Triple-A Baseball Club Associates v. Northeastern Baseball, Inc. (832 F.2d 214, 1987)

BOWNES, Circuit Judge.

All parties have appealed in this diversity contract case which was tried without a jury by the district court.

The plaintiffs are: Triple-A Baseball Club, a Maine limited partnership; Jordan Kobritz, general partner of the limited partnership; and Triple-A Baseball Club of Maine, Inc., another general partner of the limited partnership, all of whose stock is owned by Kobritz. Plaintiffs will be referred to as “the partnership” and/or “Ko-britz,” as the reference requires.

Defendants are Northeastern Baseball, Inc. (NBI), a Pennsylvania nonprofit corporation; the Multi-Purpose Stadium Authority (MPSA) of Lackawanna County, Pennsylvania, a county and state entity; and the International League of Professional Baseball Clubs, Inc., a nonprofit corporation organized under the laws of the State of Virginia. The International League is also a third-party plaintiff.

The focus of the case is the interpretation of a written contract dated September 3, 1986, between the three plaintiffs and NBI. The district court made extensive and detailed findings of fact and rulings of law. Triple-A Baseball Club Associates v. Northeastern Baseball, Inc., 655 F.Supp. 513 (D.Me.1987). The crux of the court’s opinion is its ruling that a key phrase in the contract was ambiguous and consequent nullification of the contract based on what it found from extrinsic evidence was the intent of the parties. We think this was error and hold that the plaintiffs and NBI are bound by the terms of the contract.

HOW THE GAME WAS PLAYED

Before we step onto the playing field for this contract case, a little baseball background is necessary. Baseball is organized into Major Leagues and Minor Leagues. There are two leagues within Major League Baseball, the American League and the National League, containing a total of twenty-six Major League teams.

The Minor Leagues of Professional Baseball are organized as members under the National Association of Professional Baseball Leagues. The Minor Leagues have entered into the National Association Agreement with the Major Leagues. The Minor Leagues are divided into four classifications, Triple-A, Double-A, Single-A, and Rookie Leagues.

There are three Triple-A Leagues containing a total of twenty-six teams, one for each Major League team. One of the Triple-A Leagues is the International League, which is governed by a constitution, bylaws and rules.

There are three Double-A Leagues, also containing a total of twenty-six teams, one for each Major League team. One of the Double-A Leagues is the Eastern League, which is governed by bylaws, rules and regulations.

Since the goal of most Minor League players is to play in the Major Leagues and since the Major League teams obtain most of their players from the Minor Leagues, the Major League teams have player development contracts with Triple-A and Double-A teams. The game now begins.

John McGee was a man with a self-imposed mission. Indeed, it could be described as an obsession. He wanted to bring Triple-A Baseball to Scranton, Pennsylvania. But there were two problems. One, Scranton did not have a Triple-A franchise, that is, it did not have a right to have a Triple-A team play there. Such a franchise could be granted only by permission of the International League and the National Association of Professional Baseball Leagues, the governing body of Minor League baseball. McGee’s second problem was that Scranton did not have a stadium suitable for Triple-A baseball. McGee, however, was not deterred. He first convinced the county commissioners of Lacka-wanna County, in which Scranton is located, that a municipal corporation ought to be formed to build a stadium that would meet Triple-A requirements; MPSA was formed and McGee became its legal advis- or. At about the same time, McGee and several associates from the Scranton area purchased the Double-A franchise of the Waterbury, Connecticut, Indians that was for sale. It was McGee’s intent, and he so informed the directors of the Eastern League who had to approve the sale, to operate the Indians in Waterbury in 1985 and 1986 and move the team to Scranton in 1987, when the new stadium was completed. McGee made no bones about his ultimate goal of operating a Triple-A team in Scranton. NBI was formed and became the owner of the Waterbury Indians.

