Unpublished Disposition, 930 F.2d 28 (9th Cir. 1988)

MEMORANDUM^** 

Pacific Oxygen Sales Company ("POXSAL") appeals from the district court's grant of summary judgment in favor of Union Carbide Corporation, Linde Division ("Linde") in POXSAL's diversity action for tortious interference with contract. Because we agree that POXSAL had a prospective contractual relation rather than a binding, enforceable contract with certain University of California laboratories, we affirm.

From 1976 to 1986, POXSAL supplied three University of California laboratories (collectively "the Labs") with liquid nitrogen for their operations. In 1981, POXSAL, Linde and the Labs entered into an arrangement under which Linde supplied and POXSAL delivered liquid nitrogen to the Labs. The arrangement involved a delivery contract between the Labs and POXSAL which specified Linde as the supplier, and a supply contract between Linde and POXSAL.

In 1985, rather than renewing the delivery contract with POXSAL, the Labs decided to rebid the liquid nitrogen contract. After receiving several bids, the Labs issued a new purchase order to POXSAL, which provided:

The term of this order is November 1, 1985 through September 30, 1986 with University [Labs] option to renew annually for two additional years through September 30, 1988.

Soon after POXSAL entered into the 1985 delivery contract with the Labs, POXSAL entered into an agreement with Amerigas, under which POXSAL agreed to terminate its supply agreement with Linde and purchase all its liquid nitrogen from the Amerigas plant as soon as it came on line.

This agreement was soon eclipsed in January, 1986, when Amerigas began negotiations with POXSAL to acquire the assets of POXSAL. Letters of intent to this effect were signed on April 24, 1986, which also provided that Roger Josephian, the sole shareholder and president of POXSAL, would receive $400,000 if Amerigas was able to obtain the Labs account. The Labs account was separated from the other assets because of the importance and uncertainty of POXSAL's contract with the Labs after the sale of POXSAL's assets to Amerigas.

Linde learned of the arrangement between POXSAL and Amerigas in June, 1986, and within a month sent a letter to the Labs offering to supply the Labs with liquid nitrogen for a lower price than offered by POXSAL, commencing October 1, 1986. The Labs returned this unsolicited offer, stating they would take no action on it.

On August 18, 1986, the Labs informed POXSAL that they would not be renewing the 1985 delivery contract and began soliciting bids for the liquid nitrogen contract. A number of companies submitted bids and Linde, who submitted the lowest bid, was awarded the 1986-1987 contract and began delivery in December, 1986.

POXSAL filed suit against Linde, alleging breach of the covenant of good faith and fair dealing, intentional interference with "plaintiff's interest in the 1985 contract," and unfair competition. The district court granted defendant's motion for summary judgment on these claims. POXSAL appeals only the grant of summary judgment on the claim of tortious interference with contractual relations.

The district court found that because the Labs were not under any obligation to renew the 1985 contract, POXSAL's claim of tortious interference was in actuality a claim of intentional interference with prospective economic advantage. The court found no factual support for any of POXSAL's allegations of wrongful conduct and concluded that the claim of intentional interference with an economic advantage could not survive summary judgment.

A grant of summary judgment is reviewed de novo to determine, viewing the evidence in a light most favorable to the nonmoving party, if there are any genuine issues of material fact and whether the district court applied the relevant substantive law. Tzung v. State Farm Fire and Casualty Co., 873 F.2d 1338, 1339-40 (9th Cir. 1989).

The sole issue in this appeal is whether POXSAL had a binding, enforceable contract with the Labs. The district court's decision is based on its finding that there was no enforceable contract between POXSAL and the Labs, but only a prospective economic advantage if the Labs were to renew the 1985 contract with POXSAL.

POXSAL's attempt to characterize the Labs' option to renew as a binding three-year requirements contract is not persuasive. The language of the agreement, which states the term of the order was November 1, 1985, through September 30, 1986, belies this characterization. There was a one-year contract, with an option to renew on the two succeeding anniversaries. POXSAL does not argue any contractual ambiguity. Furthermore, POXSAL's president and sole shareholder admitted that the Labs were not obligated to renew and did not breach the contract.

