Summary
holding that "'mutually acceptable' language . . . confirms that future negotiations were envisioned"
Summary of this case from Mini Melts United States, Inc. v. Mini Melts, Inc.Opinion
CASE NO. 3:00-CV-2160-M.
October 25, 2001.
MEMORANDUM OPINION AND ORDER
This controversy arises from a July 12, 2000 letter agreement ("7/12/00 Letter") regarding the sale of certain assets owned by Bank One Texas, N.A. ("Bank One"). Plaintiff Bank One claims the 7/12/00 Letter is a "letter of intent" or "agreement to agree" to enter into a contract in the future. Defendant and counter-claimant Apex Energy, LLC ("Apex") disagrees, arguing the 7/12/00 Letter is a binding contract to be memorialized later into a purchase and sale agreement. On May 18, 2001, Bank One moved for summary judgment that the 7/12/00 Letter is not an enforceable agreement.
Bank One also moved for summary judgment that: (1) Apex's specific performance request is misplaced; (2) Bank One had no duty to negotiate with Apex in good faith; and (3) Apex fails to assert an actionable fraud claim. The Court, in a hearing on October 4, 2001, noted Apex's stipulation that it is not entitled to specific performance and orally granted Bank One's Motion for Summary Judgment as to the counter-claims for breach of the duty of good faith and fraud, for the reasons stated on the record in open court.
FACTUAL SUMMARY
This case involves the failed purchase by Apex of a note and other commercial paper owned by Bank One. Bank One describes the transaction as an extremely complex one involving oil and gas assets, while Apex characterizes it as a relatively simple contract for commercial paper.In April 2000, Bristol Resources Production Co., LLC ("Bristol") was placed in involuntary bankruptcy by Bank One and other financial institutions. As of July 3, 2000, Bristol owed Bank One an outstanding balance of $22,185,800 in unpaid principal, plus accrued unpaid interest, and other obligations. The Bristol loan was secured by the note, security agreements, and mortgages at issue in this case. On July 3, 2000, Apex faxed a draft letter of intent by which it sought to purchase the Bristol loan package from Bank One for $15,000,000, and sent Bank One a check for $25,000, as a "refundable earnest money" deposit. Bank One rejected that proposal. On July 10, 2000, Apex sent Bank One a new proposal, offering to pay $16,000,000, plus forty percent of the net proceeds recoverable from Bristol in excess of $19,000,000. This was also rejected by Bank One, which countered, on July 11, 2000, with an offer to sell Apex the loan package for $17,000,000. That offer was made as a handwritten modification to Apex's July 10, 2000 offer, and also included a new typed paragraph. Bank One signed that offer, as did Apex. Both then signed a re-typed version of the same document; this document is the disputed 7/12/00 Letter.
Wells Fargo Bank, N.A., and CIBC Inc. filed involuntary bankruptcy petitions under Chapter 11 of the Bankruptcy Code against Bristol Resources 1994 Acquisition Limited Partnership ("Bristol, LP") and Bristol Resources Corporation ("BRC") in the United States Bankruptcy Court for the Southern District of Texas, Corpus Christi Division. On April 18, 2000, Bank One filed an involuntary bankruptcy petition under Chapter 11 against Bristol in the same Bankruptcy Court.
Under the language of the 7/12/00 Letter, the parties had until July 20 to conclude a "mutually acceptable" purchase and sale agreement, contingent upon approval of the loan files by Apex at the conclusion of its due diligence. It is undisputed that no "mutually acceptable purchase and sale agreement" was signed. Bank One provided a first draft of a purchase and sale agreement on July 18, 2000, and Apex returned it, by fax, on July 19, 2000, with various changes, including additional representations, warranties, and indemnities. Apex argues Bank One thereafter refused to communicate or further negotiate with it other than to send to Apex's attorney, by facsimile, a proposed extension of the July 20, 2000 deadline to July 27, 2000. On July 26, 2000, Apex sent to Bank One, by facsimile, the executed document extending the deadline to July 27, 2000. Bank One advised, on the same date, that it was terminating the negotiations over the purchase and sale agreement since "no agreement could be concluded," but the parties continued to exchange drafts and make proposals without reaching an agreement until August 11, 2000, when Bank One apparently determined an impasse existed and ceased negotiations. 7/26/00 Bank One Letter at 1.
