Bloom Master Inc v. Bloom Master LLC , 442 P.3d 1178 ( 2019 )


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    2019 UT App 63
    THE UTAH COURT OF APPEALS
    BLOOM MASTER INC.,
    Appellant,
    v.
    BLOOM MASTER LLC,
    Appellee.
    Opinion
    No. 20170226-CA
    Filed April 25, 2019
    Third District Court, Salt Lake Department
    The Honorable Robert P. Faust
    No. 150909022
    Darwin Bingham and Alisha M. Giles, Attorneys
    for Appellant
    Erik A. Olson and Trevor C. Lang, Attorneys
    for Appellee
    JUDGE JILL M. POHLMAN authored this Opinion, in which
    JUDGES GREGORY K. ORME and MICHELE M. CHRISTIANSEN
    FORSTER concurred.
    POHLMAN, Judge:
    ¶1     Bloom Master Inc. (Seller) sued Bloom Master LLC
    (Buyer) for breach of contract and unjust enrichment, claiming
    that Buyer underpaid on a promissory note. The district court
    granted summary judgment to Buyer based on a provision of the
    parties’ contract purportedly allowing Buyer to make reduced
    payments. Seller appeals. We affirm in part, reverse in part, and
    remand for further proceedings.
    Bloom Master Inc. v. Bloom Master LLC
    BACKGROUND 1
    ¶2     Seller manufactured a garden planter product that it sold
    to garden stores and other consumers. After manufacturing and
    selling the product for some time, Seller decided to sell the
    manufacturing molds to Buyer, a local garden seed and supply
    company.
    ¶3     In August 2011, Buyer and Seller memorialized their
    transaction in an asset purchase agreement, by which Buyer
    purchased the planter molds and other assets for $500,000. At
    closing, Buyer paid Seller $100,000 in cash and financed the
    remaining $400,000 with a promissory note (the Note), which
    was attached to and made part of the purchase agreement. The
    Note provides that Buyer “shall make eight (8) payments of
    interest and principal,” beginning on August 15, 2012, “and
    continuing on the 15th day of each August thereafter . . . in
    accordance with the provision herein.” 2 The Note identifies
    August 15, 2019, as the loan maturity date, on which the entire
    unpaid principal balance and accrued and unpaid interest are
    due.
    1. “When evaluating the propriety of summary judgment on
    cross-motions for summary judgment, we view the facts and any
    reasonable inferences to be drawn therefrom in the light most
    favorable to the losing party.” Flowell Elec. Ass’n v. Rhodes Pump,
    LLC, 
    2015 UT 87
    , ¶ 8, 
    361 P.3d 91
    .
    2. The Note does not state how much principal is due each year.
    Seller contends that the Note requires eight annual principal
    payments in equal installments of $50,000. It is unclear whether
    Buyer agrees. Buyer has previously identified $50,000 as a
    default annual payment amount, but in its summary judgment
    briefing before the district court it noted as “important” that
    neither the Note nor the asset purchase agreement expressly
    requires an annual payment of $50,000.
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    ¶4     Immediately after setting forth the Note’s repayment
    terms, section 3 of the Note provides for a modification of its
    terms in the event the planter product fails to generate “expected
    sales numbers” in any given year:
    Inasmuch as this Note is being issued in connection
    with the Purchase Agreement and repayment is
    dependent upon the continued success of the
    [planter product], [Buyer] and [Seller] agree that
    this Note, the principal amount, rates of interest,
    maturity date and other terms and conditions will
    be reviewed on an annual basis by [Buyer] and
    [Seller] prior to each Payment Date. In the event
    the [planter product] failed to generate expected
    sales numbers in any given year, the terms of this
    Note shall be modified in proportion to the
    reduced sales numbers.
    ¶5      The Note does not define the term “expected sales
    numbers.” The only sales numbers referred to in the transaction
    documents are found in a disclosure schedule attached to the
    asset purchase agreement as part of Seller’s representations and
    warranties regarding its customers and suppliers. In 2009,
    Seller’s net sales totaled $355,314; in 2010, $283,261; and in 2011,
    $157,916. 3
    ¶6    Beginning in August 2012, and continuing for the next
    three years, Buyer made payments to Seller under the Note.
