Misle v. Schnitzer Steel Industries, Inc. et al, No. 4:2015cv06031 - Document 104 (N.D. Cal. 2017)
Court Description: ORDER GRANTING, IN PART, AND DENYING, IN PART, 60 Motion for Summary Judgment. Signed by Judge Jeffrey S. White on August 25, 2017. (jswlc3S, COURT STAFF) (Filed on 8/25/2017)
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Misle v. Schnitzer Steel Industries, Inc. et al Doc. 104 1 2 3 4 NOT FOR CITATION 5 UNITED STATES DISTRICT COURT 6 NORTHERN DISTRICT OF CALIFORNIA 7 8 Plaintiff, 9 10 United States District Court Northern District of California 11 12 Case No. 15-cv-06031-JSW HOWARD MISLE, ORDER GRANTING, IN PART, AND DENYING, IN PART, PLAINTIFF’S MOTION FOR SUMMARY JUDGMENT v. SCHNITZER STEEL INDUSTRIES, INC., Re: Dkt. No. 60 Defendant. 13 14 Now before the Court for consideration is the motion for summary judgment filed by 15 Plaintiff Howard Misle (“Misle”). Misle moves for summary judgment on his claims for 16 declaratory relief and breach of contract against Defendant Schnitzer Steel Industries, Inc. (“SSI”) 17 and on SSI’s counterclaim for breach of contract. On February 19, 2017, the Court issued an 18 Order in which it held that the litigation privilege did not bar SSI’s breach of contract claim. (Dkt. 19 No. 77.) For the reasons set forth later in this Order, the Court shall revisit that ruling. 20 The Court reserved ruling on the remaining issues, pending the results of a settlement 21 conference. The parties’ efforts to resolve this matter were not successful. The Court has 22 considered the parties’ papers, relevant legal authority, and the record in this case, and it 23 determines that no further oral argument is necessary. For the reasons set forth herein, the Court 24 GRANTS, IN PART, AND DENIES, IN PART, Misle’s motion. 25 26 27 28 BACKGROUND The following facts are undisputed unless otherwise noted. Misle, other entities not parties to this lawsuit, and SSI entered into an Asset Purchase Agreement (the “APA”) dated April 6, 1 Dockets.Justia.com 1 2011, pursuant to which SSI agreed, for a sum certain, to purchase certain assets from the Selling 2 Parties.1 The transaction closed on April 21, 2011 (the “Closing Date”). (See Dkt. No. 60-1, 3 Declaration of Howard Misle (“Misle Decl.”), ¶ 5, Ex. A (APA, Recitals, ¶ C).) 4 A. Relevant Provisions of the APA and the Escrow Agreement. The parties agreed to place $5,500,000.00 of the total purchase price in escrow (“Escrow 5 Amount” or “Escrow Funds”), which was held by Wells Fargo Bank, N.A. as escrow agent. 7 (APA, Art. IV, § 4.2(c).)2 The parties defined the term “Escrow Amount” as “an aggregate 8 amount of $5,500,000 of the Closing Date Purchase Price[.]” (Id. (emphasis added).) The parties 9 also agreed that the Escrow Funds would be divided into two parts. The first part consisted of 10 $4.5 million, which “will be used for indemnification matters addressed in Section 9.2.” (Id., § 11 United States District Court Northern District of California 6 4.2(c)(i).) The parties agreed that “$2,250,000 of such portion of the Escrow Amount (less any 12 paid or pending claims) [would] be disbursed to the Selling Parties on the first anniversary of the 13 Closing Date.” (Id.) The Court refers to this portion of the Escrow Funds as the “Tranche I 14 funds.” “[T]he remaining balance of such portion of the Escrow Amount [would] be disbursed to 15 the Selling Parties on the second anniversary of the Closing Date (less any paid or pending 16 claims)[.]” (Id.) The Court refers to this portion of the Escrow Funds as the “Tranche II funds.” 17 The second part of the Escrow Amount consisted of $1 million, which “will be used for 18 indemnification matters addressed in Section 9.7 and held until the fifth anniversary of the Closing 19 Date[.]”3 (Id., § 4.2(c)(ii).) The Escrow Agreement also contains provisions relating to how and when the Tranche I, 20 21 Tranche II, and Tranche III funds would be distributed. On April 21, 2012, Wells Fargo would 22 23 24 25 26 27 1 The total purchase price is not material to this motion. The “Selling Parties” are American Metal Group, Inc., American Metal & Iron, Inc., AMI Recycling, Inc., AMI Recycling DriveThru, Inc., Dimond Metal Recycling, Inc., A-1 International Recycling Consultants, Inc., Metal Brokers Recycling, Inc., L&M Auto Dismantling, Company, Inc., and HNM Properties, Inc. Misle is referred to in the APA as the “Selling Party Representative.” 