CHSPSC, LLC v. The California Credits Group, LLC

04/16/2024

IN THE COURT OF APPEALS OF TENNESSEE

AT NASHVILLE

October 3, 2023 Session

CHSPSC, LLC V. THE CALIFORNIA CREDITS GROUP, LLC

Appeal from the Chancery Court for Williamson County

No. 20CV-49329B Michael Binkley, Chancellor

No. M2023-00040-COA-R3-CV

A tax group performed tax credit services on a contingency fee basis for a corporation that

owned several hospitals in California. Four and half years after the corporation completed

a transaction referred to as a “spinoff,” the tax group informed the corporation that the

spinoff triggered a reorganization provision of the parties’ contract that entitled the tax

group to a fee for unused tax credits related to one of the hospitals involved in the spinoff.

The corporation filed suit requesting a declaratory judgment that no fee was owed because

the spinoff did not trigger the contract’s reorganization provision. After conducting

discovery, the parties filed cross motions for summary judgment. The trial court denied

the tax group’s motion and granted summary judgment to the corporation after concluding

that the parties’ conduct prior to the dispute showed that they intended the term

“reorganization” to have a tax-based meaning that corresponded to the Internal Revenue

Code’s definition of the term and that the spinoff did not constitute a reorganization under

that definition. Discerning no error, we affirm the trial court’s judgment.

Tenn. R. App. P. 3 Appeal as of Right; Judgment of the Chancery Court Affirmed

ANDY D. BENNETT, J., delivered the opinion of the Court, in which ARNOLD B. GOLDIN

and JEFFREY USMAN, JJ., joined.

Nancy Vincent, Nashville, Tennessee, for the appellant, The California Credits Group.

David Andrew Curtis and John R. Jacobson, Nashville, Tennessee, for the

appellee, CHSPSC, LLC.

OPINION

FACTUAL AND PROCEDURAL BACKGROUND

Community Health Systems Professional Services Corporation, LLC (“CHSPSC”)

provides consulting services to hospitals that are owned by direct and remote subsidiaries

of CHSPSC’s indirect parent entity, Community Health Systems, Inc. (“CHSI”). The

California Credits Group (“CCG”) provides tax credit services with a primary focus on

identifying California Enterprise Zone tax credits.1 On June 17, 2009, CHSPSC and CCG

entered into a contract whereby CCG would identify certain tax credits available to

CHSPSC under California law in exchange for CHSPSC paying CCG a fee equal to

twenty-five percent of any credits and interest resulting from identified tax credits utilized

by CHSPSC. In other words, the contract stated that CCG would work on a contingency

fee basis because it was not entitled to payment unless CHSPSC utilized the identified

credits.

Section xii of the contract provides one limited exception to CCG’s agreement to

work on a contingency fee basis. That section states as follows:

Reorganization — Any reorganization by [CHSPSC] that results in the

suspension or elimination of Credits identified by [CCG] will be treated as

being utilized by [CHSPSC] at such time or reorganization.

Thus, two conditions must be satisfied to trigger this exception: (1) there must be a

“reorganization” by CHSPSC, and (2) that reorganization must result in the “suspension[2]

or elimination” of credits CCG identified. The contract does not define the terms

“reorganization” or “elimination.”

After entering into the contract, CCG identified approximately $898,125 in tax

credits generated by the business activities of one of CHSI’s subsidiaries, Watsonville

Hospital Corporation (“Watsonville”), between 2000 and 2012. Watsonville utilized

approximately $685,481 of those tax credits through the 2013 tax year, and CCG received

a twenty-five percent contingency fee totaling $171,370. The parties’ dispute centers on

Watsonville’s unused tax credits.

On April 29, 2016, CHSI completed a transaction the parties refer to as “the

spinoff.” In the spinoff, CHSI distributed to its public shareholders the stock of a

subsidiary, Quorum Health Corporation (“Quorum”). Quorum was an indirect parent

1

The record contains little explanation regarding the nature of these tax credits, but the parties’ contract

indicates that they are “hiring credits and equipment based credits” that businesses may acquire under

California law.

2

Neither party contends that a “suspension” of tax credits occurred in this case.

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entity of Watsonville, and it continued to indirectly own Watsonville after the spinoff.

After the spinoff, however, Watsonville was no longer a part of CHSI’s and its subsidiaries’

unitary tax group for income tax purposes under California law. Instead, Watsonville was

then part of Quorum’s unitary tax group.

