Opinion
No. CV 02-7779 CBM (SHx)
February 28, 2003
The matter before the Court is Plaintiff/Cross-Defendant J.B. Enterprises International, LLC's ("JB Enterprises"), and Cross-Defendants Don Barden's, AMB Parking LLC's, and Barden Productions' (movants collectively, "Cross-Defendants") motion to dismiss the Cross-Complaint of Sid and Marty Krofft Pictures Corporation, Sid and Marty Krofft Productions, Sid and Marty Krofft Concerts, Kristina Music Corporation, Krofft Entertainment, Inc., Kendra Music Corporation, Sid Krofft and Marty Krofft (collectively, the "Krofft Group"). Cross-Defendants Michael Jackson and Jackson International, LLC did not join in the motion. The parties appeared before the Court for oral argument on February 24, 2003.
Upon consideration of the papers submitted and arguments presented, the Court GRANTS the Motion to Dismiss the first and third causes of action for Breach of Contract and Promissory Estoppel, with leave to amend; and GRANTS the Motion to Dismiss the second cause of action for Specific Performance, without leave to amend.
JURISDICTION
The Court has subject matter jurisdiction pursuant to 28 U.S.C. § 1332.
FACTUAL BACKGROUND PROCEDURAL HISTORY
Prior to August 1998, the parties began to negotiate a deal where JB Enterprises would purchase the stock interests of the Krofft Group for $10 million. On August 13, 1998, the parties executed a written agreement titled "Letter of Intent" which sets out the structure of the stock purchase and a payment schedule. Pursuant to the Letter of Intent, JB Enterprises also agreed to loan the Krofft Group $500,000 on a short term basis (the "Short Term Loan").
The Letter of Intent includes a 30 day due diligence period during which JB Enterprises, Don Barden and Michael Jackson were required to conduct a review of the business, assets and liabilities of the Krofft Group (the "Due Diligence"). At the end of the 30 day Due Diligence period, the Letter of Intent contemplates that the parties will enter into a definitive purchase agreement for the Krofft Group's stock (the "Purchase Agreement").
The Letter of Intent states that it does not create any legally binding obligations to complete the stock purchase and that any purchase obligations would arise only upon the signing of, and in accordance with, the Purchase Agreement. The Letter of Intent specifies that if the transaction contemplated occurs, the Short Term Loan would be credited against the $10 million purchase price, but if the transaction does not occur, the Short Term Loan would become due on February 14, 1999. In August 1998, an auction occurred at which Michael Jackson purchased over $63,000 in Krofft Group memorabilia; the parties agreed that the purchase price would also be credited against the overall $10 million purchase price of the Krofft Group.
Pursuant to the Letter of Intent, the Krofft Group received the Short Term Loan and executed a promissory note in consideration for it. The Due Diligence occurred, a draft Operating Agreement for the new company was delivered, and a Stock Purchase Agreement was drafted. However, although Cross-Defendants began to exercise dominion and control over the Krofft Group, the Purchase Agreement was not executed and the planned stock purchase did not occur.
On October 4, 2002, JB Enterprises filed a Complaint for Breach of Promissory Note, Unjust Enrichment, and Account Stated against the Krofft Group seeking to collect on the Short Term Loan, On December 4, 2002, the Krofft Group filed a Cross-Complaint for: (1) Breach of Contract, (2) Specific Performance, and (3) Promissory Estoppel. On January 27, 2003, Cross-Defendants filed the instant motion to dismiss the Cross-Complaint pursuant to FRCP 12(b)(6). An Opposition and a Reply were timely filed.