2 The Court shall refer to the “Escrow Amount,” as the “Escrow Funds,” unless it is quoting the APA. 3 28 There are other conditions set forth in Section 4.2(c), which are not at issue in this lawsuit. 2 1 release to Misle, “the amount, if positive, equal to the (i) the amount remaining in the” Escrow 2 Funds on that date, “minus (ii) the sum of (A) $3,250,000 … plus” certain other items, including 3 any unpaid distributions and Wells Fargo’s fees and expenses. (Misle Decl., ¶ 8, Ex. D (Escrow 4 Agreement, Art. I, § 1.3(d)).) On April 21, 2013, Wells Fargo would release to Misle “the 5 amount, if positive, equal to (i) the amount remaining in” the Escrow Funds on that date, “minus 6 (ii) the sum of (A) $1,000,000 … plus” certain other items, including any unpaid distributions and 7 Wells Fargo’s fees and expenses. (Id., § 1.3(e).) Finally, on April 21, 2016, Wells Fargo would 8 release the balance of the Escrow Funds, if positive, minus, inter alia, any unpaid distributions and 9 Wells Fargo’s fees. (Id., § 1.3(f).) 10 United States District Court Northern District of California 11 12 13 14 Section 9.2 of the APA provides, in part, that: [t]he Selling Parties and Misle will, jointly and severally, indemnify, defend and hold harmless Buyer … from and with respect to any and all Losses related to or arising directly or indirectly out of any of the following: (c) any Excluded Liability (other than the Selling Parties’ Retained Environmental Liabilities, if any, which are addressed in Section 9.7); … or (f) any of the items set forth on Schedule 9.2(f). 15 (APA, Art. IX, § 9.2.) Schedule 9.2(f) included a conditional use permit (“CUP”) for certain 16 property covered by the APA. (Misle Decl., ¶ 6, Ex. B (Schedule 9.2(f).) 17 Section 9.7 is entitled “Allocation of Environmental Liabilities” and states the Selling 18 Parties would indemnify SSI for certain “Retained Environmental Liabilities.” (APA, Art. IX, § 19 9.7(a)(i)-(iii). These Retained Environmental Liabilities “shall be indemnifiable without 20 limitation or threshold, including any of the limitations set forth in Sections 9.4(a) and (b), but 21 shall be subject to Sections 9.4(c)-(f).” (Id., § 9.7(b).) 22 23 24 25 26 27 Section 9.4 is entitled “Limitations on Indemnification.” It provides, in relevant part, that: [s]ubject to clauses (ii) and (iii) below, the Escrow Amount shall serve as the sole and exclusive source of funding for any Losses indemnifiable under Sections 9.2(a) or under Section 9.2(d) with respect to any Loss indemnifiable under Section 9.2(a), except, in each case, with respect to matters relating to Fundamental Representations. (Id., § 9.4(b)(i).) 28 3 1 Except as otherwise provided in Section 9.7 with respect to Selling Parties’ Retained Environmental Liabilities, the Excluded Liabilities and all items described on Schedule 9.2(f) shall be indemnifiable without limitation or threshold. 2 3 4 (Id., § 9.4(b)(iii).) 5 The Escrow Amount shall be available to reimburse Buyer and its Affiliates for any Losses for which they are entitled to be indemnified pursuant to Section 9.2 or 9.7, against which Buyer may proceed at its discretion, as well as, subject to Section 9.4(b), pursue any other remedy available to Buyer. If Buyer sends any Unilateral Instructions (as such term is defined in the Escrow Agreement) to the Escrow Agent, Buyer shall simultaneously send a copy of such Unilateral Instructions to the Selling Party Representative. 