STANDARD OF REVIEW
Under Rule 56(c) of the Federal Rules of Civil Procedure, summary judgment is appropriate when the pleadings and record evidence show that no genuine issue of material fact exists and that, as a matter of law, the movant is entitled to judgment. Kerr v. Lyford, 171 F.3d 330, 336 (5th Cir. 1999). The non-moving party, here Apex, must make a positive showing that a genuine dispute of material fact exists. Kee v. City of Rowlett, Tex., 247 F.3d 206, 210 (5th Cir. 2001), cert. denied, ___ U.S. ___, 2001 WL 876083, (Oct. 1, 2001). The record before the Court must be considered in the light most favorable to the non-movant, Apex. Taita Chem. Co. v. Westlake Styrene Corp., 246 F.3d 377, 385 (5th Cir. 2001).
ANALYSIS
The legal issues presented by this case are: (1) whether the parties intended the 7/12/00 Letter to be an enforceable agreement to purchase the assets at issue; and (2) whether, even if the parties intended the 7/12/00 Letter to be an enforceable agreement to purchase the assets at issue, the contract nonetheless fails because essential terms are missing.
Unless facts and circumstances demonstrate factual issues over the parties' intent to enter into a binding contract, then the issue of whether the agreement fails for lack of essential terms is a question of law to be determined by the Court. See Hardman v. Dault, 2 S.W.3d 378, 380 (Tex.App.-San Antonio 1999, no pet.). Bank One contends the parties always intended the 7/12/00 Letter as an agreement to agree; thus, no factual issue over the parties' intent exists. In contrast, Apex argues there are genuine material fact issues as to the parties' intent, in executing the 7/12/00 Letter, to enter into a binding contract.
The cases cited by the parties establish two lines of authority. One supports Bank One's position — that, as a matter of law, the letter is just an agreement to agree. Weitzman v. Steinberg, 638 S.W.2d 171, 173 (Tex.App.-Dallas 1982, no writ); Dumas v. First Fed. Sav. Loan Assoc., 654 F.2d 359, 360 (5th Cir. 1981); Southwestern States Oil and Gas Co. v. Sovereign Resources, Inc., 365 S.W.2d 417, 419 (Tex.App.-Dallas 1963, writ ref'd n.r.e.). The other favors Apex — that the question of whether the 7/12/00 Letter is an enforceable contract is generally a fact question. Frank B. Hall Co., Inc. v. Buck, 678 S.W.2d 612,629 (Tex.App.-Houston [14th Dist.] 1984, writ ref'd n.r.e.), cert. denied, 472 U.S. 1009 (1985); Foreca, S.A. v. GRD Dev. Co., Inc., 758 S.W.2d 744,746 (Tex. 1988); Hardman v. Dault, 2 S.W.3d 378,380 (Tex.App.-San Antonio 1999, no pet.).
The cases supporting Apex's argument that the question of the parties' intent should proceed to the jury are generally distinguishable on their facts from those here. The 7/12/00 Letter is clear: "[o]n or before July 20, 2000," Bank One and Apex must "enter into a mutually acceptable purchase and sale agreement." 7/12/00 Letter at 2 (emphasis added). The "mutually acceptable" language is not found in Apex's case law support. That language confirms that future negotiations were envisioned and connotes an understanding that the agreement was still subject to negotiation. See Dumas, 654 F.2d at 360. The parties did not mutually agree on the terms of a purchase and sale agreement before the 7/12/00 Letter expired.
