                                                                                                                           Opinions of the United
2001 Decisions                                                                                                             States Court of Appeals
                                                                                                                              for the Third Circuit


3-9-2001

Gleason v. Norwest Mortgage Inc
Precedential or Non-Precedential:

Docket 00-5112




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http://digitalcommons.law.villanova.edu/thirdcircuit_2001/45


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Filed March 9, 2001

UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT

No. 00-5112

CRISTEN M. GLEASON,
       Appellant

v.

NORWEST MORTGAGE, INC.

Appeal from the United States District Court
For the District of New Jersey
D.C. No.: 96-cv-04242
District Judge: Honorable Alfred J. Lechner , Jr.
District Judge: Honorable Katharine S. Hayden

Argued: October 6, 2000

Before: BARRY, AMBRO, and ROSENN, Circuit Judges.

(Filed: March 9, 2001)

       James W. Dabney (Argued)
       Katharine E. Smith
       Pennie & Edmonds, LLP
       1155 Avenue of the Americas
       New York, NY 10036

        Counsel for Appellant
       Lawrence M. Rolnick (Argued)
       Michael D. Lichtenstein
       Lowenstein Sandler, PC
       65 Livingston Avenue
       Roseland, NJ 07068

        Counsel for Appellee

OPINION OF THE COURT

ROSENN, Circuit Judge.

This multi-issue appeal has its origin in the sale of a
company subject to an apparently simple "right of first
offer." Cristen Gleason ("Gleason") founded U.S.
Recognition, Inc. ("USR" or "Company") to develop and sell
computer systems and software to search, store, and
retrieve real estate listing infor mation. In October 1991,
Gleason agreed to sell all of his capital stock in USR to the
defendant, Norwest Mortgage, Inc. ("Norwest"), a national
mortgage banking company. The sale contract pr ovided that
if Norwest decided to sell USR within the firstfive years
after the closing date of this sale, it was obligedfirst to offer
it to Gleason. If Gleason did not accept the of fer within
thirty days, Norwest was free to sell USR to another buyer
on terms substantially similar to those of fered to Gleason.

Norwest sold USR to Moore Business Forms, Inc.
("Moore") in 1996. Gleason claims that Norwest neither
made him the first offer to buy USR nor sold USR at terms
substantially similar to those offered to and accepted by
Moore. Gleason moved in a New Jersey state court for a
preliminary injunction to restrain Norwest from proceeding
with the sale. Norwest removed the action to the United
States District Court for the District of New Jersey, where
the Court, on October 10, 1996, denied the motion for the
injunction. The District Court later granted summary
judgment for Norwest and against Gleason. We affirm in
part and reverse in part and remand for further
proceedings as are consistent with this opinion.

                               2
I.

Gleason founded USR in 1984 to develop and sell
computer systems and software to store, search, and
retrieve real estate listing infor mation. On October 25,
1991, Gleason agreed to sell all of the capital stock in the
Company to Norwest for $1.3 million. Gleason r emained as
President of USR. The stock purchase agr eement ("SPA")
included provisions requiring Norwest to maintain USR as
a separate profit center for at least five years. Particularly
pertinent to this appeal, S 9.2 of the SP A specifically
provided:

       [Norwest] agrees that if it decides to sell USR at any
       time during the first five years after the Closing Date,
       it will first offer USR to [Mr. Gleason]. [Mr. Gleason]
       shall have 30 days to accept the offer , and if not
       accepted within the 30 days, [Norwest] shall be free to
       sell USR to anyone else on terms substantially similar
       to those offered to [Mr. Gleason].

In early 1993, Norwest acquired Boris Systems, Inc.
("Boris"), USR's former competitor . As early as September
1995, Norwest began investigating the sale of Boris and
USR as a package. Norwest created an "Of fering
Memorandum" and other internal and exter nal documents
expressing an interest to solicit of fers for its USR and Boris
subsidiaries. By early 1996, after preliminary discussions
with several potential buyers, Norwest's discussions began
with Moore. Commencing in May 1996 and thr ough June
and July 1996, the negotiations between Norwest and
Moore progressed and intensified. On May 15, 1996, Moore
wrote Norwest that it "received corporate approval to
proceed with . . . negotiations which will hopefully result in
Moore's acquisition of Boris and [USR]." Moore also
proposed a price of $11.5 million for both companies and a
general outline of a process to "maximize the certainty of
closing," including a confidentiality agr eement. Id.

On June 11, 1996, Norwest responded thr ough its
investment bank to Moore's proposal, stating it wanted to
move toward a definitive agreement with Moore, and would
be prepared to cease temporarily pr eparation of a formal
auction for Boris and USR if Moore accepted Norwest's

                               3
counter-proposal terms, viz: 1) $15 million purchase price;
2) Norwest receives participation rights for two years on any
initiatives relating to the origination offirst mortgage loans
through any product offerings by Moore; 3) Moore
completes its preliminary due diligence pr ocess during any
two consecutive day period within nine days of June 11, to
be performed off USR's premises; 4) Moore enters a
definitive agreement with Norwest by June 28, 1996; 5)
Moore must not disclose the possible sale of Boris or USR
during due diligence; and 6) Moore pays a $1.5 million
break-up fee if it fails to close the transaction. On June 26,
1996, Moore wrote Norwest stating it r eceived corporate
approval to proceed with negotiations for the acquisition of
Boris and USR, and was making a "non-binding pr oposal"
to pay $13.5 million. Moore also proposed other pre- and
post-closing procedures.

