Opinion
CV-00-1202-ST.
November 23, 2001
OPINION AND ORDER
INTRODUCTION
Plaintiff, Maritime Services Corp. ("MSC"), filed this action against CCA Companies, Inc. ("CCA"), on August 31, 2000, alleging a single claim for breach of contract. MSC is an Oregon corporation and CCA is a Delaware corporation. The amount in controversy exceeds $75,000, exclusive of interest and costs. This court has diversity jurisdiction pursuant to 28 U.S.C. § 1332(a).
The Complaint alleges that the amount in controversy exceeds $50,000, which is below the jurisdictional amount required by 28 U.S.C. § 1332(a). However, in the prayer, MSC seeks $200,250.00, plus interest and attorney fees, which is more than the jurisdictional amount.
All parties have consented to allow a Magistrate Judge to enter final orders and judgment in this case in accordance with FRCP 73 and 28 U.S.C. § 636(c).
MSC and CCA have filed cross-motions for summary judgment (dockets #22 #28). For the reasons that follow, both motions are denied.
CCA claims that MSC's cross-motion for summary judgment should be denied as untimely because it was filed on July 13, 2001, after the deadline of May 22, 2001, to file all dispositive motions. However, this court's normal practice is to permit a party to file a cross-motion for summary judgment with its response to the opposing party's summary judgment motion in order not to have two competing Concise Statements of Material Facts. Since MSC's cross-motion for summary judgment addresses the same issues as CCA's motion for summary judgment, this court will not deny it as untimely.
STANDARDS
FRCP 56(c) authorizes summary judgment if no genuine issue exists regarding any material fact and the moving party is entitled to judgment as a matter of law. The moving party must show an absence of an issue of material fact. Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). Once the moving party shows the absence of an issue of material fact, the non-moving party must go beyond the pleadings and designate specific facts showing a genuine issue for trial. Id at 324. A scintilla of evidence, or evidence that is merely colorable or not significantly probative, does not present a genuine issue of material fact. United Steelworkers of Am. v. Phelps Dodge Corp., 865 F.2d 1539, 1542 (9th Cir), cert denied, 493 U.S. 809 (1989).
The substantive law governing a claim or defense determines whether a fact is material. T.W. Elec. Serv., Inc. v. Pacific Elec. Contractors Ass'n, 809 F.2d 626, 630 (9th Cir 1987). The court must view the inferences drawn from the facts in the light most favorable to the non-moving party. Thus, reasonable doubts about the existence of a factual issue should be resolved against the moving party. Id at 630-31. However, when the non-moving party's claims are factually implausible, that party must come forward with more persuasive evidence than would otherwise be required. California Architectural Bldg. Prods., Inc. v. Franciscan Ceramics Inc., 818 F.2d 1466, 1468 (9th Cir 1987), cert denied, 484 U.S. 1006 (1988). The Ninth Circuit has stated, "No longer can it be argued that any disagreement about a material issue of fact precludes the use of summary judgment." Id at 1468.
ANALYSIS
I. Undisputed Facts
Some time before September 1998, CCA contracted with MSC to renovate a hotel in Paramaribo, Suriname, and turn it into a casino resort. In September 1998, CCA owed MSC $200,250.00 for unpaid construction costs. On September 20, 1998, David Hartley of CCA sent a fax to George Selfridge, president of MSC, to confirm their oral agreement, stating:
Subsequent to our telephone conversation, I confirm that, subject to MSC continuing work[s] on the casino project in Suriname, and your assistance in providing information to Reliance National Insurance Company sufficient to support CCA's financing program over the next 10-15 banking days, CCA will issue to MSC 89,000 (eighty nine thousand) shares in CCA, guaranteed at $2.25 with a lock-up period of six months. This $200,250 will constitute part of the overall contract price.
Complaint, Exhibit A (emphasis added).
CCA asserts that this agreement was designed to provide an incentive for MSC to continue work and alleviate CCA's cash-flow problems. CCA issued 89,000 shares of its stock to MSC on September 30, 1998.
