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March 31, 1986

NESTLE HOLDINGS, INC. and NESTLE ENTERPRISES, INC., Defendants; NESTLE HOLDINGS, INC., Counterclaimant and Third-Party Plaintiff, v. CALIFORNIA NATURAL, INC., Counterdefendant and THOMAS F. FLYNN and DREXEL BIDDLE, FLYNN, KUMAR AND RUGGLES, INC., Third-Party Defendants

The opinion of the court was delivered by: BROTMAN

 BROTMAN, District Judge

 California Natural, Inc. ("CNI") is a food processing firm located in Westville, New Jersey. This action arises out of a series of negotiations which occurred between August, 1983 and January, 1984 involving CNI and defendants Nestle Holdings, Inc. and Nestle Enterprises, Inc. ("Nestle"). During this period, the parties contemplated a complex transaction whereby Nestle was to acquire CNI. On January 25, 1984, Nestle informed CNI that it had decided against such action. Plaintiff then filed this lawsuit alleging breach of contract, promissory estoppel, and fraud. The court's jurisdiction is founded on diversity of citizenship. 28 U.S.C. § 1332. Presently before the court are cross-motions for summary judgment on the issue of liability as to all three causes of action asserted in the complaint.

 I. Factual Background

 The factual history of this case is lengthy and complex, but a full recital is important to the parties' cross-motions for summary judgment. CNI is a small company founded in 1981, and principally engaged in the sale and development of "all-natural fruit and ice cream bars and other premium desserts." Complaint at para. 7. In late August 1983, CNI and Nestle began discussions concerning the possibility of Nestle purchasing CNI or substantially all of CNI's assets. See, e.g., id. at para. 16; Deposition of Thomas F. Flynn, Vice-President, CNI, at 22-23. Extensive discussions continued through the early fall of that year. See, e.g., Dictation Tape of James M. Biggar, President, Nestle Enterprises, September 23, 1983 (discussing on-going negotiations with CNI).

 During the fall negotiations, Biggar was informed that due to CNI's financial needs the company required that it have a firm commitment concerning the buyout's financing by the middle of October. Biggar Deposition Transcript (Dep. Tr.) at 57. According to CNI, these negotiations culminated in a series of meetings on October 19, 1983. Plaintiff's breach of contract claim rests on the premise that the parties entered into a binding oral purchase agreement on that date during a meeting between Biggar, the President of Nestle, and Thomas G. Cullen, the President of CNI. See Cullen Dep. Tr. at 435-40, 459-60.

 Plaintiff argues that Biggar and Cullen agreed upon all the essential terms of an oral contract on October 19 and that the parties intended to be bound by that agreement. Cullen Dep. Tr. at 469-71, 736-37; Deposition of George Stephen, investment broker, CNI, at Tr. 204-05. According to Cullen, all that remained to be ironed out were "formalities." Cullen Dep. Tr. at 469-71. In Cullen's view, a deal had already been set. See also Flynn Dep. Tr. at 326 ("In my mind the deal was done. They had reached an agreement."); Stephen Dep. Tr. at 208, 280-81.

 Nestle vigorously disputes CNI's contention that the parties entered into an oral agreement on October 19, 1983 for Nestle to purchase CNI. Rather, it contends that the October 19 meeting was merely one additional step in the lengthy negotiating process. According to Nestle the parties agreed on October 19 that no "definitive binding acquisition agreement" would be completed until the parties had signed a written letter of intent, negotiated and executed an asset purchase agreement and there had been an audit of CNI. See Nestle Memorandum in Opposition to Plaintiff's Motion for Summary Judgment ("Nestle Memorandum No. 1") at 5-6. These are the steps Cullen and Flynn viewed as mere formalities rather than prerequisites for a binding agreement.

 Plaintiff also claims that the oral agreement between Cullen and Biggar contained all of the terms necessary to constitute a valid contract. According to CNI, the parties agreed on matters such as the price Nestle would pay for shares of CNI stock; additional payments based on future company earnings ("earn-out"); and the transaction fee. As evidence of which terms were agreed upon, CNI points to deposition testimony of its executives and a memorandum of Flynn's from November 1, 1983, a dictated memorandum of Biggar's from October 27, 1983, and the Letter of Intent signed by both parties on November 28, 1983. CNI emphasizes that these writings are evidence of the binding oral agreement of October 19, 1983, and are not themselves binding contracts. See, e.g., CNI's Memorandum in Opposition to Defendant's Motion for Summary Judgment ("CNI Memorandum No. 2") at 36-39.

 Nestle disputes CNI's contention regarding the terms for agreement and insists that the differences among Biggar's October 27 memo, the first draft of the Letter of Intent on November 4, and the final Letter of Intent on November 29 are evidence that no final agreement was reached on October 19. See Nestle Memorandum No. 1 at 5-9.

 Both parties acknowledge that more meetings between their representatives occurred between the October 19 Cullen-Biggar meeting and the date of the final Letter of Intent, which CNI signed on November 29. Nestle characterizes these meetings as a continuation of an on-going negotiation process between the parties. See, e.g., Nestle's "Statement of Undisputed Facts" at 17-35. CNI contends, however, that most of Nestle's work at that point was delegated by Biggar to Frank Carpenter, whose duty was merely to "complete the necessary paperwork" and to "coordinate the closing process." See CNI's Memorandum in Support of its Motion for Summary Judgment ("CNI Memorandum No. 1") at 18; Frank Carpenter Memorandum, Plaintiff's Exhibit 30 in Appendix to CNI Memorandum No. 1. Again, according to CNI the "deal" had already been completed.

