Opinion
1:02-cv-1405-LJM-WTL.
June 24, 2003.
CORRECTED ORDER ON PLAINTIFF'S MOTION FOR SUMMARY JUDGMENT AS TO COUNT II
This matter is before the Court on Plaintiff's, Made2Manage Systems, Inc. ("M2M"), Motion for Summary Judgment as to Count II. In August 1999, M2M, a computer software developer, executed a value added reseller agreement (the "Agreement") with Defendant, ADS Information Systems, Inc. ("ADS"), that gave ADS the ability to market and distribute M2M products in Minnesota, North Dakota, and South Dakota. Comp. ¶¶ 5-10. On September 10, 2002, M2M notified ADS that it was terminating the Agreement. Comp. ¶ 29. M2M then filed the instant case against ADS for breach of contract. In Count I, M2M alleges that ADS materially breached the Agreement and damaged M2M. In Count II, the subject of this motion, M2M seeks a declaratory judgment that M2M is entitled to terminate the Agreement at will, thereby permitting M2M to end its contractual relationship with ADS. The parties have fully briefed their arguments, and the motion is now ripe for ruling.
I. FACTUAL AND PROCEDURAL BACKGROUND A. THE 1999 AGREEMENT
As noted above, M2M and ADS entered into the Agreement in August 1999. Ex. A to Comp. Pursuant to the Agreement, ADS purchases products from M2M at a discount and then sells the products to consumers. Comp. ¶ 9. In return for the discount, M2M is entitled to receive a percentage of ADS' receipts on M2M products and services. Id. The agreement originally contemplated that ADS would have the exclusive right to market and distribute M2M products and services in Minnesota, North Dakota, and South Dakota (the "Exclusive Territory"). Comp. ¶ 10. In order to retain the aforementioned exclusive right, ADS had to satisfy certain sales quotas, as described in the Agreement. Id. ¶ 11. Pursuant to section 19 of the Agreement, if ADS is not able to achieve these sales quotas, M2M has the option to convert the Exclusive Territory into a non-exclusive territory. Id. ¶ 12. ADS failed to meet its 1998 quotas, and M2M thereafter converted the Exclusive Territory into non-exclusive territory. Id. ¶ 13.
According to M2M, the relationship between M2M and ADS has been difficult since the execution of the Agreement. Id. ¶ 14. On August 5, 2002, David Wortman ("Wortman"), CEO of M2M, sent a letter to Gary Fosberg ("Fosberg"), the CEO of ADS, that detailed the problems between the companies. Ex. C. Among other things, Wortman accused ADS of promoting its business to the detriment of M2M, disparaging M2M's software to customers, making little effort to improve dismal sales, and using M2M's trademarks without authorization. Id. Wortman requested that Forsberg immediately correct the problems so that M2M and ADA could establish a mutually beneficial relationship. Id. Forsberg replied with a letter that generally disagreed with the substance of Wortman's letter, and stated that "the broad general statements in [Wortman's] letter do not give me anything specific to correct." Ex. D. On September 10, 2002, Wortman, citing to provisions in the Agreement, sent Forsberg a letter informing him that M2M was terminating the Agreement with ADS. Ex. E. According to Wortman, M2M had the authority to terminate the Agreement because (1) ADS was in material breach of the Agreement and failed to cure, and (2) regardless of the breach, the Agreement gave M2M the right to terminate the contract at will. Id. In this motion, M2M seeks confirmation of Wortman's contention that M2M had the right to terminate the Agreement at will.
Schedule 1 of the Agreement provides:
1. The Term of the Agreement is subject to and controlled by the provisions as specified in Section 3 and Section 19 of this Value Added Reseller Agreement.
Ex. A, Schedule 1.
Section 3 of the Agreement provides:
3. VAR Training. At least one (1) of ADS's personnel shall have completed M2M's VAR Sales training program on the most current version of the software within (6) six months of M2M offering such training. At least one (1) of ADS's personnel shall have passed the minimum percentage score of M2M's Core Implementation Certification Exam and ADS has (6) six months to remedy any deficiency. M2M will provide ADS with all information needed by ADS personnel to successfully complete the certification process. As long as ADS maintains this training standard ADS will retain the marketing rights to all M2M Products and Services on a non-exclusive basis in the Primary Territories specified in Schedule 1 (Item 2). VAR is responsible for all travel and lodging expenses in connection with the training.