6 7 8 9 10 United States District Court Northern District of California 11 (Id., § 9.4(e).) Section 9.5 sets forth the procedures that a party seeking indemnification for any loss is 12 required to follow. First, that party “shall promptly notify the Party obligated to provide 13 indemnification hereunder of any Loss or Losses, claim or breach, including any claim by a third 14 party, that might give rise to indemnification hereunder, and the Indemnified Party shall deliver to 15 the Indemnifying Party a” Claim Certificate (Id., § 9.5(a).) The Claim Certificate must state that 16 “the Indemnified party has paid or properly accrued Losses, or reasonably anticipates that it may 17 or will incur liability for Losses, for which such indemnified party is entitled to indemnification 18 pursuant to this [APA]” and must specify “in reasonable detail … each individual item of Loss … 19 the date (if any) such item was paid or properly accrued ….” (Id., § 9.5(a)(i), (ii).) 20 A party may object to a claim for indemnification. If that occurs, 21 the Indemnifying Party shall deliver a written notice to such effect to the Indemnified Party within 30 days after receipt by the Indemnifying Party of such Claim Certificate. Thereafter, the Indemnifying Party and the Indemnified Party shall attempt in good faith to agree upon the rights of the respective parties within 30 days of receipt of such Claim Certificate with respect to each of such claims to which the Indemnifying Party has objected. … Should the Indemnified Party and the Indemnifying Party fail to agree as to any particular item or items or amount or amounts, then the Indemnified Party shall be entitled to pursue its available remedies for resolving its claim for indemnification. 22 23 24 25 26 27 28 (Id., § 9.5(a).) 4 The parties agreed that disbursements could be made by joint or unilateral instructions. 1 2 (Escrow Agreement, Art. I, § 1.3(a).) 3 In the event the Escrow Agent receives Unilateral Instructions and a related Proof of Notice from the Buyer, the Escrow Agent shall pay the Escrow [Funds] to the account or accounts described in such Unilateral Instructions on the thirtieth day after receipt of such Unilateral Instructions, unless, before the thirtieth day after the date of receipt of such Unilateral Instructions, the Escrow Agent has received a Notice of Dispute and a related Proof of Notice from Misle. In the event the Escrow Agent receives such a Notice of Dispute, the Escrow Agent shall not pay the amount described in such Unilateral Instructions, but shall proceed as set forth in Section 3.5. 4 5 6 7 8 9 10 (Id., § 1.3(c).) B. In December 2014, SSI sent Misle a Claim Certificate and served Unilateral Instructions 11 United States District Court Northern District of California The Indemnification Claims Submitted by SSI. 12 on Wells Fargo (“December Claim”). (Misle Decl., ¶ 12, Ex. E.) SSI sought indemnification 13 under Section 9.2(f), because the City of San Jose determined that the CUP was not valid and 14 determined that SSI would be required to obtain a new CUP. SSI stated that it would seek to 15 recover any fees that it incurred in connection with obtaining the new CUP. (Id., December Claim 16 at 2-4.) SSI also asserted a claim for indemnification under Section 9.7 relating to SSI’s 17 excavation and disposal of soil that it asserted was contaminated. SSI sought recovery in the 18 amount of $80,766.60 for that claim. (Id., at 4-5.) SSI also sought indemnification in the amount 19 of $5,838.00 for attorneys’ fees and costs based on a claim relating to an underground storage 20 tank. (Id., at 6-7.) SSI served a set of Unilateral Instructions on Wells Fargo seeking distribution 21 of $86,604.60 for the latter two claims. (Id., at 8-9.) Misle attests, on information and belief, that 22 his counsel objected to the December Claim “but inadvertently failed to send a Notice of Dispute 23 to” Wells Fargo. (Misle Decl., ¶ 13.) It is undisputed that Wells Fargo distributed $86,604.60 to 24 SSI. 25 On August 27, 2015, SSI sent a Claim Certificate to Misle and served Unilateral 26 Instructions on Wells Fargo, which purported to update the December Claim relating to the CUP 27 (the “August Claim”). SSI sought indemnification in the amount of $521,281.30 for losses it 28 claims to have incurred to obtain a new CUP. (Misle Decl., ¶ 12, Ex. F (August Claim at 2-5).) 