Arata Equipment v. Lodal






Filed 10/6/11 Arata Equipment v. Lodal CA1/4



NOT TO BE PUBLISHED IN OFFICIAL REPORTS


California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.






IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

FIRST APPELLATE DISTRICT

DIVISION FOUR

ARATA EQUIPMENT COMPANY, Plaintiff and Appellant, v. LODAL, INC., Defendant and Respondent.

A128547 (San Mateo County Super. Ct. No. CIV483774)

Plaintiff Arata Equipment Company (Arata) entered into a distributorship agreement with defendant Lodal, Inc. (Lodal) allowing Arata to sell refuse disposal and collection trucks manufactured by Lodal. The agreement included a clause reserving to Lodal the right to make direct sales to customers (the direct sales clause). Lodal later sold trucks to a customer with which Arata had done business. Arata sued Lodal for breach of contract, intentional interference with prospective economic advantage, unfair business practices (Bus. & Prof. Code, § 17200), and breach of the implied covenant of good faith and fair dealing. Lodal moved for summary judgment, and the trial court granted the motion, finding as a matter of law that the direct sales clause authorized Lodal to make the sales in question.[1] Arata has appealed the ensuing judgment. We shall affirm.
I. BACKGROUND
Lodal and Arata entered into a “Lodal Distributor Sales and Service Agreement” (the agreement) in April 2004. The agreement gave Arata “the non-exclusive right to sell and service [certain] new Lodal units and parts . . . .” Among the agreement’s provisions was the following: “LODAL DIRECT SALES [¶] [] LODAL reserves the right to make direct sales to customers in the AREA governed by this AGREEMENT. [Arata] agrees that any direct sales made by LODAL do not constitute the establishment of a dealership by LODAL in the relevant market area. [Arata] agrees that it is not entitled to any compensation for any direct sales made by LODAL in the AREA.”
Arata distributed Lodal products for over 25 years, in a territory that included the San Francisco Bay Area, selling more than 250 refuse disposal and collection vehicles. Lodal’s attorney drafted the 2004 agreement using an old Lodal distributor agreement as a guide. Traditionally, Lodal did not sell directly to customers if there was a distributor in the customer’s area.
A customer known as Recology (formerly Norcal) purchased Lodal trucks through Arata. There was evidence that through the efforts of Arata, and as a result of personal relationships between Arata and Recology personnel, Recology was Lodal’s single biggest customer. Before September 2008, Recology had no complaints about Arata’s performance.
Arata was involved in designing a truck known as a “fifty/fifty split unit” (split) for Recology. As part of that process, Arata’s president, Don Arata, travelled to Michigan with Bennie Anselmo of Recology on several occasions. Through 2007, Recology bought approximately 100 splits, none of them directly from Lodal. On one occasion in 1999, Lodal and Recology employees joked about Recology buying the splits directly from Lodal. Around 2004, Recology learned that approximately 60 to 88 of the splits would have to be replaced.
In September 2008, the president of Recology sent a letter to the president of Lodal, telling him that Don Arata was an investor in a company, BEST, that had competed with Recology for collection contracts, that BEST principals had denigrated Recology at public meetings, and that Recology would no longer purchase Lodal’s products from Arata unless Arata was the only source for a piece of equipment Recology needed.
Lodal submitted evidence that both the owner and the general manager of Lodal were surprised by this news about Arata and were concerned about retaining its relationship with Recology, which was “probably” Lodal’s largest individual customer. An interim arrangement for direct sales of parts from Lodal to Recology was put in place and Recology was provided with a copy of the distributorship agreement to demonstrate Lodal’s right to sell directly to Recology. Lodal’s general manager then met with Don Arata, who communicated that he was surprised by Recology’s reaction to the BEST incident and that he intended to repair the relationship with Recology. Lodal did not want to replace Arata, with which it had had a successful relationship for 26 years, and believed that Arata would be able to “patch this relationship up and keep it going.”[2] Don Arata asked Lodal to stand by him, regardless of what had happened, and said if it did Lodal and Arata would “continue to do business” with Recology because “they need the product.” Don Arata admitted, however, that Recology did not accept Arata’s attempt to mend the relationship and it continued to refuse to do business with Arata. After Don Arata informed Lodal that his relationship with Recology could not be repaired, Lodal’s owner and general manager met with Recology’s CEO and agreed upon terms for direct sales from Lodal to Recology.
Lodal then began selling trucks directly to Recology, and Arata received no commission or other compensation from the sales. A December 2008 e-mail message from Lodal’s Scott Van Wolvelaere to Recology’s Bennie Anselmo, discussing the future dealings of Lodal and Recology stated, “Lodal and Norcal are going to take on some degree of pain and suffering by deciding to deal direct and eliminate Arata’s participation,” and “Lodal’s justification for the change will be that Norcal pulled the pin on the relationship because the distributor (Arata) is now a competitor. Norcal’s objection to this situation is our justification to sell direct.”

