Keystone Land & Development Co. v. Xerox Corp.

• Citation: 353 F.3d 1070
• Decision Date: 31 December 2003
• Docket Number: No. 02-35847.,02-35847.
• Parties: KEYSTONE LAND & DEVELOPMENT COMPANY, Plaintiff-counter-defendant-Appellant, v. XEROX CORPORATION, Defendant-counter-claimant-Appellee.
• Court: United States Courts of Appeals. United States Court of Appeals (9th Circuit)

353 F.3d 1070

KEYSTONE LAND & DEVELOPMENT COMPANY, Plaintiff-counter-defendant-Appellant, v. XEROX CORPORATION, Defendant-counter-claimant-Appellee.

No. 02-35847.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted October 9, 2003.

Filed December 31, 2003.

Eric Frimodt, Inslee, Best, Doezie & Ryder, P.S., Bellevue, Washington, for the plaintiff/counter-defendant-appellant Keystone Land & Development Company.

Larry J. Smith, Graham & Dunn PC, Seattle, Washington, for the defendant/counter-claimant-appellee Xerox Corporation.

Appeal from the United States District Court for the Western District of Washington; Marsha J. Pechman, District Judge, Presiding. D.C. No. CV-01-01018-MJP.

Before: Stephen S. TROTT, Raymond C. FISHER, and Ronald M. GOULD, Circuit Judges.

OPINION

GOULD, Circuit Judge.

This diversity case arises from a contract dispute. Plaintiff Keystone Land & Development Company ("Keystone") claims that it formed two binding contracts with Defendant Xerox Corporation ("Xerox"): a contract to buy a building owned by Xerox, and a contract to negotiate the terms of a Purchase and Sale Agreement for that building. Keystone filed suit for breach of contract in Washington state court and, to secure its claims, Keystone filed a lis pendens notice for the property. Xerox removed the case to federal court and filed a counterclaim for damages, and attorney's fees, caused by an allegedly improper lis pendens. The district court granted summary judgment to Xerox on its defense of the two contract claims asserted by Keystone, and also granted summary judgment to Xerox on its counterclaim. Keystone appeals these rulings. We have jurisdiction pursuant to 28 U.S.C. § 1291. We affirm the summary judgment dismissing Keystone's claim of a breach of contract to sell the building, and we reverse the summary judgment awarding damages to Xerox because of the lis pendens. In a companion published order, we certify to the Washington State Supreme Court the remaining dispositive question of state law before us, namely, whether Washington law may recognize a contract to negotiate in the circumstances presented by this case.

I

In early 2001, Xerox decided to sell and leaseback its facility in Tukwila, Washington. Xerox hired Jones Lang LaSalle ("Jones Lang") and Kidder Matthews and Sanger ("Kidder Matthews") to sell the property. Xerox sent detailed information packets to prospective buyers, including Keystone. In a February 22, 2001 e-mail, Xerox requested a "signed Letter of Intent which includes the net purchase price and key deal points...." Keystone, through its real estate broker, Broderick Group, sent a letter (the "Offer Letter") dated March 8, 2001, that made an "Offer to Purchase" the property. The letter had several contingencies, including the "Execution of a Purchase and Sale Agreement with [sic] thirty (30) days from the execution of this letter of intent." Kidder Matthews replied on April 4, 2001, thanking Keystone for the "Offer" and, as "directed by Xerox," requested that Keystone submit a "final and best offer" for the property that addressed certain concerns. Keystone responded through a letter dated April 6, 2001 by increasing its offering price. Referencing the March 8 letter, the April 6 letter stated that Keystone was "prepared to proceed towards completion of a mutually acceptable Purchase and Sale Agreement." In an April 10 letter, Xerox's local brokers wrote that, subject to two modifications, Xerox was "prepared to negotiate a Purchase and Sale Agreement with Keystone," and that Xerox would "proceed immediately to draft" the Agreement if Keystone accepted the modifications. Keystone accepted the modifications on April 13.

Keystone prepared to inspect the property and Xerox's books and records concerning the property, reviewed documents, and arranged debt and equity financing. Xerox had delivered documents to Keystone and had hired legal counsel for drafting the Agreement. Xerox told Keystone that a draft was almost complete and would soon be ready for review. No employee of Keystone had discussed the transaction directly with any employee of Xerox. All communications to this point were between the parties' brokers.

Xerox had done minimal due diligence. Because Xerox had seen other prospective property sales collapse when lenders had backed out after learning that the deal included a leaseback to Xerox, it requested assurances from Keystone's lenders that financing would be available. Faced with vague answers given by an officer of Key Bank, Keystone's financier, Xerox became concerned about Keystone's suitability as purchaser and landlord.

