Copeland v. Baskin Robbins U.S.A.

• Decision Date: 19 March 2002
• Docket Number: No. B149851.,B149851.
• Citation: 96 Cal.App.4th 1251,117 Cal.Rptr.2d 875
• Court: California Court of Appeals Court of Appeals
• Parties: Kevin A. COPELAND, Plaintiff and Appellant, v. BASKIN ROBBINS U.S.A. et al., Defendants and Respondents.

117 Cal.Rptr.2d 875

96 Cal.App.4th 1251

Kevin A. COPELAND, Plaintiff and Appellant, v. BASKIN ROBBINS U.S.A. et al., Defendants and Respondents.

No. B149851.

Court of Appeal, Second District, Division 7.

March 19, 2002.

David J. Cowan, Los Angeles, for Plaintiff and Appellant.

Farella Braun & Martel, John L. Cooper, San Francisco, Thomas B. Mayhew; Fenigstein & Kaufman and Karl S. Thurmond, Los Angeles, for Defendants and Respondents.

JOHNSON, Acting P.J.

We address an unsettled question in California: may a party sue for breach of a contract to negotiate an agreement or is such a "contract" merely an unenforceable "agreement to agree?" We hold a contract to negotiate an agreement is distinguishable from a so-called "agreement to agree" and can be formed and breached just like any other contract. We further hold, however, even if the plaintiff in this case could establish the defendant's liability for breach of contract he is limited to reliance damages—a form of recovery he has disavowed and defendant has shown he cannot prove. For this reason we affirm the trial court's judgment for defendant.

FACTS AND PROCEEDINGS BELOW

The following facts are undisputed.

Baskin Robbins operated an ice cream manufacturing plant in the city of Vernon. When the company announced its intention to close the plant, Copeland expressed an interest in acquiring it. The parties commenced negotiations. Copeland made clear from the outset his agreement to purchase the plant was contingent on Baskin Robbins agreeing to purchase the ice cream he manufactured there. Copeland testified at his deposition the ice cream purchase arrangement, known as "co-packing," was "critical" and "a key to the deal." Without co-packing, Copeland testified, "this deal doesn't work." Baskin Robbins does not deny the co-packing arrangement was an indispensable part of the contract to purchase the plant.

After several months of negotiations an agreement took shape under which Copeland would purchase the plant's manufacturing assets and sublease the plant property. Baskin Robbins would purchase seven million gallons of ice cream from Copeland over a three year period.

In May 1999 Baskin Robbins sent Copeland a letter, which stated in relevant part "This letter details the terms which our Supply Chain executives have approved for subletting and sale of our Vernon manufacturing facility/equipment and a product supply agreement.... (1) Baskin Robbins will sell [Copeland] Vernon's ice cream manufacturing equipment ... for $1,300,000 cash.... (2) Baskin Robbins would agree, subject to a separate co-packing agreement and negotiated pricing, to provide [Copeland] a three year co-packing agreement for 3,000,000 gallons in year 1, 2,000,000 gallons in year 2 and 2,000,000 in year 3... . If the above is acceptable please acknowledge by returning a copy of this letter with a non-refundable check for three thousand dollars.... We should be able to coordinate a closing [within] thirty days thereafter." Copeland signed a statement at the bottom of the letter agreeing "[t]he above terms are acceptable" and returned the letter to Baskin Robbins along with the $3000 deposit.

After Copeland accepted the terms in the May 1999 letter, the parties continued negotiating over the terms of the co-packing agreement. Among the issues to be settled were the price Baskin Robbins would pay for the ice cream, the flavors Copeland would produce, quality standards and controls, who would bear the loss from spoilage, and trademark protection. Copeland testified he believed in June 1999 he reached an oral agreement with Baskin Robbins on a price for the ice cream of his cost plus 85 cents per tub. He conceded, however, the parties had not agreed on how the cost component was to be determined and so far as he knew there was no written memorandum of this pricing agreement. None of the other issues were settled before Baskin Robbins allegedly breached the contract.

In July 1999, Baskin Robbins wrote to Copeland breaking off negotiations over the co-packing arrangement and returning his $3000 deposit. The letter explained Baskin Robbins' parent company had "recently ... made strategic decisions around the Baskin Robbins business" and "the proposed co-packing arrangement [is] out of alignment with our strategy." Therefore, Baskin Robbins informed Copeland, "we will not be engaging in any further negotiations of a co-packing arrangement."¹ Although Baskin Robbins offered to proceed with the agreement for the sale and lease of the Vernon plant assets it did not insist on doing so, apparently accepting Copeland's view the lack of a co-packing agreement was a "deal-breaker."

