Filed: Nov. 28, 2016
Latest Update: Mar. 03, 2020
Summary: NOT RECOMMENDED FOR FULL-TEXT PUBLICATION File Name: 16a0625n.06 No. 16-3419 FILED Nov 28, 2016 UNITED STATES COURT OF APPEALS DEBORAH S. HUNT, Clerk FOR THE SIXTH CIRCUIT FARMERS’ ETHANOL LLC, ) ) Plaintiff-Appellant, ) ) v. ) ON APPEAL FROM THE UNITED ) STATES DISTRICT COURT FOR THE BOUNTY MINERALS, LLC, ) SOUTHERN DISTRICT OF OHIO ) Defendant-Appellee. ) ) ) BEFORE: DAUGHTREY, CLAY, and COOK, Circuit Judges. MARTHA CRAIG DAUGHTREY, Circuit Judge. In this diversity action for breach of contrac
Summary: NOT RECOMMENDED FOR FULL-TEXT PUBLICATION File Name: 16a0625n.06 No. 16-3419 FILED Nov 28, 2016 UNITED STATES COURT OF APPEALS DEBORAH S. HUNT, Clerk FOR THE SIXTH CIRCUIT FARMERS’ ETHANOL LLC, ) ) Plaintiff-Appellant, ) ) v. ) ON APPEAL FROM THE UNITED ) STATES DISTRICT COURT FOR THE BOUNTY MINERALS, LLC, ) SOUTHERN DISTRICT OF OHIO ) Defendant-Appellee. ) ) ) BEFORE: DAUGHTREY, CLAY, and COOK, Circuit Judges. MARTHA CRAIG DAUGHTREY, Circuit Judge. In this diversity action for breach of contract..
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NOT RECOMMENDED FOR FULL-TEXT PUBLICATION
File Name: 16a0625n.06
No. 16-3419
FILED
Nov 28, 2016
UNITED STATES COURT OF APPEALS DEBORAH S. HUNT, Clerk
FOR THE SIXTH CIRCUIT
FARMERS’ ETHANOL LLC, )
)
Plaintiff-Appellant, )
)
v. )
ON APPEAL FROM THE UNITED
)
STATES DISTRICT COURT FOR THE
BOUNTY MINERALS, LLC, )
SOUTHERN DISTRICT OF OHIO
)
Defendant-Appellee. )
)
)
BEFORE: DAUGHTREY, CLAY, and COOK, Circuit Judges.
MARTHA CRAIG DAUGHTREY, Circuit Judge. In this diversity action for breach of
contract, plaintiff Farmers’ Ethanol LLC, appeals the district court’s grant of judgment on the
pleadings to defendant Bounty Minerals, LLC. Farmers’ Ethanol argues that letters of intent
executed by the parties comprise an enforceable agreement for Bounty Minerals’s purchase of
certain oil and gas rights from Farmers’ Ethanol. In the alternative, Farmers’ Ethanol argues that
it is entitled to recover damages under a theory of promissory estoppel predicated on Bounty
Minerals’s silence in the face of an alleged duty to speak. For the reasons discussed below, we
affirm the judgment of the district court.
FACTUAL AND PROCEDURAL BACKGROUND
The complaint in this case alleged the following: After a period of negotiation, Farmers’
Ethanol and Bounty Minerals agreed to and signed letters of intent that discussed “proposed
No. 16-3419
Farmers’ Ethanol v. Bounty Minerals
transactions” in which Bounty Minerals would purchase oil and gas interests from Farmers’
Ethanol. Among other provisions, one of the letters of intent stated:
After the execution of this letter of intent, Bounty shall have seven days to
conduct a preliminary review of title and evaluate the Properties. During the
initial review period, Farmers’ shall provide Bounty copies of deeds and other
title information and documentation regarding title to the Properties to Bounty. If
after the initial review period, Bounty wants to proceed with the acquisition of the
oil and gas interest, Bounty shall prepare an oil and gas deed and order for
payment in the forms attached . . . and present them to Farmers’ for review and
approval.
The letters of intent also stated that “Bounty acknowledges that Farmers’ may choose to satisfy
one or more liens or claims from proceeds of this transaction.”
After the initial review period elapsed, Bounty Minerals did not prepare the deeds and
orders for payment. Approximately one month after the signing of the letters of intent, Bounty
Minerals told Farmers’ Ethanol that a price reduction from what was reflected in the letters of
intent would induce it to purchase the oil and gas interests. Farmers’ Ethanol declined to reduce
the price; subsequently, Bounty Minerals informed Farmers’ Ethanol that an outstanding
$600,000 civil judgment and judgment lien against the real property prevented it from going
forward with the proposed transaction. In the following months, Bounty Minerals continued to
maintain that the civil judgment and lien were an impediment to closing.
