Filed: Nov. 22, 2013
Latest Update: Mar. 02, 2020
Summary: Washington law.complaint for failure to state a claim.3, Courts and scholars have used a variety of terms to describe, contracts to negotiate. For example, some use the term Type II, preliminary agreement, see, e.g., Brown v. Cara, 420 F.3d 148, 153, (2d Cir.district court).Parties, 48 Gonz.
United States Court of Appeals
For the First Circuit
No. 13-1329
DAVID BUTLER,
Plaintiff, Appellant,
v.
SHIRAZ BALOLIA,
Defendant, Appellee.
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MASSACHUSETTS
[Hon. Joseph L. Tauro, U.S. District Judge]
Before
Thompson, Selya and Lipez,
Circuit Judges.
Michael J. Lambert, with whom David Hartnagel and Sheehan
Phinney Bass + Green were on brief, for appellant.
Laura L. Carroll, with whom Joseph F. Schmidt, Shefsky &
Froelich Ltd., and Burns & Levinson LLP were on brief, for
appellee.
November 22, 2013
SELYA, Circuit Judge. This bi-coastal case requires a
Boston-based federal court to make an informed prophesy as to
whether the Washington Supreme Court, if squarely confronted with
the question, would recognize a cause of action for breach of a
contract to negotiate. Applying the methodology that federal
courts have developed to vaticinate how state courts are likely to
rule on unsettled questions of state law, we find spoor for the
cognoscenti and answer the question before us in the affirmative.
And because the complaint plausibly states such a cause of action,
we vacate the district court's order of dismissal and remand for
further proceedings consistent with this opinion.
I. BACKGROUND
Inasmuch as this is an appeal from an order of dismissal
for failure to state a claim upon which relief can be granted, see
Fed. R. Civ. P. 12(b)(6), we draw the facts primarily from the
complaint. See Rodríguez-Reyes v. Molina-Rodríguez, 711 F.3d 49,
51 (1st Cir. 2013). We may supplement those factual allegations by
examining "documents incorporated by reference into the complaint,
matters of public record, and facts susceptible to judicial
notice." Haley v. City of Bos.,
657 F.3d 39, 46 (1st Cir. 2011).
Plaintiff-appellant David Butler is an inventor who has
spent years researching and developing safety technology for
cutting tools. Among the fruits of his labors is the so-called
-2-
"Whirlwind" technology, which relies on both existing and pending
patents.
Defendant-appellee Shiraz Balolia is the president of
Grizzly Industrial, Inc. He sought to purchase the Whirlwind
technology from the plaintiff and, after some initial haggling, the
two men signed a letter of intent (the LOI) in April of 2012.
The LOI is not quite three pages in length. It
memorializes the parties' mutual intention "to negotiate and enter
into a separate Purchase Agreement by June 20, 2012," describes the
technology to be purchased in some detail, and specifies a purchase
price "payable upon closing."1 The LOI also stipulates that the
parties "will use their best efforts to negotiate and attempt to
agree to terms for the Purchase Agreement" and that the plaintiff
will refrain from negotiating with any other prospective purchasers
before the signing deadline. Last — but far from least — the LOI
contains a choice-of-law provision that directs the application of
Washington law.
For reasons that are hotly disputed, the transaction fell
through and no purchase agreement was ever signed. The plaintiff
blames the defendant: according to the complaint, the defendant
professed to have discovered deficiencies in the Whirlwind
1
Along with the LOI, the parties executed a non-disclosure
agreement. In pursuance thereof, the district court sealed all
references to the amount of the purchase price.
-3-
technology and used these "specious" deficiency claims as a basis
for attempting to renegotiate the arrangement.
After the deal imploded but before the end of the
exclusivity period, the plaintiff sued the defendant in a
Massachusetts state court. The plaintiff sought, among other
things, a declaration that the LOI was an enforceable contract,
pecuniary damages for breach of contract and breach of an implied
covenant of good faith and fair dealing, and damages for violation
of the Massachusetts Consumer Protection Act, see Mass. Gen. Laws
ch. 93A, §§ 2, 11. Citing the diverse citizenship of the parties
(the defendant is a citizen of Washington and the plaintiff is a
citizen of Massachusetts) and the existence of a controversy in the
requisite amount, the defendant removed the case to federal court.
