Bustamante v. Intuit, Inc.

Filed 7/10/06

CERTIFIED FOR PUBLICATION

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

SIXTH APPELLATE DISTRICT

Plaintiff Jorge Bustamante attempted to create a joint venture with defendant Intuit, Inc. in which they would market Intuit software adapted for users in Mexico. After their attempts to secure outside funding for the enterprise failed, Intuit stopped working with Bustamante toward their objective. Bustamante then brought this action for breach of contract and wrongful dissociation. The superior court, however, granted summary judgment to Intuit. Bustamante appeals, contending that the parties had an oral contract to establish a company in Mexico. Bustamante further challenges the order denying his motion to strike or tax costs claimed by Intuit.

Intuit maintains that any contract between them had to be in writing, both to satisfy the parties' expectations and to comply with the Statute of Frauds. Intuit further argues that the terms of the alleged oral contract were fatally uncertain. We agree with Intuit's second point and must therefore affirm the judgment.

Background

Intuit develops and markets financial software for individuals and small businesses. One of its leading products is QuickBooks, which both parties describe as "a software package that features consolidated accounting and other capabilities for small businesses." On October 31, 2001, Bustamante sent a proposal by e-mail to Raymond Stern, Senior Vice President of Strategy and Chief Marketing Officer at Intuit. Bustamante told Stern that he had a "proven track record" introducing American technology products to Mexico, and that he had "many close friends" there who were senior executives or "top government officials." He suggested that there would be a good market in Mexico for Quickbooks and Quicken, but Quicken currently did not address the specific needs of the Mexican market. Bustamante proposed that he and Intuit either (1) "sign a licensing agreement" for his "group" to make a "strong monetary investment for marketing and developing" Intuit products and services or (2) establish a Mexican subsidiary of Intuit in which he would act as general manager.

Stern replied that the Mexican market was "not a priority" for Intuit at that time. Bustamante then suggested that if Intuit was currently busy pursuing other opportunities, a licensing agreement would be "a way into the market with no investment of time and no distraction of human resources for you." Stern's time commitment would thus be "limited to negotiating and signing a deal" with no monetary outlay by Intuit--a "win-win for everybody." After some discussions among Intuit executives, Bustamante was invited to meet with Stern and two members of his business development team, Fred Tinker and Dasha Grafil.

At that meeting, which took place on March 7, 2002, Bustamante offered his view of the market opportunity in Mexico. Tinker told him that if Intuit became interested, it would not have more than 20 percent ownership in the business. According to Bustamante, Tinker said, " 'Listen, if we would be interested, and I'm not saying that we are,' he made it clear, 'I'm not saying that we are at this initial meeting, if we would be interested in doing something, it . . . would not be more than 20 percent ownership for us . . . .' '[I]f we do this with you, it would be you as the entrepreneur, it would be us, and we'd have to get a third party here, preferably a venture capitalist or . . . a financial institution like a venture capitalist.' " Bustamante acknowledged at the meeting that he had not raised money before, but he estimated a 75 percent chance of succeeding.

In his deposition Bustamante stated that he told Stern at the March 7 meeting "that it was very important for me to have an agreement, that regardless of the decision that they made to go forward or not, that if they decided to go forward on this, it was very important for me to have an understanding so I wouldn't be left holding an empty bag at the end." According to Bustamante, Stern promised that "they would always treat [Bustamante] fairly" and "if they decided to go forward on this," they would not "circumvent" him or "do this deal with anybody else." On his part Bustamante understood that he had promised to "pursue this with [his] best efforts." Bustamante did not think that the parties had agreed to any other terms at this point.

After the meeting, the parties developed a "phased approach" for their "evaluation" of the Mexico opportunity, consisting of several steps. The first three involved studying and working on the issues related to the products and the market. Most of these objectives were achieved, except for the "time-to-market" schedule, because the parties were unable to obtain the necessary funding for the "launch" of the project.

The final step in the first phase was "Make Decision to go Ahead." In Bustamante's mind, the parties already had a contract as of the March 7 meeting; but the decision whether to go forward was "confirmation" or an opportunity to "cancel" the contract. If Intuit decided to move to Phase II, the contract would become "binding," "legal and technical," and "there was no way back for them."