CCA is a publicly traded company with its stock traded on the NASDQ market. Following the issuance of CCA's shares to MSC, CCA's stock price declined substantially. At the end of the six-month lock-up period in March 1999, the value of CCA's stock was between $1.00 and $1.25 per share.
On November 17, 1999, MSC demanded that CCA repurchase its shares of stock from MSC for $2.25 per share. This dispute arose between the parties in December 1999, when CCA refused to repurchase its stock from MSC.
II. Issue
The sole issue in this case is the meaning of the following statements in Hartley's fax to Selfridge:
CCA will issue to MSC 89,000 (eighty nine thousand) shares in CCA, guaranteed at $2.25 with a lock-up period of six months. This $200,250 will constitute part of the overall contract price.
Complaint, Exhibit A.
CCA argues that these statements have only one sensible and reasonable interpretation, namely that CCA guaranteed that the value of each share would be $2.25 for the 10 days between the date of Hartley's fax and CCA's issuance of its 89,000 shares to MSC. In contrast, MSC posits that these statements mean that it could redeem the shares from CCA at the end of the six month lock-up period for the guaranteed price of $2.25 per share.
III. Construction of Contractual Terms Under Oregon Law
Interpretation of written agreements is governed by principles of state contract law. Botefur v. City of Eagle Point, Or., 7 F.3d 152, 156 (9th Cir 1993). Generally, under Oregon law, the construction of a contract is a question of law for the court. Anderson v. Divito, 138 Or. App. 272, 277, 908 P.2d 315, 319 (1995), citing Timberline Equip. Co., Inc. v. St. Paul Fire Marine Ins. Co., 281 Or. 639, 643, 576 P.2d 1244, 1246 (1978). The initial question of whether a contract is ambiguous is also a question of law. Alphonse v. CNF Service Co., Inc., 166 Or. App. 387, 392 n3, 998 P.2d 758, 761 n3 (2000); Abercrombie v. Hayden Corp., 320 Or. 279, 292, 883 P.2d 845, 853 (1994).
When the court determines that the contract is unambiguous, it determines the meaning of the contract as a matter of law, and the analysis ends. Yogman v. Parrott, 325 Or. 358, 361, 937 P.2d 1019, 1021 (1997); see also Zygar v. Johnson, 169 Or. App. 638, 643, 10 P.3d 326, 328 (2000), rev denied, 331 Or. 584, 19 P.3d 356 (2001) (following Yogman analysis). However, if the court finds that the language of the contract is ambiguous, interpretation of the language becomes a question of fact for the jury to resolve. Abercrombie, 320 Or at 292, 883 P.2d at 853; Anderson, 138 Or App at 277-78, 908 P.2d at 320.
"A contract is not ambiguous if it has only one sensible and reasonable interpretation." D D Co. v. Kaufman, 139 Or. App. 459, 462, 912 P.2d 411, 412 (1996). Thus, for a contract to be legally ambiguous, it must be susceptible to at least two plausible interpretations when examined in the context of the contract as a whole." Anderson, 138 Or App at 278, 908 P.2d at 320.
In determining whether an ambiguity exists, the court may consider parol and other extrinsic evidence. Id; Criterion Interests, Inc. v. Deschutes Club, 136 Or. App. 239, 243, 902 P.2d 110, 112, on recon, 137 Or. App. 312, 903 P.2d 421 (1995), rev denied, 322 Or. 489, 909 P.2d 161 (1996) (concluding that Abercrombie resolved the "historical uncertainty as to whether [parol evidence] should be admitted to assist the court in determining if an ambiguity exists"). Although the court must "pursue the intention of the parties, if possible, ORS 42.230 requires construction of the contract as a whole, giving effect to every word and phrase." Anderson, 138 Or App at 278, 908 P.2d at 320.
IV. The Agreement is Ambiguous
Despite both parties' protestations to the contrary, this court finds the agreement to be ambiguous. As MSC admits, the agreement does not expressly state that CCA is obligated to buy back its shares from MSC. CCA's Concise Statement of Material Facts, ¶ 4 (admitted by MSC's Response to CCA's Concise Statement of Material Facts, ¶ 4). However, the terms "guaranteed" and "lock-up period" are subject to differing interpretations, one of which would require CCA to buy back its shares from MSC for the price of $2.25 per share.
