Arizona, State of et al v. Tohono O'odham Nation

Filing 225

ORDER - 1. Defendant's motion for summary judgment (Doc. 193 ) is granted on all claims, including the claim under Restatement § 201. 2. Plaintiffs motion for partial reconsideration (Doc. 217 ) is denied. 3. The Clerk is ordered to terminate this action. (See document for further details). Signed by Judge David G Campbell on 6/25/13. (LAD)

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IN THE UNITED STATES DISTRICT COURT

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FOR THE DISTRICT OF ARIZONA

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State of Arizona, et al.,

No. CV-11-00296-PHX-DGC

Plaintiffs,

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v.

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ORDER

Tohono O'odham Nation,

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Defendant.

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In an order dated May 7, 2013, the Court granted Defendant’s motion for

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summary judgment with respect to all claims except breach of contract under § 201(2) of

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the Restatement of Contracts.

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§ 201(2) (1979) (hereinafter “Rst.”).

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issues: (1) Does § 201(2) apply when a party’s understanding of the contract is not

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reasonable? (2) To which representatives of the State should the trier of fact look to

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decide what the State understood when the Compact was entered and what the Nation

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knew about the State’s understanding? Doc. 216 at 25. The parties have provided the

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additional briefing. Docs. 219-20, 223-24. In addition, Plaintiffs have filed a motion for

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partial reconsideration which argues that the Court overlooked key evidence related to

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their claim for breach of contract under Restatement § 201(1). Doc. 217. The Nation

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filed a response to the motion at the Court’s request. Docs. 218, 221.

Doc. 216 at 27; Restatement (Second) of Contracts
The Court ordered additional briefing on two

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For reasons explained below, the Court concludes that §§ 201(1) and 201(2)

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cannot be used by Plaintiffs to establish an enforceable oral agreement that the Nation

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would not open a casino in the Phoenix metropolitan area. The Court has already held

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that the Compact between the State and the Nation includes no such agreement, and that

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even Plaintiffs’ extrinsic evidence does not make the Compact’s terms reasonably

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susceptible to such a reading. Doc. 216. The Court now concludes that the Compact is a

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fully integrated written agreement under Chapter 9 of the Restatement, and that such an

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agreement between the parties forecloses any separate oral agreement. As a result, the

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Court will grant summary judgment in favor of the Nation on Plaintiffs’ § 201(2) claim

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and deny Plaintiffs’ motion for reconsideration on the § 201(1) claim.

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I.

The Court previously determined that Arizona law governs interpretation of the

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Governing Law.

Compact. Doc. 216 at 13. The Court stands by that decision.

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Arizona courts follow the Restatement “[a]bsent Arizona law to the contrary.” Ft.

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Lowell-NSS Ltd. P’ship v. Kelly, 800 P.2d 962, 968 (Ariz. 1990). In addressing the effect

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of a written contract and the role of extrinsic evidence, the Arizona Supreme Court has

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looked to Chapter 9 of the Restatement (Second) of Contracts for guidance. See Taylor v.

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State Farm Mutual Automobile Insurance Co., 854 P.2d 1134, 1138 (1993) (citing Rst.

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§§ 200, 212, 214). When the Arizona Court of Appeals more recently had occasion to

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revisit these issues in Long v. City of Glendale, 93 P.3d 519, 528 (Ariz. Ct. App. 2004), it

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too found Chapter 9 of the Restatement to be instructive.

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The parties’ briefing cites to various provisions of Chapter 9 and to non-Arizona

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cases that have applied those provisions, but no party has considered the overall intent of

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Chapter 9 and the role of § 201 within that chapter. Having done so with some care, the

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Court concludes that the integrated nature of the Compact is of paramount importance in

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this case, and that the role of § 201 in the face of such an integrated agreement is far more

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limited than Plaintiffs suggest.

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II.

Analysis.

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A.

Chapter 9 Introductory Note.

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Chapter 9 of the Restatement concerns the very matter at issue in this case – the

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scope of the Compact. The chapter is titled “The Scope Of Contractual Obligations.”