LEGAL STANDARD FOR MOTION TO DISMISS
Rule 12(b)(6) of the Federal Rules of Civil Procedure permits a defendant to seek dismissal of a complaint, which "fail[s] to state a claim upon which relief can be granted." Fed.R.Civ.P. 12(b)(6). A motion to dismiss for failure to state a claim must be denied unless it appears that the plaintiff can prove no set of facts that would entitle him to relief. See Conley v. Gibson, 355 U.S. 41, 45-46 (1957); Jenkins v. Commonwealth Land Title Ins. Co., 95 F.3d 791, 796-97 (9th Cir. 1996). Dismissal is appropriate if the plaintiff fails to assert a cognizable legal theory or to allege sufficient facts under a cognizable legal theory. See Balisteri v. Pacifica Police Dep't, 901 F.2d 696, 699 (9th Cir. 1990). All material factual allegations in the complaint are assumed to be true and construed in the light most favorable to the plaintiff. See Cooper v, Pickett, 137 F.3d 616, 622 (9th Cir. 1997). However, the court is not bound to assume the truth of legal conclusions merely because they are stated in the form of factual allegations. See W. Mining Council v. Watt, 643 F.2d 618, 624 (9th Cir. 1980).
If the Court dismisses the complaint, it must decide whether to grant leave to amend. Leave to amend is denied only if it is clear that amendment would be futile, and "that the deficiencies of the complaint could not be cured by amendment." Noll v. Carlson, 809 F.2d 1446, 1448 (9th Cir. 1987).
DISCUSSION
I. First Cause of Action: Breach of Contract
To state a cause of action for breach of contract, a plaintiff must allege: (1) the contract, (2) plaintiff's performance or excuse for nonperformance, (3) defendant's breach, and (4) damages. Careau Co. v. Sec. Pac. Bus. Credit, Inc., 222 Cal.App.3d 1371, 1388 (1990). California law "provides no remedy for breach of an `agreement to agree' in the future." Copeland v. Baskin Robbins U.S.A., 96 Cal.App.4th 1251, 1256-57 (2002) (distinguishing a "contract to negotiate the terms of an agreement," with an "agreement to agree"). When the parties contemplate that acceptance of a contract's terms would be signified in writing, no binding contract is created when the parties fail to sign the agreement. See Banner Entm't, Inc. v. Sup. Ct., 62 Cal.App.4th 348, 358 (1998).
"A contract must be so interpreted as to give effect to the mutual intention of the parties as it existed at the time of contracting, so far as the same is ascertainable and lawful." Cal. Civ. Code § 1636. "When a contract is reduced to writing, the intention of the parties is to be ascertained from the writing alone, if possible; subject, however, to the other provisions of this title." Cal. Civ. Code § 1639. Extrinsic evidence may not be used to contradict unambiguous express contractual terms. See Bank of the W. v. Valley Nat'l Bank of Ariz., 41 F.3d 471, 477 (9th Cir. 1994) (applying California law).
By its plain language, the Letter of Intent did not create a contractual obligation for Cross-Defendants to purchase the Krofft Group's stock. The Letter of Intent explicitly provides that it is an "expression of [the parties'] mutual intention" that the obligation to complete the stock purchase "would arise only upon the signing of, and in accordance with, a definitive Purchase Agreement." Moreover, the Letter of Intent contemplates the effect of the parties not concluding the Purchase Agreement: "In the event the closing of the transaction contemplated shall not occur, the Short Term Loan shall be paid in full by Seller by February 14, 1999."
The parties never executed the Purchase Agreement and they are not bound by the terms of the draft agreement. The Krofft Group may not look to the parties' conduct to imply that the Letter of Intent contains an obligation that contradicts the express language of the Letter of Intent. Accordingly, the Court finds that while the Letter of Intent created certain contractual obligations between the parties, as to the contemplated stock purchase, it is an unenforceable "agreement to agree."
II. Second Cause of Action: Specific Performance
To state a claim for specific performance, a plaintiff must allege all of the elements for breach of contract and the terms of the agreement must be "sufficiently certain to make the precise act which is to be done clearly ascertainable." Cal. Civ. Code § 3390(5). However, "[i]f the parties have concluded a transaction in which it appears that they intend to make a contract, the court should not frustrate their intention if it is possible to reach a fair and just result." Okun v. Morton, 203 Cal.App.3d 805, 818 (1988) (quoting 1 Corbin on Contracts. § 95 at 400 (1963)) (alterations in original).