On March 14, 2002, Bustamante received an e-mail from Grafil indicating that Intuit had decided to proceed to Phase II. At this point the parties were still "exploring each other" and "investigating the market." Bustamante called Phase II as it was understood on March 15 a plan to "find more information," a "negotiating period where we're going to gather information, and we're going to negotiate the things." They "hadn't even reached the point of assigning responsibilities or . . . of how we were going to do it and who was going to do it." Intuit had not yet checked his references. It was later, Bustamante explained, that they "agreed on terms under which [they] were going to work." Meanwhile, Intuit proceeded to "put together some high-level understanding of what we both wanted out of this arrangement, put together a time line, some dates, some steps, some responsibilities."

On April 2, 2002, an exchange of e-mail between Grafil and Bustamante reflected the parties' ongoing communication about their relationship. In discussing a nondisclosure agreement, Bustamante explained, "My goal is to partner with you and together bring Intuit to Mexico, and of course not be left ou[t]side at the end. I understand very well that Intuit and I still have to negotiate many things in order to conclude this." As for his concern that a third party might persuade Intuit to shut him out and instead hire a manager with no equity, Bustamante noted that Stern had assured him "that I should not worry and that Intuit would not go around me." Nevertheless, because Bustamante believed that his contribution was at that point "very intangible and subjective," he asked Grafil and Tinker for "a document saying that Intuit agrees not to circumvent me. However if it is a problem to have that document I'm comfortable with your word. [¶] Again, if you can get me a document great!, if not let's move on and not drag and waist [sic] our precious time and energy on this."

Between April 7 and April 9, 2002, Bustamante and Tinker corresponded about their expectations of the Mexico project. Bustamante identified four general steps in the process: validating their initial assumptions through studies and a trip to Mexico; raising money; developing the business plan; and negotiating contracts between Intuit, Bustamante, and the venture capitalists. His understanding was that items two, three, and four related to Phase II, following the decision to go forward with the plan. Tinker revised the outline Bustamante had sent, labeling the final category "Negotiate and finalize terms between [Bustamante], Intuit and [venture capitalists]." The last entry in this category was "Sign Contracts." Bustamante explained in his deposition that the process would result in written contracts that were not exclusive, as there could also be oral contracts. The contract between him and Intuit was "a separate thing" from the contracts between Intuit, the venture capitalists, and him.

On April 12, 2002, Tinker sent Grafil and Bustamante an e-mail (referred to by the parties as Exhibit 35), purporting to be a "summary" of what the parties had discussed. The first item listed was "Exclusivity." Tinker stated, "We do not need to go thru the motions to get this into a legal document. Our mutual understanding is that we are working together on a deal for Mexico. We do not intend to take your deal and work with anyone else in Mexico." The second item, "High level terms," included the following: for Bustamante, a minimum of 25 percent equity and a management position in the new company with $240,000 annual salary; a maximum of 19.9 percent equity from Intuit with no control but with management participation and a 20 percent royalty. The list also anticipated completion of a market study and a tentative plan to travel to Mexico in early to mid-May. Tinker prefaced this list with a request that Grafil and Bustamante review the summary and "edit/comment" if either of them saw "any issues."

To Bustamante, this e-mail appeared to be "confirming" the oral terms of the parties' "arrangement" on March 7. He testified in his deposition that he and Tinker had agreed to these terms before April 12. Upon "validat[ing] the market information [and] checking [him] out," however, Intuit had the "option to walk out of" the agreement they had reached. Tinker, on the other hand, regarded his summary as a clarification of the "understanding of what we both wanted. It was – at no point in time did we agree that this was something that was going to happen." Tinker stated that Bustamante and Intuit did not have an agreement that they would be working together on the deal for Mexico and that Intuit would not go into Mexico without him. His understanding was that the phased approach would allow them to "see if there was an opportunity to work together in Mexico . . . . In no way, shape or form, did we ever agree, at the front end of the discussion, that we were going to do a deal in Mexico. We were going to do our homework first." According to Tinker, the parties never agreed to such a deal because they never obtained a funding commitment, which would have preceded an even bigger hurdle--a contract between Intuit, Bustamante, and the funding source.