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Rst. ch. 9, intro. note. The introductory note to Chapter 9 explains that “[w]here the

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parties have adopted a writing as the final expression of all or part of their agreement,

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interpretation focuses on the writing, and its terms may supersede other manifestations of

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intention.” Id. (emphasis added). The introduction explains that Chapter 9 concerns the

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“process of interpreting and applying agreements” and includes “rules with respect to

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various aspects of the process.” Id. The introduction even provides an apt example of

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when a separate oral agreement is superseded by a written contract: “(1) the contract was

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integrated (§ 209); (2) the integration was complete (§ 210); (3) the oral term is

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inconsistent with the written agreement, is within its scope, does not bear on its

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interpretation, and would not naturally be omitted from the writing (§§ 213-16).” Id.

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B.

Integration.

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Topic 3 of Chapter 9 is titled “Effect Of Adoption Of A Writing.”

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introductory note to Topic 3 emphasizes the importance of a fully integrated agreement:

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“In the interest of certainty and security of transactions, the law gives special effect to a

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writing adopted as a final expression of an agreement. Such a writing is here referred to

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as an ‘integrated agreement.’” Id. (emphasis added). The note then explains the effect of

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such an agreement: “The principal effects of a binding integrated agreement are to focus

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interpretation on the meaning of the terms embodied in the writing (§ 212), to discharge

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prior inconsistent agreements, and, in a case of complete integration, to discharge prior

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agreements within its scope regardless of consistency (§ 213).” Id. Thus, if the Compact

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is fully integrated, the Court must focus on the meaning of its terms (as the Court did in

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its previous order), and the Compact discharges separate oral agreements, even those that

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might otherwise be considered consistent with the terms of the Compact.

The

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Section 209 sets out the test to determine whether a particular agreement is fully

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integrated: “Where the parties reduce an agreement to a writing which in view of its

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completeness and specificity reasonably appears to be a complete agreement, it is taken

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to be an integrated agreement unless it is established by other evidence that the writing

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did not constitute a final expression.” Rst. § 209(3). In this case, the completeness and

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specificity of the Compact certainly suggests that it was intended by the parties to be a

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fully integrated agreement. In addition, § 25 of the Compact specifically states that it is

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fully integrated: “This Compact contains the entire agreement of the parties with respect

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to the matters covered by this Compact and no other statement, agreement, or promise

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made by any party, officer, or agent of any party shall be valid or binding.” Doc. 195-11

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at 76.

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Comment b to § 209 of the Restatement does recognize that a provision like § 25

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of the Compact “may not be conclusive,” but in this case Plaintiffs have presented no

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evidence to suggest that the integration clause means anything other than what it says.

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And § 209 makes clear that merely alleging the existence of a separate oral agreement

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does not prove that a contract is not fully integrated: “If the oral agreement contradicts

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the writing, or if the writing is a complete integration, evidence of the oral agreement is

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excluded[.]” Rst. § 209, illus. 3.

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The Court concludes that the Compact between the Nation and the State is fully

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integrated. This conclusion has important implications for the remainder of the Court’s

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analysis.

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C.

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Multiple sections within Chapter 9 suggest that fully integrated agreements are to

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be interpreted with strict adherence to the words used in the writing. See Rst. §§ 212,

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213, 216.

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agreement is directed to the meaning of the terms of the writing.” Id. at § 212. Although

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Comment b of § 212 suggests that a plain meaning evaluation requires the consideration

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of some extrinsic evidence to establish context, it warns that that “after the transaction

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has been shown in all its length and breadth, the words of an integrated agreement remain

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the most important evidence of intention.” Id. at § 212, cmt. b. Comment c reiterates the

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point, stating that extrinsic evidence of intentions or promises is permitted “so long as [it

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is] used to show the meaning of the writing.” Id. at § 212, cmt. c. Finally, and most

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powerfully, the Restatement’s parol evidence rule categorically states that an integrated

Interpretation of an Integrated Agreement.

Restatement § 212 provides that “[t]he interpretation of an integrated

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agreement “discharges prior agreements to the extent that it is inconsistent with them.”

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Id. at § 213.

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The Court has already considered Plaintiffs’ extrinsic evidence and found that the

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language of the Compact is not reasonably susceptible to the meaning Plaintiffs propose.