The spinoff was structured in a way as to be tax free by not meeting the definition

of “reorganization” under the Internal Revenue Code. Section 355 of the Internal Revenue

Code governs the distribution of stock and securities of a controlled corporation and

expressly states that no gain or loss shall be recognized on such a distribution so long as

the distribution is not part of a “reorganization.” 26 U.S.C. § 355(c)(1). Section 368 of

the Internal Revenue Code sets out seven transactions that constitute a “reorganization.”

26 U.S.C. § 368. Transactions falling within the definition of “reorganization” include a

statutory merger, recapitalization, change in place of organization or corporate form, or

transfer by a corporation of its assets to another corporation in bankruptcy under certain

circumstances. None of the seven transactions meeting the definition of “reorganization”

describes the spinoff.

Seven months before the spinoff occurred, Chad Courtright, Senior Manager of Tax

Controversy at CHSPSC, sent an email to Aaron Valle, Project Coordinator at CCG, to

inform CCG that Watsonville would be spun off. In the email, Mr. Courtright asked what

impact, if any, the spinoff would have on Watsonville’s unused tax credits. Mr. Valle

responded, “Regarding what happens to the credits, they’ll be spun out with Watsonville.

It’s actually an issue we see fairly often.” Following the spinoff, the credits did, in fact,

spinoff with Watsonville and continued to exist. For the next four years, CCG

communicated with Quorum about the credits and made no claim to CHSPSC that the

spinoff triggered the contract’s reorganization provision.

In February 2020, when it became apparent that Quorum was unlikely to be able to

use Watsonville’s unused tax credits before they expired, CCG, for the first time, suggested

to CHSPSC that there “may be” some fee implications due to the spinoff after all.

Thereafter, CCG began referring to the spinoff as a “reorg” and claiming that the spinoff

resulted in the “elimination” of Watsonville’s unused tax credits because CHSI’s unitary

tax group had been “dispossessed of the Credits.” On April 2, 2020, CCG sent CHSPSC

a letter claiming that CCG had “recently discovered” that Watsonville “spun off from

[CHSI] on April 29, 2016.” The letter went on to inform CHSPSC that the spinoff

constituted a “reorganization” that resulted in the elimination of the tax credits, entitling

CCG to payment of its twenty-five percent contingency fee under Section xii of the

contract. Thus, CCG demanded that CHSPSC “immediately remit $107,563” as CCG’s

fee for the Watsonville tax credits.

After receiving the April 2, 2020 letter, CHSPSC initiated this lawsuit by filing a

complaint requesting a declaratory judgment that it did not owe CCG any additional fees

under the contract. CCG filed an answer and counter-complaint asserting, among other

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things, a claim for breach of contract. CCG also filed a third-party complaint against CHSI

but, on June 20, 2022, the trial court entered an agreed order dismissing the third-party

complaint against CHSI with prejudice.

On July 13, 2022, CHSPSC filed a motion for summary judgment asserting that the

spinoff was not a “reorganization” under the contract because it did not constitute a

“reorganization” under the Internal Revenue Code. Even if it was a reorganization,

CHSPSC argued, the spinoff did not result in the “suspension or elimination” of the tax

credits, as they remained in existence following the spinoff. That same day, CCG filed its

own motion for summary judgment arguing that Section xii of the contract had been

triggered because the spinoff constituted a “reorganization” that “eliminated” CHSPSC’s

ability to utilize Watsonville’s credits.

After hearing arguments on the motions, the trial court entered an order denying

CCG’s motion and granting summary judgment to CHSPSC because the court concluded

that the spinoff did not trigger Section xii of the contract. The court explained as follows:

The Court finds the parties’ subsequent conduct demonstrates the

parties’ intention, at the time the Agreement was executed, that the term

“reorganization” be construed in accordance with 26 U.S. Code § 355.

As the parties agree [the] spin-off of Watsonville did not qualify as a

“reorganization” under the Internal Revenue Code, and the Court has found

the Agreement contemplated “reorganization” being construed in accordance

with the Internal Revenue Code, Section xii of the Agreement cannot be

triggered, regardless of whether the Credits were “eliminat[ed],” because the

Plaintiff’s “reorganization” is a condition precedent to the “elimination” of

the Credits.

Finally, the Court finds, because Plaintiff did not breach the

Agreement by refusal to pay fees as Section xii of the Agreement was not

triggered by the spin-off of Watsonville, Defendant’s breach of contract

counterclaim fails.

CCG appealed and presents the following issue for our review: whether the trial

court erred in denying its motion for summary judgment and granting summary judgment

to CHSPSC.

