Unpublished Disposition, 930 F.2d 26 (9th Cir. 1989)

Nos. 89-15210, 89-15984.

United States Court of Appeals, Ninth Circuit.

Before ALARCON, POOLE, Circuit Judges and HATTER, District Judge.^* 

MEMORANDUM^** 

OVERVIEW

Plaintiff/Appellant Carradale Import Co., Ltd. appeals from a grant of summary judgment in favor of Defendants/Appellees, Pusser's Ltd. and Pusser's president, Charles Tobias. Carradale alleges that the district court erred in finding that the unambiguous terms of the agreement compelled summary judgment for Pusser's on Carradale's breach of contract and fraud claims.

FACTS AND PROCEEDINGS BELOW

In March 1986, Pusser's appointed Carradale its exclusive United States Import Agent for British Navy Pusser's Rum for an initial period of five years. The appointment was memorialized by a letter agreement dated March 26, 1986 from Charles Tobias to Carradale's president, Donald Martin.

The agreement provided that Carradale would sell a minimum of 2,000 cases of rum the first year. Although no specific remedy was listed in the agreement for failure to sell the specified quantity, the parties agree that, pursuant to liquor industry custom, a seller may cancel an open ended distribution agreement if the distributor fails to meet the minimum.

Carradale acted as sales agent for Pusser's in most states and the duty-free market in the United States. Pusser's acted as its own sales agent in the United States Virgin Islands, eight states and parts of two others (Pusser's territory). Pusser's would promote the rum at both the retail and wholesale level and receive the importer's markup in its territory. However, distributors would still place their orders for rum through Carradale and Carradale would be responsible for seeing that their orders were filled.

In conjunction with filling the orders, Carradale would process the paperwork for each case of rum sold in Pusser's territory. For this service, Carradale was paid $4.00 per case. Because it cost Carradale $3.80 per case to do the paperwork, its net profit on each case sold in Pusser's sales territory was only 20 cents. Carradale retained its full importer's profit for sales made in its own territory.

The agreement remained in effect until April 24, 1987 when Pusser's terminated Carradale's appointment and appointed James E. Beam Distilling Company its exclusive United States importer. As a result, Carradale filed this diversity action against Pusser's and Tobias alleging breach of contract, and fraud for representing that its appointment was for a fixed five year term and against Tobias for tortious interference with the agreement.¹ 

Pusser's filed a motion for summary judgment seeking to dispose of Carradale's claims. That motion also dealt with Pusser's counterclaim for sums due for rum that Carradale had sold and delivered. Pusser's sought to establish that (1) it had the right to terminate the agreement if Carradale failed to meet the sales minimums; (2) Carradale failed to meet the sales minimum set forth in the agreement; (3) Carradale did not suffer any compensable injury due to Pusser's purported misrepresentation that the agreement would last five years; (4) Pusser's president, Charles Tobias did not interfere with the appointment agreement, and (5) Carradale owes Pusser's $28,859.71 for rum sold.

On August 22, 1988, the district court granted Pusser's motion in full. On January 11, 1989 the court entered judgment in favor of Pusser's for $28,859.71. Carradale filed a notice of appeal on February 8, 1989 because it did not know whether the January 11, 1989 order included the entire complaint.² 

After discovering that the January 11, 1989 order did not dispose of all the issues, and after settlement discussions and further pretrial proceedings, on May 24, 1989, Carradale and Pusser's stipulated to dismissal of the remaining counterclaims and entry of judgment on the complaint. Based on this stipulation, the trial court entered judgment in Pusser's favor on June 29, 1989. Carradale filed a timely notice of appeal on July 28, 1989.

This court has jurisdiction of the appeal of this diversity action under 28 U.S.C. § 1291.

STANDARD OF REVIEW

A grant of summary judgment is reviewed de novo. Kruso v. International Telephone & Telegraph Corp., 872 F.2d 1416, 1421 (9th Cir. 1989) cert. denied 110 S. Ct. 3217 (1990). "In contract cases, summary judgment is appropriate only if the contract or contract provision in question is unambiguous. A contract or a provision of a contract is ambiguous if it is reasonably susceptible of more than one construction or interpretation." Castaneda v. Dura-Vent Corp., 648 F.2d 612, 619 (9th Cir. 1981) (citations omitted).