On July 1, 2002, Tinker sent Bustamante an e-mail announcing that on June 28 Stern had agreed to "move to the next phase." Tinker then outlined the next steps: create a statement containing data Bustamante would need in approaching venture capitalists; evaluate Quickbooks to determine the requirements for the Mexico version; and determine whether it would be possible to secure the necessary funding for the project. Tinker added, "If you cannot secure funding we will need to look at alternative strategies."

Over the next few months Bustamante approached several venture capitalists by e-mail and conducted in-person presentations attended by Tinker. None responded favorably to the solicitation. In November 2002 Bustamante and Tinker discussed alternative funding strategies. Bustamante suggested a "targeted solicitation " to 100[1] firms, creation of an Intuit subsidiary in which Intuit would own 75 percent and Bustamante 25 percent, or a private-investor fundraising effort with a reduced goal. As to the last, Bustamante believed he could raise an initial $1 million in Mexico, putting in the first $200,000 and obtaining $800,000 to $1,800,000 from his friends and family. At that point, they could start selling the product, while continuing to work toward $2 million.

Tinker rejected the second idea pertaining to the subsidiary outright. The third option "might be doable" if the operation had initial funding of $2 million, not $1 million. Tinker emphasized that Intuit would not take any risks with less than "an exceptionally strong well funded operation." The first option, however, was a "no brainer," and Bustamante was encouraged to undertake the targeted solicitation "asap."

Bustamante urged Tinker to reconsider the $2 million figure. He offered to "do the numbers" to show Tinker that in Mexico $1 million would still allow for a "well funded" operation; but Tinker replied, "Jorge, no I do not want you to do the numbers. The answer is NO on a $1m. Let's move on."

None of Bustamante's November 2002 suggestions materialized. On November 26, 2002, Tinker advised Bustamante not to "blanket" the venture capitalists in the United States with a mass mailing, as Bustamante had proposed. Tinker added that the parties needed "to determine how much more time we want to chase funding. We suggest that if we cannot successfully secure funding in the next 3 months, we should move on. Let me know what you think."

Bustamante did not give up. He resisted the three-month limitation, but he nonetheless believed he could raise the necessary funds within that period. In mid-December he proposed three alternative scenarios which, to various degrees, reduced his salary, deferred Intuit's royalty, or reduced the investors' percentage of revenue receipts. None of these scenarios was ever agreed upon, however. Also unsettled were the terms of any software license renewal, a right of first refusal by Intuit to buy the company, and the "liquidity paths" for Bustamante and the investors--that is, the conditions and formula under which they could recoup their investments (such as by forcing Intuit to purchase their shares).

Bustamante told Tinker that the targeted e-mail would be subject to Tinker's approval. In responding to Tinker's suggestion that he not "blanket the VC's in the US," he expressed confidence that they would be able to "narrow the search" for venture capitalists, and he planned to discuss that strategy with Tinker after receiving the database. However, on January 8, 2003, Bustamante sent 700 to 900 firms an e-mail soliciting a $3 million investment in the Mexico project. One of the recipients, who happened to be an Intuit board member, forwarded the e-mail to Stern, who was angry. Stern found the mailing "unacceptable" and advised Grafil to coordinate with Tinker to "end this . . . and likely our relationship with [Bustamante]." On January 9, 2003, Tinker and Grafil informed Bustamante that "Intuit no longer would engage in discussions about the QuickBooks for Mexico concept." In his deposition Tinker stated that the termination of the parties' relationship was the product of "Intuit's frustration with Bustamante's inability to fulfill his promises to raise funds, as well as various other acts by Bustamante such as his e-mail solicitation sent to an unknown number of U.S. venture capitalists."

In late February 2003, after the termination of the parties' relationship, Intuit had "some discussions with a couple of individuals" regarding an Intuit opportunity in Mexico. However, Intuit did not thereafter develop any version of QuickBooks tailored to Mexico.

On September 16, 2003 Bustamante filed his complaint for breach of contract and wrongful dissociation. He alleged that he had an "agreement with Intuit to form and launch a company in Mexico to handle marketing and sales of Intuit products localized for the market in Mexico." Referring to the two-phase nature of their "cooperative venture," Bustamante alleged that the parties had agreed that at the end of Phase I Intuit would make a firm decision about whether to proceed to Phase II. According to Bustamante, both parties "understood and agreed that their commitment to proceed to the second phase would give rise to a mutual obligation to form and launch a company in Mexico."