STANDARD OF REVIEW

We review a trial court’s summary judgment determination de novo, with no

presumption of correctness. Rye v. Women’s Care Ctr. of Memphis, MPLLC, 477 S.W.3d

235, 250 (Tenn. 2015). This means that “we make a fresh determination of whether the

requirements of Rule 56 of the Tennessee Rules of Civil Procedure have been satisfied.”

Id. We “must view the evidence in the light most favorable to the nonmoving party and

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must draw all reasonable inferences in that party’s favor.” Godfrey v. Ruiz, 90 S.W.3d 692,

695 (Tenn. 2002); see also Acute Care Holdings, LLC v. Houston Cnty., No. M2018-

01534-COA-R3-CV, 2019 WL 2337434, at *4 (Tenn. Ct. App. June 3, 2019).

Summary judgment is appropriate “if the pleadings, depositions, answers to

interrogatories, and admissions on file, together with the affidavits, if any, show that there

is no genuine issue as to any material fact and that the moving party is entitled to a judgment

as a matter of law.” TENN. R. CIV. P. 56.04. A disputed fact is material if it is determinative

of the claim or defense at issue in the motion. Martin v. Norfolk S. Ry. Co., 271 S.W.3d

76, 84 (Tenn. 2008) (citing Byrd v. Hall, 847 S.W.2d 208, 215 (Tenn. 1993)). When a

party moves for summary judgment but does not have the burden of proof at trial, the

moving party must submit evidence either “affirmatively negating an essential element of

the nonmoving party’s claim” or “demonstrating that the nonmoving party’s evidence at

the summary judgment stage is insufficient to establish the nonmoving party’s claim or

defense.” Rye, 477 S.W.3d at 264. Once the moving party has satisfied this requirement,

the nonmoving party “‘may not rest upon the mere allegations or denials of [its] pleading.’”

Id. at 265 (quoting TENN. R. CIV. P. 56.06). Rather, the nonmoving party must respond

and produce affidavits, depositions, responses to interrogatories, or other discovery that

“set forth specific facts showing that there is a genuine issue for trial.” TENN. R. CIV. P.

56.06; see also Rye, 477 S.W.3d at 265. If the nonmoving party fails to respond in this

way, “summary judgment, if appropriate, shall be entered against the [nonmoving] party.”

TENN. R. CIV. P. 56.06. If the moving party fails to show that he or she is entitled to

summary judgment, however, “‘the non-movant’s burden to produce either supporting

affidavits or discovery materials is not triggered and the motion for summary judgment

fails.’” Martin, 271 S.W.3d at 83 (quoting McCarley v. W. Quality Food Serv., 960 S.W.2d

585, 588 (Tenn. 1998)).

Because any party may move for summary judgment under Tenn. R. Civ. P. 56,

cases sometimes involve cross-motions for summary judgment. CAO Holdings, Inc. v.

Trost, 333 S.W.3d 73, 82 (Tenn. 2010). As the Tennessee Supreme Court explained in

CAO Holdings v. Trost:

Cross-motions for summary judgment are no more than claims by

each side that it alone is entitled to a summary judgment. The court must

rule on each party’s motion on an individual and separate basis. With regard

to each motion, the court must determine (1) whether genuine disputes of

material fact with regard to that motion exist and (2) whether the party

seeking the summary judgment has satisfied Tenn. R. Civ. P. 56’s standards

for a judgment as a matter of law. Therefore, in practice, a cross-motion for

summary judgment operates exactly like a single summary judgment motion.

Id. at 83 (citations omitted).

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ANALYSIS

I. Applicable law

The contract contains a choice of law provision stating that the terms of the contract

“shall be governed by, and construed in accordance with, the laws of the State of

California.” Under California law, a party must prove the following elements to establish

a claim for breach of contract: “(1) the existence of the contract, (2) plaintiff’s performance

or excuse for nonperformance, (3) defendant’s breach, and (4) the resulting damages to the

plaintiff.” Oasis W. Realty, LLC v. Goldman, 250 P.3d 1115, 1121 (Cal. 2011) (citing

Reichert v. Gen. Ins. Co., 442 P.2d 377, 381 (Cal. 1968)). The parties agree that the first

two elements have been established. Their disagreement centers on the third element—

whether CHSPSC breached the contract by refusing to pay CCG a fee for Watsonville’s

unused tax credits.