It is undisputed that the agreement resolved CCA's outstanding debt to MSC of $200,250.00. CCA was short on cash and needed to induce MSC to finish construction of the casino to get it operating. The agreement specifically refers to that debt by confirming that "[t]his $200,250 will constitute part of the overall contract price." The 89,000 shares at a price of $2.25 per share equals exactly $200,250.00, the amount of the debt. Therefore, CCA agreed to issue its stock to MSC either to pay or to secure payment of $200,250.00.
CCA argues that the grammatical structure of the critical phrase suggests that the only "guarantee" made was that the value of its shares would be $2.25 at the time of their issuance to MSC due to the volatility of the stock market. Specifically, CCA points out that a comma separates the two phrases: "CCA will issue to MSC 89,000 . . . shares in CCA" and "guaranteed at $2.25 with a lock-up period of six months." According to CCA, the latter phrase modifies the word "shares" and describes the circumstances under which CCA would issue the shares. Thus, CCA concludes that the only reasonable interpretation of this phrase is that CCA agreed to issue shares to MSC at a price of $2.25 per share and MSC agreed to not sell the shares to anyone until six months later. If the market price was less than $2.25 per share at the time of issuance, then, pursuant to CCA's interpretation, the amount of shares issued would have been increased to equal $200,250.00.
Clearly CCA guaranteed the price of the shares for some period of time, but the critical unanswered question is "for how long"? The placement of the comma could just as easily indicate that the guarantee is not necessarily related to the time period prior to CCA's issuance of the shares to MSC, but to the lock-up period. If so, a reasonable interpretation of the agreement is that the price guarantee continued during the six month lock-up period.
However, the agreement fails to address what would happen at the end of the six month lock-up period. If CCA guaranteed the price at $2.25 per share for the duration of the lock-up period, it requires no leap of logic to infer that CCA had some obligation to MSC if the market price was less than $2.25 per share at the end of the lock-up period. Otherwise, why would a lock-up period of six months be needed if the guarantee was only to set the price of the shares as of the time of issuance? MSC's interpretation of the agreement to impose an obligation on CCA to repurchase the shares from MSC at the end of the six month lock-up period is not an unreasonable one.
Other evidence, including the parties' subjective intentions and the circumstances surrounding execution of the agreement, confirms the ambiguity of the agreement. Selfridge testified that about the time of his initial conversation with Hartley, MSC looked up CCA's stock price and "noted that it had been declining in price over a period of time." Selfridge Depo, p. 18. He told Hartley that he was "nervous about taking the stock because it was declining in price, and [he] didn't want to end up with a stock that had no value." Id. Since he was accepting CCA's shares instead of a $200,250.00 cash payment, he had reason to be nervous. According to Selfridge, Hartley responded as follows:
He assured me that the value would start going up. And my reply to that was if — if we take this stock guaranteed at a price and it goes up, who gets the benefits of that? And he said MSC would. And from my perspective, we had a guaranteed price of [$]2.25 on a six-month holding period with the opportunity to increase that [$]2.25 if the stock went up . . . Hartley assured me that once the casino was opened in Suriname, that their stock would indeed start to rise again.
Id at 18-19.
They also discussed what would happen if the stock price declined. "And that's the reason that he said he would guarantee a repurchase price at [$]2.25. Because once the casino was opened, the price would start going back up." Id at 19 (emphasis added).
Selfridge's testimony supports MSC's interpretation of the agreement. By accepting shares in lieu of cash, MSC intended not to lose money on the transaction. To accomplish that end, MSC agreed to accept and not sell CCA's shares for six months, but only if CCA guaranteed that the price would be $2.25 per share at the end of the lock-up period. If the price of the shares declined during the lock-up period, rather than increased as CCA hoped, then the guarantee would be meaningless. MSC could sell the shares on the open market, but MSC would suffer a loss if the price was less that $2.25 per share. That loss could only be recovered if CCA repurchased the shares from MSC for the guaranteed price. If MSC acted rationally, it would not agree to continue construction, provide "information to Reliance National Insurance Company sufficient to support CCA's financing program over the next 10-15 banking days," or take less than it was admittedly owed in shares that were declining in value without a guarantee of repurchase at $2.25 per share.
