Copeland v. Baskin Robbins U.S.A.
117 Cal.Rptr.2d 875 · 2002
Facts
Baskin Robbins U.S.A. (Baskin Robbins) intended to close its ice cream manufacturing plant in Vernon. Kevin A. Copeland (Copeland) expressed interest in acquiring the plant, contingent on Baskin Robbins agreeing to purchase ice cream he manufactured there, known as "co-packing." After several months of negotiations, an agreement took shape for Copeland to purchase assets and sublease the plant, with Baskin Robbins purchasing seven million gallons of ice cream over three years. In May 1999, Baskin Robbins sent a letter detailing these terms, subject to a separate co-packing agreement and negotiated pricing. Copeland signed, accepted the terms, and sent a $3,000 deposit. The parties continued negotiating specific co-packing terms, including price, flavors, and quality standards, but did not finalize them. In July 1999, Baskin Robbins broke off negotiations, stating the co-packing arrangement was "out of alignment with our strategy," and returned Copeland's deposit.
Procedural history
Copeland sued Baskin Robbins for breach of contract, alleging Baskin Robbins breached a contract to negotiate a co-packing agreement and seeking expectation damages. The trial court granted Baskin Robbins's motion for summary judgment, concluding the May 1999 letter failed as a contract because essential terms were not agreed upon. Copeland appealed, and this court affirmed the judgment on different grounds.
Issue
May a party sue for breach of a contract to negotiate an agreement, or is such a "contract" merely an unenforceable "agreement to agree"? If so, what is the appropriate measure of damages for such a breach?
Holding
A contract to negotiate an agreement is distinguishable from an "agreement to agree" and can be formed and breached. However, the plaintiff is limited to reliance damages, which he disavowed and could not prove. Therefore, the trial court's judgment for the defendant is affirmed.
Rule
A contract to negotiate an agreement is enforceable and distinct from an unenforceable "agreement to agree." A party breaches a contract to negotiate if their failure to reach ultimate agreement results from a breach of their obligation to negotiate or to negotiate in good faith. The implied covenant of good faith and fair dealing attaches when parties are under a contractual compulsion to negotiate. The appropriate remedy for breach of a contract to negotiate is reliance damages, encompassing out-of-pocket costs incurred during negotiations, not expectation damages (lost profits from the prospective contract), because the ultimate terms or even the existence of the final agreement are unknowable. A defendant is entitled to summary judgment if the plaintiff cannot establish reliance damages.
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