    With each payment, Buyer disclosed to Seller how the payment
    was calculated. For each year, Buyer treated the 2010 net sales in
    the disclosure schedule as “baseline sales” and compared its
    3. The parties executed the purchase agreement in August 2011,
    and thus the sales identified for 2011 represent only a partial
    year. If the reported sales are annualized for 2011, they total
    approximately $236,874 ($157,916 ÷ 8 × 12 = $236,874).
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    Bloom Master Inc. v. Bloom Master LLC
    actual net sales for the year to that figure to arrive at a
    percentage. Buyer then reduced what it referred to as a $50,000
    “annual payment” by the same percentage. For example, in 2012,
    Buyer reported actual net sales of $199,325. This amounted to
    approximately 70% of Seller’s reported net sales figure of
    $283,261 in 2010. 4 Buyer then multiplied $50,000 by the same
    percentage to arrive at $35,184—the amount Buyer paid on the
    Note in 2012. Buyer made similar calculations each year, and
    each year Seller accepted the payments.
    ¶7      After four years of accepting Buyer’s payments, Seller
    sent Buyer a written notice of default claiming Buyer had failed
    to pay the “total amount due each year” and demanding the full
    balance of the loan. 5 Buyer relied on section 3 of the Note to
    justify the amounts tendered and to deny Seller’s demand. Seller
    then sued Buyer for breach of contract and unjust enrichment,
    alleging that Buyer breached the contract by not making “the full
    amount of the yearly payments due and owing.” Both parties
    moved for summary judgment.
    ¶8      In its motion, Seller argued that the Note requires Buyer
    to pay $50,000 annually and that Buyer breached its obligation
    by tendering less than that amount in 2012, 2013, 2014, and 2015.
    Seller rejected Buyer’s reliance on section 3, arguing that Buyer is
    not entitled to unilaterally modify the amount due each year
    because the Note requires all amendments to be in writing and
    signed by both parties. Seller also alternatively argued that
    4. The 2012 sales ($199,325) are approximately 70.4% of the 2010
    sales ($283,261).
    5. The Note allows Seller to declare the entire unpaid principal
    amount of the Note and all accrued interest “immediately due
    and payable” if an “[e]vent of [d]efault” occurs, which includes
    Buyer’s failure to timely pay any amount of principal or interest
    due under the Note.
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    section 3 is unenforceable because it is “little more than an
    ‘agreement to agree’” on some future modification of the Note.
    Seller explained that because the term “expected sales numbers”
    is not defined in the Note and section 3 does not provide a
    formula for calculating reduced payments, it is impossible to
    know “what this future modification is to be.” Finally, it argued
    that, based on the Note’s severability clause, section 3 should be
    severed from the Note, leaving Buyer obligated to pay the
    original amount due on the Note without any opportunity to
    modify its terms.
    ¶9     For its part, Buyer argued that section 3 excuses it from
    making the payment Seller demanded and that the section is not
    unenforceable or severable. It reasoned that its annual payments
    were compliant without a written amendment to the Note
    because modification of the Note’s terms is “automatic[]” under
    section 3 if the planter product fails to generate expected sales
    numbers, which could be found in the disclosure schedule
    identifying Seller’s historical net sales. Buyer also asserted that
    the requirement for annual review under section 3 was satisfied
    because Seller had the opportunity to review Buyer’s
    calculations accompanying its annual payments and Seller did
    not reject any payment or provide “any alternative method of
    calculating” Buyer’s payments.
    ¶10 The district court granted Buyer’s motion and denied
    Seller’s motion. The court concluded that section 3 is not “an
    agreement to agree,” because it makes plain that “both the
    obligation to pay the Note and the amount to be paid was
    dependent upon the success of the” planter product. It also
    concluded that Buyer did not breach the Note, because section 3
    clearly allows for the annual payments to be “reduced in
    proportion to sales.” And while the court noted a “possible
    ambiguity” in the meaning of the term “expected sales
    numbers,” it looked to the disclosure schedule to determine that
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    “expected sales numbers” means Seller’s net sales in 2010. 6
    Based on its interpretation of the Note, the court granted
    summary judgment to Buyer and dismissed Seller’s claims for
    breach of contract and unjust enrichment. Seller appeals.
