Opinion
Civil Action No. 00-10033-GAO.
January 15, 2002
MEMORANDUM AND ORDER
On earlier summary judgment motions by both sides, this Court determined that the "Minimum Order Quantity" in the contract between the two parties in this dispute was mandatory, and that DTS Software Brasil Ltda ("DTS") had breached the contract by failing to order eight copies of the GILES 2001 by March 1999. The Court did not decide what, if any, the appropriate damage award would be for that breach because the record did not permit that judgment to be made. The parties now have submitted additional briefing and oral argument on whether Global Software, Inc. ("Global") is entitled to damages on its breach of contract claim, and if so, what measure of damages is appropriate. While the additional arguments have helped to narrow the range of possible remedies, the Court concludes that the contract's terms are ambiguous, and a jury will have to make the findings of fact necessary to resolve the ambiguity.
A. Summary of Relevant Facts
In March 1998, DTS and Global signed an agreement under which DTS would act as Global's exclusive Latin American distributor of "GILES 2001," a Y2K software application. In return for the exclusive distributorship right, DTS promised to meet the "Minimum Order Quantity" set forth in the contract for each of the first two years of the contract. The minimum order quantity for the first year was "3 copies in the first six months, 8 copies total." Complaint, Ex. B (attachment to Agreement). For every copy DTS sold, it agreed to pay Global 50% of Global's suggested United States retail list price. Id., Ex. A, Agreement § 3.2.
The contract also contained a section entitled "Term and Termination" which permitted termination of the contract under certain circumstances. Id. § 4. For example, either party could terminate the agreement if the other party committed a material breach of any of its obligations. Id. § 4.2. Under this section, Global had the unilateral right to terminate the agreement if DTS failed to purchase the required minimum order quantities. Id. § 4.4. The contract does not expressly address whether termination is to be the sole remedy for breach of the minimum order term.
In the event of termination by either side, DTS was to, among other things, "return to Global the master copies [of GILES 2001] . . . and all copies made but not distributed by [DTS]," and to "remit or credit Global the fees granted under the terms and conditions of [the] agreement." Id. § 4.5. In return, Global was obligated under those circumstances to receive "all Product [DTS] has in inventory and [to] reimburse [DTS] for all amounts [DTS] has remitted to Global in payment of such returned inventory." Id. § 4.7.
The contract also specified that DTS had to place orders for GILES 2001 "by sending a written request to Global specifying the Product, quantities required, importation requests and delivery details." Id. § 3.1. While the contract contemplates that Global would send DTS a "master copy" of GILES 2001, Global was only permitted to make copies of GILES 2001 if it had advance written authorization from Global. Id. § 6.1.
It is undisputed that DTS never sold or ordered a single copy of GILES 2001. Global sent a letter to DTS with an invoice for $340,000 for the first year minimum order requirement. Id., Ex. B, Invoice. In April 1999, DTS responded that it had no obligation to pay for the minimum order amount if no copies of GILES 2001 were sold. Pl.'s Concise Statement of Undisputed Facts in Reply to Def.'s Response, Ex. 2. In October 1999, Global sent notice that it was terminating the agreement (Connall Aff. ¶ 23 and attachment), and in January 2000 it filed this suit for: 1) failure to order the first year's minimum requirement, 2) failure to exercise "best efforts," 3) fraudulent misrepresentation, and 4) violation of Chapter 93A. This Court dismissed the fraudulent misrepresentation and Chapter 93A claims on a cross-motion for summary judgment by DTS. The "best efforts" claim has been left for trial.
$340,000 represents eight times 50% of the list price (i.e. 8 x (.50)(85,000)).
B. Termination May Be Global's Only Remedy
DTS contends that terminating the agreement was the only remedy available to Global for DTS's failure to order the required minimum of eight copies of GILES 2001. DTS argues that because the contract expressly provides for termination as a remedy for breach of the minimum order requirement, termination is the exclusive remedy. However, under Massachusetts law, expressly stated remedies are not automatically exclusive. See Finkelstein v. Sneierson, 173 N.E. 703, 704 (Mass. 1930). Instead, a court must examine the entire agreement to determine whether the parties intended for the remedy given under the contract to be exclusive. Id.; see also Holyoke Water Power Co. v. Whiting Co., 177 N.E. 568, 574 (Mass. 1931) (holding that the remedies stated in a contract were not exclusive when there was nothing to indicate an intention that other remedies should not be available).