Gleason first learned about Moore's interest in USR and
Boris on June 26, 1996, when Norwest Executive V ice
President Mike Keller ("Keller") invited Gleason to dinner
and told him that Norwest wanted $14 million for Boris and
USR, that Norwest expected to sign an agreement with
Moore within a few days, and that the $14 million price was
allocated $12 million for Boris and $2 million for USR.
Gleason stated that he wanted to buy both companies;
Keller was noncommittal.

On July 3, 1996, Moore wrote to Norwest stating that: 1)
Moore received corporate approval to proceed with
negotiations which hopefully would result in Moore's
acquisition of Boris and USR; 2) it would pay $14 million
for USR and Boris; 3) it required certain procedures during
the pre-closing due diligence process; and 4) the letter was
a "non-binding proposal for how Moor e . . . would acquire
Boris and [USR]." Norwest responded on July 8, 1996
stating that the proposed terms wer e acceptable, and that
it had assigned resources to assist Moor e's pre-diligence
process. Moore later produced, at Norwest's request, a
"Valuation Estimate Split" attributing $3.5 million of the
proposed $14 million purchase price to USR.

On July 19, 1996, Norwest formally offer ed to sell USR's
stock to Gleason for $3.5 million, subject to the following
terms: 1) Norwest would have a right to participate in any

                               4
initiatives for mortgage-related transactional services and
products offered by USR; 2) a definitive agreement of sale
must be entered within thirty days, and Gleason would
have to place a "break-up" fee into escr ow upon execution;
3) Norwest would provide transitional accounting and
human resources services for the balance of 1996 at no
charge; 4) Gleason would have thirty days to accept the
offer by formal execution of a mutually agreeable definitive
stock purchase agreement and by pr oviding evidence that
financing acceptable to Norwest was in place; 5) if Gleason
accepted the offer, the purchase must close within 15 days
from the date of execution of the definitive agreement; and
6) the due diligence process was limited to no more than
three days, and must be performed off-site from USR's
operations.

Gleason wrote to Norwest on August 14 stating, inter
alia, that: 1) he was interested in acquiring USR and Boris;
2) negotiations with financing sources wer e "encouraging;"
3) the terms Norwest offered wer e unlikely to be met in the
time frame proposed; 4) if the price for USR changed, he
was entitled to another opportunity to purchase USR; 5) he
had questions about how a Norwest software package called
"Win-2" would be administered after USR's sale;1 and 6) he
would be interested in a leveraged buyout if negotiations
with Moore became difficult.

By August 19, 1996, the day after Norwest's of fer to
Gleason expired, the price for Boris and USR of fered by
Moore had fallen to $13.5 million. Gleason, by letter dated
August 19, 1996, offered Norwest $3.5 million for USR
pending clarification of the Win-2 softwar e asset. In that
letter, Gleason, explaining that he r etained an investment
bank (Alex. Brown) to assist in obtaining financing, also
offered $13.5 million for USR and Boris. Gleason also asked
for more time to negotiate and close a deal. On August 19,
Alex. Brown wrote to Norwest requesting: 1) confirmation of
_________________________________________________________________

1. WIN-2 was a product developed jointly by Boris and USR during
Norwest's ownership. WIN-2 was expensive and fraught with technical
delays and problems. Its ownership was a factor in talks to sell USR and
Boris, especially when sale of the two companies to different buyers was
contemplated.

                               5
the offering price and terms for Boris and USR; and 2) a
sample definitive agreement. Norwest did not respond to
either the August 19 letters from Gleason and Alex. Brown
or the August 14 letter from Gleason. Norwest, however,
worked toward executing binding agreements with Moore.

On September 6, 1996, Gleason, moving for a pr eliminary
injunction restraining Norwest from selling USR and Boris,
brought a civil action against Norwest in the Superior Court
of New Jersey, Passaic County. Norwest removed the action
to the United States District Court, and successfully
opposed the preliminary injunction. On September 24,
1996, in anticipation of the impending sale of USR and
Boris, Norwest caused Boris and USR to execute a cr oss-
licensing agreement confirming that both USR and Boris
had full ownership of WIN-2. On September 27, 1996,
Norwest and Moore signed two stock purchase agreements,
one for Boris and one for USR, but the parties did not close
on the transactions. Moore agreed to pay $3.5 million for
USR.

Apparently out of a sense of caution, on September 27,
1996, Norwest again offered to sell USR to Gleason.
Norwest stated that it believed Gleason's S 9.2 right had
expired unexercised in August, but that a second
opportunity would address Gleason's claim that Norwest
did not provide him a "meaningful opportunity to exercise"
his option. Norwest enclosed a cross-license agreement for
WIN-2 (in response to Gleason's query in his August 14,
1996 letter), and a proposed agreement with related
schedules. See id. The relevant ter ms of the offer included:
1) Gleason had thirty days to accept; 2) $3.5 million
purchase price in cash at closing; 3) closing and execution
of an agreement must be completed by 10:00 a.m. on
October 28, 1996; and 4) Gleason could perfor m the due
diligence process at any time, subject to a confidentiality
agreement, off-site from USR's locations.