II. DISCUSSION
A. Standard of Review
Our task when reviewing a grant of summary judgment is well settled. “ ‘We review a summary judgment motion de novo to determine whether there is a triable issue as to any material fact and whether the moving party is entitled to judgment as a matter of law. [Citations.] We are not bound by the trial court’s stated reasons or rationales. [Citation.] “In practical effect, we assume the role of a trial court and apply the same rules and standards which govern a trial court’s determination of a motion for summary judgment.” [Citation.] Thus, we independently determine the construction and effect of the facts presented to the trial judge as a matter of law. [Citation.] . . . [¶] When reviewing a trial court’s decision granting summary judgment to a defendant, we, ‘[l]ike the trial court, . . . view the evidence in the light most favorable to the opposing party [i.e., the plaintiff] and accept all inferences reasonably drawn therefrom. [Citation.]’ [Citation.] We use the same three-step analysis as the trial court: (1) identifying the issues framed by the pleadings; (2) determining whether the defendant negated the plaintiff’s claims; and (3) deciding whether the plaintiff demonstrated the existence of a triable, material factual issue. [Citation.]” (Suarez v. Pacific Northstar Mechanical, Inc. (2009) 180 Cal.App.4th 430, 436-437 (Suarez).)
B. The Direct Sales Clause
This case turns on the meaning of the direct sales clause. Arata contends the trial court should have considered extrinsic evidence to determine the intent of the parties in connection with that clause. According to Arata, the circumstances under which the parties entered into the agreement are relevant to show its meaning. Those circumstances include the fact that the agreement memorialized a long-term working relationship; that the parties knew that Recology would have to replace a large number of trucks; that the relationship between Recology and Lodal was built through Arata’s efforts; and that Lodal had no other California customers and had never sold direct in the state. Arata argues that, based on these circumstances, it would not be reasonable to conclude that the direct sales clause was intended to allow Lodal to eliminate Arata’s role on the eve of the fleet replacement. Moreover, Arata contends, the subsequent conduct of the parties—including Arata’s investment of time and money to help design the splits, Lodal’s quick action in starting to sell directly to Recology after receiving the letter saying Recology would no longer do business with Arata, and Lodal’s discussion of its “justification” for selling directly to Recology—supports its position that the parties did not intend the direct sales clause to allow Lodal to sell directly to Arata’s customers.
Arata relies primarily on California law to support its argument. However, as Lodal points out, the agreement contains a choice of law clause stating that it “shall be governed by and construed in accordance with the laws of the State of Michigan.” In determining whether to enforce a choice of law clause, the court must first “determine either: (1) whether the chosen state has a substantial relationship to the parties or their transaction, or (2) whether there is any other reasonable basis for the parties’ choice of law. . . . If [] either test is met, the court must next determine whether the chosen state’s law is contrary to a fundamental policy of California. If there is no such conflict, the court shall enforce the parties’ choice of law.” (Nedlloyd Lines B.V. v. Superior Court (1992) 3 Cal.4th 459, 466, fns. omitted (Nedlloyd).) Moreover, “a valid choice-of-law clause, which provides that a specified body of law ‘governs’ the ‘agreement’ between the parties, encompasses all causes of action arising from or related to that agreement, regardless of how they are characterized, including tortious breaches of duties emanating from the agreement or the legal relationships it creates.” (Id. at p. 470.)
The Nedlloyd test appears to be met here, and indeed, Arata does not contend otherwise. Lodal is a Michigan corporation, and its office is located in Kingsford, Michigan. Arata’s president travelled to Michigan several times while the splits were being developed. Arata suggests no aspect of Michigan laws on the issue of the admission of extrinsic evidence to aid in interpreting a contract that is contrary to a fundamental policy of California. Accordingly, it is proper to apply Michigan law. In any case, the law of California also leads to the same result.