DISCUSSION

This appeal raises three issues of contract interpretation. First, whether the term "minimums" in the contract can be reasonably interpreted as meaning non-binding "goals." Second, whether the agreement may be terminated upon failure to meet the minimums. Third, whether the cases of rum sold in Pusser's territory were to be included in Carradale's 2000 case minimum for year one.

As this is a diversity case, California law applies. Sherman v. Mutual Benefit Life Insurance Co., 633 F.2d 782, 784 (9th Cir. 1980). Under California law, whether a contract is ambiguous is a question of law that must be decided by the court. Brobeck, Phleger & Harrison v. Telex Corp., 602 F.2d 866, 871 (9th Cir.) cert. denied 444 U.S. 981 (1979). Even if the parties' agreement is clear and unambiguous on its face, the trial court must entertain relevant extrinsic evidence that can prove a meaning to which the language of the contract is reasonably susceptible. United States v. King Features Entertainment, Inc., 843 F.2d 394, 398 (9th Cir. 1988). However, extrinsic evidence cannot be received for the purpose of varying the terms of the contract, if the court finds after considering the preliminary evidence that the language of the contract is not reasonably susceptible of the asserted interpretation and is unambiguous. Id. At that point, the case may be disposed of on summary judgment as the interpretation of an unambiguous contract is a question of law. Brobeck, 602 F.2d at 871-872.

A. The Meaning of the Term "Minimums"

The contract provides that "Carradale agrees to the following minimums: Year 1: 2,000 cases Year 2: 3,000 Year 3: 4,000 cases Year 4: 6,000 cases Year 5: 8,000 cases." (ER at 10). On appeal Carradale argues that the term "minimums" in the contract means "non-binding goals."

Carradale bases this assertion on the declaration of its president, Donald Martin. Martin testified there is no way to calculate a sales minimum when the brand is not currently in the market.³  Because there was no current sales figures to rely on to determine the market, it is reasonable to assume that the term "minimum" meant a non-binding goal rather than a quota. Carradale argues that Martin's testimony confirms the existence of a second, reasonable interpretation of the contract and thus presents a disputed issue of fact which prevents the entry of summary judgment.

The question becomes whether Martin's testimony can prove a meaning to which the language of the contract is reasonably susceptible. United States v. King Features Entertainment, Inc., 843 F.2d 394, 398 (9th Cir. 1988). The court may not interpret a contract on a motion for summary judgment if the interpretation turns on the credibility of extrinsic evidence as credibility issues necessarily raise triable issues of fact. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249 (1986) (when dealing with summary judgment motions, it is not the court's function to make credibility determinations). However, courts are permitted to assess the plausibility of proffered contract interpretations. McLaughlin v. Liu, 849 F.2d 1205, 1208, n. 8 (9th Cir. 1988).

The district court found it implausible to interpret the term "minimums" to mean "goals," even given the fact that Pusser's rum had not been sold in the United States for a year prior to the contract execution. We agree.

Carradale's interpretation is contrary to the plain meaning of the word "minimums." It is implausible and unreasonable to assume that the parties would have used the word "minimums" when they meant "non-binding goals." Further, inserting the words "non-binding goals" for the word "minimums" in the contract would render that section of the contract superfluous. The contract would then read "Carradale agrees to the following non-binding goals." It is implausible to say that the parties "agreed" to a term that was non-binding. As a result, we hold that the term "minimums" in the contract means "minimums" and not "non-binding goals."

Carradale next argues that even if the term "minimums" means "minimums" and not "goals" there is still a factual dispute which prevents the entry of summary judgment. Carradale contends that Martin's testimony reveals a question regarding whether the agreement can be terminated for not fulfilling the minimums.

The agreement itself is silent as to what happens in the event of a material breach. Martin agreed with Pusser's evidence that trade usage allows the termination of a contract for failure to meet the minimums. However, Martin also declared that another industry custom provides that such trade usage does not apply to an import/distribution agreement with a fixed term. Fixed term agreements may not be terminated for failure to meet the minimums unless the contract specifically provides for it and here there was no such provision.

