Zenith Data Systems v. Electronic Data Sys ( 1997 )


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  • UNPUBLISHED
    UNITED STATES COURT OF APPEALS
    FOR THE FOURTH CIRCUIT
    ZENITH DATA SYSTEMS CORPORATION,
    Plaintiff-Appellee,
    v.
    No. 96-2811
    ELECTRONIC DATA SYSTEMS
    CORPORATION,
    Defendant-Appellant.
    ZENITH DATA SYSTEMS CORPORATION,
    Plaintiff-Appellee,
    v.
    No. 97-1258
    ELECTRONIC DATA SYSTEMS
    CORPORATION,
    Defendant-Appellant.
    Appeals from the United States District Court
    for the Eastern District of Virginia at Alexandria.
    Claude M. Hilton, District Judge.
    (CA-96-14-A)
    Argued: June 6, 1997
    Decided: December 8, 1997
    Before WILKINSON, Chief Judge, MICHAEL, Circuit Judge,
    and MICHAEL, Senior United States District Judge for the
    Western District of Virginia, sitting by designation.
    _________________________________________________________________
    Affirmed by unpublished per curiam opinion.
    _________________________________________________________________
    COUNSEL
    ARGUED: David Samuel Cohen, COHEN & WHITE, Washington,
    D.C., for Appellant. Laura Kantrowitz Kennedy, SEYFARTH,
    SHAW, FAIRWEATHER & GERALDSON, Washington, D.C., for
    Appellee. ON BRIEF: Russell James Gaspar, COHEN & WHITE,
    Washington, D.C., for Appellant. Daniel Marino, Kelley P. Doran,
    SEYFARTH, SHAW, FAIRWEATHER & GERALDSON, Washing-
    ton, D.C.; Stewart C. Economou, ECONOMOU, FORRESTER &
    RAY, Alexandria, Virginia, for Appellee.
    _________________________________________________________________
    Unpublished opinions are not binding precedent in this circuit. See
    Local Rule 36(c).
    _________________________________________________________________
    OPINION
    PER CURIAM:
    I. FACTUAL BACKGROUND
    In 1991, Plaintiff-Appellee Zenith Data Systems Corp. ("Zenith"
    or "ZDS"), Defendant-Appellant Electronic Data Systems Corp.
    ("EDS"), and other corporations competed against one another for the
    lucrative "Desktop IV" contract to supply computer hardware and
    software to the United States Air Force. In 1993, the Air Force
    awarded the contract to Zenith. EDS instituted a protest with the Gen-
    eral Services Administration Board of Contract Appeals ("GSBCA").
    Only a few days before the GSBCA was to issue a decision on the
    protest (April 19, 1993), EDS contacted Zenith to discuss the possibil-
    ity of settling the dispute (on April 15, 1993).
    By April 18, 1993, on the eve of the anticipated GSBCA decision,
    the parties had reached a settlement agreement memorialized in a doc-
    ument of the same title (hereinafter, "Settlement Agreement"); Dr.
    Joel Lipkin was the principal negotiator for Zenith, and Mr. Kim
    Luke occupied the same post for EDS. Pursuant to the Settlement
    2
    Agreement, EDS withdrew its GSBCA protest, and Zenith agreed to
    give to EDS the applications software portion of the Air Force con-
    tract. By accepting this "carved out" portion of the contract, EDS
    agreed to provide ZDS certain software upgrades free of charge and
    to "stand in the shoes" of Zenith with respect to the software compo-
    nent of the Desktop IV contract as if the contract had been awarded
    to EDS directly.
    The parties' arrangement proceeded relatively smoothly for some
    time, until 1995, when the Air Force took the position that a Micro-
    soft Corporation ("Microsoft") 32-bit software program--known as
    Office 95--was an upgrade to be provided under the Desktop IV con-
    tract at no additional cost to the Air Force. Zenith insisted that EDS
    was bound contractually under the Settlement Agreement to deliver
    these upgrades and incur the associated costs. EDS countered that the
    Settlement Agreement, incorporating a collateral letter to EDS from
    Microsoft, exempted these specific applications from its general duty
    to supply software upgrades gratis.
    To avoid defaulting on a government contract, Zenith supplied the
    Air Force with the Office 95 upgrades; subsequently it brought suit
    against EDS, demanding declaratory judgment and damages for
    EDS's alleged breach of the Settlement Agreement. EDS counter-
    claimed, asserting, inter alia, that Zenith had breached its duty of
    good faith and fair dealing imposed under Virginia law by refusing
    to propose cost-saving modifications to the parties' contract with the
    Air Force.
    Zenith moved the court for partial summary judgment pursuant to
    Fed. R. Civ. P. 56 on EDS's counterclaim's count alleging breach of
    good faith and fair dealing (COUNT II). The district court (Ellis, J.)
    granted Zenith's motion for partial summary judgment. From this rul-
    ing, EDS appeals.
    Zenith's claim of contract breach was resolved by the district court
    (Hilton, J.) after a bench trial. The district court awarded Zenith
    declaratory relief and damages for breach of contract, holding that,
    first, the Settlement Agreement unambiguously imposed a duty on
    EDS to deliver the upgrades at issue to Zenith, at EDS's sole cost;
    second, even if, arguendo, the Settlement Agreement were ambigu-
    3
    ous, extrinsic evidence supports Zenith's interpretation of the con-
    tract; and, finally, even if the extrinsic evidence did not resolve the
    assumed ambiguity, the doctrine of contra proferentum (ambiguous
    contractual provisions are to be construed against the drafter) can be
    used as a tie-breaker to resolve any arguable contract ambiguity in
    favor of Zenith. From this ruling, too, EDS appeals.
    II. STANDARDS OF REVIEW
    As to questions of law, which here include the district court's grant
    of partial summary judgment to Zenith on the good faith and fair deal-
    ing claim and the district court's conclusion that the Settlement
    Agreement is unambiguous and clearly obligates EDS to provide the
    software upgrades at issue, review is de novo . Scarborough v.
    Ridgeway, 
    726 F.2d 132
    , 135 (4th Cir. 1984).
    As to factual conclusions reached by the district court, review is for
    clear error. Hendricks v. Central Reserve Life Ins. Co., 
    39 F.3d 507
    ,
    512 (4th Cir. 1994). Such factual conclusions here include the district
    court's alternative finding that, even if the Settlement Agreement
    were ambiguous as to EDS's obligations to provide software
    upgrades, extrinsic evidence supports Zenith's contention that EDS
    was required to supply such upgrades. The district court concluded
