Unpublished Disposition, 902 F.2d 39 (9th Cir. 1989)

MEMORANDUM^* 

Plaintiff-appellant Rayhigh, Ltd. appeals the district court's granting of summary judgment in favor of Hawaiian Triathlon Corp. (HTC) on the issues of specific performance and contract reformation. On appeal, Rayhigh contends that the district court erred in determining (1) that the alleged agreement lacked essential terms necessary to allow for the remedy of specific performance, and (2) that reformation of the alleged agreement was not permissible. We affirm.

BACKGROUND

Appellee HTC is a private corporation wholly owned by Valerie Silk and Kona Nui Kukini, Inc. (KNKI). HTC operates the annual Ironman Triathlon, and owns trademark and service mark rights in the mark "Ironman." In the fall of 1988, Rayhigh began negotiating for the purchase of HTC from Silk and KNKI. On September 29, 1988, the parties signed a Letter of Intent for the purchase of all the stock in HTC. The Letter provided that:

Upon acceptance of this offer by the Sellers as set forth herein, the Buyer and Sellers shall negotiate in good faith and shall execute a definitive agreement ... providing for the sale of the Shares by the Sellers to the Buyer ... no later than December 15, 1988 ..., upon the following terms and conditions, together with such other terms and conditions as may be mutually agreed upon by the Buyer and the Sellers.

The Letter then set out, inter alia, the following provisions:

1. Sale of Common Stock--$2 million was offered. The specified payment schedule called for two promissory notes worth $1 million.

2. Pledge Agreement--The promissory notes were to be secured by a pledge of all the shares of stock.

3. Employment Agreement--Rayhigh and Silk "contemplate [d] that they shall" enter an employment agreement whereby Silk was to work for Rayhigh, beginning on the day the deal closed. The parties agreed to negotiate in good faith to effectuate such an agreement.

4. Buyer's Representations and Warranties--The final agreement was to contain the "customary representations."

5. Termination--If the final agreement was not executed by December 15, 1988, "for any reason whatsoever," the Letter of Intent and all accompanying obligations were to terminate.

The parties never reached a final agreement and the closing never took place. On December 15, 1988, HTC filed an Hawaii state court action for breach of contract. Rayhigh removed the action to federal court and filed a separate federal action seeking specific performance of the letter of intent, damages for breach of warranty, and reformation of the letter of intent, and alleging fraud and breach of the duty of good faith and fair dealing. The two actions were consolidated in federal court.

On January 26, 1989, HTC and its owners moved for summary judgment on all of Rayhigh's claims. HTC advanced two theories supporting summary judgment: (1) the Letter of Intent, by its express terms, expired on December 15, 1988, thus leaving Rayhigh without a cause of action; and (2) reformation and specific performance were unavailable as a matter of law because the Letter of Intent, as an "agreement to agree," lacked sufficient specificity regarding essential terms.

The district court denied summary judgment based on the first theory, deciding that there were factual questions regarding the existence of a binding agreement to "negotiate in good faith." However, the district court did grant summary judgment on the issues of specific performance and reformation, finding that no questions of material fact existed. According to the court, the Letter of Intent was missing essential terms, making specific performance an unacceptable remedy. Additionally, reformation was deemed inappropriate because the amount of reformation necessary to insert all the essential terms would have resulted in the preparation of a new agreement by the court. Rayhigh appeals this partial grant of summary judgment.

STANDARD OF REVIEW

A grant of summary judgment is reviewed de novo. Kruso v. International Tel. & Tel. Corp., 872 F.2d 1416, 1421 (9th Cir. 1989). The appellate court must determine, viewing the evidence in the light most favorable to the nonmoving party, whether there are any genuine issues of material fact and whether the district court properly applied the relevant substantive law. Tzung v. State Farm Fire and Casualty Co., 873 F.2d 1338, 1339-40 (9th Cir. 1989).

DISCUSSION

The Hawaii Supreme Court has noted that

[t]here is little or no conflict of authority upon the general principle that where a contract is complete and certain as to the essential and material terms, parts and elements of a lease, specific performance will be granted; nor if the contract to lease or the negotiations of the parties affirmatively disclose or indicate that further negotiations, terms and conditions are contemplated, the proposed lease is considered incomplete and incapable of being specifically enforced.

Francone v. McClay, 41 Haw. 72, 78 (1955).¹ 

Whether a term is essential can be resolved as a matter of law. See Lahaina-Maui Corp. v. Tau Tet Hew, 362 F.2d 419, 422 (9th Cir. 1966) (district court properly treated problem of definiteness as matter of law to be resolved by wording of provision itself and undisputed circumstances surrounding transaction); Honolulu Waterfront Ltd. Partnership v. Aloha Tower Dev. Corp., 692 F. Supp. 1230, 1234 (D. Haw. 1988) (finding that agreement failed for indefiniteness (i.e., lack of essential provisions) as a matter of law, thus making summary judgment on issue of specific performance permissible), aff'd, 891 F.2d 295 (9th Cir. 1989); In re Sing Chong Co., 1 Haw.App. 236, 617 P.2d 578, 581 (1980).