Moore closed on its purchase of Boris on October 1,
1996. As part of that sale, Moore and Norwest executed a
non-competition agreement in which Norwest agr eed not to
compete with Boris for five years after closing, and in which
Moore allowed Norwest to operate USR in competition with
Boris until USR was sold. Moore closed on its purchase of

                               6
USR on November 1, 1996 after Gleason failed to comply
with the acceptance terms in the September 27, 1996 offer.

In February 1997, Norwest moved for summary judgment
on Gleason's first amended complaint claims of, inter alia,
breach of contract and breach of the implied covenant of
good faith and fair dealing. Also in February 1997, the
District Court granted Gleason leave to file a second
amended complaint adding fraud claims. In May 1997,
Norwest moved for summary judgment on the fraud claims.
On September 17, 1997, the District Court granted
summary judgment against Gleason's breach of contract
and fraud claims. On October 2, 1997, Gleason moved for
reconsideration based on new evidence, including expert
witness testimony developed since March 1997. The District
Judge denied the motion to reconsider. On October 15,
1997, Norwest requested that the Court clarify whether it
intended to enter summary judgment against the implied
covenant of good faith and fair dealing claim. On October
22, 1997, the Court entered summary judgment against
that claim.

II.

Before turning to the merits, we must consider, as a
threshold matter, our appellate jurisdiction. On January
28, 2000, the parties stipulated to a "final judgment" order
under Fed. R. Civ. Proc. 54(b).2 The District Judge stated
that all claims were resolved through judgment, settlement,
or mootness, except that each party's claim for contractual
attorneys' fees and costs under SPAS 8.11 remained
outstanding.3 The judge found"no reason for delay in entry
_________________________________________________________________

2. Fed. R. Civ. Proc. 54(b) states in r elevant part:

       When more than one claim for relief is pr esented in an action . .
.
       the court may direct the entry of a final judgment as to one or
more
       but fewer than all of the claims or parties only upon an express
       determination that there is no just r eason for delay and upon an
       express direction for the entry of judgment. . . .

3. SPA S 8.11 provides:

       If any party to this Agreement brings an action or suit against any
       other party be [sic] reason of any br each of any covenant,

                                7
of this final judgment" and explicitly labeled the order a
final judgment. The judge further stated that the outcome
of appeals could materially affect the Court's determination
of which party prevailed and which party lost. When this
Court docketed the appeal, the Clerk warned counsel that
dismissal was possible for an unspecified jurisdictional
defect. Norwest, without conceding that ther e was appellate
jurisdiction, responded that "a number of cases . . . have
discussed the award of counsel fees in a br each of contract
case and the finality of an appeal before such an award is
made." Gleason responded that the January 28 order of the
District Court was "final" within the meaning of 28 U.S.C.
S 1291 (final order statute), so that we had jurisdiction to
decide the appeal.

Gleason, citing the January 28, 1999 "final judgment"
order and Budinich v. Becton Dickinson & Co., 486 U.S.
196, 202-03 (1988), argues that there is appellate
jurisdiction under 28 U.S.C. S 1291. Norwest questions
whether there is appellate jurisdiction because the
attorneys' fee issue turns on a pr ovision in the same
contract containing the right of first offer provision. Even
though Norwest does not explicitly argue that there is no
appellate jurisdiction, we must under the cir cumstances
consider our own jurisdiction before reviewing the merits.
See Trent Realty Assocs. v. First Fed. Sav. & Loan Ass'n,
657 F.2d 29, 36 (3d Cir. 1981).

When an outstanding claim for attorneys' fees is by a
statutory prevailing party, the unresolved issue of those
fees does not prevent judgment on the merits fr om being
final. See Budinich, 486 U.S. at 202. However, we have held
that when attorneys' fees are part of the contractual
damages at issue on the merits, a District Court's order
delaying quantifying the amount of such fees is non-final
for purposes of appeal. See Ragan v. Tri-County Excavating,
_________________________________________________________________

         agreement, representation, warranty or any other provision hereof,
         or any breach of any duty or obligation cr eated hereunder by such
         other party, the prevailing party in whose favor final judgment is
         entered shall be entitled to have and r ecover of and from the
losing
         party, all costs and expenses incurred or sustained by such
         prevailing party in connection with such suit or action, including
         without limitation, reasonable legal fees and court costs . . . .

                                 8
Inc., 62 F.3d 501, 505 (3d Cir. 1995). "[W]hen an award of
attorney fees is based on a contractual pr ovision and is an
`integral part of the contractual relief sought,' the order
does not become final and appealable until the attorney
fees are quantified." Id. Ra gan distinguished claims for
attorneys' fees by prevailing parties under statute from
claims for attorneys' fees as damages. See Vargas v.
Hudson County Bd. of Elec., 949 F.2d 665 (3d Cir. 1991)
(recognizing distinction in treatment under S 1291 between
fees as an element of damages and fees for a statutory
prevailing party). In this case, the claim for attorney's fees
is not predicated on a statutory prevailing party provision
but on the contractual obligation to pay attor neys' fees "to
the prevailing party in whose favor judgment is entered."
SPA S 8.11. For all practical purposes, we see no difference
under these circumstances, for S 1291finality purposes,
between payment of attorneys' fees to a pr evailing party
under statute and payment of attorneys' fees under the
contract to a "prevailing party." The pr evailing party
attorneys' fees provided for in SP A S 8.11 are not an
integral part of the contractual relief sought; the issue of
which party prevailed in the litigation on the merits is
collateral to the substantive issues on appeal and does not
prevent judgment on the merits from beingfinal.

The Rule 54(b) "final judgment" was final for purposes of
appeal of the substantive determinations. Thus, we have
appellate jurisdiction. See 28 U.S.C. S 1291. Gleason and
Norwest are citizens of different states, and the amount in
controversy exceeds $75,000; subject matter jurisdiction
exists. See 28 U.S.C. S 1332.

III.