"VAR" stands for value added reseller. ADS was the value added reseller pursuant to the Agreement.
Ex. A.
Section 19 of the Agreement is the termination clause:
19. Termination. This Agreement shall last until December 31, 2000, and will automatically renew under the same terms in following years. If the Quota in Schedule 1 is not achieved, then M2M has the option to convert the Exclusive Territory specified in Schedule 1 to a Non-exclusive territory. This Agreement may only be terminated upon written notice if ADS commits a breach hereof and fails to cure such within thirty (30) days after written notice of the breach from M2M. If ADS commits a breach, which is not so cured, M2M shall also have the right, by notifying ADS, to convert any exclusive rights to non-exclusive rights. This Agreement and ADS's rights and licenses hereunder shall also automatically terminate upon initiation of bankruptcy, insolvency or receivership proceedings by or against ADS, or if ADS ceases to do business or makes any transfer or assignment of the benefit of creditors. ADS shall not be entitled to a refund of any amounts previously paid to M2M as a result of termination. Upon termination, ADS and M2M shall immediately pay all amounts owing to each other. The provisions of sections 7d, 10, 11, 14, 18, 20 and 21, and such other sections shall survive termination.
Ex. A.
The Agreement also contains a choice-of-law provision and a forum selection clause:
21. General . . . This Agreement shall be governed by and construed in accordance with the laws of the State of Indiana U.S.A., excluding its choice of law provisions, and any claims arising hereunder shall be litigated in Marion County, Indiana.
Ex. A.
B. PRE-1999 RELATIONSHIP BETWEEN M2M AND ADS
M2M and ADS started doing business together around 1992. Forsberg Aff. ¶ 5 (attached to Def.'s Response). During those years, M2M and ADS entered into a number of agreements, and the agreements from 1992 until 1999 included a right of either party to terminate the contract at will. Id. ¶ 6. For example, the agreements executed in 1996 and 1998 provided:
Termination. This Agreement shall last for the Initial Term specified in the Schedule (Item 1), or if no Initial Term is specified, until December 31 of the year this Agreement is signed. The Agreement shall thereafter continue in effect until thirty (30) days after one party give the opposite party written notice that the Agreement shall terminate . . .
Id. (emphasis added).
II. SUMMARY JUDGMENT STANDARD
As stated by the Supreme Court, summary judgment is not a disfavored procedural shortcut, but rather is an integral part of the federal rules as a whole, which are designed to secure the just, speedy, and inexpensive determination of every action. See Celotex Corp. v. Catrett, 477 U.S. 317, 327 (1986). See also United Ass'n of Black Landscapers v. City of Milwaukee, 916 F.2d 1261, 1267-68 (7th Cir. 1990), cert. denied, 111 S.Ct. 1317 (1991). Motions for summary judgment are governed by Rule 56(c) of the Federal Rules of Civil Procedure, which provides in relevant 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 a judgment as a matter of law.
Once a party has made a properly-supported motion for summary judgment, the opposing party may not simply rest upon the pleadings but must instead submit evidentiary materials which "set forth specific facts showing that there is a genuine issue for trial." FED. R. Civ. P. 56(e). A genuine issue of material fact exists whenever "there is sufficient evidence favoring the nonmoving party for a jury to return a verdict for that party." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249 (1986). The nonmoving party bears the burden of demonstrating that such a genuine issue of material fact exists. See Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586-87 (1986); Oliver v. Oshkosh Truck Corp., 96 F.3d 992, 997 (7th Cir. 1996), cert. denied, 520 U.S. 1116 (1997). It is not the duty of the Court to scour the record in search of evidence to defeat a motion for summary judgment; rather, the nonmoving party bears the responsibility of identifying the evidence upon which she relies. See Bombard v. Fort Wayne Newspapers, Inc., 92 F.3d 560, 562 (7th Cir. 1996). When the moving party has met the standard of Rule 56, summary judgment is mandatory. See Celotex, 477 U.S. at 322-23; Shields Enters., Inc. v. First Chi. Corp., 975 F.2d 1290, 1294 (7th Cir. 1992).
