Opinion
Civel Action No. SA-OO-CA-0843 NN
December 2, 2002
MEMORANDUM ORDER AND DECISION DENYING DEFENDANT'S MOTION FOR SUMMARY JUDGMEMT
A. Introduction
The matter before me is defendant Regal Cinemas' motion for summary judgment, filed April 29, 2002. Plaintiff, Wiliming Reams Animation, Inc. ("Wiliming Reams") filed a responsive brief on May 9, 2002 to which defendant replied on May 16, 2002. After considering the defendant's summary judgment motion and the entirety of the record in the matter, I hereby DENY the motion. My reasoning is set out fully below. I have jurisdiction over this matter under 28 U.S.C. § 636(c) as the parties have consented to proceed before a magistrate judge for all matters in this case including trial and entry of judgment.
Docket Entry 63.
Docket Entries 65 and 69, respectively.
Docket Entry 34.
B. Factual Background
On April 10, 2000 Willming Reams and Regal Cinemas entered into a written contract. The parties agreed that in exchange for the release of claims against Regal Cinemas, Wiliming Reams would act as the distributor of a new theatrical policy trailer referred to as the "Pepsi Girl" trailer. The following provisions of the contract are in question:
4. Regal Cinemas will pay $50.00 per print for the first 15,000 prints ($750,000.00) and $28.80 per print for each additional print over 15,000 prints.
5. Regal Cinemas agrees to pay for the first 15,000 prints in three (3) installments of: $300,000.00 upon delivery of the print for duplication, $194,400.00 within five (5) days of written notification from Willming Reams Animation, Inc. that the duplicate prints are completed, but no later than the date said prints are picked up by, delivered to, or shipped in accordance with instructions from Regal Cinemas, and $255,600.00 within five (5) days following the date the second installment is due.
6. If Regal Cinemas makes the first and second installments on time, as described in paragraph 5 above, it will be entitled to a credit equal to the full $255,600.00 against the third payment.
Id. at 1-2.
Prior to the completion of the contract, the price per print was amended to $51.25 for the initial order of 15,000 and $29.52 for additional prints. As a result, the total price of the contract became $768,750.00. The first payment remained $300,000.00; the second payment increased to $213,150.00; and the third payment remained $255,600.00.
Letter from Doug Wiliming, Wiliming Reams Animation, to Rob Del Moro, Sr. Vice President, Regal Cinemas (April 25, 2000) (Docket Entry 63, Appendix, Tab 9).
Id.
Id.
On May 23, 2000, Regal Cinemas forwarded to Willming Reams a shipping list containing the names, addresses, telephone numbers and quantity of trailers to be shipped, delivered or picked up. Willming Reams then contracted with Consolidated Film Industries ("CFI") to supervise and complete all shipping of the trailers to the locations listed by Regal Cinemas. CFI completed delivery and shipping between May 23, 2000 and May 31, 2000. Regal Cinemas was then notified that the prints had been completed. On June 8, 2000, Regal Cinemas became aware that two locations had received the incorrect number of prints. Regal Cinemas contacted Willming Reams the same day and requested additional confirmation information to conduct an audit. On June 9, 2000, Willming Reams provided part of the information requested, and on either June 12, 2000 or June 15, 2000, Regal Cinemas received the remainder of the confirmation documents showing the number of prints shipped to each location. Regal Cinemas claims that payment was made within five days of receiving the verification information. The second payment in the amount of $213,150.00 was forwarded by overnight delivery to Willming Reams, which received the payment on June 21, 2000.
Docket Entry 63, Appendix, Tab 10.
Docket Entry 5, at 3.
Id.
Id.
Docket Entry 63, at 3.
Id. at 4.
Docket Entry 5, at 3.
This date is disputed by the parties. Compare Docket Entry 63, at 4 (stating that the requested information was received on June 15, 2000) with Docket Entry 5, at 3 (stating that the information was provided on June 12, 2000).
Docket Entry 63, at 4.
Docket Entry 5, at 4.
Willming Reams alleges that the second payment, received on June 21, 2000, was not in accordance with the contract. Willming Reams, therefore, claims it is owed the final payment of $255,600.00 because Regal Cinemas did not earn the credit provided in Section 6 of the contract. Regal Cinemas, however, characterizes the third payment as an unenforceable penalty provision and has submitted a motion for summary judgment on that issue. Additionally, Regal Cinemas claims that Willming Reams waived the requirement of prompt payment as a predicate for the Section 6 credit and that Willming Reams breached the contract. In response, Willming Reams contends that the provision is not a penalty and is in no way a violation of public policy; that the contract price, including the contested third payment, was fully negotiated; and that installments of this type with discounts for prompt payment are customary. Additionally, Willming Reams denies both that it waived the payment requirement and that it breached the contract.
