Opinion
CIVIL ACTION NO. 3:03-CV-0338-K
April 14, 2004
MEMORANDUM OPINION AND ORDER
Before the Court is Plaintiff National Presort Services, Inc.'s ("National Presort) Motion for Summary Judgment. Having considered the merits of the motion, and for the reasons stated below, the motion is GRANTED.
I. Background
On March 31, 2000, Lockheed Martin IMS, Inc. ("Lockheed") entered into a contract ("Prime Contract") with the Office of the Attorney General for the State of Texas ("OAG"). Lockheed subsequently contacted National Presort, subcontracting several of its duties under the Prime Contract to National Presort. Lockheed's agreement with National Presort was solidified by the parties' signing of the Subcontract on October 17, 2000.
In August of 2001, Lockheed was acquired by Defendant ACS State and Local Solutions, Inc. ("ACS"). On September 10, 2001, ACS gave notice to National Presort of ACS's partial termination of the parties' relationship under the Subcontract. The terms of the Subcontract provide ACS could terminate National Presort at any time, but that upon termination, ACS was required to reimburse National Presort for the costs of supplies and storage which National Presort had incurred pursuant to the Subcontract.
Based on this language, National Presort brings this case against ACS in order to recover costs it incurred in accumulating and storing supplies to be used under the Subcontract. ACS counterclaims, arguing that the termination was made pursuant to the terms of the Prime Contract, and the Subcontract does not apply. Both parties seek attorneys' fees in this case.
II. Summary Judgment Standard
Summary judgment is appropriate when the pleadings, affidavits and other summary judgment evidence show that no genuine issue of material fact exists and 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, 106 S.Ct. 2548, 2551 (1986). The moving party bears the burden of identifying those portions of the record it believes demonstrate the absence of a genuine issue of material fact. Celotex, 477 U.S. at 322-25, 106 S.Ct. at 2551-54. Once a movant makes a properly supported motion, the burden shifts to the nonmovant to show that summary judgment should not be granted; the nonmovant may not rest upon allegations in the pleadings, but must support the response to the motion with summary judgment evidence showing the existence of a genuine fact issue for trial. Id. at 321-25, 106 S.Ct. at 2551-54; Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255-57, 106 S.Ct. 2505, 2513-14 (1986). All evidence and reasonable inferences must be viewed in the light most favorable to the nonmovant. United States v. Diebold, Inc., 369 U.S. 654, 655, 82 S.Ct. 993 (1962).
III. The Relationship of the Prime Contract and the Subcontract
The crux of this case involves the parties' disagreement over whether the Subcontract or the Prime Contract governed ACS's partial termination of National Presort. While National Presort claims that the termination clause in the Subcontract controls, ACS argues that the relevant language is the termination clause in the Prime Contract.
A. The Language of the Prime Contract and the Subcontract
The Subcontract between ACS and National Presort reads as follows:
8.0 Termination CONTRACTOR shall have the right to terminate this Agreement, independent of any OAG right to terminate.
In the event the CONTRACTOR terminates the contract for any reason, The CONTRACTOR shall reimburse the SUBCONTRACTOR for the cost of all unused envelopes, printed forms, paper and other materials, including all such items not yet produces but under contract for production. Reimbursable cost shall include costs of storage of such materials and costs of their disposal.
National Presort alleges that while ACS was within its rights to terminate the Subcontract, the Court should give Section 8.0 its intended meaning, which is that Section 8.0 should control over any other termination provision because of its specificity and because it was written after the Prime Contract with knowledge of the language of the Prime Contract.
The termination clause of the Prime Contract, which ACS argues applies to this case, reads as follows:
MM. Termination of The Contract
1. Convenience of the State of Texas OAG reserves the right to terminate the contract at any time, in whole or in part, if the OAG determines that a termination is in the State's interest. . . . OAG shall be liable for payments for terminated services performed under the contract up to the effective date of termination . . . The OAG shall have no other liability; including no liability for any costs associated with the termination. . . .
ACS argues that this termination clause applies to the case, despite the fact that the clause reads "if the OAG determines that a termination is in the State's interest."