The Court finds that the Letter of Intent is not specifically enforceable because it did not create a legally enforceable obligation to complete the stock purchase. Additionally, the tendered Purchase Agreement may not be specifically enforced because the parties did not execute the agreement and thus reached no agreement as to the specific terms of the stock purchase. The Court finds the transaction here distinguishable from the right of first refusal at issue in Okum, because to grant specific performance here the Court would have to structure the terms of the $10 million stock transaction and impose the terms of the deal on the parties — this the Court may not do.
Because the Court finds that neither the Letter of Intent, nor the Purchase Agreement created an obligation to complete the stock purchase which is specifically enforceable against Cross-Defendants, the Court denies the Krofft Group leave to amend their claim for specific performance based on the Letter of Intent and/or the Purchase Agreement.
III. Third Cause of Action: Promissory Estoppel
To state a claim for promissory estoppel, a plaintiff must allege: "(1)a promise clear and unambiguous in its terms; (2) reliance by the party to whom the promise is made; (3) his reliance must be both reasonable and foreseeable; and (4) the party asserting the estoppel must be injured by his reliance." Laks v. Coast Fed. Sav. Loan Assn., 60 Cal.App.3d 885, 890 (1976) (finding that a letter of intent requiring further negotiations did not create a clear and unambiguous offer to support a promissory estoppel claim).
The doctrine of promissory estoppel is generally used to enforce the defendant's clear and unambiguous promise when the plaintiff has reasonably and foreseeably relied on it," Copeland v. Baskin Robbins U.S.A., 96 Cal.App.4th 1251, 1261-62 (2002) (noting that promissory estoppel might be available to enforce a contract to negotiate in good faith). Promissory estoppel is not a doctrine designed to give a party to a negotiated commercial bargain a second bite at the apple in the event it fails to prove a breach of contract." Walker v. K.C. Corp., 728 F.2d 1215, 1220 (9th Cir. 1984) (applying California law). "If the promisee's performance was requested at the time the promissor made his promise and that performance was bargained for, the doctrine is inapplicable." Youngman v. Nevada Irr. Dist., 70 Cal.2d 240, 249 (1969); see Witkin, Summary of California Law § 251 ("If [the] only claimed reliance is performance of the act bargained for, the doctrine is inapplicable.").
The Court finds that the Letter of Intent did not contain a clear and unambiguous offer to complete the stock purchase, because it contemplated that the parties would negotiate the Purchase Agreement. The parties never agreed to the Purchase Agreement itself, and thus, the Purchase Agreement was also not a clear and unambiguous promise to complete the stock purchase.
Moreover, even if the Letter of Intent or the Purchase Agreement could be read to include a clear and unambiguous offer to complete the stock purchase, the detrimental reliance claimed by the Krofft Group — assisting in the 30-day Due Diligence (Letter of Intent, ¶ 9), accepting the Short Term Loan (Letter of Intent, ¶ 7), refraining from entering certain transactions (Letter of Intent, ¶ 13), and operating the company together with JB Enterprises (Letter of Intent, ¶ 14) — was the same obligation the Krofft Group incurred by the terms of the Letter of Intent. The doctrine of promissory estoppel is inapplicable to enforce the bargained for consideration of a contract.
Finally, even if the Complaint could be read to allege a promise to complete the stock purchase which was distinct from the obligations of the Letter of Intent or the Purchase Agreement, the Court finds that the Krofft Group could not have reasonably relied on that promise because it would have contradicted the Letter of Intent which expressly states that the purchase obligation would arise only upon the signing of, and in accordance with, the Purchase Agreement.
Therefore, the Court finds that the Krofft Group has not stated a claim for promissory estoppel as a means to complete the stock purchase,
CONCLUSION
The Court: (1) GRANTS Cross-Defendants' motion to dismiss the breach of contract claim, with leave to amend; (2) GRANTS Cross-Defendants' motion to dismiss the specific performance claim, without leave to amend; and (3) GRANTS Cross-Defendants' motion to dismiss the promissory estoppel claim, with leave to amend. Cross-Plaintiffs may file an amended Cross-Complaint no later than March 10, 2003.
IT IS SO ORDERED