See 28 U.S.C. §§ 1332(a), 1441.
Once the case was transplanted, the defendant filed a
motion to dismiss. The plaintiff opposed this motion and, in
addition, moved for leave to amend his complaint. The defendant
objected to the latter motion.
The district court granted the motion to dismiss. See
Butler v. Balolia, No. 12-11054, 2013 WL 752363, at *2 (D. Mass.
Feb. 26, 2013). It reasoned that the LOI was not an enforceable
contract of any kind under Washington law and, therefore, that all
of the plaintiff's claims failed.
Id. In the same order, the
-4-
court denied the motion to amend as futile. Id. This timely
appeal ensued.
II. ANALYSIS
We review de novo a district court's dismissal of a
complaint for failure to state a claim. Rodríguez-Reyes, 711 F.3d
at 52. In conducting this tamisage, "we accept as true all well-
pleaded facts alleged in the complaint and draw all reasonable
inferences therefrom in the pleader's favor." Santiago v. Puerto
Rico,
655 F.3d 61, 72 (1st Cir. 2011).
In diversity jurisdiction, a federal court must draw the
substantive rules of decision, including conflict of law
principles, from the law of the forum state. See Erie R.R. Co. v.
Tompkins, 304 U.S. 64, 78 (1938); Artuso v. Vertex Pharm., Inc.,
637 F.3d 1, 5 (1st Cir. 2011). Here, however, we need not perform
a full-blown conflict-of-law analysis: it is transparently clear
that such an analysis would lead us to the choice-of-law provision
in the LOI, which renders Washington law controlling.2 See, e.g.,
Eureka Broadband Corp. v. Wentworth Leasing Corp.,
400 F.3d 62, 67
(1st Cir. 2005); see also Restatement (Second) of the Conflict of
Laws § 187 (1971).
The district court's determination that the LOI cannot be
construed as a binding contract of sale, see Butler, 2013 WL
2
The plaintiff questions whether the choice-of-law provision,
as worded, extends to his Chapter 93A claim. We do not need to
reach this question today, and we express no opinion on it.
-5-
752363, at *2, is unarguable. By its terms, the LOI expresses the
parties' shared intention that the transaction, when fully
negotiated, will be evidenced by a "separate Purchase Agreement" —
an agreement that was never executed. The critical question, then,
is whether the plaintiff has plausibly alleged that the LOI is a
binding contract to negotiate that the defendant breached.
This question depends, in the first instance, on whether
Washington would recognize contracts to negotiate as enforceable.
The district court concluded that it would not. In a short passage
and footnote, the court anchored this conclusion on the fact that
Washington has not yet recognized the enforceability of contracts
to negotiate. Butler, 2013 WL 752363, at *2 n.23. In this regard,
the court stated that it would not "extend" a doctrine not yet
explicitly adopted by the Washington Supreme Court.
Id.
A. Divining State Law.
The key to this puzzle is whether Washington's highest
court, if squarely confronted with the question, would recognize a
cause of action for breach of a contract to negotiate; that is, an
action for breach of a contract that binds the parties to some
course of conduct during negotiations. The most reliable guide to
the interpretation of state law is the jurisprudence of the state's
highest court. See, e.g., Kathios v. Gen. Motors Corp., 862 F.2d
944, 946 (1st Cir. 1988). But we think that the district court
erred in deeming the absence of an on-point opinion from the
-6-
state's highest court dispositive. If such a lacuna exists, a
federal court sitting in diversity should not simply throw up its
hands but, rather, should endeavor to predict how that court would
likely decide the question. See, e.g., In re Bos. Reg'l Med. Ctr.,
Inc., 410 F.3d 100, 108 (1st Cir. 2005).