In his quest for a Triple-A franchise, McGee, on June 18, 1986, approached Ko-britz who, through the partnership, was the major owner of the Maine Guides, a Triple-A team that played in Old Orchard Beach, Maine. McGee offered to buy the Triple-A franchise and Kobritz indicated an interest in selling. Negotiations continued through the summer. On July 30, McGee sent to Kobritz two contract drafts. One draft provided that NBI would buy the Triple-A franchise for $2.4 million, the other that Kobritz individually would buy NBI’s Double-A franchise for $400,000. A check for $100,000 accompanied the drafts. Kobritz did not sign the drafts; he kept the check but did not deposit it. On August 20, Kobritz sent a proposed draft contract to McGee. Kobritz’ proposal was more, complicated than McGee’s because he had some reluctant partners to deal with. In effect, Kobritz proposed that NBI pay $1.2 million to the limited partnership and $800,-000 to the general partners. Kobritz’ proposal also made the transfer of the Triple-A franchise to NBI contingent upon the transfer to the partnership of NBI’s Double-A franchise.

On September 3, 1986, the partnership and NBI signed a contract which was drafted in final form by Kobritz’ attorney. It provides as follows. The partnership agrees to sell its Triple-A franchise to NBI for $2.4 million. NBI agrees to sell its Double-A franchise to the partnership for $400,000. Paragraph 5 of the contract states: “In the event that the Eastern League of Professional Baseball Clubs shall refuse to approve the sale of the Double-A Baseball Franchise to Triple-A, then this Agreement shall continue in full force and effect with the following modifications: ....” The modifications made the purchase price of the Triple-A franchise $2 million payable by a deposit of $100,000 (which Kobritz already had) and $1.9 million at the closing. Paragraphs 6, 7, and 8 made the agreement subject to the approval on or before September 11, 1986, of the board of directors of NBI, the limited partners of the partnership, and the International League. All three approvals were obtained prior to September 11. Paragraph 9 states: “The transfer of the Double-A franchise is subject to the approval of the Eastern League of Professional Baseball Clubs.” Paragraph 10 makes the approvals required under paragraphs 6, 7, and 8 “conditions precedent” and restates them in subparagraphs A, B, and C. It is to be noted here that, in contrast to paragraph 10, paragraph 9 does not make the approval of the sale of the Double-A franchise a condition precedent of the contract. Paragraph 11 set the closing for October 21, 1986, at Portland, Maine. Paragraph 12 provides that at the direction of NBI the partnership “shall sign a Player Development Contract with the Major League team selected” by NBI on or before September 14, 1986. On September 9, 1986, the partnership, at NBI’s direction, signed a Player Development Contract with the “Phillies” of the National League, a Major League team. Paragraph 13 imposed the obligation to sign a player development contract with the Major League team selected by the partnership on NBI. This was not done because, on September 10, 1986, NBI transferred its Double-A franchise to the Eastern League.

On the same day, September 3, and at practically the same time, Kobritz individually and NBI entered into a side agreement. Kobritz handwrote the side agreement while his attorney was making final changes to the main contract. It provided: Both parties agreed “to use their best efforts to obtain Eastern League approval” of the purchase by the partnership of NBI’s Double-A franchise. It was then provided that “if even after using their best efforts the Eastern League failed to approve such sale,” the parties do hereby agree as follows:

1. Seller [NBI] agrees to sell to Buyer [Kobritz] and Buyer agrees to purchase from Seller the Double-A franchise currently owned by Seller for the purchase price of Five Hundred Thousand Dollars ($500,000.00) payable as follows:

Fifty Thousand Dollars ($50,000.00) per year for ten years commencing on September 30, 1987, and continuing on each September 30th thereafter to and including September 30, 1996.

2. Seller and Buyer shall enter into a consulting agreement for a period of ten years, whereby Buyer shall provide services to Seller for such ten year period. Seller shall pay Buyer Fifty Thousand Dollars ($50,000.00) per year commencing on September 30,. 1987, and continuing on each September 30th thereafter to and including September 30, 1996.

The September 3 handwritten side agreement was superseded by a typewritten agreement between the same two parties, dated and executed on September 4. It contains the same provisions in the same language outlined above but has three additional paragraphs. Paragraph 3 provides:

In the event that the Eastern League denies approval both to the sale of the Double-A franchise to Triple-A Baseball Club Associates and the sale of the Double-A franchise to Buyer, Seller will reduce the amount of Buyer’s consulting agreement by the amount of indemnification damages if Seller is required to pay indemnification damages to the Eastern League in connection with its acquisition of the International League Team. However, in no event shall the amount pursuant to the consulting agreement be reduced below Four Hundred Thousand Dollars ($400,000.00), payable under the same terms as set forth in paragraph 2 above, the first payment commencing on September 30, 1987.