    that extrinsic evidence indicates that the parties' purpose in referenc-
    ing portions of the Microsoft letter in paragraph four of the Settlement
    Agreement was only to insure that the price of a particular software
    package to EDS from its supplier, Microsoft, would apply to the
    Desktop IV contract's software. The district court found that the
    extrinsic evidence never reveals an intention by EDS or Zenith to
    limit EDS's obligations to provide free software upgrades under the
    Settlement Agreement to Zenith or to the Air Force directly.
    This stricter clearly erroneous standard of review"plainly does not
    entitle a reviewing court to reverse the finding of the trier of fact sim-
    ply because it is convinced that it would have decided the case differ-
    ently." Anderson v. City of Bessemer City, N.C., 
    470 U.S. 564
    , 573
    (1985). Nor may a reviewing court reverse because, had it sat as trier
    of fact, "it would have weighed the evidence differently." 
    Id. at 574
    ;
    see also Amadeo v. Zant, 
    486 U.S. 214
    , 227 (1988). The clearly erro-
    neous standard of review imposes a particularly heavy burden on an
    4
    appellant when the evidence before the district court was largely testi-
    monial, because that court had the advantage of observing witnesses
    and evaluating their credibility firsthand, an opportunity a reviewing
    court lacks. See Hiram Walker & Sons, Inc. v. Kirk Line, 
    30 F.3d 1370
     (11th Cir.) (internal citation omitted), cert. denied, 
    514 U.S. 1018
     (1994). "Where there are two permissible views of evidence, the
    fact finder's choice between them cannot be clearly erroneous."
    Anderson, 
    470 U.S. at 574
    .
    EDS argues that because the district court (Hilton, J.) largely
    adopted Zenith's proposed findings of fact, those findings conse-
    quently are entitled to less deference than ordinarily would be the
    case. EDS Brief at 12. Appellant's argument, however, is unpersua-
    sive. "[E]ven when the trial judge adopts proposed findings verbatim,
    the findings are those of the court and may be reversed only if clearly
    erroneous." Anderson, 
    470 U.S. at
    572 (citing United States v. Marine
    Bancorporation, 
    418 U.S. 602
    , 615, n. 13 (1974); United States v. El
    Paso Natural Gas Co., 
    376 U.S. 651
    , 656-657 (1964)). This court,
    then, must adhere to the clearly erroneous standard in reviewing the
    district court's factual determinations, be they adopted or not.
    III. BREACH OF SETTLEMENT AGREEMENT
    A. The Settlement Agreement is Unambiguous: EDS is Obligated
    to Provide Free of Charge All Applications Software and
    Upgrades During the Life of the Desktop IV Contract to ZDS
    or the Air Force.
    1. The Settlement Agreement Incorporates Only Part of the
    Microsoft Letter and Only for the Limited Purpose of Setting
    the Software's Price.
    Two provisions of the Settlement Agreement are implicated by the
    parties' current litigation.
    a. Schedule B
    The first provision, paragraph three, drafted by Zenith, references
    Zenith's obligations under "Schedule B" of the Desktop IV contract
    5
    and incorporates them into the Settlement Agreement as EDS's
    responsibilities thereunder. This provision states, in pertinent part, as
    follows:
    3. . . . The products and terms to which ZDS has obligated
    itself for Desktop IV and to which EDS agrees are provided
    in Schedule B (3 pages) attached to, and made part of[,] this
    Agreement. . . .
    Joint Appendix ("JA") at 493.
    Continuing, Schedule B, in pertinent part, states as follows:
    [1] EDS will, at its sole cost and expense, supply all such
    application software . . . in full conformity with all require-
    ments of the Desktop IV contract. . .;
    [2] EDS will assume all of the obligations of ZDS with
    respect to such application software to the same extent as if
    EDS were the contractor under the Desktop IV contract. . .;
    [3] EDS shall . . . perform and comply with all . . . soft-
    ware support requirements of the contract with respect to
    software and related documentation (including but not lim-
    ited to . . . provision of modifications, improvements,
    updates and upgrades when and as required and bear the
    costs of delivery of such items to the Government. ..; and
    [4] [EDS shall] assume full responsibility for any default
    in such performance to the same extent as if it were the con-
    tractor under the contract.
    JA at 499; see, Zenith Brief at 8.
    b. Schedule C
    The second Settlement Agreement provision implicated in this
    action is paragraph four, drafted by EDS, which states as follows:
    6
    4. The April 27, 1992 Terms and Conditions relating to
    Microsoft Office Automation Suite - Option 3 is incorpo-
    rated herein as Schedule C and shall apply to this agreement
    between EDS and ZDS.
    JA at 494.
    Schedule C is the April 27, 1992 letter from Microsoft to EDS in
    which Microsoft first gave EDS certain price quotations for its vari-
    ous products. The letter contains three headings entitled, respectively,
    "Option 1"; "Option 2"; and "Option 3." JA at 500-01. Beneath each
    heading appears a schedule of prices, terms, and conditions applying
    specifically to each offered option. 
    Id.
     The focus of the text appearing
    directly beneath each heading is the price of the various Microsoft
    software applications included in each option package, but the same
    text also includes, in the case of Option 3, certain royalty payment
    terms and conditions regarding the ordering of the software.1 
    Id.
    Several pages into the body of the letter after the option headings,
    the letter contains a paragraph entitled "Restrictions" which concerns
    Microsoft's obligation to supply EDS with software upgrades. 
    Id.
     The
    paragraph states, in pertinent part, that:
    _________________________________________________________________
    1 The letter's heading "Office Automation Suite - Option 3" states,
    more fully, as follows: "The royalty pricing for this . . . product, consist-
    ing of the component products shown in the table below, is a per
    system/exclusive price, which means that it shall be licensed for all
    Basic, Intermediate, and Advanced Systems shipped with Office Automa-
    tion software . . . under this contract effort. EDS shall only be responsi-
    ble for the payment, to Microsoft, for the royalties equaling the product