Ultimately, Farmers’ Ethanol informed Bounty Minerals that it would satisfy the
judgment (along with a $400,000 premium that the judgment creditor required in order to enter
an escrow agreement requested by Bounty Minerals). Without hearing back from Bounty
Minerals, Farmers’ Ethanol then did so and subsequently sent electronic copies of documents
satisfying the judgment and releasing the lien, which Bounty Minerals agreed to forward to its
legal counsel for review.
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A month or so later, Farmers’ Ethanol contacted Bounty Minerals about the closing it
anticipated would occur several weeks thereafter. Counsel for Bounty Minerals subsequently
told Farmers’ Ethanol that it did not believe that it was obligated to purchase the mineral
interests and that no closing was planned.
Farmers’ Ethanol initiated suit against Bounty Minerals in Ohio state court, alleging
breach of contract and promissory estoppel (among other claims). With regard to the cause of
action for breach of contract, Farmers’ Ethanol alleged that the letters of intent constituted a
binding contract for the sale of the oil and gas interests to Bounty Minerals. Farmers’ Ethanol
also alleged that Bounty Minerals’s failure to give notice that it would not close the deal even if
the judgment lien was satisfied estopped Bounty Minerals from “claiming that it ha[d] no
obligation to perform its contracts.” Bounty Minerals removed the case to federal district court
and moved for judgment on the pleadings on all claims.
The district court granted Bounty Minerals’s motion, finding that Farmers’ Ethanol failed
to state a claim for breach of contract because there was no binding agreement and that Farmers’
Ethanol failed to state a claim for promissory estoppel by silence because it did not articulate any
duty under which Bounty Minerals would be required to speak. Farmers’ Ethanol now appeals.
DISCUSSION
Standard of Review
We review an entry of judgment on the pleadings under Federal Rule of Civil Procedure
12(c) using the same de novo standard of review that applies to a motion to dismiss for failure to
state a claim. Tucker v. Middleburg-Legacy Place, 539 F.3d 545, 549 (6th Cir. 2008). All well-
pleaded material allegations of the party opposing the motion must be taken as true; the motion
may be granted only if the moving party nevertheless is entitled to judgment as a matter of law.
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Id.; see also Florida Power Corp. v. FirstEnergy Corp., 810 F.3d 996, 1000 (6th Cir. 2015). In
order to survive a motion for judgment on the pleadings, a plaintiff’s complaint must meet the
plausibility standard announced by the Supreme Court in Bell Atlantic Corp. v. Twombly,
550 U.S. 544 (2007). See
Tucker, 539 F.3d at 550 (citing Sensations, Inc. v. City of Grand
Rapids,
526 F.3d 291, 295 (6th Cir. 2008)). Because this case is in federal court under diversity
jurisdiction, Ohio substantive law applies.
The “Initial Review Period” Clause
Farmers’ Ethanol argues that the letters of intent constitute a binding contract and that the
“initial review period” clause was in fact a satisfaction clause requiring Bounty Minerals to fill
out the deeds and purchase the oil and gas interests unless it was dissatisfied with the title or the
properties. Farmers’ Ethanol argues that Bounty Minerals breached this purported satisfaction
clause because it refused to close the transaction in bad faith. We disagree.
As we have noted in a previous opinion dealing with relevant state law:
Under Ohio law, when confronted with an issue of contract interpretation, a
court’s role is to give effect to the intent of the parties. To that end, courts should
examine the contract as a whole and presume that the intent of the parties is
reflected in the language of the contract. . . . When the language of a written
contract is clear, a court may look no further than the writing itself to find the
intent of the parties. Courts may examine extrinsic evidence to ascertain the
parties’ intent only if the contract is ambiguous.
Eastham v. Chesapeake Appalachia, L.L.C., 754 F.3d 356, 361 (6th Cir. 2014) (internal
quotation marks, alterations, and citations omitted) (emphasis added). A contract is ambiguous if
it cannot be given a definite legal meaning or if the relevant provision “is susceptible of more
than one reasonable interpretation.”
Id.
In this case, the plain language of the “initial review period” clause is unambiguous, and
it unambiguously is not a satisfaction clause. Such clauses generally condition a party’s
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performance of its duty on its satisfaction with how the other party has performed. By contrast,
the “initial review period” term in the letters of intent simply stated that Bounty Minerals was
free to purchase the rights at issue “[i]f . . . [it] wants to,” granting it unfettered discretion about
whether to proceed with the sale.