That commitment, Bustamante alleged, was made in July 2002. Intuit "promised to use its best efforts to help form and launch "Intuit Mexico.' " Subsequently each party assumed certain expenses and duties in the process, and "[c]ertain key details . . . as to how they intended to set up 'Intuit Mexico' were also negotiated and confirmed." Bustamante cited, for example, the terms granting him a 25 percent ownership, Intuit's maximum of 19.9 percent ownership, and Intuit's 20 percent royalty on sales. He generally noted that he would take on a role as a "salaried manager," and that the equity not held by Intuit or Bustamante "would remain available for private investors and for executive compensation." Bustamante added that the parties had "hoped that the bulk of the company's capitalization would come from outside investors," though they understood that "they might also rely on a number of different strategies to raise capital."

The complaint described the unsuccessful attempts by the parties to recruit investors in Mexico and then in the United States. In early January 2003, however, Intuit abruptly terminated their relationship, thereby breaching their agreement to "form and launch" the company in Mexico, and it later denied that they ever had such an agreement. The second cause of action for wrongful dissociation (Corp. Code, § 16602) again described the parties' relationship as a joint venture, from which Intuit had wrongfully withdrawn before completion of the undertaking.

Both parties moved for summary judgment or, alternatively, summary adjudication. Intuit asserted that breach of contract could not be established because 1) there was no meeting of the minds on the material terms of the alleged agreement and 2) if there was a contract, it was unenforceable because it was not in writing. As to the claim of wrongful dissociation, Intuit similarly asserted that the material terms for creating a joint venture were unsettled. It further argued that wrongful dissociation was impossible because the planned venture was never launched.

The superior court agreed. On December 7, 2004, the court granted summary judgment to Intuit, denied Bustamante's motion, and awarded costs to Intuit. Bustamante appeals from the ensuing judgment.

Discussion

The parties agree on the principles that govern our review of the summary judgment ruling. Summary judgment is proper when there is no triable issue of material fact and the moving party is entitled to judgment as a matter of law. (Code Civ. Proc., § 437c, subd. (c).) In reviewing an order granting summary judgment, we exercise our independent judgment, applying the same analysis as the trial court to determine "whether the moving party established undisputed facts that negate the opposing party's claim or state a complete defense." (Romano v. Rockwell Internat., Inc. (1996) 14 Cal.4th 479, 487; Aguilar v. Atlantic Richfield Co. (2001) 25 Cal.4th 826, 860.)

Intuit seeks to establish its entitlement to summary adjudication of Bustamante's contract claim by demonstrating that no enforceable contract was ever formed between the parties. Contract formation requires mutual consent, which cannot exist unless the parties "agree upon the same thing in the same sense." (Civ. Code, §§ 1580, 1550, 1565.) "If there is no evidence establishing a manifestation of assent to the 'same thing' by both parties, then there is no mutual consent to contract and no contract formation." (Weddington Productions, Inc. v. Flick (1998) 60 Cal.App.4th 793, 811.) "Mutual consent is determined under an objective standard applied to the outward manifestations or expressions of the parties, i.e., the reasonable meaning of their words and acts, and not their unexpressed intentions or understandings." (Alexander v. Codemasters Group Limited (2002) 104 Cal.App.4th 129, 141; see also Meyer v. Benko (1976) 55 Cal.App.3d 937, 942-943 [existence of mutual consent "is determined by objective rather than subjective criteria, the test being what the outward manifestations of consent would lead a reasonable person to believe"].)

Where the existence of a contract is at issue and the evidence is conflicting or admits of more than one inference, it is for the trier of fact to determine whether the contract actually existed. But if the material facts are certain or undisputed, the existence of a contract is a question for the court to decide. (Robinson & Wilson, Inc. v. Stone (1973) 35 Cal.App.3d 396, 407.)