    of the stated price . . . and 100% of the systems shipped . . . during the
    royalty reporting period. This does not include software shipped for all
    Separately Orderable Software . . . requirements. The component prod-
    ucts may not be ordered separately, as they are only offered as a group
    of products to satisfy the Office Automation Software requirement for
    the subject effort. Exclusive in this Pricing Option means this price is
    contingent upon EDS bidding this Office Automation product as the sole
    and exclusive product in each and every proposal which EDS submits
    for this contract effort. [Then follow prices for Microsoft's Word for
    Windows, Excel for Windows, and PowerPoint for Windows software
    and for the Microsoft Mouse.]"
    7
    Upgrades may be used only by EDS to replace previously
    licensed versions of the Office Automation product, consist-
    ing of the individual application component products. . .
    distributed under this contract. . . . EDS shall not be entitled
    to receive Platform Upgrades (e.g. MS-DOS version to Win-
    dows version), or other products that are not direct succes-
    sors to eligible Products (e.g. future products which may be
    know[n] as . . . Microsoft Windows 32, etc.) or any applica-
    tion products associated with the future products, under this
    Agreement.
    EDS Brief at 18; JA at 503.
    c. Meanings of Schedule B and Schedule C
    Schedule B is clear that EDS must provide free of charge all soft-
    ware determined by the Air Force to qualify as an upgrade, just as
    Zenith would have had to do had it been fully responsible for the
    entire Desktop IV contract. EDS, then, "stands in the shoes" of Zenith
    with respect to the software component of the government contract,
    as Schedule B explicitly states, "as if EDS were the contractor under
    the Desktop IV contract." JA at 499. With respect to software
    upgrades, EDS must "bear the costs of delivery of such items to the
    Government . . . and . . . assume full responsibility for any default in
    such performance to the same extent as if it were the contractor under
    the contract." 
    Id.
    The "Restrictions" paragraph of the Microsoft letter states however,
    that Microsoft shall not provide similar software upgrades to EDS for
    future products such as "Microsoft Windows 32" (apparently, the
    nomenclative precursor to Microsoft Office 95). The later portion of
    the letter, were it incorporated into Schedule C of the Settlement
    Agreement as EDS, would prescribe that EDS's duties to supply soft-
    ware upgrades to the Air Force would be in perfect alignment with
    Microsoft's obligation, if any, to supply the same successor applica-
    tion products to EDS. In this case, EDS would have no obligation to
    supply, gratis, the Office 95 successor products because Microsoft
    had no such duty to do the same for EDS. This interpretation of the
    potential implication of the "Restrictions" paragraph is uncontested by
    the parties.
    8
    d. Reading Schedule B and Schedule C Together:
    Rules of Contract Interpretation
    According to well-established contract rules, a contract should be
    interpreted as a whole, and all words (when possible) should be given
    their natural meaning. Paramount Termite Control Co. v. Rector, 
    380 S.E.2d 922
    , 925 (Va. 1989). Only if there appears to be a conflict
    between contract terms, should a court attempt to reconcile the appar-
    ent inconsistency. General obligations should not be interpreted to
    nullify specific terms. See, e.g., Sentinel Associates v. American Mfrs.
    Mut. Ins. Co., 
    804 F.Supp. 815
     (E.D.Va.), aff'd, 
    30 F.3d 130
     (4th Cir.
    1992). Nevertheless, a collateral writing incorporated into an arguably
    more general contract should be construed as part of the contract only
    for "the purpose and extent indicated." W.D. Nelson and Co., Inc. v.
    Taylor Heights Dev. Corp., 
    150 S.E.2d 142
    , 146 (Va. 1966). Finally,
    extrinsic evidence as to intent should be considered only if the con-
    tractual language is ambiguous. See, e.g., Great Falls Hardware Co.
    v. South Lakes Village Ctr. Assocs., Ltd. Partnership, 
    380 S.E.2d 642
    ,
    643 (Va. 1989).
    e. The District Court's Interpretation
    The district court found that the language in paragraph four, which
    incorporates "Terms and Conditions relating to Microsoft Office
    Automation Suite - Option 3" unambiguously incorporates only the
    portion of the Microsoft letter immediately following the heading
    "Office Automation Suite - Option 3" which relates, primarily, to
    pricing information. JA at 110-11. The district court concluded that
    "[t]he Settlement Agreement does not incorporate the entire Microsoft
    Letter, the restrictions paragraph or any other provision limiting
    EDS's obligations to provide Office 95 upgrades free of charge. . . ."
    JA at 111.
    The district court undertook a careful, explicit, and correct analysis
    of the Settlement Agreement's wording and organization. In deter-
    mining that paragraphs three and four are unambiguously reconcil-
    able, the district court properly applied the rule that in determining the
    plain meaning of a contract, collateral writings incorporated by refer-
    ence are to be construed as part of the contract only for "the purpose
    and extent indicated." W.D. Nelson, 150 S.E.2d at 146.
    9
    The district court began its analysis of the Settlement Agreement
    by concluding that paragraph three clearly provides that Schedule B
    governs the overall business relationship between ZDS and EDS
    under the Desktop IV contract. Findings of Fact and Conclusions of
    Law at 11; JA at 111. Indeed, in Schedule B, EDS obligates itself to
    a broad range of responsibilities to the Air Force and to ZDS, without
    qualification, whereby EDS "will, at its sole cost and expense, supply
    all such application software . . . in full conformity with all the
    requirements of the Desktop IV contract." JA at 499. Schedule B con-
    tinues in its clarity: "EDS will assume all of the obligations of ZDS
    with respect to such application software to the same extent as if EDS
    were the contractor under the Desktop IV contract. .. ." Id. Finally,
    EDS specifically agrees to "comply with all . . . software support
    requirements of the [Desktop IV] contract with respect to software
    and related documentation (including, but not limited to . . . provision