" [U]nder Hawaii law an agreement to agree which does not specifically address each material term is unenforceable notwithstanding the intent of the parties. Clarkin v. Reimann, 2 Haw.App. 618, 638 P.2d 857 (1981); Lahaina-Maui Corp. v. Tau Tet Hew, 362 F.2d 419 (9th Cir. 1966); In re Sing Chong Co., Ltd., 1 Haw.App. 236, 617 P.2d 578 (1980); Francone v. McClay, 41 Haw. 72 (1955)." Honolulu Waterfront, 692 F. Supp. at 1233-34.

The Letter of Intent was not a finalized, complete contract, but was, as the district court noted, "an agreement to negotiate in good faith within broad parameters to reach a specific, enforceable agreement. Further negotiations were clearly contemplated and indeed occurred." More specifically, the Letter of Intent left unresolved certain terms of the Pledge Agreement securing payment of the deferred purchase price; the Employment Agreement between Rayhigh and Silk; and the Buyer's Representations and Warranties. All these provisions envision further negotiations in which the actual terms will be established.

Rayhigh has presented no evidence supporting the contention that the Pledge Agreement, the Buyer's Representations and Warranties, and the Employment Agreement were complete. Rayhigh only asserts that Silk and KNKI have themselves presented no evidence affirmatively demonstrating that the provisions were incomplete. Celotex Corp. v. Catrett, 477 U.S. 317, 323, 106 S. Ct. 2548, 91 L. Ed. 2d 265 (1986). By failing to present affirmative evidence on the issue of completeness, Rayhigh's contentions fail.

Rayhigh offered no substantial evidence that, despite the fact that the Letter of Intent contemplated deferring payment of one million dollars, the Pledge Agreement was not of crucial importance in order to obtain security for that large deferred payment. Similarly, there is no substantial evidence suggesting that the Buyer's Representations were not essential in that the buyer's financial status, capitalization, etc., are crucial to the successful consummation of the proposed purchase. The Letter of Intent contemplated that Silk shall enter into an agreement which would provide services "for a period and at a rate of compensation to be mutually determined." Although Rayhigh, through the affidavit of Robert C. Berry, presented evidence that the parties were negotiating with respect to such an employment agreement, it presented no evidence beyond mere conclusory allegations that the employment provision was not an essential term of the agreement. Rather, the clearly mandatory language used in the provision demonstrates that the district court properly found the provision to be essential.

The Letter of Intent also failed to specify any method for ascertaining those incomplete but essential terms. The Letter of Intent provides no guidance by which the court can fairly determine the specific terms of the Pledge Agreement, the Employment Agreement, or the Buyer's Representations.² 

Because the Letter of Intent failed to "specifically address each material term," the district court properly granted summary judgment, finding specific performance unavailable as a matter of law. Honolulu Waterfront Ltd. Partnership v. Aloha Tower Dev. Corp., 692 F. Supp. 1230, 1233 (D. Haw. 1988). There are no questions of material fact which need to be resolved on this issue. The parties' intent, a factual issue, is not relevant to the issue of specific performance in this case, where the Letter of Intent on its face indicates that further negotiations are contemplated.³ 

The parties are unable to agree whether contract reformation is even at issue in this case.⁴  HTC and its owners argue that the court has no power to reform the Letter of Intent and then specifically enforce the new provisions. Rayhigh claims that

the relief [sought] in this action is not reformation per se, but is, in essence, a claim for damages incident to specific performance for fraud, breaches of warranties, and other misconduct on the part of Silk and KNKI.... Rayhigh simply requests that these damages be assessed in the form of an offset to the price of HTC stock.

Appellant's reply brief at 10.

Assuming that reformation would be required, the district court properly determined that it is not permissible in this case. " [W]hile the power of the court to fashion in appropriate cases an equitable remedy is great, it does not encompass a right to make an agreement for the parties." Honolulu Waterfront, 692 F. Supp. at 1235 (citing Candid Productions Inc. v. International Skating Union, 530 F. Supp. 1330 (S.D.N.Y. 1982)).⁵ 

The date for the payment contemplated in the Letter of Intent has passed and at minimum a new payment schedule, whether or not with adjustment to the purchase price, would have to be determined. Additionally, the Letter of Intent had several unresolved but essential terms, see supra, all of which would have to be reformed by the court if an enforceable contract were to be created. Not only would the nonspecific terms have to be reformed, but, according to Rayhigh, the price of the stock would have to be reduced to compensate for alleged breach of warranties by Silk and KNKI. The requested reformation is simply too great; the court would in essence be creating a new contract for the parties. Therefore, the district court properly refused to reform the contract and subsequently enforce it.⁶ 

AFFIRMED.