"Under California law, a contract will be enforced if it is sufficiently definite (and this is a question of law) for the court to ascertain the parties' obligations and to determine whether those obligations have been performed or breached." (Ersa Grae Corp. v. Fluor Corp. (1991) 1 Cal.App.4th 613, 623.) "To be enforceable, a promise must be definite enough that a court can determine the scope of the duty[,] and the limits of performance must be sufficiently defined to provide a rational basis for the assessment of damages." (Ladas v. California State Auto. Assn. (1993) 19 Cal.App.4th 761, 770; Robinson & Wilson, Inc. v. Stone, supra, 35 Cal.App.3d at p. 407.) "Where a contract is so uncertain and indefinite that the intention of the parties in material particulars cannot be ascertained, the contract is void and unenforceable." (Cal. Lettuce Growers v. Union Sugar Co. (1955) 45 Cal.2d 474, 481; Civ. Code, § 1598; see also Ladas v. California State Auto. Assn., supra, 19 Cal.App.4th at p. 770.) "The terms of a contract are reasonably certain if they provide a basis for determining the existence of a breach and for giving an appropriate remedy." (Rest. 2d Contracts, § 33, subd. (2); accord, Weddington Productions, Inc. v. Flick, supra, 60 Cal.App.4th at p. 811.) But "[i]f . . . a supposed 'contract' does not provide a basis for determining what obligations the parties have agreed to, and hence does not make possible a determination of whether those agreed obligations have been breached, there is no contract." (Weddington Productions, Inc. v. Flick, supra, 60 Cal.App.4th at p. 811.)

According to Bustamante, the contract at issue consisted of a March 7, 2002 oral agreement and a set of additional terms listed in Exhibit 35, Tinker's April 12 e-mail. The March 7 terms were that Bustamante would pursue the venture with his best efforts, Intuit would treat Bustamante fairly, and Intuit would not "circumvent" him or "do this deal with anybody else." Exhibit 35 added contemplated figures for each party's equity percentage in the Mexico company, an equity reserve for the "management team," Bustamante's salary, and Intuit's 20 percent royalty. Added on July 1, 2002--the date Intuit allegedly became "firmly committed to seeing the deal through to completion"-- was the agreement to "look at alternative strategies" in the event that Bustamante was unable to secure the necessary funding. Once Phase II began, the parties became "obligated to find a way to make it work."

Bustamante maintains that summary judgment was erroneously reached because both Intuit and the superior court focused on the wrong agreements--that is, the anticipated agreements with third-party investors, rather than the agreement between him and Intuit. The latter agreement--the subject of this lawsuit-- "was simple and had certain terms: in order for Intuit or Bustamante to launch a Mexican company, they had to do so with one another and they would take all steps necessary to obtain adequate funding and to formally launch the company. That agreement was not in writing, was not required or otherwise contemplated to be put in writing, and was wholly unrelated to the Parties['] efforts to obtain written agreements with third-party investors." It was, in essence, simply an agreement "to form and launch Intuit Mexico," by working "exclusively with each other and to continue working until the company was launched." Bustamante acknowledges that the parties never resolved the "specifics of whom [sic] the [venture capitalists] would be," the amount of Bustamante's salary or Intuit's royalty, the nature of the liquidity path, and the identity of the majority owner and source of control.[2] But these details, in Bustamante's view, were not essential to the agreement to launch the business; that is, they could remain "under discussion" while the parties' relationship "remained constant." Likewise, Bustamante contends, although contracts with third-party investors were "integral to the success of the venture, they cannot be equated to the terms of the venture itself."

For purposes of this proceeding we will accept the premise that there are two separate agreements at issue. We nevertheless are unconvinced by Bustamante's position. Whether the alleged contract is viewed as a simple agreement "to form and launch" a company or as a composite of specific terms, the evidence reveals a lack of mutual consent to proceed with the project regardless of financing obstacles.

Describing the parties' mutual promises in the most general terms, Bustamante emphasizes the duty to "take all steps necessary to obtain adequate funding and to formally launch the company." But what steps are "necessary"? How can it be ascertained whether a party has complied with this term? How long were they required to continue seeking "adequate funding"? We cannot accept Bustamante's implied assertion that Intuit had to continue indefinitely to pursue an objective that had proved unsuccessful after six months. The conditions for performance are fatally uncertain.

Story continue in Part II………..

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[1] Bustamante testified in his deposition that in the letter he said 100, but he meant "a few hundred" firms.

[2] During their planning, the parties agreed that neither party wanted control of the prospective company.