Unpublished Disposition, 865 F.2d 1271 (9th Cir. 1980)

MEMORANDUM^* 

INTRODUCTION

This diversity action arises from an aborted attempt of plaintiffs Irving H. Levin and Harold A. Lipton to sell the San Diego Clippers basketball team to defendant Philip L. Knight. Levin and Lipton (hereafter Levin) appeal from a directed verdict in favor of Knight. Levin sued Knight for breach of a contract that Levin alleges Knight entered into in a meeting on December 3, 1980. Levin also alleged fraud on the part of Knight, in that he entered the contract with no intent to perform. The contract was allegedly memorialized in a memorandum handwritten by Levin and initialed by Knight. In 1984, the district court granted summary judgment in favor of Knight on the ground that the memorandum was insufficient, as a matter of law, to overcome the statute of frauds. This court reversed and held that, if all disputed matters were resolved in plaintiffs' favor, the memorandum indicated sufficiently the few terms deemed essential to satisfy the statute of frauds under California law. Levin v. Knight, 780 F.2d 786, 787 (9th Cir. 1986) ("Levin I ").

On remand, the case proceeded to trial. After plaintiffs had presented their evidence, the district court granted defendant's motion for a directed verdict. The district court held that there was no meeting of minds and that the December 3 memorandum merely embodied an agreement to agree. Material terms, the court ruled, had been left out of the written memorandum and were yet to be negotiated. The district court also ruled that the contract violated the federal securities laws. Finally, it held that no fraud was shown.

We agree that there was no contract, and hold that the fraud claim was properly dismissed. We therefore affirm. In view of our resolution we do not reach plaintiffs' securities defense.

DISCUSSION

The Agreement

In 1975 Levin and Lipton bought the stock of the Boston Celtics Basketball Club, Inc., a Massachusetts corporation which then owned the Boston Celtics professional basketball team. They later exchanged the Celtics for the Buffalo Braves professional team, moved the Braves to San Diego and changed the name of the team to the San Diego Clippers. The name of Celtics Basketball Club Inc. was changed to San Diego Clippers Basketball Club, Inc. In mid 1980, Levin and Lipton began to look for buyers for the Clippers.

In late October, 1980, Jerry Davis, a sports lawyer based in New York City, and Lewis Schaffel, a business associate of Davis and former general manager of two basketball teams, approached Knight as to a possible purchase by Knight of the Clippers. Davis, as Knight's agent, met with Levin on November 15 and November 24 to negotiate terms of a possible purchase by Knight and his associates.

On December 3, 1980, Levin and Knight met for the first time in Oregon. Present at the meeting were Davis, Schaffel and Jerry Colangelo (general manager of the Phoenix Suns). After four hours of negotiation, Levin prepared a handwritten memorandum which contains the major elements of what plaintiffs contend is a binding contract.

The terms of the sale as set forth in the memorandum provided that Knight would buy the Clippers for the purchase price of $13.5 million. There was to be a down payment of $1.5 million, payable on the closing date, $3.5 million to be paid by Knight's assumption of a long-term bank loan, annual installments of $1.5 million, and $500,000 payable from Dallas Mavericks expansion money and Boston Celtics money. Knight and his associates would give assurances that the promissory note to be given to plaintiffs would be paid. Plaintiffs would not dispose of any players or make any trades after December 3 without Knight's approval.

Absent from the memorandum was any mention of whether the transaction would be structured as a purchase of stock or assets. Also missing from the handwritten memo was the disposition of a loan to a shareholder, a $2 million asset which plaintiffs assert was not included in the sale.

On December 15, Knight called Levin to inform him that he was not going forward with the deal. Knight stated that a subsequent financial review showed that the projections he had previously received understated the Clippers' potential losses. The team was subsequently sold for some $2 million less than the price stated in the handwritten memorandum.

Was there a "meeting of minds"?

Plaintiffs argue that there was a "meeting of minds" because all material terms of the contract were agreed upon on December 3, 1980. We disagree. Because material terms remained to be negotiated plaintiffs have presented this court with an agreement to agree but no enforceable contract. See Local 3-7 v. Daw Forest Prods. Co., 833 F.2d 789, 793 (9th Cir. 1987).

Significantly, no agreement was reached on whether the sale would be of stock or assets. If it were to be a stock sale, Knight would acquire all of the assets and liabilities not expressly allocated in the memorandum. If it were to be a sale of assets, Levin would retain those assets and liabilities not specifically transferred to Knight. He stated that the decision on whether Knight would receive stock or assets was "left open" on December 3. No competent evidence has been offered to the contrary. A subsequent letter by Levin and Lipton's attorney, which spoke of a "proposed" agreement, supports Knight's version of the status of this term. The letter states that the "draft" is "subject to [plaintiffs'] approval" and indicates that "there is now a stock transaction." The question whether the sale was to be of stock or assets went to the heart of the transaction. The failure to answer it led to an incomplete obligation.

The significance of the failure to elect whether the sale would be one of stock or assets is magnified by the fact that the parties had not agreed on the allocation of substantial items of assets and liabilities. A major question remained over disposition of a shareholder loan of over $2 million to Levin and Lipton, the largest single asset on the Clippers' books. Plaintiffs do not question that allocation of the shareholder loan would be a material term if placed in the contract, but argue that the loan was not part of the sale. However, when a franchise, or any other operation, is sold, all significant assets and liabilities must be accounted for. In this instance, an integrated contract should, at a minimum, have excluded from the purchase price a $2 million asset if that was indeed the intent. We agree that, on the undisputed evidence, the $2 million shareholder loan is an essential and material term which remained to be negotiated. "The most that appears is an unenforceable agreement to make an agreement." Transamerica Equip. Leasing Co. v. Union Bank, 426 F.2d 273, 274 (9th Cir. 1970) ("where an essential element is reserved for future agreement ... a legal obligation cannot result"). Although the failure to agree on whether the sale was to be of stock or assets, and to agree on disposition of the shareholder loan, would be enough to prevent formation of a contract, there were other items left unresolved. Among them were receivables of $600,000, and a liability of $246,000 for a scoreboard. In light of all that was left open, the district court was correct in concluding that no meeting of the minds had occurred on December 3 between Levin and Knight.

Fraud claim

Because it found insufficient evidence of intent to defraud or of detrimental reliance, the district court directed a verdict on plaintiffs' fraud cause of action. We agree that no jury question of intent to defraud was presented. California law provides that " [a] promise, made without any intent of performing it" constitutes fraud. Cal.Civ.Code Sec. 1710. Because there was no meeting of the minds, Knight had not made a promise to purchase the Clippers. At most, the evidence shows only an intent to try to reach an agreement in the future. No evidence was offered upon which a jury could base a finding that Knight promised anything that he did not intend to perform.¹ 

CONCLUSION

Material terms were absent from the agreement of December 3, 1980, and remained to be negotiated. There was therefore no meeting of minds. Plaintiffs' fraud cause of action fails because there was no promise made. Because we find no contract, we need not reach defendants' securities defenses. The judgment of the district court is AFFIRMED.