    ISSUES AND STANDARD OF REVIEW
    ¶11 Seller contends that the district court erred in denying its
    motion for summary judgment and in granting summary
    judgment in favor of Buyer. Specifically, Seller contends that the
    court erred in not deeming section 3, upon which Buyer relies to
    tender payment under the Note, unenforceable and severable
    from the Note as a matter of law. Summary judgment is
    appropriate when, viewing the facts and all reasonable
    inferences to be drawn therefrom in the light most favorable to
    the nonmoving party, “the moving party shows that there is no
    genuine dispute as to any material fact and the moving party is
    entitled to judgment as a matter of law.” Utah R. Civ. P. 56(a);
    see, e.g., Penunuri v. Sundance Partners, Ltd., 
    2017 UT 54
    , ¶ 14, 
    423 P.3d 1150
    . “We review a district court’s grant [or denial] of
    summary judgment, as well as the court’s interpretation of
    contracts upon which the summary judgment was based, for
    6. The district court also referenced the “conduct and action of
    the parties for years” when interpreting the Note. However, it is
    unclear to what extent the court relied on this course of conduct
    to interpret the meaning of the term “expected sales numbers.”
    Although course of conduct could be relevant to discerning the
    meaning of an ambiguous term, cf. Hill v. Superior Prop. Mgmt.
    Services, Inc., 
    2013 UT 60
    , ¶ 13 n.4, 
    321 P.3d 1054
    , such reliance
    would have been inappropriate given that the court deemed the
    term unambiguous, Layton City v. Stevenson, 
    2014 UT 37
    , ¶ 21,
    
    337 P.3d 242
     (“Only where the contract is ambiguous will [a
    court] look to extrinsic evidence to interpret a contract.”).
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    correctness.” Desert Mountain Gold LLC v. Amnor Energy Corp.,
    
    2017 UT App 218
    , ¶ 11, 
    409 P.3d 74
     (cleaned up).
    ANALYSIS
    I. Breach of Contract
    ¶12 We must decide whether the district court correctly
    determined that Buyer was entitled to summary judgment and
    that Seller was not. Seller’s argument in support of summary
    judgment in its favor proceeds in two parts: (A) section 3 is an
    unenforceable agreement to agree and (B) section 3 should be
    severed to allow enforcement of the balance of the Note.7 We
    agree with Seller that section 3 is an agreement to agree, and the
    district court accordingly erred in granting summary judgment
    to Buyer. But we conclude that Seller has not demonstrated that
    it is entitled to severance as a matter of law, and thus the district
    7. Seller also contends that section 3 is ambiguous because the
    Note does not define the term “expected sales numbers.”
    Though Seller appears to treat its ambiguity argument and the
    agreement-to-agree argument as related, our discussion of
    section 3’s enforceability does not turn on the question of
    ambiguity. A contractual provision may be ambiguous if it is
    “unclear” or if it “omits terms,” Beckman v. Cybertary Franchising
    LLC, 
    2018 UT App 47
    , ¶ 75, 
    424 P.3d 1016
     (cleaned up), but a
    failure to agree on essential terms is more fundamental. An
    ambiguous contract or contractual provision may still be
    enforceable, see Mind & Motion Utah Invs., LLC v. Celtic Bank
    Corp., 
    2016 UT 6
    , ¶ 24, 
    367 P.3d 994
    , but an indefinite one is by
    definition “no[t a] contract at all” and is therefore unenforceable,
    Prince, Yeates & Geldzahler v. Young, 
    2004 UT 26
    , ¶ 17, 
    94 P.3d 179
    (cleaned up). We accordingly focus our discussion on whether
    section 3 is enforceable or a mere agreement to agree.
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    court did not err in denying Seller’s motion for summary
    judgment.
    A.     Agreement to Agree
    ¶13 To form an enforceable contract, the parties must have a
    “meeting of the minds . . . on the essential terms of the contract.”
    Jones v. Mackey Price Thompson & Ostler, 
    2015 UT 60
    , ¶ 31, 
    355 P.3d 1000
    . “So long as there is any uncertainty or indefiniteness,
    or future negotiations or considerations to be had between the
    parties, there is not a contract.” 
    Id.
     (cleaned up). Contractual
    terms are “sufficiently definite” when they are “capable of being
    enforced.” ACC Capital Corp. v. Ace West Foam Inc., 
    2018 UT App 36
    , ¶ 12, 
    420 P.3d 44
     (cleaned up).