Gleason appeals the summary judgment against his
breach of express contract, breach of implied covenant of
good faith and fair dealing, and fraud claims. W e exercise
plenary review of a grant of summary judgment, applying
the same standard as the District Court. See Kiewit Eastern
Co., Inc. v. L & R Constr. Co., 44 F .3d 1194, 1198 (3d Cir.
1995). The Court may grant summary judgment only if,
after drawing all reasonable inferences fr om the underlying
facts in the light most favorable to the non-moving party,

                               9
there are no genuine issues of material fact and the moving
party is entitled to judgment as a matter of law. See id. In
determining whether the District Court err ed, we must view
the facts as asserted by the nonmoving party as true if they
are supported by affidavits or other admissible evidentiary
material. See Becton Dickinson & Co. v. W olckenhauer, 215
F.3d 340, 343 (3d Cir. 2000); Aman v. Cort Furniture Rental
Corp., 85 F.3d 1074, 1080 (3d Cir . 1996). A nonmoving
party has created a genuine issue of material fact if it has
provided sufficient evidence to allow a jury to find in its
favor at trial. See Brewer v. Quaker State Oil Refining Corp.,
72 F.3d 326, 330 (3d Cir. 1995). Summary judgment is
appropriate for the moving party if no r easonable juror
could conclude that the non-moving party should pr evail.
See Orsatti v. New Jersey State Police, 71 F .3d 480, 482 (3d
Cir. 1995).

In this case, the SPA states that it "shall in all respects
be governed by, and enforced and interpr eted in accordance
with, the laws of the State of Minnesota." See SPA S 8.14.
We perceive no error in the District Court's determination
that Minnesota law applies to the breach of contract and
implied duty of good faith and fair dealing claims. The
District Court also appropriately applied New Jersey law to
the fraud claim because there is no significant distinction
between the substantive laws of fraud among the interested
states of New Jersey, Iowa, and Minnesota. Neither party
contests the District Court's choice of law decisions.

A. Breach of S 9.2 of 1991 SP A

The objective of judicial interpretation of disputed
contract provisions is to give effect to the discernable
intention of the parties, ascertaining that intent, if possible,
by examining the contractual plain language. See Midway
Ctr. Assocs. v. Midway Ctr., Inc. , 237 N.W.2d 76, 78 (Minn.
1975). A contract is unambiguous if the Court, without
looking to extrinsic evidence, can determine the meaning of
the contract's language. See ICC Leasing Corp. v.
Midwestern Mach. Co., 257 N.W.2d 551, 554 (Minn. 1977).
The determination of whether a contract ter m is clear or
ambiguous is a question of law. See Goebel v. North
Suburban Agencies, Inc., 567 N.W.2d 511 (Minn. 1997). A
contract is ambiguous if, based on its language alone, it is

                                  10
reasonably susceptible of more than one interpretation. See
id. Whether a contract is ambiguous depends on the
meaning assigned to words or phrases in accor dance with
the apparent purpose of the contract as a whole. See id.

S 9.2 of the SPA states:

       Right of First Refusal to Repurchase.

       [Norwest] agrees that if it decides to sell USR at any
       time during the first five years after the Closing Date,
       it will first offer USR to [Mr. Gleason]. [Mr. Gleason]
       shall have 30 days to accept the offer , and if not
       accepted within the 30 days, [Norwest] shall be free to
       sell USR to anyone else on terms substantially similar
       to those offered to [Mr. Gleason].

The threshold question is a determination of the extent of
the legal right provided by S 9.2 to Gleason for the
repurchase of USR. Gleason and Norwest contest whether
S 9.2 provides a "right of first of fer" or a "right of first
refusal." This is a question of law, the answer to which lays
the groundwork for every issue on appeal.

Were we to consider the substantive language of S 9.2 as
giving Gleason the right of "first offer" to purchase, as he
argues on appeal here, we would declar e the provision void
for vagueness. No price for the property isfixed in S 9.2, nor
are any terms or conditions of sale. Nor does S 9.2 set a
method for ascertaining a sale price. See Portnoy v. Brown,
243 A.2d 444, 447 (Pa. 1968) ("[P]rice is an essential
ingredient of every contract for the transfer of property and
must be sufficiently definite and certain or capable of being
ascertained from the contract between the parties.");
Restatement (Second) of Contracts S 33(1), (3) (1981); see
also I Richard A. Lord, Williston on Contracts S 4.18 (1999).
On the other hand, if S 9.2 is construed, as we think the
parties truly intended at the time the instrument was
executed, as a right of first refusal,4 then the price and
_________________________________________________________________

4. Gleason's pleadings, early affidavits, and pre-litigation
correspondence
consistently refer to S 9.2 as a right offirst refusal, and support our
construction of this section. Gleason intended to possess a right of first
refusal, not a right to first offer . His altered position, presumably

                               11
terms are determined by refer ence to the same terms
offered by a bona fide third-party purchaser. Thus, a right
of first refusal, also known as a preemptive right, empowers
Gleason with a preferential right to r epurchase USR on the
same terms offered by a bona fide purchaser. In the
absence of such a construction, this naked right of"first
offer" can have no legal significance or preemptive right
whatsoever. Without a price, ter ms, or conditions, a right of
first refusal creates a dormant right of preemption, the
right to receive an offer before others do, but based on third
party information. The right cannot be exer cised until
receipt of a bona fide third party of fer. Once the holder of
a right of first refusal receives notice of a third party's offer
with price and terms, the right of first r efusal is
transformed into an option. See 17 C.J.S. S 56 (1999).5
_________________________________________________________________

precipitated by his new counsel on appeal, does not change the clear
intent of the parties when the contract was for med and when Gleason
attempted to exercise the provision. See Appx. 1665 (Gleason's affidavit
in opposition to motion for summary judgment stating, "When I
negotiated the sale of USR to Norwest which closed on May 1, 1992, I
had at least three major objectives: (a) to take back a Right of First
Refusal to repurchase USR if Norwest ever decided to sell it; . . . ." See
Appx. 287, 295 (Gleason's Amended and Supplemental Complaint, twice
alleging violation of his "Right of First Refusal," and never mentioning
any right of first offer). See also Appx. 17, 19, 20, 28, 31, 46, 1356.