    of modifications, improvements, updates and upgrades when and as
    required and bear the costs of delivery of such items to the Govern-
    ment). . . ." Id.
    The district court next concluded that paragraph four of the Settle-
    ment Agreement incorporates into Schedule C only the price-focused
    "Microsoft Office Automation Suite - Option 3" information from the
    Microsoft letter when that paragraph explicitly refers only to the
    "[t]erms and [c]onditions" which immediately follow that option's
    heading. Findings of Fact and Conclusions of Law at 11; JA at 111.
    The district court concluded that paragraph four's incorporative
    reach is confined to the those terms and conditions explicitly
    mentioned--those under the heading "Microsoft Office Automation
    Suite - Option 3." The district court found that, by clear omission, the
    paragraph does not incorporate the entire letter, the "Restrictions"
    paragraph, or other arguable terms and conditions located elsewhere
    in the letter. Id.
    That EDS, whose representative drafted paragraph four of the Set-
    tlement Agreement, there referred specifically to the terms and condi-
    tions of "Office Automation Suite - Option 3" (terminology identical
    to that in the heading of the Microsoft letter itself) and omitted alto-
    gether any mention of the "Restrictions" paragraph later in the letter,
    leads directly to the conclusions of the district court. Paragraph four
    10
    incorporates only the pricing information of Option 3 for the limited
    purpose of establishing the price of the software EDS would have to
    resupply the Air Force pursuant to Schedule B. Any other interpreta-
    tion would deprive paragraph three of the Settlement Agreement of
    its overall governing authority over the ZDS/EDS business relation-
    ship. The interpretation of the Settlement Agreement urged by EDS2
    would yield the anomalous result that EDS stands in the shoes of
    Zenith "as if EDS were the contractor under the Desktop IV contract"
    in form (by virtue of Schedule B in paragraph three) but not in fact
    (by virtue of the letter's Restrictions paragraph) with respect to sup-
    plying software upgrades to the Air Force.
    The Settlement Agreement as a whole, however, is unambiguous
    and thus avoids this potentially curious scenario. Thus, we hold that
    the contract, taken as a whole, is unambiguous and obligates EDS to
    provide such free software upgrades and updates in both form and in
    fact. While this holding resolves the issue of the interpretation of the
    Settlement Agreement itself, we go on, perhaps in an exercise of
    supererogation, to address, as the district court did, the issue of the
    interpretation of the Agreement's extrinsic evidence.
    _________________________________________________________________
    2 EDS argues that "[p]roperly construed, [p]aragraph 4 must be read to
    define and limit, but not supplant, the obligations of [p]aragraph 3 and
    Schedule B. . . ." EDS Brief at 19. In fact, however, EDS's urged con-
    struction of the Settlement Agreement would result in the incorporated
    "Restrictions" paragraph supplanting (and rendering a nullity) paragraph
    three and Schedule B. This court rejects such an interpretation of the Set-
    tlement Agreement because we conclude, as the district court did, that
    paragraph three and Schedule B control the overall business relationship
    between EDS and Zenith under the Settlement Agreement. To deny para-
    graph three and Schedule B their governing force, as well, would do vio-
    lence to the well-established rule of contract interpretation that all words
    in a contract should be given their natural meaning so as to honor the
    parties' intent. See Paramount Termite Control Co., 380 S.E.2d at 925
    (Va. 1989).
    11
    B. The District Court's Determination That, Alternatively,
    Extrinsic Evidence Indicates that EDS is Obligated to Provide
    Software Updates is Not Clearly Erroneous.
    Assuming that paragraph four does incorporate the"Restrictions"
    paragraph of the Microsoft letter, as the district court did for purposes
    of analysis, Schedule C would conflict with Schedule B of the Settle-
    ment Agreement. By this interpretation, Schedule B would indicate
    that EDS shall "stand in the shoes" of Zenith as to provision of all
    software upgrades under the Desktop IV contract, while Schedule C's
    incorporation of the letter's "Restrictions" paragraph, would except
    certain software, including the Office 95 software at issue, from
    EDS's supply obligations under the contract. This internal ambiguity
    as between the schedules then would have to be reconciled by consid-
    ering parol or extrinsic evidence. See, e.g., Federal Ins. Co. v. Starr
    Elec. Co., 
    410 S.E.2d 684
     (Va. 1991); Anden Group v. Leesburg Joint
    Venture, 
    377 S.E.2d 452
    , 455 (Va. 1989).
    Such an ambiguity was implicitly assumed, again only for the sake
    of inquiry, by the district court when it undertook an analysis of the
    extrinsic evidence to resolve the asserted ambiguity. As to the
    assumed ambiguity between the schedules, EDS argues that its pur-
    pose in including paragraph four/Schedule C was to limit its obliga-
    tion to supply free software upgrades to the Air Force so as to exclude
    the 32-bit programs (including Office 95) mentioned in the Microsoft
    letter's "Restrictions" paragraph. Zenith maintains that in incorporat-
    ing the letter, EDS, the drafter of paragraph four, was concerned only
    with continuing the Option 3 pricing it had obtained from Microsoft
    and not with limiting its software supply liability under the "Restric-
    tions" paragraph. The district court concluded that if the contract were
    deemed facially ambiguous as to EDS's duty to supply free software
    upgrades, extrinsic evidence clearly reveals that EDS intended to
    remain obligated to provide such software under its carved out portion
    of the Desktop IV contract. EDS had no intention to limit its liability
    for the Microsoft software now at issue. Rather, EDS wished only to
    continue with Option 3 pricing from Microsoft, its supplier, for a vari-
    ety of products.
    The district court's interpretation of the extrinsic evidence to deter-
    mine the meaning of the Settlement Agreement is not clearly errone-
    12
    ous. Rather, the court undertook a careful analysis during the bench
    trial of the contracting parties' testimony so as to ascertain their ex