In its brief on appeal, Farmers’ Ethanol’s discussion of why it believes the “initial review
period” clause is a satisfaction clause rests on faulty reasoning:
[T]he ‘initial review period’ term did [make one party’s performance dependent
upon the other party’s performance]. Farmers obligation under the [letters of
intent] to convey the Oil and Gas Rights to Bounty was dependent upon Bounty
providing the completed deeds and orders for payment after the ‘initial review
period.’ If Bounty was satisfied with the properties and manifested that
satisfaction by presenting Farmers with completed deeds and orders for payment,
then Farmers was obligated to execute the deeds to convey the Oil and Gas Rights
to Bounty. Thus, Farmers performance was contingent upon Bounty’s
performance.
Farmers’ Ethanol’s explanation of why it believes a satisfaction clause exists makes clear
that the obligation actually runs in the opposite direction in terms of what would be necessary to
bind Bounty Minerals to perform. Leaving aside the fact that what Farmers’ Ethanol has argued
more closely resembles the fulfillment of a condition precedent (and not an obligation under a
satisfaction clause), there is a clear non-sequitur in its reasoning. It is true that if Bounty
Minerals were satisfied with the title work, it could choose to execute the deeds, but it was
Farmers’ Ethanol (not Bounty Minerals) that the language purports to bind. The fact that the
“initial review period” clause appears after language requiring Farmers’ Ethanol to provide
“deeds and other title information and documentation regarding title to the Properties” does not
limit the scope of Bounty Minerals’s discretion or transform the provision into a satisfaction
clause dependent upon the quality of Farmers’ Ethanol’s title.
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A review of the language of the letters of intent makes clear that what they embody is
merely an offer of sale. Had Bounty Minerals offered some consideration to Farmers’ Ethanol
for its promise to sell its rights at the rates specified in the letters of intent, the letters of intent
could have formed an enforceable option contract. On their face, the letters of intent clearly
reflect a promise by Farmers’ Ethanol to sell the oil and gas interests to Bounty Minerals “[i]f
after the initial review period, Bounty wants” to buy them. The non-circumvention clause in the
letters of intent (requiring Farmers’ Ethanol not to engage with other prospective buyers) further
bolsters this interpretation. But there is no promise by Bounty Minerals to complete the
purchase. Therefore, any agreement reached is, at most, a unilateral contract binding Farmers’
Ethanol only.1
What is left, then, are letters of intent that embody an offer to sell, which Bounty
Minerals could choose to accept or reject as it wished. In the letters, Bounty Minerals promised
nothing except to prepare the deeds if it wished to consummate the transaction proposed; it
thereby retained the ability to decide whether to purchase the oil and gas rights, and Farmers’
Ethanol may not now force the sale or recover damages. See Langley v. DaimlerChrysler Corp.,
407 F. Supp. 2d 897, 917 (N.D. Ohio 2005), aff’d,
502 F.3d 475 (6th Cir. 2007) (observing that a
contract is illusory when the promisor retains an unlimited right to determine the nature or extent
of its performance; such an agreement may not be enforced or damages sought for its breach).
1
“A contract is an ‘option’ if the optionholder has the right, but not the obligation, to compel performance by the
other contract party ‘if he chooses.’” Blanchard Valley Farmers Coop., Inc. v. Carl Niese & Sons Farms, Inc.,
758 N.E.2d 1238, 1243 (Ohio Ct. App. 2001). Hence, an option contract “bind[s] one side without binding the
other.” Four Howards, Ltd. v. J & F Wenz Rd. Invest., L.L.C.,
902 N.E.2d 63, 71 (Ohio Ct. App. 2008). If (as it
appears from the record) Bounty Minerals did not give consideration for the option to purchase the oil and gas
rights, Farmers’ Ethanol would have been free to rescind the offer. Thus, the letters of intent may not form any
enforceable agreement. See Plikerd v. Mongeluzzo,
596 N.E.2d 601, 606 (Ohio Ct. App. 1992).
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Although it is true that courts should avoid an interpretation of a contract that would
render its promises illusory, Tackett v. M & G Polymers USA, LLC, 811 F.3d 204, 208 (6th Cir.
2016), the language of the letters of intent in this case is clear and unambiguous: Bounty
Minerals was required to purchase the rights only if it chose to do so. The letters of intent do not
delimit the criteria on which a decision to purchase could be premised. And, further, because the
writings in this case are styled as letters of intent rather than as a contract, it is obviously less
troubling to conclude that no enforceable contract was created.