5 1 SSI also updated a claim from January 2014, which related to a writ of execution and notice of 2 levy (the “writ and levy claim”) that was served on Wells Fargo in connection with a judgment 3 entered against AMI and other entities in Nico Alloys, Inc. v. American Metal Group, Inc., Los 4 Angeles Superior Court Case No. BC 466678 (“the Nico Alloys litigation”).4 (Id., at 6.) SSI 5 asserted that the Nico Alloys litigation constituted an “Excluded Liability” subject to 6 indemnification under the APA, and it sought indemnification in the amount of $1,666.00 for 7 attorneys’ fees it incurred relating to the writ and levy. (Id., at 6-7.) SSI also served Unilateral 8 Instructions relating to these claims on Wells Fargo. (Id., at 8-9.) Misle objected to and served a 9 Notice of Dispute on SSI and Wells Fargo. (Dkt. No. 60-2, Declaration of Elizabeth M. Pappy 10 (“Pappy Decl.”), ¶ 4.) On April 20, 2016, SSI sent a Claim Certificate to Misle and served Unilateral Instructions United States District Court Northern District of California 11 12 on Wells Fargo, in which it purported to update the December and August Claims (“April 13 Claim”).5 (Misle Decl., ¶ 12, Ex. G.) SSI sought indemnification based on losses it anticipated it 14 would incur as a result of the disputes over the December and August Claims, as well as the 15 disputes raised in this litigation. SSI stated that it would seek disbursement “in an amount equal to 16 the balance of the” Escrow Funds on April 21, 2016. (Id., at 2-3.) Misle objected to and served a 17 Notice of Dispute on SSI and Wells Fargo. (Pappy Decl., ¶ 5.) 18 C. The Claims for Relief in this Case. Misle asserts two claims for relief against SSI. In his claim for breach of contract, Misle 19 20 alleges that SSI improperly sought funds to which it was not entitled when it submitted the 21 December Claim. Misle also alleges that “[t]he CUP claim and the writ of execution attorney 22 fees,” submitted in the August Claim, “are not subject to indemnity rights under Section 9.7 of the 23 4 24 25 26 27 28 The plaintiffs in the Nico Alloys litigation (“Judgment Creditors”) served the writ of execution and notice of levy on Wells Fargo in an effort to recover their judgment from the Escrow Funds. The efforts to recover that judgment resulted in further litigation, which has been related to this case. See Wells Fargo Bank, N.A. v. American Metal Group, Inc., No. 16-cv-3614JSW. That case is an interpleader action, filed by Wells Fargo against the Judgment Creditors, SSI, Misle, AMI, and Cornerstone Nevada, LLC. 5 Misle filed suit against SSI on December 23, 2015, and he has not amended his breach of contract claim to include the April Claim. 6 1 APA, and thus [are] unreimbursable from the escrow account. The demand on the escrow holder 2 included [a] claim for attorney fees … regarding the soils claim and said expenses are not 3 reimbursable pursuant to the APA under any circumstances.” (Compl. ¶ 16.) Misle’s second claim seeks declaratory relief. Misle alleges that “indemnity claims set 4 5 forth in the December Claim … and the August Claim … are without merit[.]” (Compl. ¶ 28.) He 6 also alleges “Defendants were not entitled to take funds from the escrow account in January of 7 2015 and that the claims set forth in the August Claim … are not reimbursable from the escrow 8 account[.]” (Id.) Misle seeks a “declaration as to his indemnification obligations under the APA 9 and Defendants’ rights to remove money from the escrow account based upon the August 10 Claim[.]” (Id. ¶ 21.)6 SSI asserts counterclaims against Misle for, inter alia, breach of contract.7 SSI alleges that United States District Court Northern District of California 11 12 Misle “breached the terms of the APA by filing a Notice of Objection in response to the August 13 Claim … and April Claim …, which properly seek indemnification for losses to SSI relating to 14 items covered under Section 9.2 and 9.7, as well as in related schedules from, among other 15 sources, the Escrow Funds.” (Counterclaim, ¶ 20.) SSI also alleges Misle “breached the terms of 16 the APA by making an adverse claim to indemnification paid to SSI for losses it sustained and 17 described [in] the December Claim…, which properly sought indemnification for losses to SSI 18 relating to items covered under Section 9.2 and 9.7, as well as in related schedules from, among 19 other sources, the Escrow Funds.” (Id. ¶ 21.) The Court will address additional facts as necessary in its analysis. 