In fashioning such a prediction, the federal court should
consult the types of sources that the state's highest court would
be apt to consult, including analogous opinions of that court,
decisions of lower courts in the state, precedents and trends in
other jurisdictions, learned treatises, and considerations of sound
public policy. See Andrew Robinson Int'l, Inc. v. Hartford Fire
Ins. Co., 547 F.3d 48, 51-52 (1st Cir. 2008). The federal court
may pay particular attention to sources cited approvingly by the
state's highest court in other opinions.
Id. at 52. The goal is
to replicate, as well as possible, the decision that the state's
highest court would be likely to reach.
In this instance, we agree with the district court that
the Washington Supreme Court has never recognized the
enforceability of contracts to negotiate. By the same token,
however, that court has not repudiated such a cause of action. The
closest the court has come to either of these positions is its
response to a certified question from the Ninth Circuit Court of
Appeals. See Keystone Land & Dev. Co. v. Xerox Corp., 94 P.3d 945
(Wash. 2004) (en banc). There, the Washington Supreme Court
-7-
declared that it was "unnecessary to decide whether Washington will
ever enforce a contract to negotiate." Id. at 950.
Although Keystone left the question open, the court
provided valuable insight into how it might view the issue in the
future. Its approach creates a taxonomy that comprises three
different types of agreements: (i) "agreements to agree," which
require a further meeting of the minds and are, therefore,
nonbinding; (ii) "agreements with open terms," in which the parties
intend to be bound to key points and to have a court or other
authority supply the missing terms; and (iii) "contracts to
negotiate," in which the parties agree to be bound to "a specific
course of conduct during negotiations." Keystone, 94 P.3d at 948
(citing E. Allan Farnsworth, Precontractual Liability and
Preliminary Agreements: Fair Dealing and Failed Negotiations, 87
Colum. L. Rev. 217, 253, 263 (1987)). The enforceability of this
third type of agreement, the court concluded, was an open question
in Washington.3 See id.; see also P.E. Sys., LLC v. CPI Corp., 289
3
Courts and scholars have used a variety of terms to describe
contracts to negotiate. For example, some use the term Type II
preliminary agreement, see, e.g., Brown v. Cara, 420 F.3d 148, 153
(2d Cir. 2005), others use the term binding preliminary commitment,
see, e.g., Teachers Ins. & Annuity Ass'n of Am. v. Tribune Co.,
670
F. Supp. 491, 498 (S.D.N.Y. 1987), and still others use the term
agreement to negotiate, 1 Arthur L. Corbin, Corbin on Contracts
§ 2.8(b) (Joseph M. Perillo rev. ed. 1993). For simplicity's sake,
we refer throughout to contracts to negotiate — the nomenclature
employed in
Keystone, 94 P.3d at 948.
-8-
P.3d 638, 644 (Wash. 2012) (en banc) (referencing relevant language
from Keystone).
We find it helpful that the Keystone court went on to
enumerate certain bedrock principles of contract law that would
apply to any analysis it might later make of contracts to
negotiate. See Keystone, 94 P.3d at 948-49. For one thing, the
court emphasized that agreements entered into by willing parties,
which do not offend public policy, are generally enforceable. See
id. at 948. For another thing, Keystone confirmed that "Washington
follows the objective manifestation test for contracts," under
which parties form a contract by manifesting their mutual assent to
be bound.
Id. at 949. The obligations of the parties "must be
sufficiently definite" to allow courts to fix liability, and the
exchange of promises "must be supported by consideration."
Id.
Even though the Washington Supreme Court has not spoken
definitively to the issue, the state's intermediate appellate court
has recently enforced a contract to negotiate. See Columbia Park
Golf Course, Inc. v. City of Kennewick,
248 P.3d 1067, 1076 (Wash.
Ct. App. 2011). But the strength of this precedent is suspect
because the appellant there apparently did not dispute the
enforceability of such contracts but, instead, merely appealed the
damages award. See
id. at 1074. Consequently, we give this
precedent little weight.