Intent to be Bound
Farmers’ Ethanol contends that, even if the “initial review period” clause is not a
satisfaction clause, the district court erred in granting judgment on the pleadings because whether
the parties intended to be bound by the letters of intent is a question of fact for a jury. Farmers’
Ethanol’s primary authority for this proposition is our decision in Arnold Palmer Golf Co. v.
Fuqua Industries, Inc., 541 F.2d 584 (6th Cir. 1976).
In Arnold Palmer Golf, which arose in the context of summary judgment, the parties
executed a “memorandum of intent” that “serve[d] to confirm the general understanding” that the
parties “ha[d] reached” regarding the acquisition of Arnold Palmer Golf stock by Fuqua
Industries, in exchange for the acquisition of a Fuqua Industries subsidiary’s stock by Arnold
Palmer Golf and for management services by Fuqua Industries. Id. at 586. The memorandum
“contained detailed statements concerning . . . the form of the combination, the manner in which
the business would be conducted, the loans that Fuqua agreed to make to Palmer, and the
warranties and covenants to be contained in the definitive agreement,” among other things.
Id.
The memorandum also included two provisions upon which the obligations of the parties would
be conditioned: first, that the preparation of the definitive agreement would be satisfactory to
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both parties and their counsel and, second, that the definitive agreement would be approved by
the Fuqua Industries board of directors. Id. at 586–587. On appeal, we were asked to determine
whether the parties intended to enter a binding agreement for the transaction itself when they
executed the memorandum.
As we stated, “both parties must have a clear understanding of the terms of an agreement
and an intention to be bound by its terms before an enforceable contract is created.” Id. at 587.
The question whether an enforceable contract is created “is merely one of expressed intention.
If their expressions convince the court that they intended to be bound without a formal
document, their contract is consummated, and the expected formal document will be nothing
more than a memorial of that contract.”
Id. at 587–88 (quoting 1 Corbin on Contracts,
§30 (1963). We noted, “At bottom, the question whether the parties intended a contract is a
factual one, not a legal one, and, except in the clearest cases, the question is for the finder of fact
to resolve.”
Id. at 588.
The holding in Arnold Palmer Golf does not affect the outcome of this case. First, the
question for the finder of fact is the intent to be bound, not the interpretation of an agreement’s
language. As discussed above, the letters of intent in this case are unambiguous; even if there
were an intent by the parties to be bound to the terms of the letters of intent, Bounty Minerals
would be bound only to provide a deed to Farmers’ Ethanol if it wanted to purchase the property.
Because “[i]t is well established that the construction and interpretation of contracts is a matter
of law to be determined by the court,” Four Howards, Ltd. v. J&F Wenz Rd. Invest., L.L.C.,
902 N.E.2d 63, 72 (Ohio Ct. App. 2008) this case need not be remanded for consideration by a
finder of fact. Second, given the illusory nature of the letters of intent, this case is one of those
“clear[] cases” contemplated by Arnold Palmer Golf as being capable of resolution by the court.
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Farmers’ Ethanol also points to the ruling in Arnold Palmer Golf that, in order to
determine whether the parties manifested an intention to be bound by the terms contained in a
writing, “the entire document and relevant circumstances surrounding its adoption must be
considered.” Id. at 589. Farmers’ Ethanol argues that this language requires the court to
consider Bounty Minerals’s behavior in suggesting an alternative price and then retreating from
that suggestion as evidence that it believed it was bound by the letters of intent.
But that argument is equally unavailing. In Arnold Palmer Golf, the dispositive language
in the memorandum—that “Fuqua will transfer” stock, that the “principal office of Palmer will
be moved,” and that “Fuqua agrees to advance” a payment, as well as the circulation of a press
release by Fuqua Industries stating that the two companies “have agreed to cooperate in an
enterprise” in the golfing industry—evinced an intent to be bound by its terms. Id.
The evidence in this case, on the other hand, shows that there was a “proposed”
transaction, and the only potentially unqualified language in the letters of intent is that Bounty
Minerals will execute a deed if it desires to do so. Moreover, with regard to Bounty Minerals’s
attempt to alter the price for the rights, Farmers’ Ethanol’s pleadings make it no less likely that
Bounty Minerals, after choosing not to proceed with the proposed transaction contemplated in
the letters of intent, sought to establish negotiations for a different, new sale of rights for a
different price—well after the seven-day review period had elapsed.