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Citing § 201, Plaintiffs now assert that the Compact can be read to include an agreement

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not reasonably within the meaning of its words. This argument is foreclosed by the

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Restatement. Under Chapter 9, all separate agreements, both inconsistent (§ 213(1)) and

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consistent (§ 216(1)), are discharged by a fully integrated agreement. See Rst. §§ 213,

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216.1 Therefore, even if Plaintiffs could establish that a separate agreement existed

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between the State and the Nation, they could not enforce such an agreement in the face of

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the fully integrated Compact.

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D.

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Section 201 is titled “Whose Meaning Prevails.” Rst. § 201. Plaintiffs contend

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that subsections (1) and (2) of the rule can apply to the facts surrounding the negotiations

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of the Compact. The text of § 201 reads as follows:

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Section 201.

(1) Where the parties have attached the same meaning to a
promise or agreement or a term thereof, it is interpreted in
accordance with that meaning.

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(2) Where the parties have attached different meanings to a
promise or agreement or a term thereof, it is interpreted in
accordance with the meaning attached by one of them if at the
time the agreement was made

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(a) that party did not know of any different meaning
attached by the other, and the other knew the meaning
attached by the first party; or

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(b) that party had no reason to know of any different
meaning attached by the other, and the other had reason to
know the meaning attached by the first party.

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(3) Except as stated in this Section, neither party is bound by
the meaning attached by the other, even though the result may
be a failure of mutual assent.

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An exception exists for a consistent term that in the circumstances might
naturally be omitted from the writing. § 216(2)(b). The Court has already found that this
exception does not apply. Doc. 216 at 21.
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Id. Plaintiffs argue that § 201(1) applies because the State and the Nation “attached the

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same meaning” to the Compact – no new casinos in the Phoenix area. Even if the Nation

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did not attach that meaning to the Compact, Plaintiffs argue that § 201(2) applies because

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the Nation either knew or had reason to know that the State attached such a meaning to

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the Compact.

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In the full context of Chapter 9, the Court concludes that § 201 has a more limited

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role than Plaintiffs contend. The comments and illustrations to § 201(1) suggest that it

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applies when the parties agree that a particular contractual term has a meaning different

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from a meaning the law would impose. Rst. § 201, cmt. c, illus. 1-3. Comment c states

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that in Subsection (1) “the primary search is for a common meaning of the parties, not a

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meaning imposed on them by the law.” Id. (emphasis added). The three illustrations for

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§ 201(1) concern situations where the law could impose a meaning or result different

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from the parties’ intent. See id. at illus. 1-3. This narrow reading of § 201(1) – that the

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parties’ understanding controls over an interpretation that would otherwise be provided

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by statute – makes it inapplicable to this case. Plaintiffs do not contend that the law

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imposes a meaning on a term of the Compact that is inconsistent with the parties’

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understanding of that term.

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Even if § 201(1) cannot be limited to meanings imposed by law, the Court

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concludes from the intent of Chapter 9 that the parties’ unexpressed understanding can be

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enforced under § 201(1) only if it can be grounded in some way in the parties’ integrated

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agreement.

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enforcement of a separate understanding that is not embodied in any way in the integrated

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agreement – would conflict with the limiting provisions of Chapter 9 and the “special

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effect” it gives to integrated agreements.

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contrary to Chapter 9’s clear holding that a fully integrated agreement discharges separate

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oral agreements. Rst. §§ 212, 213, 216.

To hold otherwise – to adopt Plaintiffs’ view that § 201(1) permits

Such an interpretation would be directly

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Plaintiffs’ interpretation of §201(2) is flawed for similar reasons. Sections 212,

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213, and 216 make clear that an unwritten agreement or understanding cannot alter the

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terms of a fully integrated contract. Illustration 2 to § 212 is particularly relevant to the

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argument made by Plaintiffs:

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In an integrated agreement A agrees to sell and B to buy
certain patent rights. A intends to sell only the rights under
the British patent on a certain invention; B intends also to buy
rights under American and French patents. If A has reason to
know that B intends to buy the American rights, B has reason
to know that A does not intend to sell the French rights, and
the language used can be read to cover the British and
American but not the French rights, that may be determined
to be the proper interpretation.

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Id. at illus. 2 (emphasis added). The italicized language makes clear that the meaning B

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has attached to the agreement can be enforced only if the language of the contract can be

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read to include that interpretation, even if A knows of B’s interpretation. In other words,

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§ 201(2) does not operate independently of the words in the agreement. It gives effect to

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one party’s understanding only if the words of the agreement can be read to embrace that

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party’s understanding.