Under Michigan law, the obligation of a court in interpreting a contract “is to determine the intent of the contracting parties. [Citation.] If the language of the contract is unambiguous, we construe and enforce the contract as written. [Citation.] Thus, an unambiguous contractual provision is reflective of the parties’ intent as a matter of law.” (Quality Products v. Nagel Precision, Inc. (2003) 469 Mich. 362, 375 [666 N.W.2d 251].) As the Michigan Supreme Court stated in Farm Bureau Mut. Ins. Co. v. Nikkel (1999) 460 Mich. 558, 566-567 [596 N.W.2d 915], “[a] contract is said to be ambiguous when its words may reasonably be understood in different ways. . . . [¶] . . . [I]f a contract, however inartfully worded or clumsily arranged, fairly admits of but one interpretation it may not be said to be ambiguous or, indeed, fatally unclear.” The court must examine the language of the contract and accord words their ordinary and plain meanings if such meanings are apparent. (Wilkie v. Auto-Owners Ins. Co. (2003) 469 Mich. 41, 47 [664 N.W.2d 776]; see also Rory v. Continental Ins. Co. (2005) 473 Mich. 457, 491 [703 N.W.2d 23] [“unambiguous contracts . . . are to be enforced as written unless a contractual provision violates law or public policy.”].) Under Michigan law, “[p]arol evidence of contract negotiations, or of prior or contemporaneous agreements that contradict or vary the written contract, is not admissible to vary the terms of a contract which is clear and unambiguous. [Citation.]” (Schmude Oil Co. v. Omar Operating Co. (1990) 184 Mich.App. 574, 580 [458 N.W.2d 659].)
The California Supreme Court has explained that in this state, “[t]he test of admissibility of extrinsic evidence to explain the meaning of a written instrument is not whether it appears to the court to be plain and unambiguous on its face, but whether the offered evidence is relevant to prove a meaning to which the language of the instrument is reasonably susceptible.” (Pacific Gas & E. Co. v. G. W. Thomas Drayage etc. Co. (1968) 69 Cal.2d 33, 37; see also Dore v. Arnold Worldwide, Inc. (2006) 39 Cal.4th 384, 391.) Thus, “while extrinsic evidence may not be introduced to contradict the written terms of a contract, such evidence may be introduced to explain the meaning of a written contract so long as the meaning urged is one to which the written contract terms are reasonably susceptible.” (Ri-Joyce, Inc. v. New Motor Vehicle Bd. (1992) 2 Cal.App.4th 445, 452, fn. 1 (Ri-Joyce).) As explained in Appleton v. Waessil (1994) 27 Cal.App.4th 551, 554 (Appleton), “The decision whether to admit parol evidence involves a two-step process. The first is to review the proffered material regarding the parties’ intent to see if the language is ‘reasonably susceptible’ of the interpretation urged by a party. [Citation.] If that question is decided in the affirmative, the extrinsic evidence is then admitted to aid in the second step, which involves actually interpreting the contract. [Citation.]” Moreover, where parties to a contract have been inconsistent in their interpretation of the contract, the appellate court may make its own determination of the contract’s meaning. (Lix v. Edwards (1978) 82 Cal.App.3d 573, 579; see also Meadows v. Lee (1985) 175 Cal.App.3d 475, 483 [“The interpretation of a contract is often shown by the acts and conduct of the parties subsequent to the execution of the contract and prior to its controversy. [Citations.]”].) The threshold determination of ambiguity is a question of law which is reviewed independently on appeal. (Appleton, supra, 27 Cal.App.4th at pp. 554-555.)
We find no ambiguity in the agreement. Arata’s right to sell and service Lodal goods was non-exclusive. The direct sales clause reserved to Lodal “the right to make direct sales to customers” in the area governed by the agreement, and provided that Arata was not entitled to compensation for any direct sales. This language makes clear that Lodal was reserving the right to make any direct sales in the area without compensating Arata.
Arata claims, however, that the word “customers” is susceptible to more than one interpretation. Arata argues the word is ambiguous because it could be understood to mean either “someone that LODAL sells direct to without any involvement by ARATA in its ‘non exclusive’ territory,” or “anyone in the ‘AREA.’ ” Arata asks us to construe that asserted ambiguity against Lodal as the drafter of the agreement (see Yamanishi v. Bleily & Collishaw, Inc. (1972) 29 Cal.App.3d 457, 463) and conclude the parties intended the word customer to have the more limited meaning of someone Lodal sells directly to without Arata’s involvement.