In evaluating a motion for summary judgment, the Court should draw all reasonable inferences from undisputed facts in favor of the nonmoving party and should view the disputed evidence in the light most favorable to the nonmoving party. See Estate of Cole v. Fromm, 94 F.3d 254,257 (7th Cir. 1996), cert. denied, 519 U.S. 1109 (1997). The mere existence of a factual dispute, by itself, is not sufficient to bar summary judgment. Only factual disputes that might affect the outcome of the suit in light of the substantive law will preclude summary judgment. See Anderson, 477 U.S. at 248; JPM Inc. v. John Deere Indus. Equip. Co., 94 F.3d 270, 273 (7th Cir. 1996). Irrelevant or unnecessary facts do not deter summary judgment, even when in dispute. See Clifton v. Schafer, 969 F.2d 278, 281 (7th Cir. 1992). "If the nonmoving party fails to establish the existence of an element essential to [her] case, one on which [she] would bear the burden of proof at trial, summary judgment must be granted to the moving party." Ortiz v. John O. Butler Co., 94 F.3d 1121, 1124 (7th Cir. 1996), cert. denied, 519 U.S. 1115 (1997).
III. DISCUSSION
The central issue before the Court is whether or not the Agreement is terminable at the will of either party. To resolve that issue, the Court must determine if the Agreement is a contract that lasts indefinitely, or if it is terminable only by conditions specified in the Agreement itself. In Indiana, as in other states, contracts that last indefinitely are terminable at will by either party. See Marksill Specialties, Inc. v. Barger, 428 N.E.2d 65, 69 (Ind.Ct.App. 1981) ("It is true . . . that a contract providing for continuing performance and which has no termination date, or which provides that it will last indefinitely, is terminable at will by either party."). See also Jespersen v. Minn. Mining and Mfg. Co., 700 N.E.2d 1014, 1016 (Ill. 1998) ("Contracts of indefinite duration [in Illinois] are terminable at the will of either party."); Berryfast, Inc. v. Zeinfeld, 714 F.2d 826, 829 (8th Cir. 1983) ("Under Missouri law, an agency or distributorship agreement which is silent as to duration and includes no provisions for termination may be terminated at will by either party."); Clear Lake City Water Auth. v. Clear Lake Util. Co., 549 S.W.2d 385, 390 (Tex. 1977) ("[C]ontracts which contemplate continuing performance (or successive performances) and which are indefinite in duration can be terminated at the will of either party."). On the other hand, when a contract contains specific provisions that provide for termination, the contract is terminable only in accordance with those provisions and not at the will of either party, even if there is no specific termination date. See Marksill, 428 N.E.2d at 69.
In the instant case, M2M maintains that the Agreement is a contract of indefinite duration that has no objective restrictions on either party's ability to terminate, and is therefore terminable at will by either party. M2M acknowledges that the Agreement does provide for termination in the event of a material breach by ADS, if M2M gives ADS written notice of the breach and thirty days to cure. See Ex. A, ¶ 19. However, M2M argues, supported by case law from Illinois and Texas, that the breach provision adds nothing to the Agreement because any contract can be terminated for breach. See Profile Prods., LLC v. Soil Mgmt. Tech., Inc., 155 F. Supp.2d 880, 883-84 (N.D. Ill. 2001) (termination provision that allowed termination for material breach not cured within sixty days after written notice not an objective event that made contract one of definite duration); Trient Partners I, Ltd. v. Blockbuster Entm't Corp., 83 F.3d 704, 709 (5th Cir. 1996) (holding that contract is not of definite duration when it "(1) expressly states that it will `continue indefinitely,' and (2) is confined in time only by `termination provisions' which contain conditions that are likely never to transpire). M2M also contends that the Agreement provision for automatic termination "upon initiation of bankruptcy, insolvency or receivership proceedings by or against ADS, or if ADS ceases to do business or makes any transfer or assignment for the benefit of creditors" does not make the Agreement a contract of definite duration.