-9-
The case law elsewhere is a mixed bag. Withal, two
things seem clear. First, many more jurisdictions have recognized
the enforceability of contracts to negotiate than have repudiated
that doctrine. Compare, e.g., Brown v. Cara, 420 F.3d 148, 156-59
(2d Cir. 2005) (construing New York law), Venture Assocs. Corp. v.
Zenith Data Sys. Corp.,
96 F.3d 275, 277-78 (7th Cir. 1996)
(construing Illinois law), Newharbor Partners, Inc. v. F.D. Rich
Co.,
961 F.2d 294, 298-99 (1st Cir. 1992) (construing Rhode Island
law), Channel Home Ctrs. v. Grossman,
795 F.2d 291, 299 (3d Cir.
1986) (construing Pennsylvania law), Copeland v. Baskin Robbins
U.S.A.,
117 Cal. Rptr. 2d 875, 879-85 (Cal. Ct. App. 2002), SIGA
Techs., Inc. v. PharmAthene, Inc.,
67 A.3d 330, 343-47 (Del. 2013),
and Logan v. D.W. Sivers Co.,
169 P.3d 1255, 1258-60 (Or. 2007) (en
banc), with, e.g., Knight v. Sharif,
875 F.2d 516, 525 (5th Cir.
1989) (construing Mississippi law) and MidAmerican Distribution,
Inc. v. Clarification Tech., Inc.,
807 F. Supp. 2d 646, 668 (E.D.
Ky. 2011) (construing Kentucky law). Second, the trend line
appears to be moving steadily in favor of recognizing a cause of
action for breach of a contract to negotiate. See, e.g., Keystone
Land & Dev. Co. v. Xerox Corp.,
353 F.3d 1093, 1097 (9th Cir. 2003)
(discussing the "modern trend" and collecting numerous case,
treatise, and law review citations); Burbach Broad. Co. of Del. v.
Elkins Radio Corp.,
278 F.3d 401, 408-09 (4th Cir. 2002) (citing
"modern trend in contract law" and recognizing doctrine under West
-10-
Virginia law); 1 E. Allan Farnsworth, Farnsworth on Contracts
§ 3.26b (3d ed. 2004) (describing doctrine as having "gained a
substantial following"); Alan Schwartz & Robert E. Scott,
Precontractual Liability and Preliminary Agreements, 120 Harv. L.
Rev. 661, 675 (2007) (describing recognition of contracts to
negotiate as the "new default rule").
There is, moreover, abundant support for the enforcement
of contracts to negotiate in other sources that the Washington
Supreme Court would be apt to find persuasive. From first
principles, a contract is merely an exchange of promises that the
law will enforce. See Restatement (Second) of Contracts § 1
(1981). A contract is formed when the parties objectively manifest
their intention to be bound and consideration exists. See id. at
§ 17; see also
Keystone, 94 P.3d at 949. The baseline rule (absent
some affront to public policy) is for courts to honor parties'
expressed intentions in structuring their contractual affairs. See
Hodge v. Evans Fin. Corp.,
707 F.2d 1566, 1568 (D.C. Cir. 1983) ("A
basic principle of contract law is the concept of freedom of
contract — the right of the contracting parties to structure their
transactions in accordance with their wishes."); see also Keystone,
94 P.3d at 948 (citing Farnsworth, Precontractual
Liability, supra,
at 267).
A contract to negotiate, in which the parties' promises
normally embody the duty to negotiate in good faith, presents no
-11-
obvious exception to this baseline rule. See Newharbor, 961 F.2d
at 298-99. The manifested intention of the parties is the
lodestar. See Channel
Home, 795 F.2d at 299; Teachers Ins. &
Annuity Ass'n v. Tribune Co.,
670 F. Supp. 491, 499 (S.D.N.Y.
1987); see also 1 Arthur L. Corbin, Corbin on Contracts § 2.9
(Joseph M. Perillo rev. ed. 1993).