This interpretation essentially allows MSC to enforce the guarantee until such time as it seeks to redeem the shares from CCA, making the guarantee unlimited in duration. In fact, MSC did not demand a repurchase of the shares until November 1999, nearly eight months after the six month lock-up period expired (assuming that lock-up period started the date the shares were issued on September 31, 1998). CCA argues that this interpretation is not sensible because no reasonable business entity would make a promise guaranteeing a perpetually fixed price of publicly traded stock. Yet, on the other hand, no reasonable business entity would agree to a six month lock-up period without a guaranteed price for some period of time after the lock-up period expired.
The duration of the guarantee is an essential omitted term from the parties' agreement. Nevertheless, a court or jury may supply an omitted term which is reasonable in the circumstances. RESTATEMENT 2D OF CONTRACTS (1979), § 204. Thus, based on all the circumstances, a finder of fact may interpret the agreement to extend the guarantee for a reasonable period of time, such as until the end of the lock-up period, completion of construction of the casino resort, or some other date consistent with the parties' intentions.
In contrast, some extrinsic evidence supports CCA's intention not to offer the shares as a form of security through a guaranteed buyback provision. Hartley, who drafted the agreement, testified that his use of the word "guaranteed" was simply an "unfortunate" choice and that he should have used word "set at" because all he intended was to use $2.25 as the share price when issuing the shares to MSC. Hartley Depo, pp. 36-37. Furthermore, if MSC envisioned the guaranteed buyback as a form of security for a fixed amount of money, then it would not be entitled to receive the benefit of the stock rising in value beyond that fixed amount. Yet according to Selfridge, Hartley assured him that MSC would reap the benefit of any increase in the value of the stock. Such an assurance is inconsistent with a typical security agreement in which the lender bears the risk of any decrease in the value of the security. By seeking a guaranteed minimum price for the stock, as well as any increase in value, MSC is seeking more than a secured creditor would be entitled to receive.
However, CCA's interpretation is undermined to some extent by the inclusion of the lock-up period in the agreement. Hartley testified that he "didn't know" why he included a lock-up period of six months. Id at 37. The six month lock-up period does not appear to be required by any statute or regulation, even though the stock certificate indicates that the shares are "RESTRICTED SECURITIES." Complaint, Ex A, p. 2. Miles Greenberg, Chief Financial Officer of CCA, testified that the length of the lock-up period is simply one more point of negotiation. Greenberg Depo, p. 17. Since the lock-up was a negotiated term, it had to serve some purpose for CCA. Yet CCA does not proffer any purpose for the lock-up period, casting doubt on Hartley's testimony.
Because Mr. Greenberg did not negotiate or draft the agreement, this court is not considering his deposition testimony interpreting the agreement and responding to hypothetical questions.
Furthermore, if CCA intended to issue stock merely to satisfy its $200,250.00 debt as of September 25, 1998, then it did not need to guarantee anything. The current price was available from NASDAQ. The agreement could simply have stated that CCA would issue sufficient shares to equal the $200,250.00 debt. That would have conveyed the parties' agreement to swap CCA shares for MSC's services if that was indeed their intention.
The discrepancy between the parties' stated intentions is for the finder of fact to resolve. If the jury cannot determine the parties' intent, then it may resort to the maxim of construing the ambiguous term against the drafter. Quality Contractors, Inc. v. Jacobsen, 139 Or. App. 366, 371, 911 P.2d 1268, 1271 (1996) (citations omitted).
Because the agreement is subject to more than one reasonable interpretation, it is ambiguous and raises a genuine issue of material fact as to the parties' intent that cannot be resolved on summary judgment.
ORDER
For the reasons stated above, CCA Companies, Inc.'s Motion for Summary Judgment (docket #22) and Maritime Services Corp.'s Cross-Motion for Summary Judgment (docket #28) are DENIED.