To answer this question, we must interpret the contract. Under California law,

“‘[t]he interpretation of a contract is a judicial function.’” Brown v. Goldstein, 34 Cal.

App. 5th 418, 432 (Cal. Ct. App. 2019) (quoting Wolf v. Walt Disney Pictures & Television,

162 Cal. App. 4th 1107, 1125-26 (Cal. Ct. App. 2008)). When engaging in this function,

courts “‘give effect to the mutual intention of the parties as it existed’ at the time the

contract was executed.” Wolf, 162 Cal. App. 4th at 1126 (quoting Cal. Civ. Code § 1636).

“Ordinarily, the objective intent of the contracting parties is a legal question determined

solely by reference to the contract’s terms.” Id. (citing Cal. Civ. Code § 1639).

A court construing a contract must apply the “‘“clear and explicit” meaning of [the

contract’s terms], interpreted in their “ordinary and popular sense,” unless “used by the

parties in a technical sense or a special meaning is given to them by usage[.]”’” Hewlett-

Packard Co. v. Oracle Corp., 65 Cal. App. 5th 506, 531 (Cal. Ct. App. 2021) (quoting AIU

Ins. Co. v. Super. Ct., 799 P.2d 1253, 1264 (Cal. 1990) (quoting Cal. Civ. Code § 1644)).

Terms used in a technical sense “are to be interpreted as usually understood by persons in

the profession or business to which they relate, unless clearly used in a different sense.”

Cal. Civ. Code § 1645.

II. Intended meaning of the term “reorganization”

CCG takes issue with the trial court’s determination that the parties intended the

term “reorganization” to have a technical, tax-based meaning that corresponded to the

Internal Revenue Code’s definition of “reorganization.” According to CCG, the contract

contains no language indicating the parties intended for the term to have any sort of

technical meaning. Thus, CCG urges, the only reasonable construction of “reorganization”

is its “ordinary and popular” meaning, which CCG avers is “any type of different order,

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composition or structure of the corporation.”3 CCG argues that, under this interpretation,

the spinoff constituted a reorganization because it resulted in a change to the composition

or structure of CHSPSC. For the reasons discussed below, we respectfully disagree.

In interpreting a contract’s terms, courts apply “the meaning a layperson would

ascribe to contract language” if unambiguous, Santisas v. Goodin, 951 P.2d 399, 405 (Cal.

1998), but courts also recognize the “‘interpretational principle that a contract must be

understood with reference to the circumstances under which it was made and the matter to

which it relates.’” Mountain Air Enters., LLC v. Sundowner Towers, LLC, 398 P.3d 556,

561 (Cal. 2017) (quoting Xuereb v. Marcus & Millichap, Inc., 3 Cal. App. 4th 1338, 1344

(Cal. Ct. App. 1992)); see also Cal. Civ. Code § 1647. The threshold question under

California law is whether the terms of a contract are ambiguous—“that is, reasonably

susceptible to more than one interpretation.” Scheenstra v. Cal. Dairies, Inc., 213 Cal.

App. 4th 370, 389 (Cal. Ct. App. 2013) (citing Winet v. Price, 4 Cal. App. 4th 1159, 1165

(Cal. Ct. App. 1992)). Although a court begins with the contract’s terms to determine

whether they are ambiguous, the court may consider extrinsic evidence to determine

whether a material term is “reasonably susceptible to a particular meaning.” Scheenstra,

213 Cal. App. 4th at 390. As one California court explained:

“The interpretation of a contract involves ‘a two-step process: First

the court provisionally receives (without actually admitting) all credible

evidence concerning the parties’ intentions to determine “ambiguity,” i.e.,

whether the language is “reasonably susceptible” to the interpretation urged

by a party. If in light of the extrinsic evidence the court decides the language

is “reasonably susceptible” to the interpretation urged, the extrinsic evidence

is then admitted to aid in the second step – interpreting the contract.” (Wolf

v. Superior Court (2004) 114 Cal. App. 4th 1343, 1351, 8 Cal. Rptr. 3d 649

(Wolf II) [citing and quoting Winet v. Price (1992) 4 Cal.App.4th 1159, 1165,

6 Cal. Rptr. 2d 554 (Winet)]; see also Wolf, supra, 162 Cal. App. 4th at p.

1126, 76 Cal. Rptr. 3d 585.)

