Teamsters, Local 396 v. Nasa Services, Inc., 957 F.3d 1038

Background

The City of Los Angeles adopted an exclusive municipal solid-waste franchise system; NASA Services, Inc. sought a franchise and submitted a Labor Peace Agreement (LPA) with Teamsters Local 396 dated Oct. 27, 2014 that included a broad arbitration clause.
Paragraph 1 of the LPA stated the Agreement "shall only become operative if all of the conditions set forth in paragraph 15 are satisfied." Paragraph 15 conditioned the Agreement on the City entering an exclusive franchise with NASA by December 31, 2016, and stated that if the City failed to do so by that date the Agreement "shall become null and void."
The City signed NASA’s franchise agreement on January 31, 2017 (after the December 31, 2016 date). NASA therefore contended the condition precedent to formation failed and no contract ever arose; Local 396 contended a contract existed (or at least the arbitration clause was severable) and arbitration should resolve the timing dispute.
The district court found the LPA ambiguous about whether the condition was to formation or to performance, considered extrinsic evidence, concluded the condition was to performance, and compelled arbitration (also directing arbitrator to decide waiver and statute-of-limitations defenses), awarding fees to Local 396.
The Ninth Circuit reversed: it held the LPA, read as a whole, unambiguously established a condition precedent to formation, so the district court erred in admitting extrinsic evidence and in compelling arbitration; the case was remanded for the district court to determine (in the first instance) whether the City and NASA entered a qualifying franchise by Dec. 31, 2016; if not, there is no contract and no basis to compel arbitration.

Issues

Issue	Plaintiff's Argument (Local 396)	Defendant's Argument (NASA)	Held
Whether the LPA contains a condition precedent to formation or to performance	The condition (para.15) relates to performance; a contract was formed and the arbitration clause is enforceable/severable	The LPA conditions relate to formation; no contract ever formed if the condition failed	LPA unambiguously conditions formation; no contract exists if condition failed (reversed district court)
Whether the district court properly considered extrinsic evidence to resolve ambiguity	The LPA is ambiguous, so extrinsic evidence is admissible to resolve intent	The LPA is unambiguous on its face; extrinsic evidence was improper	Court held the LPA is unambiguous; extrinsic evidence was improperly considered and the district court’s findings from it were clearly erroneous
Whether arbitration may be compelled (severability/waiver/statute of limitations)	Arbitration clause is severable; arbitrator should decide timing, waiver, and limitations	No agreement to arbitrate exists unless condition to formation was satisfied	Because the LPA is a formation-contingent agreement, arbitration cannot be compelled unless the condition was satisfied; remanded to decide that factual question

Key Cases Cited

Granite Rock Co. v. Int’l Bhd. of Teamsters, 561 U.S. 287 (2010) (arbitration depends on an agreement having been validly formed)
First Options of Chi., Inc. v. Kaplan, 514 U.S. 938 (1995) (state-law contract-formation principles govern whether parties agreed to arbitrate)
MacKinnon v. Truck Ins. Exch., 31 Cal.4th 635 (2003) (contract interpretation must give effect to instrument as a whole)
Waller v. Truck Ins. Exch., Inc., 11 Cal.4th 1 (1995) (courts will not create ambiguity where none exists; interpret contract in context)
Oppenheimer & Co. v. Oppenheim, Appel, Dixon & Co., 660 N.E.2d 415 (N.Y. 1995) (conditional language that a deal will be "deemed null and void" can create a condition precedent to formation)
Platt Pac., Inc. v. Andelson, 6 Cal.4th 307 (1993) (definition and effect of a condition precedent)
Ajax Magnolia One Corp. v. S. Cal. Edison Co., 167 Cal. App. 2d 743 (1959) (interpretation principle that every clause should be given effect)