According to Arata, a review of the agreement as a whole suggests that the term “customer” was not intended to refer to “anyone in the ARATA area.” Arata points out that other portions of the agreement refer to customers by different terms. For instance, the agreement requires Arata to supply parts to “owners of all Lodal products in the area,” to educate, train, and assist “purchasers of all Lodal products in the area” in their operation, maintenance, service, and warranties, and to provide warranty service for all Lodal products Arata sells to “ultimate users.” Each of those terms, Arata points out, would include Recology. From the fact that the agreement uses the undefined term “customers” in the direct sales agreement rather than one of those other terms that would clearly include Recology, Arata argues that the term “customers” can reasonably be interpreted in a more restrictive sense, to mean “ ‘end users’ of LODAL products that ARATA had not cultivated.”
We reject this contention. The fact that owners or purchasers of Lodal products are referred to by other terms in the agreement does not create any ambiguity as to the meaning of the term “customers” in the direct sales clause. Each of the phrases Arata relies on is appropriate within the context of the obligation it imposes on Arata—that is, to provide parts to everyone in the area who owns a Lodal product, to educate and train those who have bought products who might need assistance in how to operate or maintain them, and to provide warranty service only to Arata’s own customers. The use of these different phrases suggests that the parties could draw distinctions between different customers of Lodal products when they so chose, and that they did not choose to do so in the direct sales clause.
In addition, the meaning Arata tries to attach to the word “customers” contradicts the written terms of the contract. This case is thus different from Ri-Joyce, which considered a franchise agreement that gave the franchisor a qualified right to establish new Mazda dealerships “near” the dealer’s location. (Ri-Joyce, supra, 2 Cal.App.4th at pp. 456-457.) The court concluded that the term “near,” which was not defined in the agreement, was reasonably susceptible either to Mazda’s interpretation (within a statutorily defined “relevant market area”, or to the dealer’s interpretation (that included neighboring communities traditionally served by the dealership that produced a significant portion of its business). (Id. at pp. 450, 457.) The word “customer,” on the other hand, has a clear meaning and does not carry with it the same inherent uncertainty as the word “near.”
Even if we looked to extrinsic evidence, we would reject Arata’s contention that the history of the dealings between the parties—including the facts that Lodal had not made other direct sales in California, that Arata built the relationship with Recology, that Arata helped with designing the splits, and that the parties knew Recology would have to replace a large number of trucks—show that the term “customer” is reasonably susceptible to the more limited meaning. The history of the parties shows instead that Lodal sold directly to Recology only after Recology made clear that it was no longer willing to do business with Arata. The fact that Lodal did not exercise its contractual right to make direct sales to customers in California until the relationship between Arata and Recology irrevocably broke down does not change the fact that in the agreement Lodal reserved the right to make such sales without limitation.
An unpublished federal appellate case, Onachuk v. Sun Refining and Marketing Company (6th Cir. Dec. 13, 1988, Nos. 87-2206) 1988 U.S. App. LEXIS 17030, *14-16 (Onachuk), applying Michigan law, faced a similar question and concluded that a distributorship agreement that retained to the franchisor “the right to sell to any customer within the area served by the Distributor” was unambiguous.[3] In Michigan, the court noted, the word “any” had been interpreted broadly, and the dictionary definition of “customer” was “ ‘one that purchases.’ ” Thus, the plain meaning of the provision was that the franchisor had reserved the right to sell to anyone. Arata attempts to distinguish Onachuk on the ground that the direct sales clause at issue here, unlike the contract in Onachuk, reserved the right to sell “to customers,” rather than to any customer. The direct sales clause, however, goes on to provide that Arata “is not entitled to any compensation for any direct sales made by LODAL in the AREA.” (Italics added.) Although the agreement at issue here does not also include the word “any” before “customer,” we conclude it is unambiguous.
Accordingly, we conclude the trial court properly granted summary judgment to Lodal.
III. DISPOSITION
The judgment is affirmed.
________________________
RIVERA, J.


We concur:



___________________________
RUVOLO, P.J.


___________________________
REARDON, J.


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