Id.
Id.
Docket Entry 63, at 5.
Id. at 8 10.
Docket Entry 65, at 4.
C. Discussion
1. Summary Judgment Standard
Rule 56 provides in pertinent part:
The judgment sought shall be rendered forthwith 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 judgment as a matter of law.
Fed.R.Civ.P. 56(c); Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986).
Mere allegations of a factual dispute between the parties will not defeat an otherwise proper motion for summary judgment. Rule 56 requires that there be no genuine issue of material fact. A fact is material if it might affect the outcome of the lawsuit under the governing law. A dispute concerning a material fact is genuine if the evidence is such that a reasonable jury could return a verdict for the nonmoving party. Therefore, summary judgment is proper if, under governing laws, there is only one reasonable conclusion as to the verdict; if reasonable finders of fact could resolve a factual issue in favor of either party, summary judgment should not be granted.
Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247 (1986).
Anderson, 477 U.S. at 248; Thomas v. LTV Corp., 39 F.3d 611, 616 (5th Cir. 1994).
Anderson, 477 U.S. at 248; Wise v. E.I. DuPont De Nemours Co., 58 F.3d 193, 195 (5th Cir. 1995).
Anderson, 477 U.S. at 249.
The movant on a summary judgment motion bears the initial burden of informing the court of the basis for its motion and identifying those portions of the record which it alleges demonstrate the absence of a genuine issue of material fact. To satisfy this burden, the movant must either submit evidentiary documents that negate the existence of some material element of the nonmoving party's claim or defense, or if the crucial issue is one for which the nonmoving party will bear the burden of proof at trial, merely point out that the evidentiary documents in the record contain insufficient proof concerning an essential element of the nonmoving party's claim or defense. Regardless of whether the movant accompanies its summary judgment motion with affidavits or other evidentiary materials, the motion must be granted if the evidence before the court demonstrates that the standard for entry of summary judgment, as set forth in Rule 56(c), is satisfied. Once the movant has carried that burden, the burden then shifts to the party opposing the motion to present affirmative evidence in order to defeat a properly supported motion for summary judgment.
Celotex Corp., 477 U.S. at 323.
Edwards v. Aguillard, 482 U.S. 578, 595 n. 16 (1987); and Celotex Corp., 477 U.S. at 325.
Id.
Anderson, 477 U.S. at 257.
Importantly, the non-moving party cannot discharge this burden by referring to the mere allegations or denials of the non-moving party's pleadings. Rather, the non-movant must, either by submitting opposing evidentiary documents or by referring to evidentiary documents already in the record, set out specific facts showing the existence of a genuine issue for trial. The court will look at the record in the light most favorable to the non-movant drawing all inferences most favorable to that party. Nevertheless, "conclusory allegations, speculation, and unsubstantiated assertions are inadequate to satisfy the non-movant's burden." Summary judgment is mandated if the non-movant fails to make a showing sufficient to establish the existence of an element essential to his or her case on which he or she bears the burden of proof at trial. Accordingly, summary judgment motions permit the court to resolve lawsuits without the necessity of trials if there is no genuine dispute as to any material facts and the moving party is entitled to judgment as a matter of law.
Fed.R.Civ.P. 56(e); Anderson, 477 U.S. at 250; State of Texas v. Thompson, 70 F.3d 390, 393 (5th Cir. 1995).
Celotex Corp., 477 U.S. at 324; Fields v. City of South Houston. Texas, 922 F.2d 1183, 1187 (5th Cir. 1991); Neff v. American Dairy Oueen Corp., 58 F.3d 1063, 1065 (5th Cir. 1995), cert. denied, 516 U.S. 1045 (1996).
Hibernia Nat'l Bank v. Carner, 997 F.2d 94, 97 (5th Cir. 1993). See also Little v. Liquid Air Corp., 37 F.3d 1069, 1075 (5th Cir. 1994) (holding that a nonmovant cannot discharge her burden with doubt as to the material facts, by conclusory allegations, unsubstantiated assertions, or by only a scintilla of evidence).