ADS asserts that the parties intended that the Agreement could only be terminated pursuant to the specified conditions set out in the contract. According to ADS, both the uncured breach clause and the bankruptcy clause in the termination section of the Agreement are specific objective conditions that could terminate the contract, and thus, the Agreement is not terminable at will. In addition, ADS maintains that calling the Agreement terminable at will makes certain clauses in the Agreement meaningless. ADS also argues that Profile Products and Trient Partners are distinguishable from the instant case.
The Agreement provides that Indiana law will govern any disputes arising from it, and both parties now agree that Indiana law controls. As noted earlier, it is clear in Indiana that contracts of indefinite duration are terminable at the will of either party. Moreover, it is also clear in Indiana that a contract is not terminable at will if the contract specifically enumerates termination events — the contract is only terminable in accordance with those events. Unfortunately, neither the parties nor the Court has found any Indiana case law on the more narrow question: whether termination events such as an uncured breach or bankruptcy/insolvency by ADS are sufficiently specific to convert the Agreement into a contract of definite duration that may only be terminated pursuant to those events. Because of the dearth of case law in Indiana on the issue, both parties rely on case law from other jurisdictions to support their arguments.
The Court does not reach ADS' argument regarding Minnesota franchise law.
M2M relies heavily on Trient Partners and Profile Products, with good reason because both cases involved contracts with provisions very similar to those in the termination clause of the Agreement. In Trient Partners, the plaintiff ("licensee") brought a declaratory action, seeking judicial recognition of its right to terminate a license agreement at will. See Trient Partners, 83 F.3d at 708-09. The license agreement specified that it was intended to "continue indefinitely . . . until terminated in accordance with the provisions hereof." Id. at 709. The referenced provisions allowed for termination of the license agreement upon: "(1) defaults by either party that are not or cannot be cured within a specified number of days; (2) the death or incapacity of a natural person who is one of [licensee's] partners, if [licensor] does not consent to the transfer or change of control of [license's] partnership without [licensor's] prior approval; and (4) the insolvency of either party." Id. Without regard to the first termination provision, the Texas court concluded that "an agreement which is otherwise indefinite in duration and terminable at will cannot be converted into an agreement of definite duration by the mere transcription of such universals [i.e., that the agreement may be terminated for an uncured material breach] within the text of the contract." Id. Viewing all of the termination provisions as a whole, the court concluded that they did not make the license agreement determinable in any real or concrete way. See id. The Court concluded that the license agreement was terminable at will because the termination provisions were "likely never to transpire" and because the agreement expressly stated that it would "continue indefinitely." Id.
A district judge, applying Illinois law, reached a similar result in Profile Products. See Profile Prods., 155 F. Supp.2d at 883-84. The contract at issue only allowed termination for cause, but defined cause as a "material failure or breach . . . after written notice providing not less than . . . 60 days opportunity to cure." Id. at 882. Following Illinois Supreme Court precedent (which favorably cited Trient Partners), the court concluded that the contract was indefinite and consequently terminable at the will of either party. See id. at 883-84. See also Jespersen, 700 N.E.2d at 1016. The court also noted that for a contract to be definite, it must be terminable upon some objective event. See id. Although the court was not exactly clear what would have qualified as a sufficiently objective event to make the contract's duration determinable, a provision for termination upon material breach was not objective because each party was in complete control and could institute a termination-triggering event by causing a breach. See id.
For all the logic of Trient Partners and Profile Products and the general rule that contracts without a specific term are terminable at will (which effectuates the public policy against perpetual contracts), it would be illogical to mechanically apply the rationale of those cases and the at will presumption when doing so would contravene the parties' intent. Under Indiana law, a court's primary objective is to ascertain the parties' mutual intention at the time they entered into the contract and to effectuate that intent. See First Fed. Bank v. Key Mkts., 559 N.E.2d 600, 603-04 (Ind. 1990). It is not a court's job to sit "at the negotiation table with the parties" and decide what is fair or reasonable. Id. at 604. In the Court's view, reading the Agreement as a whole, the parties did not intend for it to be terminable at will.