On April 25, 2001, the City of Tukwila, the main competitor of Keystone for the property, submitted a revised proposal to buy the building for $500,000 more than Keystone offered. Xerox then decided to withdraw from negotiations with Keystone. That was the end of negotiations between Keystone and Xerox.

Keystone filed suit in state court on June 20, 2001 and recorded a lis pendens against the Tukwila facility. The action was removed by Xerox to the United States District Court for the Western District of Washington. Xerox filed a Fed.R.Civ.P. 12(b)(6) motion, asserting that the complaint did not state a claim. That motion was denied. Xerox then filed an answer on October 4, 2001, and added a counterclaim for damages from the lis pendens filing. Keystone released the lis pendens when it filed an amended complaint on January 18, 2002. On cross-motions for summary judgment, the district court granted Xerox's motion for summary judgment in defense of Keystone's suit on March 14, 2002. On July 12, 2002, the district court, addressing cross-motions for summary judgment on Xerox's counter-claim, awarded summary judgment to Xerox. The district court certified both orders as final and Keystone appealed both summary judgment orders.¹

II

We first address whether summary judgment was appropriate on Keystone's claim that Xerox breached a contract to sell the Tukwila facility. To survive summary judgment, Keystone must demonstrate disputed material facts regarding the existence of a contract to sell the Tukwila property.

Under Washington law, it is possible for parties to enter a binding contract even if the parties contemplate a more formal future document. Loewi v. Long, 76 Wash. 480, 484, 136 P. 673 (1913); Fuller v. Ostruske, 48 Wash.2d 802, 807, 296 P.2d 996 (1956). The party asserting the existence of the contract must prove that the terms of the contract are stated, agreed upon, and that the parties intended the terms to be a binding agreement before signing the formal document. Loewi at 484, 136 P. 673. Equally certain is that if the parties intended their legal obligations to be deferred until the execution of the formal writing, the preliminary writings and negotiations cannot constitute a contract. Plumbing Shop, Inc. v. Pitts, 67 Wash.2d 514, 520-21, 408 P.2d 382 (1965) (citing Restatement of Contracts § 26 cmt. a (1932)).

The question of a party's intent turns on the objective manifestations of that intent. Morris v. Maks, 69 Wash. App. 865, 871-72, 850 P.2d 1357 (1993). Whether summary judgment for Xerox was appropriate turns on whether there is disputed evidence in the record, viewed in the light most favorable to Keystone, that would allow a rational jury to conclude that the parties intended their preliminary writings to be an enforceable agreement, with the future Purchase and Sale Agreement serving only to memorialize the parties' prior contractual obligations.²

We consider whether a rational factfinder could find, on the evidence submitted that the parties intended a contract to exist as a result of the March 8, April 6, April 10, and April 13 letters. The four letters did not include specific language either disclaiming or supporting the formation of a contract. What is undisputed, however, is that the letters contemplated the future drafting of a Purchase and Sale Agreement.

Under Washington contract law, if parties contemplate drafting a later agreement, this is "strong evidence to show that they do not intend the previous negotiations to amount to any proposal or acceptance." Pacific Cascade Corp. v. Nimmer, 25 Wash.App. 552, 556, 608 P.2d 266 (1980) (quoting Coleman v. St. Paul & Tacoma Lumber Co., 110 Wash. 259, 272, 188 P. 532 (1920)). This alone would be sufficient to find that the parties lacked the intent to contract based upon the four letters. See Plumbing Shop, 67 Wash.2d at 521, 408 P.2d 382 ("[I]f an intention is manifested in any way that legal obligations between the parties shall be deferred until the writing is made, the preliminary negotiations and agreements do not constitute a contract.") (citing Restatement of Contracts § 26 cmt. a (1932)) (emphasis added).

Further, the other language in these letters, even when viewed in a light most favorable to Keystone as non-moving party, does not support a finding of an intent to reach a binding contract in the preliminary exchange of views. The exchange of letters explicitly called for the creation of a future "binding" Purchase and Sale Agreement; to refer to the future agreement as "binding" implies that preliminary communications are not.

This case is strikingly similar to the decision in Nimmer, 25 Wash.App. 552, 608 P.2d 266. In Nimmer, a real estate developer gave Nimmer three proposals, and Nimmer expressed interest in one. Nimmer prepared a letter of intent³ based on the proposal he liked. The developer thought a deal had been struck and sent Nimmer a draft lease. Nimmer did not sign the lease and the developer sued for breach of contract. The Washington Court of Appeals held that the correspondence did not contain any promises, and the letter of intent was "evidence of a future contractual intent." Nimmer, 25 Wash.App. at 556, 608 P.2d 266. The description of Washington law and the resulting decision in Nimmer persuade us that summary judgment for...