Scholarly works and case law describe compelling reasons
both as to why parties may desire to exchange such binding promises
and as to why courts may deem it socially beneficial to enforce
them. Modern transactions often involve significant up-front
investments in deal structuring and due diligence, and parties may
wish to protect those investments in some measure. See Schwartz &
Scott, Precontractual Liability, supra at 665-67. Without any such
protection, a rapacious counter-party may attempt to take advantage
of the other party's sunk investment by trying to retool the deal
at the last minute. See Venture Assocs., 96 F.3d at 278.
To forestall such gamesmanship, parties may wish to build
in safeguards that will operate early in the bargaining process.
This can be accomplished by binding themselves sufficiently such
that they feel comfortable investing resources into the deal, but
without inextricably committing themselves to a transaction that is
still inchoate. Contracts to negotiate can satisfy this need.
-12-
To be sure, there are some considerations that may
counsel against adopting a rule that contracts to negotiate are
enforceable. Three such considerations are worthy of mention.
First, courts are understandably hesitant to enforce
agreements whose terms are too indefinite to allow easy and
objective identification of a breach. See Restatement (Second) of
Contracts § 33 (1981); see also Keystone, 94 P.3d at 949. With
respect to contracts to negotiate, it can be argued that courts
will struggle both to define "negotiating in good faith" and to
identify a party's failure to do so. See 1 Corbin on Contracts,
supra, § 2.8. But in the main, courts have found this obstacle
surmountable. See, e.g.,
Teachers, 670 F. Supp. at 506;
Logan, 169
P.3d at 1259-60; see also A/S Apothekernes Laboratorium for
Specialpraeparater v. I.M.C. Chem. Grp., Inc.,
873 F.2d 155, 158-60
(7th Cir. 1989) (finding no breach of obligation to negotiate in
good faith).
Moreover, courts routinely make judgments as to parties'
good faith (or the lack of it) in analogous contexts. See, e.g.,
O'Tool v. Genmar Holdings, Inc., 387 F.3d 1188, 1197-1203 (10th
Cir. 2004) (discussing implied duty of good faith and fair dealing
under Delaware law); Mathis v. Exxon Corp.,
302 F.3d 448, 453-59
(5th Cir. 2002) (discussing Uniform Commercial Code duty to act in
good faith when fixing open price terms); Peckham v. Cont'l Cas.
Ins. Co.,
895 F.2d 830, 834-35 (1st Cir. 1990) (discussing
-13-
insurer's duty to negotiate settlements in good faith). And with
specific reference to contracts to negotiate, Professor Farnsworth
has suggested that bad faith in negotiations can be separated into
seven subsets: "refusal to negotiate, improper tactics,
unreasonable proposals, nondisclosure, negotiation with others,
reneging, and breaking off negotiations." 1 Farnsworth on
Contracts, supra, § 3.26c; see also Farnsworth, Precontractual
Liability, supra, at 269-85. This refinement makes the
definitional task easier.
Second, courts and scholars have quibbled about the
appropriate measure of damages when a contract to negotiate has
been breached. In the opinion of some, damages should be limited
to the sums spent in reliance on the broken promise. See, e.g.,
Copeland, 117 Cal. Rptr. 2d at 885;
Logan, 169 P.3d at 1263. In
the opinion of others, expectancy damages may be available. See,
e.g., Venture
Assocs., 96 F.3d at 278-79; Columbia
Park, 248 P.3d
at 1076-78. This uncertainty, however, does not speak to the
viability of a cause of action for breach of a contract to
negotiate. It speaks only to the nature of the proper remedy.
Third, some judges have worried about the manifest need
for courts charged with enforcing contracts to negotiate to tread
carefully lest they "trap[] parties in surprise contractual
obligations that they never intended." Teachers, 670 F. Supp. at
497. But this concern was noted and discounted in Keystone, where
-14-
the Washington Supreme Court concluded that the state's fundamental
requirements for contract formation were sufficient to address it.
Keystone, 94 P.3d at 949.
In this case, all roads lead to Rome. After surveying
the relevant legal landscape in Washington and beyond and weighing
the pertinent policy considerations, we conclude that the
Washington Supreme Court will in all probability recognize the
enforceability of contracts to negotiate when it squarely confronts
that issue.