    ante interpretation of their rights and responsibilities under the Settle-
    ment Agreement. Such an understanding of a contract by the parties
    themselves "before a dispute has arisen, is entitled to the greatest
    weight." Treakle v. Pocahontas Steamship Co. , 
    273 F.Supp. 608
    , 611
    (E.D. Va. 1967), aff'd, 
    406 F.2d 412
     (4th Cir. 1969). The district
    court analyzed the extrinsic evidence and, necessarily, made conclu-
    sions as to testifying witnesses' credibility which this court shall not
    disturb. See Hiram Walker & Sons, Inc., 
    30 F.3d 1370
    ; Anderson, 
    470 U.S. at 574
    .
    1. The Extrinsic Evidence
    A summary of the pertinent testimony about the parties' intentions
    and understandings concerning the Settlement Agreement is as fol-
    lows:
    First, Paul Rector, Program Manager of EDS and Business Man-
    ager for EDS's Desktop IV proposal, testified at the bench trial that
    he pointed out the restrictions paragraph to Dr. Lipkin (Zenith's chief
    negotiator) and that one of the reasons EDS incorporated Schedule C
    was to limit EDS's liability for 32-bit applications. JA at 168. Impor-
    tantly, however, Mr. Rector also admitted that price was crucial to
    EDS. JA at 189. Unless EDS were able to secure Option 3 pricing
    from Microsoft, it would not be able to close the deal with Zenith. JA
    at 179, 192.
    As well, Mr. Luke, an EDS vice-president and its prime negotiator
    on the Settlement Agreement, testified that the breadth of Schedule
    B disturbed him, and he decided that Schedule C should be incorpo-
    rated, in part, to limit EDS's liability for upgrades that Microsoft was
    not bound to provide EDS. JA at 244, 246. Mr. Luke admitted, how-
    ever, that Option 3 pricing was a major concern for EDS; it needed
    to ensure Microsoft would honor the price quotes relating to Option
    3 and that was one of the reasons EDS incorporated portions of
    Schedule C into the Settlement Agreement. JA at 252. As well, both
    Rector and Luke testified that there exists no EDS document that con-
    firms that at the time of the negotiations EDS was concerned about
    limiting its software upgrade liability. JA at 213-14; 258-59.
    13
    Third, Mr. Dale Wince, a former technical director for the Desktop
    IV solicitation for EDS, testified he never heard anyone discuss limit-
    ing liability for the 32-bit applications during the drafting of the Set-
    tlement Agreement. JA at 343. He testified that the reason for the
    incorporation of Schedule C was to lock in Option 3 pricing for EDS
    from Microsoft. JA at 343.
    Dr. Lipkin, Zenith's primary negotiator, stated that some of the
    terms and conditions not immediately under the Option 3 heading of
    the Microsoft letter apply to the Option 3 software package. JA at
    310-11. Apparently, he understood this, because Schedule C was a
    document he was familiar with prior to its incorporation into the par-
    ties' contract. Microsoft had sent Zenith its own letter identical to
    Schedule C. JA at 906-12. Dr. Lipkin apparently indicated that Zenith
    desired Option 3 pricing itself and Microsoft's offer was redrafted by
    Zenith to exclude the other options. Zenith left untouched the "Re-
    strictions" paragraph in the reworked letter Dr. Lipkin returned to
    Microsoft. JA 309-11.
    However, Dr. Lipkin also testified that no one from EDS ever dis-
    cussed the "Restrictions" paragraph with him or pointed it out to him.
    JA at 296. He denied that Mr. Luke ever expressed any concerns
    about Schedule B or about limiting liability for 32-bit software appli-
    cations. JA 339-40. He testified that EDS told him that its purpose in
    incorporating Schedule C was to ensure that Option 3 pricing from
    Microsoft was made part of the deal. JA at 296-97. Finally, Dr. Lipkin
    testified that had he believed that EDS wished to limit its liability for
    the 32-bit applications, he would have advised his supervisor at ZDS
    not to sign the Settlement Agreement. JA at 297-98.
    Thomas Buchsbaum, Dr. Lipkin's supervisor who signed the agree-
    ment on behalf of Zenith, testified that his understanding of paragraph
    four was that its purpose was only to incorporate Option 3 pricing. JA
    at 356-57. Mr. Buchsbaum was familiar with Schedule C and the "Re-
    strictions" paragraph and believed the latter did not apply to the
    agreement between Zenith and EDS. JA at 361.
    Finally, Mr. Fulton Hayes, a contract manager for EDS who signed
    the agreement on behalf of EDS, testified that he was not thinking
    about 32-bit applications liability at the time he signed the Settlement
    14
    Agreement and that no one from EDS expressed such a concern. JA
    at 393-95. As well, Mr. Hayes wrote a memorandum on June 1, 1993
    which recalls that during the negotiations leading to the Settlement
    Agreement, Schedule C was appended to the document because EDS
    wished to secure Option 3 pricing from Microsoft and not to limit its
    liability for 32-bit software applications.3 JA at 397; 839.
    2. Analysis of the Extrinsic Evidence
    The district court made no express determinations as to credibility.
    It must be assumed, however, that the district court weighed credibil-
    ity so as to determine which witnesses to believe and that such assess-
    ments are implicit in the court's findings of fact. We begin our
    analysis of the extrinsic evidence by noting again that a reviewing
    court may not reverse because, had it sat as trier of fact, "it would
    have weighed the evidence differently." Andersen, 
    470 U.S. at 574
    .
    As well, we are admonished that "[w]here there are two permissible
    views of evidence, the fact finder's choice between them cannot be
    clearly erroneous." 
    Id.
    The testimony is clear that Zenith had been assured by Microsoft
    that neither Microsoft nor the Air Force would consider Office 95 an
    upgrade; Microsoft had assured Zenith that Schedule C was consistent
    with the government's expectations. This fact perhaps explains why
    Zenith might have been unconcerned with the "Restrictions" para-
    _________________________________________________________________
    3 The relevant text of the June 1, 1993 memorandum reads: "During
    discussions between Mr. Luke and Mr. Burden . . . the two parties agreed
    that Microsoft would honor the DT IV quote to EDS with EDS acting as
    a subcontractor to ZDS. . . . After reaching this agreement, Mr. Luke was