The district court disregarded Martin's testimony because it found that his declaration failed to lay any foundation to establish his qualifications as an expert. Further, the court held that Martin's statements failed to offer probative evidence. Martin did not explain the relationship between the two trade customs and failed to mention the second custom, of not terminating fixed term agreements, in its memorandum in opposition to the summary judgment motion.

The court also noted that section 1655 of the California Civil Code explicitly provides that "stipulations which are necessary to make a contract reasonable ... are implied, in respect to matters concerning which the contract manifests no contrary intention." As a result, the court found that in order to make the "minimums" language in the contract meaningful, the agreement necessarily implied that failure to meet the minimums warranted termination.

Carradale asserts that Martin need not be an expert to testify regarding trade custom and usage because usage is a matter of fact not opinion. Further, Martin offers direct evidence⁴  which raises a reasonable interpretation of the agreement and thus his testimony is enough to establish a genuine issue of material fact. Pusser's retorts that Carradale's assertions are unreasonable and not plausible. Pusser's agrees with the district court that if failure to meet the minimums has no legal consequence then there was no reason for the minimums to be in the contract and the entire paragraph dealing with the issue becomes superfluous.

The question again becomes whether Martin's testimony can prove a meaning to which the language of the contract is reasonably susceptible. King Features, 843 F.2d at 398. Only if Martin's proffered interpretation is reasonable must the court find a genuine issue of material fact.

It is untenable to say that if Carradale breaches a material provision of the contract Pusser's has no remedy except nonrenewal. It does not seem plausible, viewing the circumstances surrounding the execution of this agreement, to assert that the parties' intended to allow Carradale to breach without an appropriate remedy. Therefore, the district court properly held that the contract may be terminated for failure to meet the specified minimums.

Carradale claims that if the term "minimums" is akin to a quota then the parties intended that the minimums would be satisfied by sales generated in Pusser's territory as well as its own. As support for its argument, Carradale asserts that its obligations under the import agreement put it in a position to affect demand for and sales of Pusser's rum in both areas. Carradale was responsible for obtaining licenses, appointing distributors, accepting the orders, arranging for shipment and completing the paperwork. Carradale contends that its service work affected how Pusser's was perceived in the industry and therefore how well it sold. Carradale suggests that a sale made in Pusser's territory was proof that it had done a good job.

Moreover, embodied in Martin's testimony is the assertion that the manufacturer and import agent "work together to build a brand." (ER at 12-13). Thus, Carradale argues, it is not unreasonable to assume that the parties intentions were that they would work together to sell the rum and as a result all cases sold should be counted towards Carradale's minimums.

The district court held that Carradale's interpretation of the agreement was implausible. Pursuant to the agreement, Carradale possessed the right to sell Pusser's rum only in Carradale's sales territory. Moreover, it received a flat fee for processing cases in Pusser's area and as a result had no incentive to pursue those sales.

Under Carradale's reading of the contract it would not have to sell any rum in its territory in order to meet its minimum as long as 2000 cases were sold in Pusser's territory. In that scenario, Carradale would have agreed to a minimum number of sales but not have to make any of them. Again, such interpretation would render the "minimum" language superfluous.

Carradale's interpretation seems unreasonable and implausible. The agreement language is unambiguous. Carradale's 2000 case minimum was to be comprised of cases sold within the Carradale's own territory. The territory where Pusser's acted as its own sales agent was not included. Carradale's tasks in Pusser's territory were essentially clerical and mechanical and Carradale was paid a fee for that service.

The parties agree that if Pusser's sales area is not included, Carradale does not meet the specified minimums set out in the contract. Thus, Carradale materially breached the contract and termination was proper.

CONCLUSION

The district court did not err in finding that the unambiguous terms of the agreement compelled summary judgment for Pusser's on Carradale's breach of contract and fraud claims. The term "minimums" in the contract cannot be reasonably interpreted to mean non-binding "goals." The agreement may be terminated upon failure to meet the minimums. The cases of rum sold in Pusser's territory were not included in Carradale's 2000 case minimum for year one. Because the agreement is unambiguous, there was no misrepresentation and Carradale suffered no compensable injury. The district court's order granting summary judgment is AFFIRMED.