11.01 must be construed as a statute of limitations, the parties should be given an opportunity to present evidence on the interpretation of this contractual provision. See Trident Center, 847 F.2d at 569.
The court's comment was in the context of determining whether a contract's choice-of-law provision incorporated Delaware's statute of limitations. Hambrecht Quist, 38 Cal.App.4th at 1538-44. The Plaintiffs argued that the contractual provision regarding the survival of representations, warranties, and covenants showed that when the parties wished to deal with "timing" issues they expressly did so and therefore the absence of a "time to sue" clause or an explicit reference to Delaware's statute of limitations meant that the parties intended California's statute of limitations period to apply. Id. at 1544 n. 10. The California appellate court disagreed, finding that "[b]y using the term "laws" in the choice-of law provision, the parties incorporated Delaware's statutes of limitations without the need for an additional contract language.' Id. The court further noted that "a provision specifying the life of a warranty has no bearing on the time period for filing suit after the warranty has been breached." Id.
Having reviewed the parties' supplemental briefs and Section 11.01, the Court finds that Defendants have not met their burden in showing that California law governing contracts mandates a finding that Section 11.01 creates a one-year statute of limitations and therefore that Plaintiffs' breach of contract cause of action must be dismissed. Rather, at this stage of the proceedings, construing the Complaint and Section 11.01 in the light most favorable to the Plaintiffs, the breach of contract claim does not appear to be time barred and therefore survives Defendant's motion to dismiss. Accordingly, the Court finds no basis to change its oral ruling regarding Defendants' statute of limitations defense.
II. Section 5.13 of the Agreement.
Section 5.13 of the Merger Agreement provides:
Documents Not Misleading. Neither this Agreement, including all schedules and exhibits, nor the Ancillary Agreements delivered by Buyer or Merger Sub to Seller and the Company contains any untrue statement of any material fact or omits to state any matenal fact required to be stated in order to make such statement or document not misleading.
(Complaint Exhs. 1 and 2 at 25.)
In their briefs, Defendants argued that Plaintiffs' breach of contract claim failed to state a claim insofar as it relies on that section because Plaintiffs had failed to adequately allege Teradyne made any material misrepresentations or omissions in any document. At oral argument, Plaintiffs argued that insofar as the Court found that their allegations based on the Material Adverse Change ("MAC") clause in the Merger Agreements survived Defendants' motion to dismiss, their breach of contract claim for Section 5.13 also withstood the motion.
Having reviewed Section 5.13, the Court agrees with Plaintiffs. Because Section 5.13 concerns misrepresentations and omissions generally, Plaintiffs have properly stated a claim that it has been breached insofar as they have properly stated a claim that the MAC clause has been breached. Accordingly, Defendants' motion to dismiss Plaintiffs' claim for breach of contract based on Section 5.13 is DENIED.
CONCLUSION
Having considered the parties' briefs and argument of counsel, applicable law and good cause appearing, IT IS HEREBY ORDERED:1. The Court's oral ruling finding Plaintiffs' breach of contract claims are not time-barred is confirmed and augmented as set forth in this order.
2. Defendants' motion to dismiss Plaintiffs' breach of contract claim is DENIED insofar as it is based upon Section 5.13 of the Merger Agreement.
3. Plaintiffs shall now have until March 4, 2002, to file and serve an amended complaint that conforms with this Court's oral ruling and the instant order.
4. Defendants shall file and an answer to the amended complaint within 20 days of being served with the amended complaint.
IT IS SO ORDERED.