Paragraph 4 makes the agreement contingent upon NBI’s acquisition of the Triple-A franchise pursuant to the terms of the main contract. Paragraph 5 contains the superseding provision.

After being advised by McGee of the proposed sale of the Double-A franchise by NBI to the partnership, the Eastern League took the position that it had territorial franchise rights to the Scranton area and refused to approve the sale. The League insisted that it would not give up its territorial claim to the Scranton area unless NBI transferred its Double-A franchise to the League. As already noted, this transfer was made on September 10, 1986. McGee and his attorney appeared in Portland on the date of the closing prepared to pay Kobritz $1.9 million. He was informed by Kobritz and his attorney that the sale of the Triple-A franchise would not be made. The game then moved to the federal district court.

THE LINEUP

Plaintiffs’ Claims

On October 21, the day following the aborted closing, plaintiffs filed suit in federal district court against NBI asking for a declaratory judgment holding that the contract “has terminated under its own terms because of the failure of certain required conditions to occur....” On November 7, 1986, a complaint was filed by plaintiffs against the International League seeking injunctive and declaratory relief. Amended complaints against both defendants were filed on December 30, 1986.

The action against NBI has four counts. Count I seeks a million dollars in damages for NBI’s alleged repudiation of the contract. Count II alleges breach of contract and damages of one million dollars. As far as we can tell, Counts I and II are essentially the same. Count III alleges that the failure of NBI to convey the Double-A team to the partnership, the failure of NBI to seek the Eastern League’s approval of the transfer in good faith, and the failure of the Eastern League to take the proper action to approve or disapprove the sale of the Double-A team resulted in the termination of the contract “in accordance with its own terms”; no damages were sought under this count. Count IV alleged conversion by NBI of the plaintiffs’ Triple-A franchise; the acts constituting conversion were: improperly stating and acting as though NBI possessed the Triple-A franchise and exercising rights which flow from the ownership of such franchise despite the fact that no transfer of the franchise had occurred. Consequential damages of four million dollars and an injunction were sought if the partnership’s Triple-A team was unable to participate in the 1987 baseball season. We take judicial notice of the fact that this contingency has not occurred. Count V alleged breach of the September 4 side agreement, damages of two million dollars were sought.

Plaintiffs’ action against the International League states five counts: I, violation of duty to operate the International League in accordance with its constitution, only in-junctive relief was sought; II, oppression of and breach of fiduciary duty to a League member, four million dollars in damages were sought; III, wrongful removal of Ko-britz as a director of the International League, declaratory and injunctive relief was sought; IV, tortious interference with contractual relations, damages were contingent on the partnership’s Triple-A team being unable to participate in the 1987 baseball season, which did not occur; V, conversion of plaintiff’s Triple-A franchise by the International League in collusion with NBI, four million dollars in damages and injunctive relief were sought.

On January 22,1987, plaintiffs brought a complaint against MPSA alleging conversion and fraudulent transfer of the partnership’s Triple-A franchise.

Defendants’ Counterclaims

NBI’s counterclaim alleges: that it did not repudiate or breach the contract and asked that the Triple-A franchise be conveyed in accord with the terms of the contract (Count I); that the plaintiffs breached the contract, specific performance or damages “in excess of $10,000” were sought (Count II).

The International League brought a counterclaim and a third-party complaint against NBI and MPSA alleging four causes of action. The first sought declaratory relief that NBI and MPSA hold the League harmless from any judgment or award in favor of the plaintiffs against it. The second sought declaratory relief to the effect that any dispute between the partnership and NBI as to the ownership of the Triple-A franchise “is to be exclusively investigated and adjudicated by League, all to the exclusion of judicial intervention.” The third alleged that the partnership, and/or NBI, and/or MPSA had intentionally and/or negligently interfered in the League’s business relationships. Monetary damages in an unspecified amount were sought. In its fourth cause of action, the League claimed that the partnership, and/or NBI, and/or MPSA breached an express or implied contract by failing to comply with the League’s constitution; damages of not less than $10,000 were sought.