ACS bases its argument that the language of section MM of the Prime Contract controls based on language of the Subcontract, which reads:
2.0 PRIME CONTRACT
Notwithstanding any other provision of this Agreement, this Agreement is a subcontract under the Prime Contract and each and every provision of the Prime Contract and any amendments thereto shall extend to and be binding upon SUBCONTRACTOR as part of this Agreement. With respect to any references in the Prime Contract to CONTRACTOR and OAG for purposes and applicability to this Subcontract, CONTRACTOR shall mean and include SUBCONTRACTOR, and OAG shall mean and include CONTRACTOR.
This section, ACS contends, essentially allows section 8.0 to be read out of the Subcontract, as ACS argues that it may terminate the Subcontract with National Presort in the same manner as the OAG could terminate the Prime Contract with ACS.
B. The Court's Interpretation of the Prime Contract and the Subcontract.
Because this is a diversity case involving events which occurred in Texas, the Court will apply Texas law to resolve the dispute. Under Texas law, contract interpretation, including the question of whether a contract is ambiguous, is a question of law. See Instone Travel Tech Marine Offshore v. International Shipping Partners, Inc., 334 F.3d 423, 428 (5th Cir. 2003) (internal citations omitted). In construing a contract, the Court's primary concern is to give effect to the written expression of the parties' intent. See id. In giving effect to the parties' intent, the Court should read all parts of the contract together in order to ascertain the agreement of the parties, ensuring that each provision of the contract is given effect and none are rendered meaningless. See id. Texas law requires the Court to peruse the entire document to understand, harmonize, and effectuate all of its provisions. See id.
The dispute in this case is simple. National Presort seeks recovery under section 8.0 of the Subcontract, while ACS argues that language included in the Subcontract mandates that paragraph MM of the Prime Contract controls ACS's ability to terminate National Presort. However, if ACS's interpretation of the Subcontract were given effect, section 8.0 would be rendered meaningless.
ACS argues that section 2.0 of the Subcontract allows ACS to apply the Prime Contract to National Presort. If paragraph MM were to read as ACS contends, it would read as follows:
MM. Termination of The Contract
1. Convenience of the State of Texas ACS reserves the right to terminate the contract at any time, in whole or in part, if ACS determines that a termination is in the State's interest. . . . National Presort shall be liable for payments for terminated services performed under the contract up to the effective date of termination . . . ACS shall have no other liability; including no liability for any costs associated with the termination. . . .
However, ACS's interpretation makes no sense. Paragraph MM of the Prime Contract is entitled "Convenience of the State of Texas," and states that the Prime Contract may be terminated if the OAG (or, in this case, ACS) determines the termination "is in the State's interest." ACS states no rationale for the idea that it could terminate its Subcontract with National Presort "in the State's interest."
ACS's invocation of paragraph MM is not surprising, considering the existence of section 1.1 of the Subcontract. Section 1.1 of the Subcontract reads as follows:
[i]n the event of any conflict or inconsistency in the definition or interpretation of any word, responsibility, [or] schedule . . . between the Prime Contract and the body of this Agreement and the Exhibits thereto, or between such documents, such conflict or inconsistency shall be resolved by giving precedence to the documents according to the following priority:
First Attachment I: The PRIME CONTRACT between CONTRACTOR and STATE for the Texas Disbursement Project . . .
Third The body of this AGREEMENT.
Therefore, if any conflict exists between the Prime Contract and the Subcontract, the Subcontract states that the provisions for the Prime Contract control.
ACS seeks to create a conflict between section 8.0 of the Subcontract and paragraph MM of the Prime Contract in order to make paragraph MM the controlling provision in this case. However, to even reach the conclusion that paragraph MM applies, it requires ACS to explain how the Contractor can terminate the Subcontractor based on "the State's interest." Contrasted with section 8.0, which clearly delineates the relationship of ACS as contractor and National Presort as subcontractor, it is clear that the specific language of section 8.0 applies, and to hold otherwise would render section 8.0 meaningless. Such a construction clearly goes against the parties' intent, and would turn the principles of contract interpretation upside down. See Instone Travel Tech Marine Offshore, 334 F.3d at 428.
