The case involves APS Capital Corporation (Plaintiff-Appellant) appealing a summary judgment in favor of Mesa Air Group Inc. (Defendant-Appellee) regarding a contract dispute governed by Texas law. Mesa Air Group, which had a $35 million unsecured trade claim against Delta Airlines from bankruptcy proceedings, engaged in negotiations with APS for the sale of this claim. On April 20, 2007, APS and Mesa reached a verbal agreement for the sale at 58 cents on the dollar. APS confirmed this agreement via email later that day, indicating a follow-up with a formal written confirmation.
However, the formal transaction confirmation sent on April 24 included additional terms that Mesa found objectionable, such as warranty provisions and a lengthy closure deadline. Mesa responded on April 26 with a revised draft, removing or modifying these provisions but maintaining that the agreement was non-binding until it was funded and closed. APS rejected Mesa's draft, citing the removal of material terms and declared the transaction null and void, effectively ending negotiations. The appeal centers on APS's claims of an enforceable contract and the appropriateness of the damages awarded by the district court.
Mesa's counsel indicated potential litigation against APS after failed negotiations to resolve a matter. Subsequently, APS filed a lawsuit in the Western District of Texas on April 30, 2007, seeking relief under Texas and Federal Declaratory Judgment Acts. Mesa counterclaimed for breach of contract and promissory estoppel. On April 11, 2008, Judge Sparks ruled in favor of Mesa, determining that an enforceable contract was formed on April 20, 2007, which APS breached by repudiating the agreement on April 27, 2007. Mesa was awarded $1,545,379 in damages, along with interest and attorneys' fees.
The court concluded that communications between the parties demonstrated a clear intent to be bound, specifying essential terms such as the sale item, price, and sale date, which constituted an enforceable contract. Several aspects of the district court's ruling were not contested on appeal, including the statute of frauds and APS's affirmative defenses. The remaining points of contention involved the existence of a binding agreement and the breach date, which impacts damages.
The court highlighted that the parties had indeed reached an agreement on April 20, as reflected in an email that day. A dispute arose regarding whether this agreement constituted an enforceable contract or merely a preliminary agreement requiring further negotiations. APS argued it was an "agreement to agree," while Mesa contended it was a straightforward breach of an established contract. The district court maintained that the evidence of intent to be bound was clear, dismissing later communications that suggested the intent was non-binding. Thus, the court focused on the objective evidence from April 20, asserting that subjective interpretations of the agreement could not negate the established binding contract.
The language in communications prior to April 20 raises questions about whether the parties intended their agreement to be binding. Although some terms suggest an intent to form a contract, others, such as the use of "preliminary" and references to a future, more comprehensive agreement, introduce ambiguity. The presence of conflicting interpretations indicates that reasonable doubts exist regarding the parties' intentions. The case referenced by the district court, John Wood Group USA v. ICO, does not provide strong support for the notion that lack of explicit non-binding language inherently leads to an enforceable contract. Instead, it highlights that ambiguity can arise when essential terms are not clearly defined. In high-value transactions, even if parties agree on crucial terms like price, additional details—such as closure dates and warranties—are often necessary for a binding agreement. The determination of whether an agreement meets essential terms is a legal question for the court, influenced by the context of the transaction and industry practices. A trier of fact may ultimately decide whether the communications implied a binding agreement or whether the parties were merely engaged in ongoing negotiations. The issue of definiteness, while passing a basic test, could still be interpreted as insufficiently detailed, warranting further examination in court with evidence of trade practices.
Each party presents a reasonable argument regarding customary practices in the relevant context, resulting in an ambiguous email that lacks clear, agreed-upon terms. The ambiguity does not depend solely on draft agreements exchanged after April 20, despite APS's claim that these drafts reflect the parties' intent. The district court appropriately noted that if intent is objectively manifest in the email, subjective external evidence should not be considered. Although APS cites cases involving extrinsic evidence, none specifically address intent, and the court's refusal to consider the drafts was not erroneous. Given the established ambiguity as of April 20, the case was improperly resolved at summary judgment.
APS further contends that the contract is legally indefinable due to missing essential terms typically found in trade claim agreements, such as impairment provisions and indemnification clauses. Under Texas law, a contract must contain sufficiently specific terms to be enforceable, and essential terms must be resolved without leaving material matters open for negotiation. Determining what constitutes an essential term is a legal question assessed de novo and is context-dependent.
The district court characterized the transaction as an 'agreement for sale,' identifying basic terms: the item sold, the price, and the parties' consent. However, the transaction involved high-value and complex assets, which required additional considerations for risk allocation and guarantees. The only indication of agreement on these terms relates to the vague assurance of adherence to customary practices in the April 20 email, with no evidence of concrete steps taken by the parties to define risk allocation.
APS has not provided enough evidence of industry standards to demonstrate that an email dated April 20 could not constitute an enforceable agreement, assuming a fact-finder believes the parties intended to create a binding contract with customary terms. While APS has indicated that there may have been inconsistencies in trade claim transactions, the evidence presented does not undermine the potential enforceability of the contract, which may only require minor details to be settled within customary practices. If a fact-finder determines an intent to be bound, the contract should not be invalidated due to indefiniteness.
Regarding damages, APS contends that Mesa acknowledged the breach occurred on April 24, rather than April 27, as determined by the district court. APS argues this distinction is critical because if Mesa had mitigated on April 24, its damages would be minimal. However, Mesa argues, as upheld by the district court, that the key issue is when the duty to mitigate arose, allowing Mesa to attempt to salvage the contract before needing to mitigate since APS had not explicitly repudiated it at that time. After APS's repudiation, Mesa took appropriate steps to mitigate. The district court's damage award was found to be without error. The finding of liability has been vacated, and the matter is remanded for further proceedings consistent with this opinion.