THE SEPTEMBER 3 CONTRACT

The Findings and Rulings of the District Court

The district court first ruled that Maine Law “imposes a general duty of good faith on the parties to a contract.” 655 F.Supp. at 536. We think this was correct. See Reid v. Key Bank of Southern Maine, Inc., 821 F.2d 9, 12-15 (1st Cir.1987). The court then found that NBI “acted in good faith throughout the transaction with the Limited Partnership.” 655 F.Supp. at 537. Based on our review of the record, we agree. We now turn to the court’s interpretation of the terms of the contract.

During the trial, the court admitted, de bene, parol and documentary evidence bearing on the intent of Kobritz and McGee as to the contract of September 3 between the partnership and NBI. The court held:

The Court agrees with Plaintiffs that the September 3 main agreement is ambiguous. That agreement provided that if “the Eastern League ... shall refuse to approve the sale” of the Double-A franchise to the Limited Partnership, the agreement remained in full force and effect with the modification that the price of the Triple-A franchise would be reduced from $2.4 million to $2 million. But nowhere does the agreement define the term “refuse to approve the sale”; the parties clearly attach different meanings to this term.

655 F.Supp. at 535. The court then ruled that the evidence admitted de bene was “admissible to show the intent of the parties.” Id. at 536.

Based on its consideration of the extrinsic evidence, the court found that the “only possible basis contemplated by either party for the Eastern League’s refusal to approve the transfer was the existence of dissent among Kobritz’ limited partners.” It then went on to find that “[n]either Kobritz nor McGee had any reason to suspect that the Eastern League would refuse to consider the transfer” and that the Eastern League had refused to approve the transfer “without formal consideration of the merits of the transfer.” Id. at 537. The court further found that “an implied-in-fact condition precedent of the September 3 agreement was that the Eastern League would either approve or refuse on the merits to approve the transfer of the Double-A franchise to the Limited Partnership.” (Emphasis added.) The court then held: “Because this implied-in-fact condition precedent did not occur, the agreement terminated by its own terms and the Limited Partnership must return the $100,000 deposit with interest accrued thereon in accordance with paragraph 14 of the agreement.” Id. at 538 (footnote omitted).

Although by rewriting the contract between the parties, the court may have arrived at what it considered a just result, we think it violated the basic principles of contract law.

The Controlling Rules

The parties have stipulated that Maine law controls. In the area of contract law that concerns us, Maine law is similar to that of most jurisdictions. Under Maine law, deciding whether a contract clause is ambiguous is a question of law, Portland Valve, Inc. v. Rockwood Systems Corp., 460 A.2d 1383, 1387 (Me.1983), and, thus, the trial court may be reversed if its decision is erroneous, Hare v. Lumbermens Mutual Casualty Co., 471 A.2d 1041, 1044 (Me.1984). The interpretation of an unambiguous contract is also a matter of law. Century Homes, Inc. v. Plaisted, 412 A.2d 389, 391 (Me.1980) (“ ‘The construction of an unambiguous written contract is a question of law for the Court. An agreement, complete in itself, speaks for itself. Its meaning, the promises it makes and the duties or obligations it imposes, are questions of law for the court.’ ”) (quoting Zamore v. Whitten, 395 A.2d 435, 440 (Me.1978)) (citations omitted); Soper v. St. Regis Paper Co., 411 A.2d 1004, 1006 (Me. 1980); cf. United Truck and Bus Service Company v. Piggott, 543 F.2d 949, 950 (1st Cir.1976) (“If the district court had only construed the written contract itself, its conclusion would be freely reviewable.”) (citations omitted).

The Maine Supreme Judicial Court has described the ambiguity analysis as follows:

The issue of whether contract language is ambiguous is a question of law for the Court. The interpretation of an unambiguous written contract is a question of law for the Court; the interpretation of ambiguous language is a question for the factfinder. The interpretation of an unambiguous writing must be determined from the plain meaning of the language used and from the four comers of the instrument without resort to extrinsic evidence. Once an ambiguity is found then extrinsic evidence may be admitted and considered to show the intention of the parties. Contract language is ambiguous when it is reasonably susceptible of different interpretations.