Promissory Estoppel
Under Ohio law, a claim for promissory estoppel exists when a plaintiff has shown a
clear and unambiguous promise; reliance upon that promise that is reasonable and foreseeable;
and injury as a result of the reliance. McCarthy v. Ameritech Pub., Inc., 763 F.3d 469, 486–87
(6th Cir. 2014). “The word ‘promise’ connotes some sort of commitment on the part of the
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promisor.” Id. at 487. A promise is “a manifestation of intention to act or refrain from acting in
a specified way, so made as to justify a promisee in understanding that a commitment has been
made.”
Id. (quoting Dailey v. Craigmyle & Son Farms, LLC,
894 N.E.2d 1301, 1307 (Ohio Ct.
App. 2008)).
Farmers’ Ethanol bases its claim on a theory that Bounty Minerals was silent in the face
of a duty to speak. Specifically, Farmers’ Ethanol claims that Bounty Minerals was obligated to
notify Farmers’ Ethanol that it would not close the proposed sale even if the judgment lien on the
property was cleared. According to Farmers’ Ethanol, that obligation arose from a duty to
“negotiate in good faith.”
Both parties focus their arguments concerning this cause of action on whether Bounty
Minerals had a duty to speak. But there is fundamental problem with this theory of estoppel:
Bounty Minerals’s conduct must rise to the level of a promise to purchase the oil and gas rights if
the judgment lien were satisfied. If its conduct does not amount to a promise, no promissory
estoppel is available.2
Farmers’ Ethanol’s complaint alleges that “Bounty expressed concern that a $600,000
civil judgment and a corresponding judgment lien against Farmers’s real property were obstacles
to closing the transaction”; that “Bounty continued to repeatedly insist over the next two months
that the Lien precluded it from closing the transaction”; that “Bounty continued to complain that
the Lien was an obstacle to closing the transaction, and continued to cite the existence of the
Lien to justify its refusal to complete its title work”; that Bounty Minerals said it “was prepared
to ‘walk away’ from the deal if Farmers’ Ethanol did not acquiesce to its demand that it be
2
Farmers’ Ethanol’s claim seems closer to equitable estoppel than to promissory estoppel. However, equitable
estoppel is only a defense, and not a cause of action, under Ohio law. See Ford Motor Credit Co. v. Ryan,
939 N.E.2d 891, 921 (Ohio Ct. App. 2010) (holding that a claim was for equitable estoppel rather than promissory
estoppel because it involved a “misrepresentation, not a promise” and noting that “equitable estoppel is a defense to
a legal or equitable claim, while promissory estoppel is a cause of action”).
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permitted to contact the judgment creditor”; that “Bounty . . . informed Farmers it would not
commission the title work until the issue of the Lien was resolved” and “indicated” to Farmers’
Ethanol that it should pay the lien; that Farmers’ Ethanol informed Bounty Minerals it would
satisfy the judgment in full—with no response from Bounty Minerals; and that Farmers’ Ethanol
notified Bounty Minerals once it had satisfied the judgment and stated that Farmers’ Ethanol
“look[ed] forward to the successful completion of your title work within sixty days.”
But nowhere does Farmers’ Ethanol allege that Bounty Minerals had promised to close
the deal if the lien were satisfied. From the complaint it is evident that Bounty Minerals did not
represent that the judgment and lien were the exclusive obstacles to closing the sale or promise to
purchase the rights if the lien were satisfied. As a result, Bounty Minerals’s silence when
confronted with Farmers’ Ethanol’s statement that it would clear the judgment lien in this
context does not create a promise to do so. Indeed, the complaint makes clear that title work had
never been undertaken or completed.
Even taking all well-pleaded facts in Farmers’ Ethanol’s complaint as true, it is not
plausible to conclude that Bounty had promised to complete the transaction if Farmers’ Ethanol
satisfied the lien, much less that such a promise was clear and unambiguous.3 Regardless of
whether Bounty Minerals had a duty to speak, the promissory-estoppel claim fails.
CONCLUSION
For the reasons set out above, we find no reversible error and AFFIRM the judgment of
the district court.
3
A recent ruling by the Ohio Court of Appeals suggests that the promise may be one that the promisor “should
reasonably expect to induce action or forbearance” and need not be “clear and unambiguous.” A N Bros. Corp. v.
Total Quality Logistics, LLC, 59 N.E.3d 758, 775 (Ohio App. 2016) (holding that the trial court’s failure to require a
jury to find alleged promises clear and unambiguous was not clear error because, despite court’s consistent
requirement of a clear and unambiguous promise, the Restatement as adopted by the Ohio Supreme Court did not
include that language). Even under this standard, Farmers’ Ethanol’s claim fails.
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