5. We do not hold that a right of first offer is not recognized under the
law as distinct from a right of first refusal. A right to receive a first
offer
may exist if the contract provides price and other relevant terms, or a
means of ascertaining them. But a bald "right offirst offer," as exists
here, is meaningless and void unless the parties intended to create a
right of first refusal. Contractual language providing for a first offer
to
sell in reality may be read "as a rightof first refusal." Lind v. Vanguard
Offset Printers, Inc., 857 F. Supp. 1060, 1065 (S.D.N.Y. 1994). Lind also
involved the purchase of stock with an agr eement on the part of the
purchaser that if he decided to sell his stock,"he must first offer it
back
to [the seller]." Id. "A right of first refusal, also known as a
preemption
or preemption right, requires the seller, when or if he or she decides to
sell, to first offer the property to the holder of the right, either at a
stipulated price or at the price and on the ter ms the seller is willing
to
sell." Allison v. Agribank FCB, 949 S.W . 2d 182, 186 (Mo. Ct. App. 1997).
Minnesota law is in accord. See Henry Simons Lumber Co. v. Simons, 44
N.W.2d 726, 727 (Minn. 1950). Accor d, Hood v. Hawkins, 478 A.2d 181,
185 (R.I. 1984).
12
Under the basic rule of contract construction, we
ascertain and give effect to the intention of the parties as
expressed in the agreement. To this end, we construe the
contract as a whole, giving effect to every portion of the
instrument, if possible, and utilizing that construction
rendering the agreement legal rather than one which makes
it void." See 11 Richard A. Lor d, Williston on Contracts
S 32:11 (1999). Consistent with our construction of S 9.2,
the caption of the section identifying Gleason's right to
repurchase states, "Right of First Refusal." We are mindful,
however, of language in the SPA r emoving legal effect to
captions. See SPA S 8.7.

Thus, giving Gleason as the non-moving party and the
subject of the provisions of S 9.2 the benefit of all
inferences, we conclude that S 9.2 of the SPA gave Gleason
not a right to notice of a decision by Norwest to sell, but
under the facts of this case, a preemptive"right of first
refusal," effective upon Norwest's r eceipt of a bona fide
third party offer. We now turn to whether Norwest complied
with Gleason's preemptive right.

The District Court held that there were no disputed
issues of material fact and that Norwest: acted consistently
with the clear and unambiguous terms of the SP A when it
negotiated with Moore; made the first of fer of sale to
Gleason and waited thirty days for Gleason to r espond to
the offer; and sold to Moore after thirty days at
substantially similar terms.

Gleason argues on appeal that five disputed issues of
material fact remain: 1) whether Norwest decided to sell
before it offered USR to Gleason, thus purportedly
breaching the SPA; 2) once it decided to sell USR, whether
Norwest first offered USR to Gleason; 3) whether the non-
financial terms offered to Moor e were substantially similar
to those offered to and rejected by Gleason; 4) whether the
$3.5 million price offered to Gleason was substantially
similar to the price Moore paid; and 5) whether Gleason
suffered any loss, detriment, or injury.

       1. Norwest's Decision to Sell

The parties contest when Norwest decided to sell USR,
but this is not a material fact. Gleason argues that as soon

                               13
as Norwest decided to sell USR, Norwest was r equired
immediately to make an offer to Gleason underS 9.2. But
S 9.2 does not require such action. The date Norwest
decided to sell is only relevant to whether it was "during the
first five years after the closing date" of Gleason's sale to
Norwest. The parties agree that Norwest decided to sell USR
during the five year period; that ends the inquiry. The
timing of the sale, whether determined by tax, marketing or
other considerations, remained at all times within Norwest's
control so long as it first gave Gleason an opportunity to
purchase USR on substantially similar ter ms as those
appearing in Moore's bona fide offer . To the extent that the
District Court found or implied that Norwest decided to sell
on any given date, that finding or that implication is
irrelevant. The "Offering Memorandum" that Norwest
produced in 1995 was an invitation to negotiate; it was not
a legal offer for sale. Gleason attempts to construct a
disputed issue of material fact, when the language of S 9.2
can only be reasonably read to create a right of first refusal,
especially on the facts of this case.

       2. Whether Norwest first offered USR to Gleason

Gleason argues strenuously that once Norwest decided to
sell USR, Norwest was required to communicate with
Gleason first and that Norwest's overtures to third parties
like Moore breached S 9.2.

Section 9.2 gives Gleason the right of first r efusal, not a
right to first negotiation. As we construe S 9.2, the word
"first" in the phrase "first offer" means only that Gleason
was to have been given the opportunity to exer cise his right
of first refusal. Norwest could have valued USR strictly with
accounting information, but nothing in S 9.2 prevented
Norwest from ascertaining USR's value by exploring the
marketplace and soliciting offers to pur chase. "Frequently,
negotiations for a contract are begun between parties by
general expressions of willingness to enter into a bargain
upon stated terms, and yet the natural construction of the
words and conduct of the parties is that they are inviting
offers, or suggesting the terms of a possible future bargain,
rather than making positive offers." 1 Richard A. Cord,
Williston on Contracts S 4:7 (4th ed. 1999).

