Deepwater Investments, Ltd. v. Jackson Hole Ski Corp., 90-8051

• Decision Date: 10 July 1991
• Docket Number: No. 90-8051,90-8051
• Citation: 938 F.2d 1105
• Parties: DEEPWATER INVESTMENTS, LIMITED, Plaintiff-Appellee, v. JACKSON HOLE SKI CORPORATION and Paul M. McCollister, Defendants-Appellants.
• Court: U.S. Court of Appeals — Tenth Circuit

Page 1105

938 F.2d 1105

DEEPWATER INVESTMENTS, LIMITED, Plaintiff-Appellee, v. JACKSON HOLE SKI CORPORATION and Paul M. McCollister Defendants-Appellants.

No. 90-8051.

United States Court of Appeals Tenth Circuit.

July 10, 1991.

Fredrick E. Sherman (Christopher P. Hall and Jonathan D. Schwartz of Jones, Day, Reavis & Pogue, New York City, Blair J. Trautwein and Michael Rosenthal of Hathaway, Speight, Kunz, Trautwein & Barrett, Cheyenne, Wyo., with him on the brief), for plaintiff-appellee.

Peter W. Sipkins (James R. Kahn and Carol A. Peterson of Dorsey & Whitney, Minneapolis, Minn., W. Perry Dray and Gregory C. Dyekman of Dray, Madison & Thompson, Cheyenne, Wyo., with him on the brief), for defendants-appellants.

Before McKAY, ALDISERT ^* and McWILLIAMS, Circuit Judges.

McWILLIAMS, Circuit Judge.

This is a breach of contract action wherein, on motion for summary judgment, the district court held that there was an enforceable written contract between the parties and ordered specific performance. The principal question is whether there is a genuine issue of material fact as to the existence of an enforceable written contract between the parties. The jurisdiction of the district court was based on diversity of citizenship. 28 U.S.C. Sec. 1332. Our jurisdiction is based on 28 U.S.C. Sec. 1291.

Fed.R.Civ.P. 56 governs summary judgment proceedings in a federal court. Wyoming law, however, governs the contract issues presented. Accordingly, the question is whether the federal district judge sitting in the United States District Court in the District of Wyoming correctly read Wyoming contract law and then correctly applied it to the facts at hand. In our review, we are of course not bound by the district court's understanding of Wyoming law. Our review is de novo, and no deference should be given the district court's understanding of Wyoming state law. Salve Regina College v. Russell, --- U.S. ----, 111 S.Ct. 1217, 113 L.Ed.2d 190 (1991).

As indicated, this litigation was resolved on a motion for summary judgment, the district court having before it the pleadings, numerous depositions and affidavits, the oral argument of opposing counsel, as well as a transcript of the testimony given at a hearing held on a motion for preliminary injunction. The chronology of the events out of which the present litigation arose must be rather fully developed if the issues are to have meaning.

Jackson Hole Ski Corporation (JHSC) is a Wyoming corporation with its principal place of business in Teton Village, Wyoming, where it operates a well-known ski resort. It also has considerable assets related to the development and sale of real estate in the vicinity of the ski resort. Paul McCollister is the principal shareholder in JHSC, its chief executive officer, and president of the corporation.

Deepwater Investments, Limited (Deepwater) is a corporation organized under the laws of the Island of Bermuda with its principal place of business in Hamilton Bermuda. Johannes Christiaan Martinus Augustinus Maria Deuss, a Dutch oil trader who resides in Bermuda, owns and controls Deepwater. He also owns a vacation home near JHSC's ski properties and is himself a skier.

Deuss and McCollister had a personal acquaintance of some duration, and in December, 1986, discussion occurred concerning Deuss buying into JHSC. This discussion was initiated by McCollister who was interested in obtaining working capital for JHSC. McCollister first proposed that Deuss (Deepwater) pay McCollister (JHSC) the sum of $11,000,000 for approximately 35% of the outstanding shares of JHSC. Deuss was not interested in this proposal. He was interested only in buying into JHSC's ski operations and was not interested in JHSC's other real estate operations. ¹

Deuss was definitely interested, however, in buying into JHSC's ski operations. In this connection, it was agreed by both Deuss and McCollister that if Deepwater were to purchase an interest in JHSC's ski operations, it should be based on an independent appraisal. At the suggestion of McCollister, Deuss retained Sno-Engineering, Inc., a New Hampshire company, to make an appraisal of JHSC's ski operations. An appraisal was later made by Sno-Engineering which set the value of JHSC's ski operations at $11,329,000, arriving at that figure by discounting to present value the projected future earnings of the mountain ski operation.