20 ANALYSIS 21 22 A. Legal Standards Applicable to Motion for Summary Judgment. “A party may move for summary judgment, identifying each claim or defense … on which 23 24 25 26 6 Misle also asserted a claim for conversion, but the Court granted SSI’s motion for summary judgment on that claim. (Dkt. No. 76.) 7 27 28 SSI also asserts counterclaims for equitable indemnification and for declaratory relief. In the latter claim, SSI asks the Court to declare that the December, August and April Claims are proper and that the Escrow Funds should be released to SSI. 7 1 summary judgment is sought.” Fed. R. Civ. P. 56(a). A principal purpose of the summary 2 judgment procedure is to identify and dispose of factually unsupported claims. Celotex Corp. v. 3 Catrett, 477 U.S. 317, 323-24 (1986). Summary judgment, or partial summary judgment, is 4 proper “if the movant shows that there is no genuine dispute as to any material fact and the movant 5 is entitled to judgment as a matter of law.” Fed. R. Civ. P. 56(a). “In considering a motion for 6 summary judgment, the court may not weigh the evidence or make credibility determinations, and 7 is required to draw all inferences in a light most favorable to the non-moving party.” Freeman v. 8 Arpaio, 125 F.3d 732, 735 (9th Cir. 1997), abrogated on other grounds by Shakur v. Schriro, 514 9 F.3d 878, 884-85 (9th Cir. 2008). 10 The party moving for summary judgment bears the initial burden of identifying those United States District Court Northern District of California 11 portions of the pleadings, discovery, and affidavits that demonstrate the absence of a genuine issue 12 of material fact. Celotex, 477 U.S. at 323; see also Fed. R. Civ. P. 56(c). An issue of fact is 13 “genuine” only if there is sufficient evidence for a reasonable fact finder to find for the non- 14 moving party. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248-49 (1986). A fact is “material” 15 if it may affect the outcome of the case. Id. at 248. If the party moving for summary judgment 16 does not have the ultimate burden of persuasion at trial, that party must produce evidence which 17 either negates an essential element of the non-moving party’s claims or that party must show that 18 the non-moving party does not have enough evidence of an essential element to carry its ultimate 19 burden of persuasion at trial. Nissan Fire & Marine Ins. Co. v. Fritz Cos., 210 F.3d 1099, 1102 20 (9th Cir. 2000). 21 Once the moving party meets its initial burden, the non-moving party must “identify with 22 reasonable particularity the evidence that precludes summary judgment.” Keenan v. Allan, 91 23 F.3d 1275, 1279 (9th Cir. 1996) (quoting Richards v. Combined Ins. Co., 55 F.3d 247, 251 (7th 24 Cir. 1995). It is not the Court’s task “to scour the record in search of a genuine issue of triable 25 fact.” Id.; see also Fed. R. Civ. P. 56(c)(3) (“The court need consider only the cited materials, but 26 it may consider other materials in the record.”). If the non-moving party fails to point to evidence 27 precluding summary judgment, the moving party is entitled to judgment as a matter of law. 28 Celotex, 477 U.S. at 323. 8 1 B. Misle’s Declaratory Relief Claim. 2 1. 3 “Interpretation of a contract is a matter of law,” as is the determination of whether a 4 contract is ambiguous. Beck Park Apartments v. U.S. Dep’t of Housing and Urban Development, 5 695 F.2d 366, 369 (9th Cir. 1982); see also Wolf v. Superior Court, 114 Cal. App. 4th 1343, 1351 6 (2004). “Under statutory rules of contract interpretation, the mutual intention of the parties at the 7 time the contract is formed governs interpretation.” Santisas v. Goodin, 17 Cal. 4th 599, 608 8 (1998). When the Court interprets a contract to determine the parties’ intent, “‘[t]he whole of [the] 9 contract is to be taken together, so as to give effect to every part, if reasonably practicable, each General Principles of Contract Interpretation. clause helping to interpret the other.” Lockyer v. R.J. Reynolds, 107 Cal. App. 4th 516, 525 11 United States District Court Northern District of California 10 (2003). The “clear and explicit meaning” of contractual provisions “interpreted in their ordinary 12 13 and popular sense, unless used by the parties in a technical sense or a special meaning is given to 14 them by usage, controls judicial interpretation. If the meaning a layperson would ascribe to 15 contract language is not ambiguous,” the Court applies that meaning. Santisas, 17 Cal. 4th at 608. 