Causing a third party not to exercise its option to renew a contract does not constitute interference with an existing contract. RESTATEMENT (SECOND) OF TORTS Sec. 766B comment c; Charles C. Chapman Building Co. v. California Mart, 2 Cal. App. 3d 846, 855-57, 82 Cal. Rptr. 830, 835-837 (1969); Tokuzo Shida v. Japan Food Corp., 251 Cal. App. 2d 864, 60 Cal. Rptr. 43 (1967). While POXSAL urges a broad definition of the word contract, the cases cited by POXSAL do not support treating the agreement at issue here as anything other than an option to renew.

POXSAL argues that the interference (the unsolicited bid from Linde in July, 1985) occurred before the contract expired and that this constitutes interference with an existing contract. However, the relationship between POXSAL and the Labs was not disturbed until after the expiration of the 1985 contract. The Restatement (Second) of Torts is instructive in evaluating these facts.

Interference with a third party's exercise of an option to renew or extend a contract with the plaintiff is considered an interference with prospective contractual relation. RESTATEMENT (SECOND) OF TORTS Sec. 766B comment c. Such an interference is not considered an interference with the performance of a contract. RESTATEMENT (SECOND) OF TORTS Sec. 766 comment g.

Section 768 of the Restatement recognizes that where there is competitive justification, the interference is not improper in cases involving prospective contractual relation. Comment a to Section 768 explains:

If one party is seeking to acquire a prospective contractual relation, the other can seek to acquire it too. Even an option to renew or extend a contract is prospective while not exercised. But an existing contract, if not terminable at will, involves established interests that are not subject to interference on the basis of competition alone.

(Emphasis added.)

The court correctly characterized POXSAL's tortious interference claim as one of interference with prospective economic advantage. This conclusion has an obvious detrimental effect on POXSAL's claim. After determining the agreement involved a prospective economic advantage, the court correctly applied California law by requiring a showing of wrongful conduct on the part of Linde. Rickel v. Schwinn Bicycle Co., 144 Cal. App. 3d 648, 660, 192 Cal. Rptr. 732, 740 (1983). POXSAL was required to show that Linde's acts went "beyond those of a mere competitor securing business for himself." Id. at 658, 192 Cal. Rptr. at 738 (citations omitted). Without such a showing, under California law a claim for intentional interference with prospective economic advantage must fail. The court found no factual support for POXSAL's claims of wrongful conduct and POXSAL does not challenge this conclusion.

POXSAL provides no true support for its contention that the court erred in finding the supply agreement between POXSAL and the Labs was not a contract. The circular argument that the court incorrectly applied the defense of competitive justification because the supply agreement was in fact a contract does not assist POXSAL. We disagree with POXSAL that the district court applied the defense of justifiable competition. However, we agree with Linde that even if the court had relied on a finding of competitive justification, the record fully supports such a finding.

We also disagree with POXSAL's contention that the district court required a breach of contract by the Labs for there to be a tortious interference with performance of contract. According to POXSAL, the district court was incorrect in stating:

[B]ecause the Labs were not under an obligation to renew the 1985 contract, it is clear that the Labs never breached their contract with POXSAL; logically, Linde could not have induced the Labs to breach its contract with POXSAL. Thus, POXSAL's claim is reduced to an allegation of intentional interference with prospective economic advantage, which does not require a breach of contract.

District Court Decision at 8-9 (citation omitted). When this passage is read in context, it is clear that the point the court made was that there was no contract to interfere with after the specific termination date. We do not read the district court's opinion as requiring a breach of contract; there simply was no contract to breach after the expiration date. See Tokuzo Shida v. Japan Food Corp., 251 Cal. App. 2d at 866, 60 Cal. Rptr. at 44.

The recent case of Pacific Gas & Electric Co. v. Bear Stearns & Co., 50 Cal. 3d 1118, 791 P.2d 587, 270 Cal. Rptr. 1 (1990), does not change the law of California on the subject. The case involved an attempt to terminate a contract according to its terms, during the period it would otherwise have been in force. Here, the contract expired of its own force upon non-renewal.

Having reviewed this case de novo, we are convinced that there are no genuine issues of material fact to preclude summary judgment and that the district court correctly applied the substantive law in this case. Accordingly, the judgment of the district court is AFFIRMED.