Butler v. Balolia
2013 U.S. App. LEXIS 23569
1st Cir.2013Background
- Butler sued Balolia in Massachusetts state court over the LOI and alleged a contract to negotiate, breach, good-faith covenant, and Massachusetts 93A claims.
- The LOI stated a mutual goal to negotiate a separate Purchase Agreement by June 20, 2012 and reserved exclusivity and confidentiality.
- The LOI included a choice-of-law provision applying Washington law.
- The transaction never closed and no Purchase Agreement was executed.
- The case was removed to federal court based on diversity and dismissed as lacking an enforceable contract under Washington law.
- The First Circuit held the LOI could plausibly be a binding contract to negotiate and remanded for further proceedings.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Would Washington recognize a contract to negotiate? | Butler argues WA would recognize. | Balolia argues WA would not recognize. | Yes, Washington likely recognizes. |
| Is the LOI plausibly a contract to negotiate? | LOI shows binding negotiation terms. | LOI not a binding contract to negotiate. | Plausible contract to negotiate stated. |
| Does the complaint plausibly allege breach of that contract? | Defendant renegotiated in bad faith. | No breach shown. | Complaint plausibly alleges breach. |
| Should the district court's dismissal be affirmed given lack of contract? | Pleading supports contract to negotiate. | No enforceable contract to negotiate. | Dismissal vacated and remanded for further proceedings. |
Key Cases Cited
- Keystone Land & Dev. Co. v. Xerox Corp., 94 P.3d 945 (Wash. 2004) (open questions on contract to negotiate; framework and principles)
- Brown v. Cara, 420 F.3d 148 (2d Cir. 2005) (recognition of contracts to negotiate under New York law)
- Venture Assocs. Corp. v. Zenith Data Sys. Corp., 96 F.3d 275 (7th Cir. 1996) (modern trend toward recognizing contracts to negotiate)
- Teachers Ins. & Annuity Ass'n v. Tribune Co., 670 F. Supp. 491 (S.D.N.Y. 1987) (discusses good faith in negotiations; open issues)
- Logan v. D.W. Sivers Co., 169 P.3d 1255 (Or. 2007) (damages theories in contracts to negotiate)