    concerned that there might be something in the ZDS/Microsoft quote that
    was sufficiently different from the EDS/Microsoft quote and that this dif-
    ference might have some impact on EDS' ability to deliver Microsoft
    products to ADS at the prices agreed upon between EDS and Microsoft.
    My recollection is that Mr. Luke expressed this concern to Mr. Burden
    and was told that `. . . EDS and ZDS received the same deal from Micro-
    soft.' Acting upon the belief, based upon Mr. Burden's statement, that
    the quotes to both companies had been identical, we included the Mico-
    soft [sic] quote to EDS as a part of the EDS/ZDS SETTLEMENT
    AGREEMENT so that all terms and conditions affecting the Microsoft
    products would be clearly specified. . . ."
    15
    graph even arguably being incorporated into the Settlement Agree-
    ment as a "term" or "condition" of Option 3.
    The record is replete with testimony, much of it from EDS's chief
    negotiators on the Settlement Agreement, that EDS was very con-
    cerned about receiving Option 3 pricing from Microsoft. Permeating
    the negotiations was EDS's realization that a higher price for the soft-
    ware may well have precluded final resolution of the Desktop IV con-
    tract bid dispute. On the other hand, even the EDS executives who did
    not specifically have concerns about 32-bit applications were very
    concerned that EDS's obligations to Zenith be aligned with Micro-
    soft's obligations to EDS.
    The crux of the dispute as to the parties' understanding is whether
    the "Restrictions" paragraph was or was not mentioned during negoti-
    ations. This court can only conclude that the district court, as trier of
    fact, placed greater weight on the testimony of Zenith's witnesses on
    this point based on those witnesses' superior credibility. Because the
    clearly erroneous standard applies to this issue, even if this court were
    inclined toward such a view, that standard of review"plainly does not
    entitle a reviewing court to reverse the finding of the trier of fact sim-
    ply because it is convinced that it would have decided the case differ-
    ently." Anderson, 
    470 U.S. 564
    , 573.
    We hold, therefore, that because there is ample evidence in the
    record to support the district court's findings, and because such find-
    ings based, as they are, on plausible credibility determinations cannot
    constitute clear error, the district court's findings of fact as to the
    extrinsic evidence shall not be disturbed. Assuming, again for pur-
    poses of analysis, that the Settlement Agreement were ambiguous as
    to EDS's software upgrade liability, ample extrinsic evidence exists
    supporting Zenith's contention that Schedule B was intended to
    impose such an obligation on EDS while Schedule C was incorpo-
    rated into the Settlement Agreement by EDS only to secure continued
    favorable pricing for software from its supplier. The district court
    committed no clear error when it so found.4
    _________________________________________________________________
    4 Because we hold, first, that the Settlement Agreement is unambiguous
    and, second, that were it ambiguous, extrinsic evidence supports Zenith's
    16
    IV. BREACH OF GOOD FAITH AND FAIR DEALING
    Zenith and EDS modified the Settlement Agreement on April 22,
    1993 to include the following paragraphs:
    5. ZDS agrees to make a good faith effort to obtain Air
    Force acceptance of Desktop IV documentation provided by
    EDS in its BAFO submission.
    6. EDS agrees to make a good faith effort to obtain Army
    acceptance of ZDS' 80486 Z-248 upgrade board on EDS'
    SMC contract. When EDS submits the ECP [Engineering
    Change Proposal] for this ZDS product, ZDS agrees to
    change the year one price for CLIN 0005AA in SCHED-
    ULE A of this AGREEMENT from $250.00 to $255.00.
    JA at 819.
    Thereafter, EDS asked Zenith to propose certain modifications in
    the Desktop IV contract to the Air Force, to wit : (1) a suggestion that
    the Air Force accept 5.25 inch computer disks instead of 3.5 inch
    disks; and (2) a suggestion that the Air Force accept software docu-
    mentation printed in black and white instead of in color. JA at 152-60.
    Zenith apparently did propose the relevant modifications, but in an
    informal way, without submitting a written proposal to the govern-
    ment. EDS contends that Zenith thereby breached its duty of good
    faith and fair dealing or, at least, that the district court should not have
    granted summary judgment against it because there exists a genuine
    issue of material fact as to whether Zenith's conduct was commer-
    cially reasonable.
    _________________________________________________________________
    interpretation of paragraph four and Schedule C, we need not decide the
    case by applying the doctrine of contra proferentum (an ambiguous con-
    tract or contract provision is to be construed against its drafter). See, e.g.,
    Mahoney v. NationsBank of Virginia, 
    455 S.E.2d 5
     (Va. 1995). The dis-
    trict court found, however, that EDS drafted paragraph four and, thus,
    would have that contract provision construed against it, were it deemed
    ambiguous. The district court committed no error in applying the well-
    established rule of contra proferentum to this finding of fact.
    17
    A. Standard of Review of Grant of Summary Judgment
    A district court's grant of summary judgment, as a question of law,
    is reviewed de novo. See, e.g., Sempione v. Provident Bank of
    Maryland, 
    75 F.3d 951
    , 954 (4th Cir. 1996). A summary judgment
    movant must demonstrate that "there is no genuine issue as to any
    material fact and that [it] is entitled to a judgment as a matter of law."
    Fed. R. Civ. P. 56(c); Celotex Corp. v. Catrett , 
    477 U.S. 317
    , 323
    (1986); Anderson v. Liberty Lobby, 
    477 U.S. 242
    , 250 (1986).
    In considering a motion for summary judgment, a district court
    should view the evidence in light of the pleadings, drawing all facts
    and inferences in favor of the non-moving party. Anderson, 
    477 U.S. at
    255 (citing Adickes v. Kress, 
    398 U.S. 144
    , 158-59 (1970));
    Charbonnages de France v. Smith, 
    597 F.2d 406
     (4th Cir. 1979).
    The non-moving party is entitled to have the credibility of all its
    evidence presumed. Miller v. Leathers, 
    913 F.2d 1085
    , 1087 (4th Cir.
    1990), cert. denied, 
    498 U.S. 1109
     (1991). Before the non-moving