                               14
On July 19, 1996, Norwest offered to sell USR to
Gleason, thus providing him with the opportunity to
exercise his right of first refusal. Until then, Norwest had
not sold USR to Moore or anyone. Therefor e, any prior
negotiations, communications, or conversations with regard
to the sale of USR to Moore or anyone else ar e irrelevant
and any factual disputes as to those matters ar e not
material.

       3. Substantial similarity

Section 9.2 permitted Norwest to sell USR to a third
party only if Norwest first offered it to Gleason on terms
substantially similar to those offered by the third party.
Gleason argues that Norwest breachedS 9.2 by selling USR
to Moore on terms more favorable than those offered to
Gleason.

       a. Non-financial terms

Generally, a determination of substantial similarity would
be a jury issue, but the non-price terms that Norwest
offered to Moore and Gleason wer e so close that no
reasonable jury could find that they wer e not substantially
similar. The July 19, 1996 offer to Gleason required that: 1)
Norwest would have a right to participate in any initiatives
for mortgage-related transactional services and products
offered by USR; 2) a definitive agr eement of sale must be
entered, and Gleason would have to pay a "br eak-up" fee
into escrow upon execution; 3) Norwest would pr ovide
transitional accounting and human resour ces services for
the balance of 1996 at no charge; 4) Gleason would have
thirty days to accept the offer by for mal execution of a
mutually agreeable definitive stock pur chase agreement
and by providing evidence that financing acceptable to
Norwest was in place; 5) if Gleason accepted the of fer, the
purchase must close within fifteen days fr om the date of
execution of the definitive agreement; and 6) due diligence
was limited to no more than three days, and had to be
performed off site from USR's operations. Gleason argues
that Norwest gave Moore: 1) an indefinite period to conduct
on-site due diligence; 2) no deadline for execution of a stock
purchase agreement; 3) no obligation to pay a "break-up"

                                15
fee; 4) an "out" in the event Moore was unable to conclude
employment agreements for key individuals; and 5) a non-
competition agreement. See Appellant Reply Br. 16-17.
Gleason's five objections concern "pr e-closing" terms of
USR's sale to Moore.

The District Court reasoned that the longer deadlines for
Moore did not amount to a breach becauseS 9.2 provides
only thirty days to Gleason to accept the of fer. The
restrictive pre-closing terms did appear to hamper
Gleason's ability to accept Norwest's two of fers, but Gleason
only bargained for thirty days to accept the offer. The
District Court did not specifically discuss the stress
between the thirty-day provision in S 9.2 and the longer
term given to Moore.

Substantial similarity is not lacking among the non-
financial terms. Independent review of Norwest's two offers
to Gleason and the final terms of sale to Moore shows that
they were substantially similar. A br eak-up fee appears to
have been contemplated between Norwest and Moor e as
early as June 1996. See June 11, 1996 letter from Norwest
by UBS Securities, to Moore. Moore had mor e time for due
diligence because SPA S 9.2 allowed Norwest to limit
Gleason's due diligence to thirty days. Gleason had been
President of USR through August 1996, and presumably
was familiar with its operations and needed far less time
and access to USR's financial statements than Moor e did.
The non-competition agreement between Norwest and
Moore was entered after Gleason's first offer expired, and
thus cannot be fairly used against Norwest as an additional
term of sale.

       b. Price terms

The most significant term of the offer to sell concerned
the price for USR. If the price offered to Gleason was
artificially excessive, this would in all pr obability discourage
Gleason's efforts to purchase and would promote Norwest's
persistent plan to conclude successfully the package sale of
both USR and Boris to Moore. Gleason ar gues that
Norwest's $3.5 million price offer was generated improperly
because it was an arbitrary proration of Moor e's combined

                                16
valuation of USR and Boris. He argues that Moore and
Norwest "padded" USR's price and understated Boris's price
to obstruct Gleason from acquiring USR and to allow
Norwest to "package sell" its two subsidiaries. Gleason
argues that Moore actually paid less than $3.5 million for
USR, and paid more than $9.5 million for Boris, resulting
in a purchase at terms substantially dif ferent from those
offered to Gleason. Gleason produced documentary and
expert evidence that: 1) Moore had valued Boris at $10.5
million in July 1996, and reduced its value by $1 million by
September 27, 1996; and 2) the $3.5 million price was
"generated by adding $836,000 of additional and
undocumented `synergies.' " Appx. 2905 (expert report of
Winston Himsworth). Norwest responds that Gleason never
raised his "padded pricing" argument before the District
Court, and that he cannot raise it now for the first time.

The ruling on a motion for summary judgment is to be
made on the record the parties have actually presented, not
on one potentially possible. See Shafer v. Reo Motors, 205
F.2d 685, 688 (3d Cir. 1953). Generally, barring exceptional
circumstances, like an intervening change in the law or the
lack of representation by an attor ney, this Court does not
review issues raised for the first time at the appellate level.
See Gardiner v. Virgin Islands W ater & Power Auth., 145
F.3d 635, 646 (3d Cir. 1998) (citing United Parcel Serv. v.
Intern. Broth. Local No. 430, 55 F .3d 138, 140 n.5 (3d Cir.
1995)). Although we have discretion to r eview an argument
not raised in the trial Court, we ordinarily r efuse to do so.

Gleason argues that his submissions between the close of
discovery and the District Court's ruling on the motion for
summary judgment contained support for the "padding"
argument, and should have been consider ed in response to
the motion for summary judgment. Gleason also suggests
that the District Court should have inferred or implied the
padding argument because of the severe risk of price
manipulation in a package deal where part of the package
is subject to a right of refusal.