B. The Merits.
Having made our informed prophecy about Washington law,
we move from the general to the specific. To survive a motion to
dismiss, a complaint must "state a claim to relief that is
plausible on its face." Bell Atl. Corp. v. Twombly, 550 U.S. 544,
570 (2007). The question here is whether the complaint plausibly
alleges the existence and breach of a contract to negotiate.
Before delving into plausibility, we pause to put to rest
a claim of procedural default. The defendant tries to head off the
plausibility inquiry by suggesting that the plaintiff did not
adequately raise the "contract to negotiate" theory below. As we
explain in the following pages, however, the complaint adequately
pleaded this theory. What is more, the plaintiff argued it in
opposition to the motion to dismiss, and the district court had
sufficient notice that it felt the need to address the theory
-15-
squarely in its decision. Butler, 2013 WL 752363, at *2 n.23. We
therefore deem the claim of error preserved. Cf. United States v.
Paridis,
351 F.3d 21, 28-29 (1st Cir. 2003) (treating an issue only
arguably alluded to by government as preserved when addressed by
district court).
In the case at hand, we believe that the complaint's
factual content is enough, if barely, to propel it across the
plausibility threshold. Plausibility does not demand a showing
that the claim is likely to succeed. It does, however, demand a
showing of "more than a sheer possibility" of success. Ashcroft v.
Iqbal, 556 U.S. 662, 678 (2009). This determination is independent
of whatever unsupported conclusions may be embedded in the
complaint. See
id. at 678-79. Thus, "[t]hreadbare recitals of the
elements of a cause of action" will not suffice to show
plausibility.
Id. at 678.
We concede that the plaintiff's complaint is not a model
of clarity. Although it alleges that the LOI is a binding
contract, it is less than pellucid as to whether that contract is
thought to be a final contract of sale or a contract to negotiate.
The allegations can be read either way — and there is nothing wrong
with that. See Fed. R. Civ. P. 8(d)(2) (permitting alternative
pleading).
On a motion to dismiss, the averments of the complaint
must be taken in the light most favorable to the plaintiff. See
-16-
SEC v. Tambone, 597 F.3d 436, 441-42 (1st Cir. 2010) (en banc).
Since the LOI plainly is not a binding agreement to purchase, we
read the allegations of the complaint consistent with the
plaintiff's alternative theory that the LOI is a binding contract
to negotiate, which the defendant breached.
The LOI, which is the focal point of the complaint, can
plausibly be read as a contract to negotiate. It contains a
specific provision calling for the parties' "best efforts to
negotiate and attempt to agree" to a final transaction. It also
contains covenants of confidentiality and exclusivity — covenants
that fit comfortably under the carapace of a contract to negotiate.
See, e.g., Feldman v. Allegheny Int'l, Inc., 850 F.2d 1217, 1220-21
(7th Cir. 1988).
What is more, the complaint alleges facts tending to show
that both parties considered the LOI binding. The complaint
alleges that the plaintiff, in deference to the LOI's exclusivity
provision, declined inquiries from other potential buyers. Such a
course of conduct tends to indicate that the plaintiff considered
the LOI to be a binding contract. See, e.g., Teachers, 670 F.
Supp. at 502.
Similarly, the complaint alleges that the defendant
sought to "rescind" the LOI. This attempt to rescind tends to
indicate that the defendant too considered the LOI to be a binding
-17-
agreement. After all, a party would be unlikely to seek rescission
of an agreement that he did not believe to be binding.
The short of it is that the LOI, construed as a contract
to negotiate, is an agreement entered into between freely
contracting parties. It does not offend public policy. And,
finally, there is enough in the complaint to permit an inference
that the parties have objectively manifested their mutual intent to
be bound. Under Washington law, as we envision it, that is enough.
See Keystone, 94 P.3d at 949.
The plaintiff, of course, must show more than that the
complaint plausibly limns the existence of a contract to negotiate.
He must also show that it plausibly alleges a breach of that
contract. With respect to that issue, the factual allegations of
the complaint are quite amenable to the contract to negotiate
theory.