3

In its appellate brief, CCG contends that this is the “ordinary and popular” meaning of the term

“reorganization” based on certain dictionary definitions:

“Reorganization” is “the action or process of reorganizing; fresh organization; an instance

of this” (Oxford English Dictionary Online (2014)); “the act or process of reorganizing;

the state of being reorganized” (Merriam-Webster’s Collegiate Dictionary (11th ed. 2007));

“the state of being reorganized; especially: the financial reconstruction of a business

concern” (Merriam-Webster Online, www.merriam-webster.com/dictionary (accessed July

11, 2022), with the term “reorganize” meaning simply “to organize again or anew” (OED

Online) or “to undergo or make changes in organization” (Merriam-Webster’s Collegiate

Dictionary, supra).

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“When there is no material conflict in the extrinsic evidence, the trial

court interprets the contract as a matter of law. This is true even when

conflicting inferences may be drawn from the undisputed extrinsic evidence

or that extrinsic evidence renders the contract terms susceptible to more than

one reasonable interpretation. If, however, there is a conflict in the extrinsic

evidence, the factual conflict is to be resolved by the jury.” (Wolf, supra, 162

Cal. App. 4th at pp. 1126-1127, 76 Cal. Rptr. 3d 585; see id. at p. 1134, 76

Cal. Rptr. 3d 585 [“that extrinsic evidence may reveal an ambiguity

subjecting a contract to more than one reasonable interpretation does not

mean resolution of that ambiguity is necessarily a jury question. Absent a

conflict in the evidence, the interpretation of the contract remains a matter of

law”].).

Brown, 34 Cal. App. 5th at 432-33 (internal citations omitted).

CCG is correct that the plain language of the contract does not reference the Internal

Revenue Code. But, CHSPSC presented extrinsic evidence showing that the term

“reorganization” is “reasonably susceptible” to having a technical, tax-based meaning that

corresponds to the Internal Revenue Code’s definition. See Scheenstra, 213 Cal. App. 4th

at 390 (stating that contract terms are ambiguous if “reasonably susceptible to more than

one interpretation” and that the court may consider extrinsic evidence to make its ambiguity

determination). Therefore, we agree with the trial court that the term “reorganization” is

ambiguous. Because there is no material conflict in the extrinsic evidence, most of which

consisted of emails the parties exchanged after signing the contract, we may rely on it to

interpret the contract as a matter of law. See Brown, 34 Cal. App. 5th at 433 (quoting Wolf,

162 Cal. App. 4th at 1127) (“‘Absent a conflict in the evidence, the interpretation of the

contract remains a matter of law.’”).

Generally, there are two types of extrinsic evidence that California courts consider

when interpreting a contract as a matter of law. The first type is evidence regarding the

“‘circumstances surrounding the making of the agreement . . . including the object, nature

and subject matter of the writing . . .’ so that the court can ‘place itself in the same situation

in which the parties found themselves at the time of contracting.’” Pac. Gas & Elec. Co.

v. G. W. Thomas Drayage & Rigging Co., 442 P.2d 641, 645 (Cal. 1968) (quoting

Universal Sales Corp. v. Cal. Press Mfg. Co., 128 P.2d 665, 671 (Cal. 1942); Lemm v.

Stillwater Land & Cattle Co., 19 P.2d 785, 788 (Cal. 1933)). The second type is evidence

of the parties’ subsequent conduct before the dispute arose, known as “the rule of practical

construction.” Warner Constr. Corp. v. City of Los Angeles, 466 P.2d 996, 1003 (Cal.

1970). According to the California Supreme Court, the parties’ understanding of the

contract’s terms, as shown by their conduct before any dispute arises, “‘is entitled to great

weight and will, when reasonable, be adopted and enforced by the court.’” Warner, 466

P.2d at 1003 (quoting Woodbine v. Van Horn, 173 P.2d 17, 22 (Cal. 1946)). Indeed,

California courts have held that “[i]ntent may be inferred from a party’s acts and conduct

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even in the face of his express declarations to the contrary.” H. S. Crocker Co. v.

McFaddin, 307 P.2d 429, 435 (Cal. Ct. App. 1957) (citing Trevaskis v. Peard, 44 P. 246,

248 (Cal. 1896)). Thus, the rule of practical construction generally bars the admission of

inconsistent statements after the date on which the parties “reached a stage of clear

disagreement on the crucial question.” Warner Constr., 466 P.2d at 1003.