On August 29, 1997, nearly a month before the Judge
made his first ruling on the motions for summary
judgment, Gleason submitted the declaration of W inston E.
Himsworth ("Himsworth") in support of an expert report

                                17
concerning USR's proper valuation. In his declaration,
Himsworth concluded that a proportionate price for USR
could have been no more than $2.6 million, far less than
the $3.5 million Norwest offered Gleason. Some courts have
held that "allocations of price to elements of a package may
readily be manipulated to defeat contractual rights of first
refusal." See, e.g., Pantry Pride Enters., Inc. v. Stop & Shop
Co., 806 F.2d 1227, 1231-32 (4th Cir . 1986); see also
Gyurkey v. Babler, 651 P.2d 928 (Idaho 1982) (collecting
cases); Hinson v. Roberts, 349 S.E.2d 454 (Ga. 1986).
Although the cited cases concern primarily sales of real
property and are factually distinguishable from this case,
they establish the principle that we find contr olling:
allocations of price by interested parties to elements of a
package may readily be manipulated to defeat contractual
rights to substantially similar price terms. In deciding the
motions for summary judgment, the District Court should
have scrutinized carefully the financial evidence the parties
produced. Himsworth's report, combined with the strong
inherent potential for price padding between Norwest and
Moore, as exacerbated by Norwest's reliance on an
appraisal by a prospective purchaser , placed the padding
issue before the District Court.

The evidence in the record presents a dispute of material
fact concerning whether Norwest and Moor e padded USR's
price and valuation. Accordingly, we will r emand for
hearing and fact finding on the price terms as they relate
to substantial similarity. On remand, the District Court
must consider loss, detriment, or injury if Gleason proves
that there was this breach of the SP A. His damages, if any,
will be a question of fact for the jury.

B. Breach of Implied Covenant of Good Faith and Fair
Dealing

The District Court dismissed this claim, reasoning that
Minnesota does not recognize a separate or independent
claim for breach of the implied covenant of good faith and
fair dealing.

In Minnesota, "every contract includes an implied
covenant of good faith and fair dealing." In re Hennepin
County 1986 Recycling Bond Litig., 540 N.W .2d 494, 502

                                18
(Minn. 1995) (requiring that one party not unjustifiably
hinder other party's performance of contract);6 Sterling
Capital Advisors, Inc. v. Herzog, 575 N.W . 2d 121, 125
(Minn. App. 1998). One who frustrates the satisfaction of a
condition precedent cannot take advantage of that failure.
See Tolzman v. Town of Wyoming , No. C1-98-1533, 1999
WL 109604 (Minn. App. 1999). "Bad faith" is defined as a
party's refusal to fulfill some duty or contractual obligation
based on an ulterior motive, not an honest mistake
regarding one's rights or duties. See Lassen v. First Bank
Eden Prairie, 514 N.W.2d 831, 837 (Minn. App. 1994).

If a jury finds that the price terms wer e not substantially
similar, it could also reasonably find that Norwest hindered
Gleason's performance under SPAS 9.2. As discussed
above, package pricing provides immense power to
manipulate the terms of the proposed transaction and to
bloat the offering price for the USR segment to Gleason.
Norwest may have abused its power.

Norwest argues again that Gleason did not pr eserve this
issue for appeal because he failed to raise the ar gument in
the District Court. However, Gleason's opposition to
Norwest's motion for summary judgment states "[f]or the
reasons set forth above with respect to Norwest's conduct
in breaching SS 9.1 and 9.2 of the SP A, as well as its
attempt to cheat Gleason on his Employment Agr eement,
significant material factual issues are pr esented with
respect to [the implied duty of good faith and fair dealing
claim]." But the District Court did not consider any of
Gleason's claims under the implied warranty because of its
errant conclusion that Minnesota law does not r ecognize
such a cause of action. The District Court should be in a
position to consider the issue in toto on r emand.

C. Fraud

The District Court held that Norwest made no material
_________________________________________________________________

6. Hennepin County appears to have implicitly overruled the holding in
Wild v. Rarig, 234 N.W. 2d 775, 790 (Minn. 1976), that a claim for
breach of contract and breach of the implied covenant of good faith and
fair dealing will not be recognized under Minnesota law if both claims
arise from the same conduct.

                               19
misrepresentations to Gleason, and that Gleason suffered
no damages because he received all to which he was
entitled under the SPA. Gleason argues he suffered
damages from fraud because: 1) Norwest did not offer USR
to him in December 1995 when it began soliciting bids; 2)
Keller knowingly and intentionally lied in r esponse to
Gleason's inquiries about whether Boris and USR wer e for
sale; and 3) Norwest's alleged intentional material
misrepresentations had an adverse ef fect on Gleason's
ability to finance an acquisition of USR.

Keller and Norwest had no duty to disclose to Gleason
that Norwest was negotiating to divest USR and Boris.
Norwest's duty under the SPA was limited to of fering USR
to Gleason before selling it to someone else at substantially
similar terms. Norwest argues that it discharged all of its
duties to Gleason by making its two offers, and that
regardless, New Jersey law does not r ecognize tort and
contract claims based on the same underlying facts. We
disagree for reasons set forth below.