On April 23, 1987, Deuss and McCollister met in New York City and on the following day, April 24, 1987, in Philadelphia where there were further discussions regarding the proposed investment by Deuss in JHSC. Out of these two meetings, Deuss and McCollister agreed to the following: (1) the Sno-Engineering report would form the basis for Deuss's investment in JHSC; (2) Deuss would pay $3,600,000 for approximately 24% of the outstanding shares of stock in JHSC, once the real estate assets had been separated out; (3) Deuss's percentage of equity in JHSC would be adjusted at the end of five fiscal years to reflect the actual performance of JHSC during that five-year period, and after such adjustment Deuss would own no less than 20% and no more than 49% of the outstanding shares in JHSC; (4) Deuss would have one seat on the board of directors; (5) Deuss would have a right of first refusal of McCollister's interest in JHSC should McCollister die; (6) Deuss would have the option to invest another $2,000,000 in JHSC within two years in exchange for 33% ownership interest subject to the readjustment five years from the initial investment; (7) JHSC would be subject to certain restrictions concerning incurring debt and issuing stock; and (8) if Deuss was to advance money before the issuance of any stock he wanted a written agreement. At these two meetings there was, apparently, no discussion of just how this transaction would be structured, although restructuring of some sort was necessary since JHSC owned both ski properties and non-ski properties, and Deuss desired to invest in the former only.

On May 1, 1987, Deuss faxed a letter to McCollister to confirm the terms and conditions which he understood they had agreed to at their meetings in New York and Philadelphia. On that same date Deuss wired $608,053 to JHSC.

When McCollister received Deuss's May 1 letter, he reviewed it with his attorney and made certain revisions to reflect his understanding of the agreement reached in New York and Philadelphia. McCollister and his attorney spoke with Deuss by telephone on May 4, 1987. Deuss agreed that many additional documents needed to be negotiated and executed. And then on May 5, 1987, McCollister faxed a document which he labeled "RE: Interim Agreement" to Deuss. McCollister believed that this document reflected the terms and conditions agreed to by Deuss and himself in their meetings on April 23 and 24. It incorporated much of the letter which Deuss had faxed him on May 1, 1987, plus McCollister's revisions. It also used the phrase "our interim Agreement pending final closing of this transaction." McCollister prepared the May 5th letter with the expectation and intent that additional documents were required to finalize the agreement.

On May 6, 1987, Deuss wrote McCollister as follows:

I refer to your letter of May 5, 1987 which summarizes our interim agreement and I would like to confirm that I am in complete agreement with the contents of your letter.... ²

As indicated, Deuss made an initial payment to McCollister in the amount of $608,053 on May 1, 1987, the date when Deuss faxed to McCollister his understanding of their verbal agreement. A second payment in the sum of $627,304 was made on May 15, 1987.

Shortly thereafter, problems began to arise. Under paragraph 4 of the interim agreement, JHSC agreed that before issuing stock in JHSC to Deuss it would "sell, or otherwise transfer, to another corporation" JHSC's non-ski properties. In this connection, McCollister, and his attorney, had apparently become aware that an out-right sale or transfer of JHSC's non-ski properties to an unrelated corporation could produce unfavorable tax consequences. Accordingly, on July 2, 1987, McCollister's attorney sent a letter to Deuss proposing that Deepwater's investment would be structured as an equity interest in a subsidiary of JHSC into which JHSC's ski operations would be transferred. On July 7, 1987, Deuss wrote back to McCollister and stated that such was not in accord with their agreement and that he objected to any such arrangement. Deuss was apparently concerned that a subsidiary company might be liable for the debts of its parent corporation. ³ In the July 7 letter, Deuss also stated that if McCollister did not want to go through with the deal, he could return the monies previously advanced and call the entire deal off. McCollister did not call the deal off and received eight more payments to the end that by November 25, 1987, Deuss had paid McCollister the entire $3,600,000 called for by the interim agreement. ⁴

Other differences also arose between McCollister and Deuss regarding contract terms. At this point, it is sufficient to note that there were further proposals that McCollister return to Deuss the $3,600,000 plus interest, and the deal would be called off. In this connection, on February 5, 1988, Deuss wrote McCollister informing him that if he returned the $3,600,000 plus interest by February 15, 1988, their deal would be called off, but that if there were no such repayment by that date, he would take all necessary steps to enforce their agreement. On February 8, 1988, McCollister wrote Deuss informing the latter that his February 15 deadline was unreasonable and that complete repayment by that date could not be made. Repayment was not made and this litigation ensued.

On February 16, 1988, Deepwater filed the present action in the United States District Court for the District of Wyoming, naming JHSC as the only defendant. Under the heading "Facts Underlying All Claims," counsel...