    party must face the burden of demonstrating the existence of a triable
    issue of fact, the movant must meet its burden of showing the absence
    of evidence to support the non-movant's case. Celotex, 
    477 U.S. at 325
    ; see also Cray Communications, Inc. v. Novatel Computer Sys-
    tems, Inc., 
    33 F.3d 390
    , 393-94 (4th Cir. 1994).
    There must be more than a scintilla of evidence to support the non-
    movant's case. Anderson, 
    477 U.S. at 247
    . Rather, the evidence must
    be sufficient to "return a verdict" at trial for the party opposing the
    entry of judgment. 
    Id. at 249
    . The non-moving party "cannot create
    a genuine issue of material fact through mere speculation or the build-
    ing of one inference upon another." Beale v. Hardy, 
    769 F.2d 213
    ,
    214 (4th Cir. 1985). Moreover, the existence only of some alleged
    factual dispute between the parties will not defeat an otherwise prop-
    erly supported motion. See Thompson Everett, Inc. v. National Cable
    Adv., 
    57 F.3d 1317
    , 1323 (4th Cir. 1995) ("[I]f the evidence is
    `merely colorable' or `not significantly probative,' it may not be ade-
    quate to oppose entry of summary judgment.").
    18
    B. Computer Disks
    Although Zenith clearly bound itself contractually to suggest black
    and white documentation (it agreed to make a "good faith" effort to
    obtain Air Force acceptance of this proposal, see JA at 580), the
    understanding as to disk size appears to be little more than a gratu-
    itous promise made by Dr. Lipkin to EDS, supported by no consider-
    ation. See, e.g., JA at 661-63 (Dr. Lipkin told EDS that he "would
    present [the EDS disk proposal] to the Air Force and get a reaction
    to it."). As well, EDS later attempted in 1994 to negotiate a firm com-
    mitment from Zenith to the effect that Zenith would gain approval by
    the Air Force of computer disks of EDS's proposed size. JA at 577;
    679-81; 713-14. This court can only conclude from the stated need for
    further, more concrete negotiations that EDS did not interpret Dr. Lip-
    kin's earlier promise as anything more than a gratuitous promise lack-
    ing in consideration and, thus, unenforceable under the well-
    established rules of contract formation.5
    Hence, as to the computer disks, we hold that Zenith had no con-
    tractual obligation to suggest Desktop IV modifications to the Air
    Force at all, much less to suggest them by submission of a formal,
    written proposal. Because no contract existed, EDS's breach of good
    faith and fair dealing claim as to the disks fails as a matter of law.
    C. Black and White Documentation
    As to black and white documentation, Zenith presented no formal
    proposal, but did submit three separate documentation samples and
    essentially asked the Air Force to choose the one it preferred. Accord-
    ing to Dr. Lipkin, ZDS did this "as informally as possible." JA at 658.
    Zenith, in presenting the proposal to the Air Force, passed it on to the
    "test director" rather than the branch's contracting officer. JA at 658.
    EDS urges that the grant of summary judgment on this claim was
    precipitous. EDS argues that whether Zenith's proposal to the Air
    _________________________________________________________________
    5 Consideration, of course, is an essential element of a binding contract
    whether in the form of a benefit paid to the promisor or a detriment
    incurred by the promisee. See, e.g., Coulter v. Gillio, 
    184 S.E. 201
     (Va.
    1936); Sager v. Basham, 
    401 S.E.2d 676
     (Va. 1991).
    19
    Force was made in good faith and was commercially reasonable under
    Va. Code § 8.1-203 is a question of fact that ought not be resolved
    on a motion for summary judgment, given Dr. Lipkin's concessions
    that Zenith made the proposal to the Air Force "as informally as pos-
    sible" and failed to address the proposal to the highest contracting
    official. EDS maintains that whether a merchant has acted in a com-
    mercially reasonable manner consistent with its good faith obligations
    is a matter of fact requiring evidence of trade custom and industry
    standards.6
    The district court, however, determined that Zenith proposed the
    black and white documentation to the government in good faith and
    did so not by looking to the commercial standards of the contracting
    industry, but rather by examining Zenith's own conduct. See, RW
    Power Partners, L.P. v. Virginia Elec. and Power Co. , 
    899 F.Supp. 1490
    , 1498 (E.D.Va. 1995) (holding in declaratory judgment action
    that utility company, by its own behavior, did not act in bad faith so
    as to breach implied duties of good faith and fair dealing under Va.
    Code §§ 8.1-203 and 8.1-103). Such an examination here reveals that
    the documentation which the Air Force ultimately accepted for ship-
    ping on the Desktop IV contract, while not EDS's black and white
    documentation which the Air Force had rejected, was based on the
    documentation samples submitted by Zenith, in good faith pursuant
    to the Settlement Agreement.
    Therefore, as to the good faith and fair dealing count (COUNT II)
    of the counterclaim relating to both the computer disks and the black
    and white documentation, we affirm the district court's grant of sum-
    mary judgment to Zenith. EDS presents no genuine issue of material
    fact as to whether Zenith met the good faith obligations it had under
    the Settlement Agreement.
    _________________________________________________________________
    6 EDS's Brief at 37-38 cites a number of cases from other jurisdictions
    which, necessarily, did not have occasion to interpret Va. Code § 8.1-
    203. Specifically, EDS cites authority in support of its argument from the
    Sixth, Ninth and D.C. Circuits. In the case of Nanakuli Paving and Rock
    Co. v. Shell Oil Co., Inc., 
    664 F.2d 772
    , 779 (9th Cir. 1981), however,
    the court held only that the district court did not abuse its discretion in
    looking to the applicable trade to ascertain trade usages defining good
    faith and fair dealing rather than looking to the purchase and sale at issue
    alone.
    20
    V. CONCLUSION
    For the reasons stated herein, this court hereby affirms the judg-
    ment of the district court in its entirety as to both the breach of con-
    tract claim and the breach of good faith and fair dealing counterclaim.
    It is so ordered.
    AFFIRMED
    21
    