    ¶14 An agreement to agree at some later date is thus
    unenforceable. See Brown’s Shoe Fit Co. v. Olch, 
    955 P.2d 357
    , 362,
    364–65 (Utah Ct. App. 1998); see also Harmon v. Greenwood, 
    596 P.2d 636
    , 639 (Utah 1979) (“Such ‘agreements to agree’ are
    generally unenforceable because they leave open material terms
    for future consideration, and the courts cannot create these terms
    for the parties.”). Although a contract may still be enforced if
    “some contract terms” are “missing or left to be agreed upon,”
    the “court must be able to enforce the contract according to the
    parties’ intentions.” I-D Elec. Inc. v. Gillman, 
    2017 UT App 144
    ,
    ¶ 25, 
    402 P.3d 802
     (cleaned up). “[I]f those intentions are
    impenetrable, or never actually existed, there can be no contract
    to enforce.” Nielsen v. Gold’s Gym, 
    2003 UT 37
    , ¶ 12, 
    78 P.3d 600
    .
    ¶15 This court held in Brown’s Shoe that the lack of a price in a
    rental agreement or a “mechanism for determining” the price
    made the lease agreement “too vague and indefinite for specific
    enforcement.” 
    955 P.2d at 365
    . In that case, the parties entered
    into a commercial lease agreement for an initial three-year term
    and two three-year option periods. 
    Id. at 359
    –60. The parties
    agreed that the rent for the initial period and the option periods
    would be based on both per-square-foot rental rates and a
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    percentage of the lessee’s sales. 
    Id. at 360
    . But the parties “did
    not specify the percentage rental” or “any mechanism for
    determining that rental amount” for the option periods. 
    Id. at 362
    . The lease agreement merely stated that the parties “would
    agree on the gross volume figure from which to base additional
    rent during each year.” 
    Id. at 360
     (cleaned up). This court held
    that such an agreement to agree was unenforceable because the
    amount of percentage rent was “left for future agreement.” 
    Id. at 362
    –65.
    ¶16 The terms governing Buyer’s repayment under the Note
    are similarly left for future agreement. The Note requires that
    Buyer make an annual payment toward the principal amount,
    but it does not identify how much Buyer must tender each year
    or provide a reliable mechanism for determining the amount.
    Instead, section 3 requires the parties to review “th[e] Note, the
    principal amount, rates of interest, maturity date and other
    terms and conditions . . . on an annual basis . . . prior to each
    Payment Date” and to modify the Note’s terms “in proportion to
    the reduced sales numbers” should the planter product fail to
    generate expected sales. In other words, while the parties
    generally agreed that the terms would be modified under certain
    circumstances, the parties left the specifics to annual review and
    future agreement. And without a specific agreement, one is left
    to wonder, among other things, how terms like interest rates and
    maturity dates are to be modified in proportion to reduced sales
    numbers, whether the principal amount in its entirety is subject
    to a proportional modification, or how the amounts due in a
    given year are to be determined. At bottom, section 3 does not
    provide the tools or instructions for how to achieve the
    modification it requires, and it is therefore an unenforceable
    agreement to agree. See 
    id. at 365
    .
    ¶17 The district court reached the opposite conclusion, relying
    on the mandatory “shall” language in section 3. It reasoned that
    the provision is not an agreement to agree because “it is clear
    both the obligation to pay the Note and the amount to be paid
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    Bloom Master Inc. v. Bloom Master LLC
    was dependent upon the success” of the planter product. Our
    supreme court, however, has already rejected similar reasoning.
    For example, in Pingree v. Continental Group of Utah, Inc., 
    558 P.2d 1317
     (Utah 1976), the parties to a lease agreement provided in
    their contract that the lessee “shall have . . . the option to renew”
    and that “the rental amount will be renegotiated.” 
    Id. at 1320
    (emphases added) (cleaned up). The parties, however, were
    “unable to agree on the rental rate,” and the district court
    “implied the parties had agreed on a reasonable rental figure.”
    
    Id. at 1321
    . On appeal, our supreme court held that the “option
    to renew was too vague and indefinite to be enforceable” and
    that a court was not in a position to determine a “reasonable
    rental figure” when the parties had left it open for negotiation.