 During the period when CNI and Nestle representatives were meeting between October 19 and November 29, 1983, CNI also engaged in discussions with another potential buyer for its stock or assets -- Cummins Diesel Engines, Inc. See Notes of Dennis Moore, Vice-President, CNI, at 1, Marked as Defendant's Exhibit "Moore 22." For example, Cullen and Moore met with several Cummins Executives in November to discuss the possible purchase of CNI. See Cullen Dep. Tr. at 982-83; Moore Deposition at Tr. 315-16. At this meeting Moore told the Cummins representatives that CNI was "negotiating with another company and that time was of the essence. That we were soon to sign a letter of intent [with Nestle], and once we got to that point they would not have any more chance." Moore Dep. Tr. at 321. The Cummins-CNI discussions continued until November 21, when Cummins advised CNI that it was no longer interested. *fn1"

 CNI admits that it had these discussions with Cummins, but claims that it was forced to do this due to "erratic" behavior by Carpenter which led CNI to question Nestle's own intentions regarding the acquisition. See Cullen Dep. Tr. at 64, 732.

 CNI received a new draft of the Letter of Intent on November 21. After several changes by CNI, the final Letter of Intent was signed on November 29. See, e.g., Cullen Letter to Carpenter, November 25, 1983, Marked as Defendant's Exhibit "Cullen-29."

 The Letter of Intent itself is another major point of contention between the parties. CNI asserts that the Letter contains the "material terms of the acquisition agreement" which it argues was already concluded. CNI Memorandum No. 1 at 2. By contrast, Nestle contends that this Letter of Intent may not be used as any evidence of a binding oral agreement. Defendants rely on para. 11 of the Letter of Intent, which states that

this letter constitutes only a Letter of Intent and a statement of our present intentions regarding the transactions set forth above, and neither constitutes nor should be construed as evidence of any form of offer or binding contract (emphasis added).

 This section of the Letter also provides that the "consummation of the transactions" proposed in the Letter would be "expressly subject" to the execution of an asset purchase agreement and a number of other conditions including approval by Nestle's Board of Directors and an accounting review of CNI. Finally, Nestle argues, this Letter contains several examples of "material" items requiring future negotiation. *fn2" Nestle asserts that the Letter represents strong evidence that the parties lacked any binding agreement by November 29, 1983.

 After the parties signed the Letter of Intent, CNI's Board of Directors met to discuss the "ongoing negotiations to sell the [CNI] assets" to Nestle. Minutes of Meeting of [CNI] Board of Directors, December 8, 1983, Marked as Defendants' Exhibit "Flynn-172." At that meeting the Board "ratified, approved and affirmed" the Letter of Intent and "authorized and directed" CNI's officers to "negotiate the sale of the assets of CNI to Nestle." Id. There is no mention of any CNI-Nestle oral agreement in the Board minutes.

 During December, Nestle's lawyers drafted the asset purchase agreement called for in the Letter of Intent. They sent a draft to CNI on January 5, 1984. Plaintiff has complained about the amount of time that elapsed before it received this draft. Cullen wrote a letter in the interim to Carpenter expressing CNI's concern about this delay and his uncertainty over Nestle's "intentions." Letter of Cullen to Carpenter, January 3, 1984 at 5. The parties debated the content of this agreement during January. See, e.g., Discussion in Nestle's "Statement of Undisputed Facts" at para. 76. According to Nestle, some issues concerning the agreement were never resolved. CNI asserts, however, that nothing on its part prevented the deal or the asset purchase agreement from being completed. Flynn Dep. Tr. at 473.

 On January 25, 1984, Carpenter called Cullen to inform him that Nestle had decided not to go forward with the CNI acquisition. Nestle contends that a number of factors weighed into this decision, such as an analysis of "Nestle's audit and legal review of CNI's financial statements, business records and trademarks and . . . CNI's products and product claims." Nestle's "Statement of Undisputed Facts" at para. 80, n.10. CNI claims that this decision by Nestle was not based on any newly acquired information about CNI, but rather on an altered assumption about the frozen fruit bar market based on further "reflection and business judgment." See Deposition of Robert McGuigan, President, Stouffers (Nestle subsidiary), at Tr. 53; Carpenter Dep. Tr. at 209. According to CNI, the audit produced no new relevant information on CNI. Carpenter Dep. Tr. at 5.

 Another fact upon which CNI places great weight is the internal "Winning Strategy Memo" written by Carpenter. Plaintiff's Exhibit P49-Carpenter; see Carpenter Dep. Tr. at 160-61. In this note Carpenter writes that Nestle should "prolong the decision-making process, . . . find out how desperate [CNI's] condition is," and "buy [CNI] from the bankruptcy court" if it folds. It is not clear when this note was written, nor is there evidence that the note was circulated among other Nestle employees. Nevertheless, CNI asserts that this note is evidence ...

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