16 Contract language is ambiguous if it is reasonably susceptible to more than one meaning. See, 17 e.g., Curry v. Moody, 40 Cal. App. 4th 1547, 1552 (1995). In general, extrinsic evidence is not admissible to contradict or supplement the terms of a 18 19 fully integrated contract; it may be used, however, to “to explain or interpret ambiguous 20 language.”8 See, e.g., Lonely Maiden Productions, LLC v. GoldenTree Asset Mgmt., LP, 201 Cal. 21 App. 4th 368, 376 (2011). If a party proffers extrinsic evidence of a contract’s meaning, “‘[t]he 22 test of admissibility … is not whether [the contract] appears to the court to be plain and 23 unambiguous on its face, but whether the offered evidence is relevant to prove a meaning to which 24 the language of the instrument is reasonably susceptible.’” Wolf, 114 Cal. App. 4th at 1356 25 (quoting Pacific Gas & Electric Co. v. G.W. Thomas Drayage & Rigging Co., 69 Cal. 2d 33, 36 26 27 28 8 The APA contains an integration clause. (APA, Art. XII, § 12.3.) 9 1 (1968)). “If, after considering the language of the contract and any admissible extrinsic evidence, 2 3 the meaning of the contract is unambiguous, a court may properly interpret it on a motion for 4 summary judgment. … However, if the interpretation turns upon the credibility of conflicting 5 extrinsic evidence, or if construing the evidence in the nonmovant’s favor, the ambiguity can be 6 resolved consistent with the nonmovant’s position, summary judgment is inappropriate.” Miller v. 7 Glenn Miller Productions, Inc., 454 F.3d 975, 990 (9th Cir. 2006) (internal quotations and 8 citations omitted); accord City of Hope Nat’l Med. Center v. Genentech, Inc., 43 Cal. 4th 375, 395 9 (2008). 2. 11 United States District Court Northern District of California 10 It is undisputed that Section 4.2(c) governs when funds in the Escrow Amount are to be Interpretation of Section 4.2(c). 12 distributed to Misle, and SSI does not contend the CUP claim and the writ and levy claim fall 13 within the scope of the matters covered by Section 9.7. The primary dispute is whether 14 indemnification claims that do not fall within Section 9.7 can be recovered from the Tranche III 15 funds.9 Misle argues they cannot, while SSI argues they can. Further, each party contends their 16 position is supported by the clear and unambiguous terms of the APA. SSI argues, in the 17 alternative, that if the Court finds that any portion of Section 4.2(c) is ambiguous, Misle’s 18 subsequent course of conduct, in connection with a settlement of earlier claims, demonstrates that 19 its interpretation is consistent with the parties’ intent. Misle argues that Section 4.2(c) clearly 20 provides that the funds in Tranche I and Tranche II can only be used to indemnify matters covered 21 in Section 9.2 and provides that the funds in Tranche III can only be used to indemnify matters 22 covered in Section 9.7. SSI counters that Section 4.2(c) does not place any limits on how the 23 funds in each tranche may be used. The Court begins with the plain language of Section 4.2(c). The parties used the phrase 24 25 9 26 27 28 In his opening brief, Misle simply addresses the standards by which a Court should determine if a party has stated a claim for declaratory relief. He does not address why his interpretation of the APA is correct. Standing alone, that argument would not be sufficient to sustain his burden as the moving party on this claim. However, Misle rectifies that deficiency through his argument on the breach of contract claims and the argument presented in his reply brief. 