Therefore, the Court determines that paragraph MM of the Prime Contract does not apply, that the Subcontract is not ambiguous, and that section 8.0 clearly applies to the termination at issue between the parties.
IV. National Presort's Claims
Having determined that section 8.0 of the Subcontract, not paragraph MM of the Prime Contract, applies to ACS's termination of National Presort, the Court will now discuss the effect of its decision on National Presort's claims against ACS. National Presort sues ACS for actual and consequential damages brought about by ACS's failure to reimburse, and seeks attorneys' fees pursuant to Texas Civil Practice Remedies Code § 38.001.
Under Texas law, National Presort must establish the following in order to prevail on its breach of contract claim: (1) a valid contract; (2) National Presort performed under the Subcontract; (3) ACS breached the subcontract; and (4) National Presort was damaged as a result of ACS's breach. See id. at 427. The Court has already determined that the Subcontract was valid as a matter of law. Regarding the question of National Presort's performance, it is undisputed that National Presort performed its duties under the Subcontract. While ACS argues in its Original Counterclaim that the performance of National Presort was unsatisfactory, the fact is that performance was tendered, regardless of how successful it was. The language of section 8.0 states that ACS may terminate the contract "for any reason," presumably including National Presort's inadequacy as a subcontractor. Indeed, while the specific issue of the quality of National Presort's performance is before the Court in the form of ACS's counterclaim, National Presort did perform under the Subcontract, whether adequately or inadequately.
ACS does not deny that it has failed to reimburse National Presort for the costs of the supplies procured by National Presort pursuant to the Subcontract, and the storage of those supplies. Therefore, ACS's refusal to offer reimbursement to National Presort resulted in a breach of the Subcontract as a matter of law.
It is clear that ACS's failure to reimburse National Presort has damaged National Presort. Accordingly, National Presort is entitled to recover reasonable damages which it incurred as a result of ACS's conduct, which includes the recovery of reasonable attorneys' fees pursuant to Texas Civil Practice Remedies Code § 38.001. However, questions of fact remain as to the proper amounts of damages and attorneys' fees, meaning that a jury will determine these amounts.
V. ACS's Counterclaims
ACS brings a breach of contract counterclaim against National Presort based on National Presort's performance under the Subcontract, in addition to seeking a declaratory judgment that it is not liable to National Presort on National Presort's breach of contract claim.
Questions of fact remain as to ACS's breach of contract claim. However, as a matter of law, not all of the damages ACS seeks in connection with its breach of contract claim are recoverable. While ACS's Original Counterclaim makes no mention of the issue of damages for loss of business reputation, ACS claims in the Joint Pretrial Order that it "is entitled to recover its reasonable damages for damage to its business reputation as a result of the partial termination of the Plaintiff NPSI resulting from its inability to perform its obligations." However, under Texas law, a party cannot recover damages for loss of business reputation in a breach of contract action. See Perenco Nigeria Ltd. v. Ashland Inc., 242 F.3d 299, 305 (5th Cir. 2001). Therefore, even if ACS does prevail on its breach of contract claim, it could not recover damages for loss of business reputation simply because of the breach. National Presort is entitled to summary judgment on ACS's claim for damages for loss of business reputation as a matter of law.
In ACS's second cause of action, it seeks a declaratory judgment that it is not liable to National Presort for breach of contract. In light of the Court's holding that National Presort prevails on its breach of contract claim against ACS as a matter of law, ACS's counterclaim for a declaratory judgment that it is not liable to National Presort for breach of contract obviously fails.
V. Conclusion
For the reasons stated above, National Presort's Motion for Summary Judgment is hereby GRANTED. The only issues left for determination in this case regarding National Presort's claims are the amount of reasonably damages incurred by National Presort and the amount of attorneys' fees National Presort is entitled to recover under Tex. Civ. Prac. Rem. Code § 38.001.
Additionally, questions of fact remain as to whether National Presort breached the Subcontract by failing to adequately perform its obligations under the Subcontract, whether ACS was damaged as a result of any breach, the amount of such damages, and whether ACS is entitled to attorneys' fees in connection with its breach of contract claim against National Presort.
SO ORDERED.