Even assuming, for the sake of argument, that Bank One's proposed extension of the 7/12/00 Letter deadline from July 20, 2000 to July 27, 2000, did not lapse during the six days before which Apex accepted it, or even that it was extended by the conduct of the parties, they still did not enter into a "mutually acceptable purchase and sale agreement." Bank One objected to the supplemental indemnities, warranties, and representations insert included in Apex's July 19, 2000 response to Bank One's initial draft purchase and sale agreement, and the parties never agreed on the closing date and proposed changes regarding indemnities, warranties, and representations.
Although the Court bases its decision principally on the express language of the agreement itself, the facts and circumstances surrounding the execution of the 7/12/00 Letter evidence something less than a contract for the assets at issue. See Sun Oil Co. v. Madeley, 626 S.W.2d 726, 731 (Tex. 1981) (facts and circumstances surrounding the alleged contract flesh out the intent of the parties); Southwestern States Oil and Gas Co. v. Sovereign Resources, Inc., 365 S.W.2d 417, 419-20 (Tex.App.-Dallas 1963, writ ref'd n.r.e.) ("[w]hether correspondence constitutes a contract or a preliminary negotiation must be determined by the language used and the attending circumstances"). The fact that the parties contemplated a later final contract is itself evidence that they did not intend the 7/12/00 Letter to serve as the enforceable purchase and sale agreement. Id. at 419. The Court notes that the parties consistently referred to the 7/12/00 Letter as a "letter of intent." 7/20/00 Apex Letter at 1, 2; 7/28/00 Apex Letter at 1; 8/1/00 Bank One Letter at 1. It is further significant that the bargain Apex urges this Court to enforce was sealed on July 11, 2000. Apex faxed to Bank One, on July 10, 2000, a proposal to purchase the loan package at issue. On July 11, Bank One countered, on Apex's proposal, with handwritten notations and a single typewritten paragraph and faxed it back to Apex. Apex signed it. The 7/12/00 Letter was merely a typed version of the document agreed to by handwritten notations on July 11. Apex claims a reservoir engineering report from Lee Keeling and Associates, which indicated the Bristol loan package had millions of dollars more in value than previously assumed, motivated Bank One's failure to consummate the deal. Yet, on July 11, when agreement on the terms formalized on July 12 occurred, the Keeling report had not been provided to Bank One, so it is not relevant to the interpretation of the parties' intent.
Apex's conduct after the execution of the 7/12/00 Letter bolsters the conclusion that it intended future negotiations to do more than merely memorialize the terms of the 7/12/00 Letter. On July 18, 2000, the Vice President of Apex, Stuart Price, requested that an indemnity provision be added to Bank One's draft purchase and sale agreement, and on July 19, 2000, Apex included a significant indemnities, representations, and warranties insert. This lends support to Bank One's argument that, at the execution of the letter agreement, Apex foresaw the necessity of further negotiation and did not consider the 7/12/00 Letter to serve as the binding purchase and sale agreement for the Bristol loan package. The parties have provided the Court with no evidence of oral discussions that could shift the conclusion that the 7/12/00 Letter is, on its face, an agreement to agree. There are no material issues of fact to submit to the jury.
The 7/12/00 Letter is not an enforceable agreement for the purchase and sale of Bank One's Bristol assets. The parties did not mutually agree on the terms of a purchase and sale agreement before the 7/12/00 Letter expired or even thereafter. Bank One's Motion must, therefore, be granted. Because the 7/12/00 Letter is not enforceable on its own terms, the Court does not reach the issue of whether the 7/12/00 Letter lacked essential terms otherwise necessary to make it enforceable.
CONCLUSION
For the reasons stated herein, the Court hereby GRANTS Bank One's Motion for Summary Judgment. Although the Court has discretion to award attorneys' fees for the prosecution of this action under the Declaratory Judgment Act, 28 U.S.C. § 2202 (West 1994), the Court declines to do so, but taxes all court costs to Defendant and counter-claimant. All other relief sought by any party and not granted specifically herein is DENIED.
28 U.S.C. § 2202 provides in full, "[f]urther necessary or proper relief based on a declaratory judgment or decree may be granted, after reasonable notice and hearing, against any adverse party whose rights have been determined by such judgment." Id. (emphasis added).