Document Info

Docket Number: 96-2811

Filed Date: 12/8/1997

Precedential Status: Non-Precedential

Modified Date: 10/30/2014

Authorities (19)

hiram-walker-sons-inc-v-kirk-line-rb-kirkconnell-bro-ltd , 30 F.3d 1370 ( 1994 )

banca-del-sempione-v-provident-bank-of-maryland-and-suriel-finance-n-v , 75 F.3d 951 ( 1996 )

Cray Communications, Inc., Formerly Known as Dowty ... , 33 F.3d 390 ( 1994 )

Charbonnages De France v. Frank B. Smith, Juanita Smith, ... , 597 F.2d 406 ( 1979 )

David Allen Hendricks v. Central Reserve Life Insurance ... , 39 F.3d 507 ( 1994 )

Nathan Miller v. Emery Leathers, Officer, and North ... , 913 F.2d 1085 ( 1990 )

Thompson Everett, Inc. v. National Cable Advertising, L.P. ... , 57 F.3d 1317 ( 1995 )

thomas-w-treakle-jr-robert-m-baum-jr-a-d-willis-jr-b-s , 406 F.2d 412 ( 1969 )

susan-f-scarborough-in-her-individual-capacity-and-as-next-friend-and , 726 F.2d 132 ( 1984 )

nanakuli-paving-and-rock-company-a-division-of-grace-brothers-ltd-a , 664 F.2d 772 ( 1981 )

United States v. Marine Bancorporation, Inc. , 94 S. Ct. 2856 ( 1974 )

United States v. El Paso Natural Gas Co. , 84 S. Ct. 1044 ( 1964 )

Adickes v. S. H. Kress & Co. , 90 S. Ct. 1598 ( 1970 )

Anderson v. City of Bessemer City , 105 S. Ct. 1504 ( 1985 )

Anderson v. Liberty Lobby, Inc. , 106 S. Ct. 2505 ( 1986 )

Celotex Corp. v. Catrett, Administratrix of the Estate of ... , 106 S. Ct. 2548 ( 1986 )

Amadeo v. Zant , 108 S. Ct. 1771 ( 1988 )

Sentinel Associates v. American Manufacturers Mutual ... , 804 F. Supp. 815 ( 1992 )

RW Power Partners, L.P. v. Virginia Electric & Power Co. , 899 F. Supp. 1490 ( 1995 )

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