10 1 “will be used” to describe how the two portions of the Escrow Funds would be allocated. The 2 parties did not define the word “will” in the APA; therefore the Court can consider dictionary 3 definitions. See, e.g., Gilliam v. Nevada Power Co., 488 F.3d 1189, 1195 (9th Cir. 2007). Misle 4 argues the word “will” means “shall” not “may,” i.e. it connotes mandatory language. (Reply Br. 5 at 3:14-17 (quoting Black’s Law Dictionary (6th ed.).) The current edition of Black’s Law 6 Dictionary defines “will” to mean “wish, desire, choice.” Black’s Law Dictionary at 1833 (10th 7 ed. 2014). Other dictionaries define the word will to express “desire, choice, willingness, [or] 8 consent” and to express “a command, exhortation, or injunction.” See, e.g., Webster’s New 9 Collegiate Dictionary, at 1331 (1979). The parties did not modify the phrase “will be used” in Section 4.2(c) with some other 10 United States District Court Northern District of California 11 expression of limitation such as “solely” or “only.” However, they did use such language in other 12 portions of the APA. For example, the parties agreed the “Escrow Amount,” i.e. the aggregate 13 $5.5 million, “shall serve as the sole and exclusive source of funding for any Losses indemnifiable 14 under Sections 9.2(a) … except … with respect to matters relating to Fundamental 15 Representations.” (APA, Art. IX, § 9.4(b)(i).)10 In contrast, the parties agreed that “the Excluded 16 Liabilities and all items described on Schedule 9.2(f) shall be indemnifiable without limitation or 17 threshold.” (Id., § 9.4(b)(iii).)11 Although these provisions of the APA refer to the monetary caps 18 the parties placed on indemnification liabilities, the language the parties used in Section 9.4(b)(i) 19 demonstrates that they understood how to draft provisions that placed definite limitations on the 20 Escrow Funds. The Court cannot conclude as a matter of law that the parties intended to use the 21 terms “will” and “shall” interchangeably and, standing alone, Section 4.2(c) does not clearly and 22 unambiguously “mandate” the type of claims that can be asserted against each tranche of funds. 23 24 25 26 27 10 The parties capped other obligations at the amount of the Purchase Price. (APA, Art. IX, § 9.4(b)(ii).) 11 SSI argues that Misle’s interpretation “would entirely undermine the express language that recovery for Section 9.2 and 9.7 Losses shall be without limitation or threshold from the Escrow Amount.” (Opp. Br. at 12:24-26 (emphasis added).) Contrary to SSI’s argument, Section 9.4(b)(iii) does not include the emphasized language. 28 11 1 The parties agreed to divide the Escrow Funds into two portions of $4.5 and $1.0 million, 2 and SSI did not offer any argument as to why the parties divided the Escrow Funds in this manner. 3 “If possible, the [C]ourt should give effect to every provision” of the APA, and should avoid an 4 interpretation that would render part of the APA surplusage.” National City Police Officers Ass’n 5 v. City of National City, 87 Cal. App. 4th 1274, 1279 (2001); see also Cal. Civ. Code § 1641 6 (“The whole of a contract is to be taken together, so as to give effect to every part, if reasonably 7 practicable, each clause helping to interpret the other.”). Under SSI’s interpretation of Section 8 4.2(c), the parties’ decision to divide the Escrow Funds into two distinct portions would be 9 nullified, which lends support to Misle’s interpretation of the APA. 10 SSI relies on Section 9.4(e) to support its interpretation of Section 4.2(c). Section 9.4(e) United States District Court Northern District of California 11 states the “Escrow Amount shall be available to reimburse Buyer … for any Losses for which they 12 are entitled to be indemnified pursuant to Section 9.2 or 9.7, against which Buyer may proceed at 13 its discretion, as well as … pursue any other remedy otherwise available to Buyer.” When the 14 Court considers Section 9.4(e) in conjunction with Section 4.2(c), one plausible interpretation is 15 that the parties agreed SSI could look beyond the Escrow Funds to obtain indemnification for any 16 claims it does assert, unless the claim was subject to the cap set forth in Section 9.4(b)(i). This 17 interpretation is consistent with the parties’ agreement that the Escrow Funds are “to serve as a 18 source” but not necessarily “the source” of indemnification for the matters addressed in Article 19 IX. (APA Art. IV, § 4.2(c) (emphasis added).) Such an interpretation also would give meaning to 20 the portions of the APA that provide that there are no monetary caps on “Excluded Liabilities” or 21 on matters covered by Section 9.2(f). 