       1. Concurrent Fraud and Contract Claims

No New Jersey Supreme Court case holds that a fraud
claim cannot be maintained if based on the same
underlying facts as a contract claim. More than ten years
ago, we stated that:

       The question of the continuing validity of fraud claims
       in cases involving frustrated economic expectations
       under New Jersey law is very complex and
       troublesome. The United States District Court for New
       Jersey unequivocally has held that the New Jersey
       Supreme Court's reasoning in Spring Motors
       Distributors, Inc. v. Ford Motor Co., 98 N.J. 555, 489
       A.2d 660 (1985), though not explicitly addressing fraud
       claims, "leads . . . to the conclusion that, as between
       commercial parties New Jersey will not countenance"
       claims for fraud other than fraud in the inducement.
       Unifoil Corp., 622 F. Supp. at 270-71. Spring Motors
       held that "as among commercial parties . . . contract
       law, . . . provides the more appropriate system [as
       compared to tort law] for adjudicating disputes arising

                               20
       from frustrated economic expectations." 489 A.2d at
       673.

       Contrary to this proposition, the New Jersey Superior
       Court after Spring Motors has upheld fraud claims
       between commercial parties, see Perth Amboy Iron
       Works, Inc. v. American Home Assurance Company, 226
       N.J. Super. 200, 543 A.2d 1020 (App. Div. 1988), [aff'd
       571 A.2d 294 (N.J. 1990)]. No New Jersey court,
       though, has explicitly considered whether these claims
       are barred by Spring Motors. Because we determine
       that plaintiff fails to allege sufficient facts to support its
       claim of fraud, making summary judgment proper , we
       decline to wade into this morass.

Vanguard Telecom. v. So. New England Tel., 900 F.2d 645,
654 (3d Cir. 1990) (Rosenn, J.). The same"morass" exists
today. The New Jersey District Courts still hold that fraud
claims not extrinsic to underlying contract claims are not
maintainable as separate causes of action. See, e.g., Lo
Bosco v. Kure Engineering Ltd., 891 F . Supp. 1020, 1033
(D. N.J. 1995). New Jersey state courts have not agr eed
with the District Courts' interpretation of Spring Motors.
The New Jersey Supreme Court still has not decided the
issue. We will avoid predicting New Jersey law by deciding
the fraud issue on its merits, as we did in V anguard.

       2. Merits

Under New Jersey law, legal fraud is "a material
misrepresentation of a presently existing or past fact, made
with knowledge of its falsity and with the intention that the
other party rely thereon, resulting in reliance by that party
to his detriment." Jewish Center of Sussex County v. Whale,
86 N.J. 619, 432 A.2d 521, 524 (1981). Deliberate
suppression of a material fact that should be disclosed is
equivalent to a material misrepresentation (i.e., an
affirmative false statement). See Strawn v. Canuso, 140 N.J.
43, 62, 657 A.2d 420 (1995). In other words,"[s]ilence, in
the face of a duty to disclose, may be a fraudulent
concealment." Berman v. Gurwicz, 189 N.J. Super. 89, 93,
458 A.2d 1311 (Ch. Div. 1981), aff'd, 189 N.J. Super. 49,
458 A.2d 1289 (App. Div.), certif. denied, 94 N.J. 549, 468

                               21
A.2d 197 (1983). The concealed facts "must be facts which
if known . . . would have prevented [the obligor] from
obligating himself, or which materially incr ease his
responsibility." Ramapo Bank v. Bechtel , 224 N.J. Super.
191, 198, 539 A.2d 1276 (App. Div. 1988). A party has no
duty to disclose information to another party in a business
transaction unless a fiduciary relationship exists between
them, unless the transaction itself is fiduciary in nature, or
unless one party "expressly reposes a trust and confidence
in the other." Berman, 189 N.J. Super. at 93-94, 458 A.2d
1311.

Even if Keller knowingly and intentionally lied in
response to Gleason's inquiries about whether Boris and
USR were for sale, this cannot be the basis of a fraud claim
here. Because Keller and Norwest had no duty to disclose
to Gleason negotiations with potential buyers, Keller's
failure to disclose pending, amorphic negotiations is not
material and, thus, not actionable.7 Furthermore, we note
that Keller was bound at that time to remain silent during
conversations with Gleason because of a confidentiality
understanding between Norwest and Moore.

Although Norwest may have breached the SP A by failing
to offer Gleason the same price it offer ed to Moore for USR,
we will not reverse and remand on the fraud claim. It may
have been possible for Gleason to establish fraud by
proving that Norwest intentionally misr epresented a
material term (price), causing Gleason damage. Gleason's
Second Amended and Supplemental Complaint, however ,
_________________________________________________________________

7. Of course, we do not say that one may with impunity affirmatively tell
material lies in the course of a business transaction because of the lack
of an agreement to disclose information to another. Rather, we reason
that, in this particular instance, the absence of a duty on Norwest's part
to inform Gleason with respect to thir d-party negotiations that might
later influence his dormant right of first refusal weakens any notion of
"materiality." Stated differently, Gleason's fraud claim fails not because
Norwest was permitted to lie to him, but because the parties' contractual
relationship was such that the purported lie was immaterial to Gleason's
eventual exercise -- or failure to exercise -- his right of first refusal.
This
is a subtle yet important distinction which both r einforces the law of
Jewish Center of Sussex County while simultaneously disposing of
Gleason's fraud claim.

                               22
alleges fraud concerning only the misstatements we found
insufficient above. Therefore, summary judgment on the
fraud claim will be affirmed.

IV.

Accordingly, the judgment of the District Court will be
affirmed in all respects except as to Counts II and V of the
Second Amended and Supplemented Complaint. As to those
counts, the judgment is reversed and the case r emanded to
the District Court for fact finding on the issues discussed
above and for such further proceedings as ar e consistent
with this opinion. Costs taxed against the appellee.

A True Copy:
Teste:

       Clerk of the United States Court of Appeals
       for the Third Circuit

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