In his suit for breach of contract, Copeland alleged he and Baskin Robbins entered into a contract which provided Baskin Robbins would enter into a co-packing agreement with Copeland under the terms set out in the May 1999 letter and additional terms to be negotiated. Baskin-Robbins breached this contract by "unreasonably and wrongfully refusing to enter into any co-packing agreement with [Copeland]." As a result of this breach of contract Copeland suffered expectation damages "in the form of lost profits ... as well as lost employment opportunities and injury to his reputation." In response to a discovery request, Copeland stated his damages consisted of "lost profits from [the] three year co-packing agreement with defendants" as well as lost profits from other sales he could have made had he acquired the plant and the profit he could have earned from selling the plant equipment. Copeland's discovery responses did not provide or allege he could provide evidence of damages he suffered as a result of his relying on Baskin Robbins' promise to negotiate a co-packing agreement.

The trial court granted Baskin Robbins' motion for summary judgment based on the undisputed facts described above. The court concluded the May 1999 letter was susceptible to several interpretations but no matter how it was interpreted it failed as a contract because the essential terms of the co-packing deal were never agreed to and there was no reasonable basis upon which to determine them. Copeland filed a timely appeal from the subsequent judgment.

For the reasons discussed below we affirm the judgment albeit on a ground different from those relied upon by the trial court.

DISCUSSION

I. A CAUSE OF ACTION WILL LIE FOR THE BREACH OF A CONTRACT TO NEGOTIATE AN AGREEMENT.

When Baskin Robbins refused to continue negotiating the terms of the co-packing agreement Copeland faced a dilemma. "Many millions of dollars" in anticipated profits had melted away like so much banana ripple ice cream on a hot summer day. True enough, he could proceed with the contract for the purchase and lease of the Vernon plant's assets and use those assets to produce ice cream for other retailers. But, as he explained in his deposition, without the Baskin Robbins co-packing agreement he could not afford to purchase the assets and pay the on-going costs of operating the plant while he searched for other business. Alternatively he could attempt to sue Baskin Robbins for breach of the co-packing agreement on the theory the terms of the agreement set out in the May 1999 letter plus additional terms supplied by the court constituted an enforceable contract. Such a suit, however, had a slim prospect of success. While courts have been increasingly liberal in supplying missing terms in order to find an enforceable contract they do so only where the "reasonable intentions of the parties" can be ascertained.² It is still the general rule that where any of the essential elements of a promise are reserved for the future agreement of both parties, no legal obligation arises "until such future agreement is made."³ Here, the parties agreed in the May 1999 letter as to the amount of ice cream Baskin Robbins would purchase over a three year period but, as Copeland candidly admitted, "a variety of complex terms" remained for agreement before the co-packing contract could be completed. These included price the flavors to be manufactured, quality control standards, and responsibility for waste.

Copeland chose a third course. Rather than insist the parties had formed a co-packing contract and Baskin Robbins had breached it, he claimed the May 1999 letter constituted a contract to negotiate the remaining terms of the co-packing agreement and Baskin Robbins breached this contract by refusing without excuse to continue negotiations or, alternatively, by failing to negotiate in good faith. This path too has its difficulties. No reported California case has held breach of a contract to negotiate an agreement gives rise to a cause of action for damages.⁴ On the other hand numerous California cases have expressed the view the law provides no remedy for breach of an "agreement to agree" in the future.⁵ We believe, however, these difficulties could be overcome in an appropriate case.

Initially, we see no reason why in principle the parties could not enter into a valid, enforceable contract to negotiate the terms of a co-packing agreement. A contract, after all, is "an agreement to do or not to do a certain thing."⁶ Persons are free to contract to do just about anything that is not illegal or immoral.⁷ Conducting negotiations to buy and sell ice cream is neither.

Furthermore, as we will demonstrate below, purported contracts which the courts have dismissed as mere "agreements to agree" are distinguishable from contracts to negotiate in at least two respects.

A contract to negotiate the terms of an agreement is not, in form or substance, an "agreement to agree." If, despite their good faith efforts, the parties fail to reach ultimate agreement on the terms in issue the contract to negotiate is deemed performed and the parties are discharged from their obligations. Failure to agree is not, itself, a breach of the contract to negotiate.⁸ A party will be liable only if a failure to reach...