October 15, 2010
Integration Issue Not Appropriate for Resolution on 12(b)(6)
Can a contract action based on an alleged oral contract be dismissed for failure to state a claim where the defense claims the parties subsequently entered into a fully integrated written agreement? No, says the U.S. District Court for the District of Hawaii. In Yamagishi v. Sato, 2010 U.S. Dist. LEXIS 106905 (D. Hawaii Oct. 4, 2010), the parties entered into a transaction described by the complaint as follows:
The Complaint alleges that on August 31, 1999, Plaintiff and Defendant entered into a written agreement (1) to merge Hatsuhana USA with Hatsuhana International such that Hatsuhana USA was the only surviving entity and owned all [*3] the stock in Hatsuhana Shoji and Hatsuhana Hawaii; (2) for Plaintiff to surrender his shares in Hatsuhana USA to Defendant in return for Hatsuhana USA transferring all shares of Hatsuhana Hawaii to Plaintiff; and (3) to extinguish a debt in the amount of $1,006,000 owed by Hatsuhana Hawaii to Hatsuhana USA. Id. P 11.
To make the transfer equitable, the Complaint alleges that the parties also entered into an oral agreement on this same date in which Defendant individually agreed that (1) Plaintiff would receive one half of the net proceeds for the sale of the Chicago Property, and (2) Defendant would pay Plaintiff $5,000 a month until the Chicago Property was sold, representing a portion of the rent proceeds. Id. The parties entered these agreements in Hawaii, and the oral agreement was witnessed and confirmed by other individuals. Id.
The problem in the case was that the written agreement was detailed and contained a merger clause, so the defendant moved to dismiss the claimed oral agreement.
Judge Michael Seabright, applying Hawaii law and relying on § 209 of the Second Restatement, held that whatever the language, the question whether the agreement was integrated was one of fact that could not be resolved on a motion to dismiss. He quoted comment b to § 210: "[A] writing cannot of itself prove its own completeness, and wide latitude must be allowed for inquiry into circumstances bearing on the intention of the parties."
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