The parties crafted a relatively detailed termination provision that explained the circumstances under which the parties contemplated termination. First, the termination clause explained that the Agreement would automatically renew itself yearly. Then, the clause provided: "This Agreement may only be terminated upon written notice if ADS commits a breach hereof and fails to cure such within thirty (30) days after written notice of the breach from M2M. . . . This Agreement and ADS's rights and licenses hereunder shall also automatically terminate upon initiation of bankruptcy, insolvency or receivership proceedings by or against ADS, or if ADS ceases to do business or makes any transfer or assignment for the benefit of creditors." Schedule 1 of the Agreement added: "The Term of the Agreement is subject to and controlled by the provisions as specified in Section 3 and Section 19 of this Value Added Reseller Agreement." Section 19 was the termination clause. Section 3 required at least one ADS employee to complete M2M's most current training program and pass a certification test. If ADS did not comply with the training and certification requirements, M2M could cancel the Agreement.
These provisions would have been unnecessary and virtually meaningless if the parties intended for either party to be able to terminate the Agreement at will. West. Co. Life Ins. Co. v. Acton, 779 N.E.2d 941,943 (Ind.Ct.App. 2002), citing Bowen v. Monroe Guar. Ins. Co., 758 N.E.2d 976, 980 (Ind.Ct.App. 2001) (Courts "must interpret the language of a contract so as not to render any words, phrases or terms ineffective or meaningless."). Why would ADS have bargained for the 60-day cure period after written notice from M2M if M2M could terminate at will regardless of notice and cure? Why would M2M have bargained for the training and certification provisions if it could terminate at will regardless of whether ADS completed the training and certification requirements? The inclusion of the termination provisions in Section 3 and Section 19 suggests that the parties did not intend that the Agreement could be cancelled at will. See Lichnovsky v. Ziebart Inter. Corp., 324 N.W.2d 732, 737-38 (Mich. 1982) (holding that the contract at issue was not terminable at will in similar circumstances).
The Court's conclusion that the parties did not intend that the Agreement could be terminated at will is further buttressed by the parties' course of dealing. M2M and ADS had done business together since 1992, and M2M does not dispute that their prior yearly contracts expressly included a right to terminate at will. Forsberg Aff. ¶ 6. For example, the 1996 and 1998 agreements included this sentence within their termination clauses: "The Agreement shall thereafter continue in effect until thirty (30) days after one party give the opposite party written notice that the Agreement shall terminate." M2M and ADS could have included a termination at will with thirty days' notice provision as they had in past contracts. Instead, the termination at will clause was excluded and replaced by provisions that called for termination upon an uncured breach or bankruptcy. This change implies that the parties did not intend for the Agreement to be terminable at will. See First Commodity Traders, Inc. v. Heinold Commodities, Inc., 766 F.2d 1007 (7th Cir. 1985) (using the same rationale to conclude that the contract at issue was not terminable at will).
The Seventh Circuit was applying Illinois law to the contract dispute in First Commodity Traders. Due to the subsequent Illinois Supreme Court decision in Jesperson, a case (applying Illinois law) like First Commodity Traders would probably now be decided differently. See Jesperson, 700 N.E.2d at 1016-17. However, this Court cites First Commodity Traders only for its rationale: when parties execute a number of contracts with express at will termination clauses, and then execute a subsequent contract that excludes the at will provision and allows termination upon the occurrence of some event, the implication is that the parties did not intend for the subsequent contract to be terminable at will.
In order to avoid a construction of the Agreement that renders the enumerations of the contingencies in Section 3 and Section 19 meaningless, the Court concludes that the Agreement is not terminable at will. Rather, the Agreement is terminable only in accordance with the specific provisions detailed in those sections. Accordingly, the Court DENIES M2M's Motion for Summary Judgment as to Count II.
Although the Marksill case is not on all fours with the instant case because the termination provision is not similar to those at issue here, the Court notes that the Indiana Court of Appeals did not hold that termination provisions must be entirely objective to make the contract one of definite duration. See Marksill, 428 N.E.2d at 69. Even if the Indiana Supreme were to follow Illinois' lead, it is difficult to argue that the bankruptcy or insolvency of ADS is entirely within its control, or that breach is not a cognizable event upon which termination may occur.
IV. CONCLUSION
For the reasons stated herein, the Court DENIES Plaintiff's Motion for Summary Judgment as to Count II. The Court makes no findings with respect to the allegations in Count I, which remains an open issue in the case.
IT IS ORDERED.