See Douglass v. United Services Auto. Ass'n, 79 F.3d 1415, 1429 (5th Cir. 1996) (citing Forsyth v. Barr, 19 F.3d 1527, 1533 (5th Cir.), cert. denied, 513 U.S. 871 (1994)).
Celotex Corp., 477 U.S. at 322 ("In such situation, there can be `no genuine issue as to any material fact,' since a complete failure of the proof concerning an essential element of the nonmoving party's case necessarily renders all other facts immaterial."). Id. at 323.
See Fields, 922 F.2d at 1187.
2. Applicable Rules for Construing Contracts
Generally, the meaning to be given the language used in a contract is a question of law. The primary concern of a court in construing a written contract is to ascertain the true intent of the parties as expressed in the instrument. In determining the intent of the parties, the court is guided by the four corners of the contract, absent any allegations of ambiguity. Only where a contract is determined to be ambiguous may the court admit extraneous evidence to determine the true meaning of the instrument.
Vansguard Ins. Co. v. Stewart, 593 S.W.2d 736, 738 (Tex.Civ.App. 1979), aff'd, 603 S.W.2d 761 1980).
Forbau v. Aetna Life Ins. Co., 876 S.W.2d 132 (Tex. 1994).
Nat'l. Union Fire Ins. Co. v. CBI Indus., Inc., 907 S.W.2d 517, 520 (Tex. 1995). See also Bradley v. Howell, 126 S.W.2d 547, 560-61 (Tex.Civ.App. 1939, writ dism'd).
R P Enter. v. LaGuarta, Gavrel Kirk, Inc., 596 S.W.2d 517, 518 (Tex. 1980). Ambiguity can be determined if the language of a contract is subject to two or more reasonable interpretations. Nat'l Union, 907 S.W.2d at 520.
3. Is Section 6 a penalty provision?
Regal Cinemas contends that Section 6, which awards a credit if payments of installments one and two are prompt but requires payment in full if they are not, is an invalid penalty clause. Under Texas law, a liquidated damages clause is an invalid penalty clause unless it was impossible or difficult to estimate damages, the amount specified as liquidated damages is a reasonable forecast of the amount necessary for just compensation and the liquidated damages are not disproportionate to actual damages. Regal Cinemas argues that damages were not difficult or impossible to estimate, that $255,600 was not a reasonable forecast of the amount of harm, and that $255,600 does not relate in any way to the actual damages suffered by Willming Reams. This argument, however, is in apposite because the credit provision in Section 6 is neither a liquidated damages clause nor a penalty provision: it does not possess the characteristics of either.
Thanksgiving Tower Partners v. Anros Thanksgiving Partners, 64 F.3d 227, 231 (5th Cir. 1995).
See 22 Am. Jur. 2D Damages § 684 (2002) (describing the characteristics and differences between liquidated damages and penalty provisions).
Liquidated damages clauses are designed to avoid or simplify litigation by determining the aggrieved party's damages in advance, while penalty provisions are designed to deter breaches by the prospect of punishment. The distinction between the two is that penalties are for the purpose of preventing breach, while liquidated damages are an amount to be paid in the event of breach. The Restatement (Second) of Contracts' description of the policy reasons for invalidating liquidated damages clauses differentiates between those that create penalties and those that provide compensation. The policy of just compensation acts to invalidate agreements when they are punitive in nature. Under Texas law, the rule against punitive liquidated damages clauses applies to agreements that fix damages in advance of a breach. The rule against punitive liquidated damages clauses, however, does not operate to invalidate the primary obligation of contract.
Id.
Id.
RESTATEMENT (SECOND) of Contracts § 356 cmt. (a) (1981) (stating that parties to a contract may effectively provide the amount of damages in advance as long as the provision does not disregard the principle of compensation).
Stewart v. Basey, 245 S.W.2d 484, 486 (Tex. 1952).
Permian Petroleum Company v. Petroleos Mexicanos, 934 F.2d 635, 645-46 (5th Cir. 1991).
