In re Draft Bars

Case Type:
Case Status:
21-1054 (9th Circuit, Oct 14,2021) Not Published
Affirming a grant of summary judgment by the U.S. Bankruptcy Court for the District of Nevada (BC), the U.S. Bankruptcy Appellate Panel of the Ninth Circuit (BAP) agreed with its conclusion as to the nature of a purported oral agreement between the debtor, Draft Bars LLC (DR), and Anheuser Busch LLC and Anheuser-Busch Companies (together, AB): even if such an enforceable contract existed, it would have been terminable at will, making future lost profits unrecoverable under state law - and requiring an end to an adversary case, the DR's, seeking roughly $69 million in such profits as damages.
Procedural context:
In December 2016, prior to completing its contract to manufacture mobile bar units, frequently called “Bar Pods,” for AB, the DR filed a chapter 11 petition. Three days after the petition date, the man who wholly owned the DR - Michael Manion (Manion) - sent a letter to AB outlining its position regarding the alleged breach of an oral contract, denominated (by the DR) as the Sustainable Marketplace Agreement and supposedly consummated in 2015 after AB's then director of sales had requested a proposal for standard pricing of management services. With AB unconvinced, the DR docketed an adversary complaint against AB in April 2017, asserting claims for: (1) Breach of Contract; (2) Breach of Covenant of Good Faith and Fair Dealing; (3) Unjust Enrichment; and (4) Promissory Estoppel. In October 2019, months after a chapter 11 trustee (TR) had been appointed, the case had been converted to a chapter 7 supervised by the same TR, and the TR had been subbed for the DR as the named plaintiff, AB tendered the motion for summary judgment (MSJ) at the root of this appeal. It explicated three alternative bases for summary judgment as to the DR's (now the TR's) first two contractual claims and one as to the DR's (now the TR's) two non-contractual ones and advanced one affirmative defense. First, as it read a 2016 letter and Manion's deposition testimony, he had admitted there was no service contract between the DR and AB, his contractual claims therefore failing as a matter of law. Second, under Nevada law, a contract without a stated term is terminable at will, and consequently, future lost profits damages are not recoverable when, as it contended, Manion had admitted that the SMA had not set terms and was "an event-by-event basis." Third, AB noted that its general terms, which would have been incorporated into any contract with the DR, classified entities like the DR as independent contractors, a relationship terminable at will under Nevada law. Fourth, the DR's remiss in introducing any evidence of reliance-based damages, such as management costs, AB asseverated, vitiated his unjust enrichment and promissory estoppel claims. Finally, AB sought summary judgment on its affirmative defense to set off any potential liability against its prepetition claim against the DR, which was based on a breach of the final Bar Pod purchase contract. The TR countered each point with, among other bits of evidence and argument, a declaration by Manion, but crucially conceded that the estate's damages were purely for lost profits. In its reply, AB highlighted (1) the inconsistency between Manion's latest avowal and his prior deposition testimony and (2) the TR's decision not to dispute that any agreement would have created an independent contractor relationship, in addition to reasserting its original arguments. Some time after it held a hearing on the MSJ and took the matter under advisement, the BC partially granted it via a memorandum opinion dated September 29, 2020. Admittedly, it concluded, there was a genuine issue of fact about the existence of a contract. Nonetheless, it determined that even if there were a contract as alleged by the TR, such a contract would have been terminable at will; consequently, the estate could not recover lost profits in accordance with a seemingly unambiguous decision from the Supreme Court of Nevada. Even if not, it agreed with AB that any such relationship would have been an independent contractor one, a characterization the TR had never disputed, which compelled the same result. Because the DR's contractual claims failed, so did his breach of the implied covenant one. After all, such a claim cannot be based on the same conduct as a separately pleaded contract breach claim, as the TR had done by neglecting to differentiate between the alleged facts supporting the two claims. For a somewhat similar reason - the DR had alleged no promise, separate from the contract, from which reliance could be inferred - the BC struck its promissory estoppel claim. The TR's twin failures to dispute that AB had satisfied the requisite elements and to show compelling circumstances to suggest otherwise left AB victorious as to its setoff claim. Only as to the DR's third claim (for unjust enrichment) did the BC rule in the the TR's favor, as the TR (or the DR before) had actually presented evidence of damages by providing (or being able to do so) an opinion regarding the value of its services. After AB's partial victory, AB and the TR settled this last remaining claim, which the BC later dismissed. Thereafter, in accordance with these parties' stipulations, the BC certified its summary judgment order as final so as to permit an appeal of its ruling as to the DR's first, second, and fourth claim. The TR timely appealed.
A Nevada LLC , the DR did two things for AB beginning in late 2014. First, it built mobile bar units, frequently called “Bar Pods,” that AB then used to market its famous beer - Budweiser -- at various events, including sports games and concerts. Second, the DR provided management services to AB in connection with certain of these Bar Pods' operation, purportedly at AB's request. Prepetition, the DR and AB split over the supposed existence of an oral contract. According, to the DR, AB has agreed to permit the DR to directly market, deliver, and manage the Bar Pods at other third-party events. AB flatly denied even the reality of such an accord, oral or not. Post-petition, the DR had sent a letter recapitulating its main points only three days after its chapter 11 filing. "We delivered each pod complete,” Manion had written in this epistle, they “have since been managed by another company over the years." He added: "We still have not received any Service and/or Activation contract that’s been promised to us at every turn, requesting us to formulate numerous proposals which we have submitted with no response."
Scott H. Gan; Laura S. Taylor; and William J. Lafferty III

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