Regarding the first type of extrinsic evidence, the record shows that “the nature and

subject matter” of the contract was tax-based. The contract concerns identifying and

realizing California Enterprise Zone tax credits, and the contract uses the term

“reorganization” in the context of whether an event has occurred that has a specific effect

on those tax credits. Furthermore, the contract states that CCG’s services are provided by

“professionals” that “work exclusively in [the] specialized area” of California Enterprise

Zone tax credits, and CHSPSC’s in-house tax professionals reviewed and signed the

contract. This evidence indicates that, despite not referencing the Internal Revenue Code,

the parties intended “reorganization” to have a tax-based meaning.

The record also contains evidence of the parties’ conduct before any dispute arose—

the second type of extrinsic evidence—that shows they understood “reorganization” to

have a tax-based meaning. For instance, seven months before the spinoff occurred,

CHSPSC informed CCG that Watsonville would be spun off and specifically asked what

impact, if any, that would have on the unused tax credits. CCG responded that the tax

credits would spinoff with Watsonville, and CCG acted consistently with this

understanding for over four years. Notably, for four years after the spinoff, CCG neither

sent an invoice to CHSPSC for the unused tax credits nor told CHSPSC that the

reorganization provision had been triggered. Rather, after the spinoff was completed on

April 29, 2016, CCG promptly contacted Quorum to inform it that the Watsonville tax

credits were available for Quorum’s use. CCG also informed Quorum that “[s]ince the

Credits spun out of CHS[I] and into QHC, the Credits—along with the attached

agreement—are inherited by QHC.” For the next several years, CCG regularly

communicated with Quorum, requested copies of Quorum’s tax filings, and reviewed

Quorum’s SEC filings to determine whether Quorum had utilized, or would be in a position

to utilize, the credits. CCG even admitted that, if Quorum had used the tax credits, it would

have invoiced Quorum. It was not until four and a half years later, after Quorum informed

CCG that it did not anticipate being able to use the tax credits in the foreseeable future, that

CCG changed its tune and began claiming that the spinoff constituted a “reorganization”

under the plain meaning of the contract.4

4

CCG contends that its relationship with Quorum should not be considered evidence indicating it

believed the spinoff did not trigger the reorganization provision because it was merely attempting to

“mitigate” its damages. We, like the trial court, question the accuracy of CCG’s characterization of its

relationship with Quorum as an attempt to mitigate damages. For four and a half years, CCG never claimed

it had suffered any damages from the spinoff. We are not persuaded by this argument.

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Based on the foregoing, we agree with the trial court that CCG’s subsequent conduct

of informing CHSPSC that, as CCG interpreted the contract, the tax credits would be spun

off with Watsonville in addition to CCG’s silence on the topic of owed fees for over four

years after the spinoff occurred, shows that CCG did not interpret the contract to entitle it

to fees resulting from the spinoff of Watsonville. In other words, CCG did not consider

the spinoff to constitute a reorganization under the contract because the spinoff did not

meet the Internal Revenue Code’s definition of “reorganization.” Because the spinoff did

not constitute a “reorganization” under the Internal Revenue Code, the reorganization

provision of the contract was not triggered, and CHSPSC did not breach the contract by

refusing to pay CCG for Watsonville’s unused tax credits. Therefore, CCG cannot

establish the third element of its breach of contract claim. We affirm the trial court’s

decision granting summary judgment to CHSPSC and denying summary judgment to CCG.

CONCLUSION

The judgment of the trial court is affirmed. Costs of this appeal are assessed against

the appellant, the California Credits Group, for which execution may issue if necessary.

/s/ Andy D. Bennett

ANDY D. BENNETT, JUDGE

CCG also asserts that interpreting “reorganization” as having a technical, tax-based meaning violates

the canon against surplusage because it renders the reorganization provision meaningless as it would never

be triggered. See surplusage canon, BLACK’S LAW DICTIONARY (11th ed. 2019) (defining “surplusage

canon” as “[t]he doctrine that, if possible, every word and every provision in a legal instrument is to be

given effect); see also Cal. Civ. Code § 1641 (“The whole of a contract is to be taken together, so as to give

effect to every part, if reasonably practicable, each clause helping to interpret the other.”). CCG’s reliance

on the surplusage canon is misplaced. Just because the spinoff did not constitute a “reorganization” under

the technical, tax-based meaning of the term does not necessarily render the reorganization provision

surplusage. It is possible for the provision to be triggered when applying a technical, tax-based meaning.

For instance, bankruptcy constitutes a “reorganization” under the Internal Revenue Code, and a bankruptcy

could result in the elimination of tax credits. In such a situation, the two conditions precedent to the

reorganization provision would be met, and CCG would be entitled to a fee. We find this argument

unpersuasive.

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