    Id.; see also Cottonwood Mall Co. v. Sine, 
    767 P.2d 499
    , 502 (Utah
    1988) (“Courts simply are not equipped to make monetary
    decisions impacted by the fluctuating commercial world and are
    even less prepared to impose paternalistic agreements on
    litigants.”). Similarly, in Richard Barton Enterprises, Inc. v. Tsern,
    
    928 P.2d 368
     (Utah 1996), the district court reasoned that a lessor
    and lessee “agreed to the concept of a rent credit” but “did not
    agree on an amount.” 
    Id. at 373
     (cleaned up). Relying in part on
    Pingree, the supreme court again reversed the district court’s
    imposition of a reasonable amount for proposed modifications
    and held that agreeing in theory to contractual obligations was
    insufficient to create an enforceable contract. 
    Id. at 373
    –74. 8
    8. This court and others have consistently acknowledged this
    same principle. In Aspenwood, LLC v. C.A.T., LLC, 
    2003 UT App 28
    , 
    73 P.3d 947
    , this court held that a contractual provision
    providing that the parties “agreed that they would investigate
    and evaluate” certain projects and “then proceed to finance,
    purchase, develop and then sell for a profit each of those
    projects” was “too vague to be enforceable.” 
    Id. ¶ 28
     (cleaned
    up). Though the language was clear, there was “[n]o information
    (continued…)
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    ¶18 Here, the mandatory language of section 3 signifies that
    the parties agreed to modify terms in the event sales
    expectations were not met. But, as demonstrated by Pingree, that
    language does not resolve the question of whether section 3 is
    sufficiently definite to be enforced. See 558 P.2d at 1321; see also
    Tsern, 928 P.2d at 373–74; Brown’s Shoe, 
    955 P.2d at 365
    . While the
    parties here agreed in principle to modify terms, their failure to
    agree on the tools to achieve that modification renders the
    provision indefinite and unenforceable.
    ¶19 Buyer takes issue with that conclusion, arguing that
    section 3 is not an agreement to agree, because the annual
    payment amount can be automatically determined by comparing
    each year’s sales to the 2010 net sales figure and reducing an
    (…continued)
    . . . given on what projects would be acquired, when or on what
    terms these projects would be acquired, or how and to what
    extent [the parties] would fund these projects.” 
    Id.
     Likewise, in
    Savoy Energy, LLC v. Aston Energy, LLC, No. 2:16-CV-967, 
    2018 WL 1756930
     (D. Utah Apr. 10, 2018), the parties’ contract
    provided that the defendant “shall have first right of refusal to
    own, construct and operate all future pipelines,” but that right
    was “dependent on the requirement that the parties negotiate a
    gathering and transportation fee prior to construction of any
    future pipelines.” 
    Id. at *7
     (cleaned up). Again, despite the
    mandatory “shall” language, the court concluded that the
    provision, which left terms to future negotiation, was “an
    unenforceable agreement to agree.” Id.; see also Carr Office Park,
    LLC v. Charles Schwab & Co., 291 F. App’x 178, 182 (10th Cir.
    2008) (holding that a contract providing that the parties “shall, in
    good faith, negotiate and finalize a lease document”
    demonstrated that the contract was merely “a document to be
    negotiated and agreed to at a future date” and therefore
    unenforceable).
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    annual payment of $50,000 in proportion to the reduced sales
    numbers. But that contention fails on its own terms. Buyer’s
    argument that modification occurs automatically under section 3
    is belied by the requirement for an annual review. If
    modification were truly automatic, there would be no need to
    review the Note’s terms annually. Further, the terms subject to
    review under section 3 are not easily modified by the simple
    application of a mathematical equation. Section 3 states without
    exclusion that the “terms of this Note shall be modified in
    proportion to the reduced sales numbers,” and specifically
    identifies terms like interest rates, maturity date, and the
    principal amount as those terms subject to annual review. Thus,
    even assuming $50,000 represents the annual payment amount,
    and that the parties’ expectations for future sales could be
    discerned, 9 how the “modified in proportion” language is to be
    applied to the Note’s other terms remains unclear. Section 3
    simply does not provide a workable mechanism for the court to
    apply. See Brown’s Shoe, 
    955 P.2d at 365
    .