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The Court has already concluded that the words of the Compact cannot reasonably

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be read to include Plaintiffs’ claimed ban on new casinos in Phoenix. Thus, even if

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Plaintiffs’ extrinsic evidence could show that the State had such an understanding and the

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Nation knew it did, § 201(2) could not be used to enforce the understanding.

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So read, § 201(1) and § 201(2) are consistent with Chapter 9 and operate within

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the confines of the Restatement’s special regard for fully integrated contracts. Section

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201 provides a tool for determining whose meaning will prevail when a fully integrated

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contract uses a term in a manner contrary to an established legal meaning (§ 201(1)), or

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when one party understands a term to mean something the term reasonably can be read to

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mean and the other party knows of the first party’s understanding (§ 201(2)). Neither of

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these uses permits evidence of a prior oral agreement to contradict the terms of a fully

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integrated contract, and neither aids Plaintiffs in this case.

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E.

Arizona Case Law.

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This interpretation of the Restatement comports with Arizona case law. In Long,

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the plaintiff donated several parcels of land to the City of Glendale subject to a deed

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restriction that required the City to use the land for airport and municipal purposes. 93

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P.3d at 524. The deed permitted improvements for the operation of an airport. Id. When

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the City leased the land to a third party and it became clear that a second runway would

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not be built on one of the parcels, the plaintiff sued the city, arguing that the construction

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of a second runway on one of the parcels was the intent of the parties at the time the

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donation was made. Id. at 527. On appeal, he also argued that the trial court erred when

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it refused to consider extrinsic evidence of the parties’ intent in donating and accepting

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the parcel. Id. at 527.

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Long applied Arizona’s parol evidence rule and concluded that the plaintiff

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“offer[ed] no explanation as to how the language [in the relevant clauses] could be

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interpreted to mean that the City was obliged to construct a second runway on the

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property.” Id. at 529. The Court continued:

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Even assuming the parties intended [the parcel] to be used for
a second runway, there must be something in the deed that
would permit the court to find that the deed’s language is
amendable to an interpretation specifying that the property
must be used only for that purpose. In the absence of such
language, the allegations in Long’s complaint are not
sufficient to overcome the requirements of even the more
permissive parol evidence rule adopted in Arizona.

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Id. The Arizona Court of Appeals clearly was concerned with a permissive approach to

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the parol evidence rule that would render the actual terms of the written agreement

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superfluous. Thus, even when the court assumed that the plaintiff’s proffered meaning

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represented the parties’ actual intent, the court would not permit extrinsic evidence to

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vary the terms of the agreement.

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A similar sentiment is expressed in Taylor, where the court emphasized that

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interpretation is “the process by which we determine the meaning of words in a contract”

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and that the parol evidence rule “prohibits extrinsic evidence to vary or contradict . . . the

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agreement.” 854 P.2d at 1138.

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Nothing in Taylor or Long suggests that evidence of a party’s interpretation of an

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agreement may be admitted when the language of the agreement is not reasonably

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susceptible to that interpretation. Although neither case discussed § 201, the Court

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cannot conclude that Arizona courts would read § 201 in a manner that nullifies the

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Arizona parol evidence rule. The Court accordingly concludes that its interpretation of §

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201 is consistent with these Arizona cases.

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F.

Summary.

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The Compact between the State and the Nation is fully integrated. It does not

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contain a ban on new casinos in the Phoenix area, and its terms cannot reasonably be read

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to include such a ban, even in the light of Plaintiffs’ extrinsic evidence. As a result, any

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evidence Plaintiffs might present of a separate oral understanding between the Nation and

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the State, or concerning the State’s understanding of which the Nation was aware, must

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be excluded from the task of interpreting the Compact under Chapter 9 of the

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Restatement. The fully integrated compact discharges any unwritten understandings.

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IT IS ORDERED:

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1.

Defendant’s motion for summary judgment (Doc. 193) is granted on all
claims, including the claim under Restatement § 201.

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2.

Plaintiffs’ motion for partial reconsideration (Doc. 217) is denied.

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3.

The Clerk is ordered to terminate this action.

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Dated this 25th day of June, 2013.

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