22 However, the parties also agreed that the “Escrow Amount,” i.e. the entire $5.5 million, 23 “shall be available to reimburse” SSI “for any Losses for which [it is] entitled to be indemnified 24 pursuant to Section 9.2 or 9.7[.]” (APA Art. IX, § 9.4(e).) Reading this language in conjunction 25 with Section 4.2(c), it is equally plausible to interpret Section 4.2(c) to mean that there are no 26 limitations on the type of claims that can be asserted against each tranche of funds. 27 The Court concludes that the terms of the APA are ambiguous as to whether the Tranche III funds 28 12 1 can be used to indemnify claims that do not fall within the scope of Section 9.7.12 Accordingly, the Court DENIES Misle’s motion for summary judgment on the declaratory 2 3 relief claim. 4 C. Misle’s Breach of Contract Claim and SSI’s Counterclaim for Breach of Contract. The essential elements a claim for breach of contract are: (1) the existence of a contract, 5 (2) plaintiff’s performance or excuse for nonperformance, (3) defendant’s breach, and (4) resulting 7 damages to plaintiff. Reichert v. General Insurance Co., 68 Cal. 2d 822, 830 (1969). The parties 8 arguments focus on the third element, and in reviewing the remaining issues on Misle’s motion, 9 the Court concludes it must revisit its ruling on the litigation privilege. That conclusion is based 10 on the fact that SSI clearly alleged that Misle breached the APA by submitting objections to its 11 United States District Court Northern District of California 6 claims for indemnification and by filing this lawsuit, and the Court misconstrued the nature of 12 SSI’s claims when it issued its earlier ruling. (See Counterclaim ¶¶ 20-21; Dkt. No. 77, Order 13 Denying in Part and Reserving Ruling in Part at 7:23-27.) Therefore, the Court VACATES that 14 ruling. Rather, the Court finds resolution of these claims resolves around the issue of whether 15 16 either party can demonstrate a breach. The Court concludes they cannot, because neither SSI nor 17 Misle has demonstrated that the only claims or objections that can be submitted under the 18 procedures outlined in Section 9.5 are meritorious claims or objections. Therefore, setting aside 19 whether either party ultimately be entitled to the remaining Escrow Funds, the Court concludes 20 they cannot prevail on their breach of contract claims. Accordingly, the Court DENIES Misle’s motion for partial summary judgment on his 21 22 breach of contract claim, and it GRANTS Misle’s motion for summary judgment on SSI’s 23 24 25 26 27 28 12 SSI submitted a settlement agreement as extrinsic evidence of the parties’ subsequent course of conduct to show that its interpretation of Section 4.2(c) is plausible. To the extent SSI argues that the parties’ course of conduct shows its interpretation is the only reasonable interpretation, the Court is not persuaded. First, the fact that Misle may have been willing to settle a dispute about Section 9.7 claims using Tranche II funds, does not clearly demonstrate the parties’ intent at the time they entered into the APA. Second, it is not clear that Misle did agree permit Tranche II funds to be used to indemnify claims covered by Section 9.7. The settlement agreement at issue states that $17,000 was to be paid from the Tranche III funds. (See Dkt. No. 64-1, Declaration of Thomas Woods, Ex. 1 at ECF p. 15.) 13 1 2 3 4 5 cou unterclaim fo breach of contract. or f IT IS SO ORDER S RED. Da ated: August 25, 2017 ___ __________ ___________ __________ ________ JEF FFREY S. W WHITE Un nited States D District Judg ge 6 7 8 9 10 United States District Court Northern District of California 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 14 4
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