    ¶20 In sum, section 3 is an agreement to agree because it
    anticipates some future agreement regarding modification of
    9. Buyer’s reliance on the attached disclosure schedule listing the
    sales for 2010 to ascertain the parties’ expectations for future
    sales is also flawed. Put simply, past sales do not naturally refer
    to expected sales. This is especially true when, as here, sales
    were declining year over year. In 2009, sales for the planter
    product were $355,314. The following year, sales were down
    nearly 20% (($355,314 − $283,261) ÷ $355,314 = 20.3%) and,
    annualizing 2011’s sales, ($157,916 ÷ 8 × 12 = $236,874, see supra
    note 3) declined another 16% (($283,261 − $236,874) ÷ $283,261 =
    16.4%) in the year after that. Buyer chose the sales figure from
    2010 to complete its calculations for its reduced payments, but
    the parties never agreed that 2010’s sales figure would continue
    indefinitely into the future.
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    myriad contractual terms and because there is no clear
    mechanism for determining the modification. A court is
    therefore unable to enforce section 3, and the district court erred
    in granting summary judgment to Buyer on the basis of that
    provision. See 
    id.
    B.     Severability
    ¶21 “[E]ven if [an] agreement to agree is invalid, it will not
    necessarily invalidate an entire agreement of which it forms a
    part . . . .” 1 Samuel Williston & Richard A. Lord, A Treatise on the
    Law of Contracts § 4:29 (4th ed. 2007). In Seller’s view, section 3 is
    “unenforceable as a matter of law,” and “the district court
    should have severed the unenforceable language” pursuant to
    the Note’s severability clause. And if section 3 is severed, Seller
    asserts that Buyer is in breach of its obligation by not tendering
    payments of $50,000 each year.
    ¶22 Under Sosa v. Paulos, 
    924 P.2d 357
     (Utah 1996), “contract
    provisions are severable if the parties intended severance at the
    time they entered into the contract and if the primary purpose of
    the contract could still be accomplished following severance.” 
    Id. at 363
     (emphasis added). The district court did not reach the
    severability question, having rejected Seller’s argument
    regarding the provision’s unenforceability. Seller argues that we
    can decide as a matter of law whether section 3 is severable and
    award it judgment on its breach of contract claim. But Seller has
    only addressed, both below and on appeal, the first element of
    severance, that is, whether Buyer and Seller intended severance.
    See 
    id.
     Seller has never attempted to demonstrate the second
    element, that is, whether “the primary purpose [of the Note]
    could still be accomplished” if section 3 is severed. See 
    id.
     Thus,
    Seller has not shown that it was entitled to severance as a matter
    of law, and the district court did not err in denying Seller’s
    motion for summary judgment.
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    II. Unjust Enrichment
    ¶23 “Under [Utah] precedent, a claim of unjust enrichment
    cannot arise where there is an express contract governing the
    subject matter of a dispute.” United States Fid. & Guar. Co. v.
    United States Sports Specialty Ass’n, 
    2012 UT 3
    , ¶ 11, 
    270 P.3d 464
    (cleaned up). In moving for summary judgment, Buyer argued
    that it was entitled to summary judgment on Seller’s unjust
    enrichment claim because “there is a binding, enforceable
    contract that governs the relationship between the parties.” In
    granting Buyer’s summary judgment motion in its entirety, the
    district court did not separately address the unjust enrichment
    claim but presumably determined it was superfluous given its
    conclusion that the parties’ express agreement was enforceable.
    Because the two claims and their disposition by the district court
    are intertwined, we reverse the court’s grant of summary
    judgment in favor of Buyer on the unjust enrichment claim
    without opining on its merits.
    CONCLUSION
    ¶24 We conclude that Buyer was not entitled to summary
    judgment on Seller’s breach of contract claim because section 3,
    which Buyer relied on to submit payments less than $50,000, is
    an unenforceable agreement to agree. We also conclude that
    Seller was not entitled to summary judgment because although
    section 3 is unenforceable, Seller did not show that section 3 is
    necessarily severable. And because we reverse the award of
    summary judgment on the breach of contract claim, we also
    reverse the dismissal of Seller’s unjust enrichment claim. We
    therefore remand for further proceedings consistent with this
    opinion.
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