Portland Valve, 460 A.2d at 1387 (citations omitted). See also City of Augusta v. Quirion, 436 A.2d 388, 392 (Me.1981). Extrinsic evidence should be resorted to only “when the contract language is ambiguous and that ambiguity does not disappear when examined in the context of the other provisions in the instrument.” T-M Oil Co., Inc. v. Pasquale, 388 A.2d 82, 85 (Me.1978). And, “[a] contract need not negate every possible construction of its terms in order to be unambiguous.” Waxler v. Waxler, 458 A.2d 1219, 1224 (Me.1983).

Maine, like most jurisdictions, disapproves of courts rewriting contracts.

Moreover, courts should not rewrite contracts, particularly agreements between two corporations acting at arms length. “We are skeptical, too, that so important a feature [as exclusive selling rights] of the franchise agreement would be so in-felicitously phrased by those as astute as businessmen generally are.” In the absence of any express language or any ambiguous language, which would permit the admission of relevant extrinsic evidence, reasonably indicating such a restrictive intent, the court will not lightly import meaning into a contract.

Portland Valve, 460 A.2d at 1388 (quoting Lee v. Flintkote Co., 593 F.2d 1275, 1282 (D.C.Cir.1979) (citations omitted)). See also Aroostook Valley Railroad Co. v. Bangor & Aroostook Railroad Co., 455 A.2d 431, 433 (Me.1983). We have recently commented on this very point:

“It is no appropriate part of judicial business to rewrite contracts freely entered into between sophisticated business entities.” RCI Northeast Services, [822 F.2d at 205]. When the transaction is commercial, the principals practiced and represented by counsel, and the contract itself reasonably clear, it is far wiser for a court to honor the parties’ words than to imply other and further promises out of thin air. We quite agree with Judge Learned Hand that, in business dealings, “it does not in the end promote justice to seek strained interpretations in aid of those who do not protect themselves.” James Baird Co. v. Gimbel Bros., Inc., 64 F.2d 344, 346 (2d Cir.1933).

Mathewson Corp. v. Allied Marine Industries, Inc., 827 F.2d 850, 856 (1st Cir.1987). These principles inform our analysis of the contract.

Applying the Rules

It is to be noted first that the contract was negotiated between two men who were both lawyers and accountants and had pri- or experience with the sale and purchase of Minor League baseball franchises. Neither Kobritz, who was the prime mover for the plaintiffs, nor John McGee, president of NBI, who called the shots for the defendant, were rookies. Both knew how to keep score.

Paragraph 5 is the hinge on which this case swings. It provides: “5. In the event that the Eastern League of Professional Baseball Clubs shall refuse to approve the sale of the Double-A Baseball Franchise to Triple-A, then this Agreement shall continue in full force and effect with the following modifications: _” (Emphasis added.) We do not find the phrase “refuse to approve the sale” ambiguous. Unlike the district court, we think the term is clear and does not need to be defined. The words “refuse to approve” are only susceptible of one meaning; they mean what they say. Examining the clause within the four corners of the contract confirms its unambiguity. Paragraph 9 makes the transfer of the Double-A franchise “subject to the approval” of the Eastern League. This is but a variation on “refuse to approve.” The language, as written, does not qualify or condition the grounds upon which the Eastern League could “refuse to approve” the sale; nor does it set up any formal requirements as to the form or procedure for such a refusal. The term is absolute and unequivocal — if the Eastern League did not approve the sale, the contract was to go ahead, but with altered terms.

The district court held that the parties attached different meanings to the term “refuse to approve.” It then found, based on extrinsic evidence that the term had to be interpreted to mean there was an implied-in-fact condition precedent that the refusal had to be “on the merits.” With due respect, we think that the phrase “on the merits” not only changes the sparse plain language of the contract, but is itself ambiguous. We cannot help but conclude that the court’s interpretation of the contract was influenced by the de bene evidence which, because of the plain meaning of the contract, should have been excluded.

The plaintiffs argue strenuously that the contract was essentially a swap of franchises: “that the AA team was the essential element of consideration provided for Triple-A’s [the partnership’s] conveyance of the AAA franchise to NBI.” Brief at 26. This contention is completely refuted not only by the terms of the contract but by documents that preceded, accompanied and followed its execution. On August 20, Kobritz sent a proposed