The complaint alleges that the defendant spuriously
identified deficiencies with the Whirlwind technology and used
those canards as a pretext to renegotiate the price, and that the
defendant failed to negotiate at all during critical periods.4
4
We note, moreover, that in the proposed amended complaint,
the plaintiff also alleges that the defendant wrote an e-mail to
his counsel, mistakenly transmitted to the plaintiff, seeking
advice about a seemingly disingenuous plan to stonewall the
plaintiff as the date arrived for signing a binding agreement for
sale. Similarly, the proposed amended complaint alleges that the
defendant refused to waive the exclusivity provision even after
negotiations broke down.
-18-
Accepted as true, these allegations plausibly suggest a failure to
use best efforts to bring the transaction to fruition. See Venture
Assocs., 96 F.3d at 279-80 (discussing circumstances in which last-
minute price change would be indicative of bad faith);
Teachers,
670 F. Supp. at 505 (describing "refus[al] to negotiate" as
incompatible with good faith).
To cinch matters, "the plausibility inquiry properly
takes into account whether discovery can reasonably be expected to
fill any holes in the pleader's case." García-Catalán v. United
States, ___ F.3d ___, ___ (1st Cir. 2013) [No. 12-1907, slip op. at
10]. To clear the plausibility hurdle, a complaint must contain
"enough fact[s] to raise a reasonable expectation that discovery
will reveal evidence" sufficient to flesh out a viable claim.
Twombly, 550 U.S. at 556. Here, the complaint satisfies that
criterion.
Let us be perfectly clear. We do not hold either that
the LOI is an enforceable contract to negotiate or that, if it is,
the defendant breached it. Those matters remain subject to proof.
See García-Catalán, ___ F.3d at ___ [No. 12-1907, slip op. at 7]
(discussing difference in burdens at summary judgment and trial as
opposed to lesser burden at Rule 12(b)(6) stage). We do hold,
however, that as a matter of pleading the complaint plausibly
alleges that such a contract was formed and that the defendant
breached it.
-19-
We offer yet another caveat. There is no present need
for us to determine exactly how the Washington Supreme Court would
configure the contours of the cause of action asserted. The core
theory of a cause of action for breach of contract to negotiate has
been more and more readily accepted by courts. That core theory
inevitably hinges on whether the parties intended to enter a
binding contract to negotiate and whether they objectively
manifested that intention. See Keystone, 94 P.3d at 949-50. To
this extent, the complaint sets forth a plausible claim.
We acknowledge that the contours of the "contract to
negotiate" theory, at the margins, differ from state to state. See
generally Browning Jeffries, Preliminary Negotiations or Binding
Obligations? A Framework for Determining the Intent of the
Parties, 48 Gonz. L. Rev. 1, 22-35 (2012) (describing differences
between jurisdictions). Here — as would be true of virtually any
case at the motion to dismiss stage — the record is skeletal and
many of the factual details are obscure. This undeveloped record
does not enable us to give much guidance to the district court
about the precise contours of the law that it must apply to the
facts that are yet to be developed. If, as the case progresses,
the district court concludes that it is appropriate, it remains
free to certify specific questions to the Washington Supreme Court.
See Wash. Rev. Code § 2.60.020.
-20-
Our journey is not yet at an end. In addition to
dismissing the breach of contract claim, the district court also
dismissed the plaintiff's implied covenant of good faith and
Chapter 93A claims and denied his motion for leave to amend. See
Butler, 2013 WL 752363, at *2. Although these rulings implicate
different legal theories and standards, the entire decision of the
court below rested on its erroneous determination that no
enforceable contract existed between the parties. See
id. Because
our holding that the complaint plausibly states a claim for breach
of a contract to negotiate undermines the district court's
reasoning, we believe that all the components of the decision must
be revisited.
III. CONCLUSION
We need go no further. For the reasons elucidated above,
we vacate the judgment below in its entirety and remand for further
proceedings consistent with this opinion.
Vacated and remanded. Costs shall be taxed in favor of the
plaintiff.
-21-