For example, in Stewart v. Basey, the leading case on this subject in Texas, the court found that a provision which required the same remedy for each and every breach was an unenforceable penalty. More recently, in Nortex Drug Distributors, Inc. v. Sunset Trails, Inc., the clause in question was found to be enforceable. There, the court found that the contract provision was not a penalty, but an enforceable liquidated damages clause. The clause in Nortex provides a remedy in the event the booking party breaches the contract ( i.e. does not perform by holding its function as contracted for). In Stewart, the provision in question levied the same penalty for every breach of contract from failure to pay rent to the loss of a key, therefore the reason the provision was invalid was because its sole purpose was punishment. The characteristics that these two provisions have in common, and which are not shared by Section 6, are first, that the questionable provision is not the primary obligation of the contract and second, that the questionable provision is triggered by breach of the contract. In the current case, the question is not whether a party breached the contract and thus must pay damages. The provision at issue here is not a prediction in advance of damages for a possible future breach of the agreement. It is the parties' agreed method of just compensation for prompt payment that might later be proven incorrect. Therefore, the question is whether a party performed and is entitled to a discount off the bargained-for contract price.
245 S.W.2d 484 (1952).
Id. at 487.
No. 05-98-00676-CV, 2000 WL 1230766 (Tex.App.- Dallas Aug. 31, 2000).
Id. at *1.
Id.
Id.
Stewart, 245 S.W.2d at 487.
The parties contracted for a set price of $50.25 — later amended to $51.25-for the first 15,000 prints. Under this contract, the first two payments total $513,150, and the third payment is $255,600. The total of the three payments is $768,750 — which is also $51.25 multiplied by 15,000 prints. Regal Cinemas obligated itself to pay a total price of $768,750. The parties, however, also negotiated a credit in the event the first two payments were made in complete accordance with the contract terms. If Regal Cinemas made payments one and two accordingly, it became eligible for the $255,600 credit. If Regal Cinemas did not make the first two payments according to the contract, it did not earn the credit. This third payment is not above and beyond the negotiated contract price. The provision does not state that should Regal breach the contract, it will be required to pay an amount in addition to the negotiated contract price.
Both parties in this case are sophisticated businesses and were well aware that the final terms of the deal would be incorporated into a written agreement. This was not a negotiation in which one party had disparate bargaining power. Additionally, Regal Cinemas does not claim that it was duped into signing a final agreement that purported to be the final agreement but was in fact something else. The contract, including Section 6, was signed after full negotiations between the parties with respect to the subject matter. Regal Cinemas, however, now relies on the fact that the third payment is pure profit for Willming Reams as a reason to invalidate a fully negotiated provision of the contract. Whether the third payment is pure profit is irrelevant. The parties in this case negotiated fairly for a set price per print which totaled $768,750. The third payment, as noted above, is a part of this total amount, and is not an amount intended to punish Regal Cinemas or prevent breach. I therefore find that Section 6 is not a penalty provision, and is thus, enforceable as a matter of law.
4. Issues of Fact Precluding Summary Judgment
Having determined that Section 6 of the agreement is an enforceable provision, contested issues of material fact exist as to whether Willming Reams breached the contract by failing to follow the shipping instructions as provided by Regal Cinemas, and whether Willming Reams waived its right to prompt payment. These are issues for the trier of fact.
Docket Entry 63 at 10.
With respect to the former issue, Willming Reams denies breach, contending that the prints were shipped per Regal Cinemas' instructions. With respect to the latter issue, Regal Cinemas claims that it was led to believe that Willming Reams waived strict compliance with the payment schedule set forth in Sections 5 and 6 of the agreement. Additionally, Regal Cinemas contends that this belief was reasonable under the circumstances. Willming Reams, however, denies waiver, stating that there is no proof of its intent to waive the payment schedule and therefore, under the circumstances, such a belief was not reasonable. Because a court must refrain from making credibility assessments on disputed issues of material fact, Regal Cinemas' motion for summary judgment on the issues of waiver and breach of contract is also denied. Summary judgment should not be granted if reasonable finders of fact could resolve a factual issue in favor of either party. I find that genuine issues of material fact exist concerning whether waiver occurred and which party breached the contract, thereby precluding summary judgment in this case.
Docket Entry 65 at 5.
Docket Entry 63 at 9. Waiver is an intentional release, relinquishment or surrender of a known right. See Abraxas Petroleum Corp. v. Hornburg, 20 S.W.3d 741, 749 (Tex.App.-El Paso, 2000, n.w.h.).
Docket Entry 63, at 9.
Docket Entry 65 at 4-5.
Docket Entry 63, at 8-10.
Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986).
D. Conclusion
Based on the foregoing, Regal Cinemas' motion for summary judgment (Docket Entry 63) is hereby DENIED in its entirety. Trial of this cause and the parties' deadline for their pre-trial submissions pursuant to Local Rule CV-16(e) will be SET in a subsequent Order.