The parties' contract stipulates that Massachusetts law applies.
Looking at the parties' contract as a whole, there is no clear indication that termination was intended to be Global's sole remedy. A plausible explanation for the inclusion of the termination provisions is that the parties wanted to ensure that termination would be readily available if one party was unable or unwilling to live up to its side of the deal. In the absence of a termination provision, breach of contract alone might be insufficient to warrant termination. See Worcester Heritage Soc'y, Inc. v. Trussell, 577 N.E.2d 1009, 1010 (Mass.App.Ct. 1991) (holding that courts ordinarily will not set aside a contract for nonperformance by one of the parties unless the contract provides for termination upon breach) (citing Barry v. Frankini, 191 N.E. 651, 653 (Mass. 1934)). Extrinsic evidence regarding the intentions of the parties is needed to determine whether they intended termination to be the sole remedy for DTS's failure to order the minimum quantities. Evaluation of such evidence properly is performed by the jury. RCI Northeast Servs. Div. v. Boston Edison Co., 822 F.2d 199, 202 (1st Cir. 1987) ("where the plain meaning of a contract phrase does not spring unambiguously from the page or from the context, its proper direction becomes one for the factfinder, who must ferret out the intent of the parties").
C. Global is not Automatically Entitled to the Purchase Price
Global advances two theories to support its claim that DTS owes it the full contract price for each of the eight copies of GILES 2001 DTS had to order. First, Global argues that DTS incurred an obligation to pay the contractually stipulated purchase price under the Massachusetts Uniform Commercial Code ("Code"). See Mass. Gen. Laws ch. 106, § 2-709. In support of this claim, Global for the first time alleges that it furnished DTS with a "master copy" of GILES 2001 which DTS could use to make copies for customers. According to Global, acceptance of this master copy constitutes "acceptance" of the goods for which the parties contracted, in the meaning of the Code provision.
This argument comes too late. Global pleaded neither the factual nor legal bases for this claim in its complaint to put DTS on notice that it planned to pursue such a statutory claim. Nowhere is there reference to the shipment or receipt of a "master copy" of the GILES 2001. Nor is there any legal theory based on the Code expressed or even adumbrated. A court need not regard such an additional basis for recovery, enunciated well after the suit began. See Augusta News Co. v. Hudson News Co., 269 F.3d 41, 46 (1st Cir. 2001) (holding that where the plaintiff belatedly stated a statutory basis for recovery in its complaint, the district court had discretion to disallow the claim). The discovery period is over, and allowing Global to pursue a new statutory theory of recovery, based on new allegations of fact, would unfairly prejudice DTS's opportunity to defend the claims, particularly since there is no reason why Global has waited this long to advance its Code theory. See id. (allowing a plaintiff to introduce a new claim for relief after discovery and grant of summary judgment "would require remarkable justification"); Picker Int'l, Inc. v. Leavitt, 865 F. Supp. 951, 957 (D.Mass. 1994) (refusing to consider claim by plaintiff that defendant had violated Section 1 of the Sherman Act which was raised for the first time in the plaintiff's reply to the defendant's motion for summary judgment).
Global's second argument why DTS is liable for the full purchase price under the contract is that DTS incurred the debt at the time the contract was signed. To support this second argument, Global points to the provision in the contract that states that in the event of termination, DTS must "remit or credit Global the fees granted under the terms and conditions of this agreement." Complaint, Ex. A, Agreement § 4.5(iv). While DTS did incur an obligation to meet the minimum order requirements when it signed the contract, it does not necessarily follow that DTS also agreed to pay the full contract price for the eight copies if it failed to live up to that obligation. There is nothing in the contract which compels the conclusion that the parties intended for the price of the eight copies to be a "fee" which DTS assumed immediately upon signing the contract.
If Global is entitled to any damages for the breach, they must be measured by the well-established common law formula of the amount of loss caused by DTS, less any costs that Global saved by not having to deliver the eight copies. See Restatement (Second) of Contracts § 346 (1981). DTS may also be able to further reduce the damages award if it can show that Global failed to make reasonable efforts to mitigate its losses. See Anthony's Pier Four, Inc. v. HBC Assocs., 583 N.E.2d 806, 827 (Mass. 1991). The data to make such computations are neither in the summary judgment record nor are the facts undisputed.
Accordingly, regarding the determination of damages under Count I, it is left for a jury to resolve, first, whether termination was intended to be the sole remedy in the case of breach, and, second, if not, what the correct damage award is.