Xtria LLC v. Tracking Systems Inc. , 345 F. App'x 940 ( 2009 )


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  •            IN THE UNITED STATES COURT OF APPEALS
    FOR THE FIFTH CIRCUIT  United States Court of Appeals
    Fifth Circuit
    FILED
    October 1, 2009
    No. 08-11123                    Charles R. Fulbruge III
    Clerk
    XTRIA LLC
    Plaintiff - Appellant
    v.
    TRACKING SYSTEMS INC
    Defendant - Appellee
    Appeal from the United States District Court
    for the Northern District of Texas
    Before JOLLY, DeMOSS, and PRADO, Circuit Judges.
    DeMOSS, Circuit Judge:*
    This contract case, governed by Texas law, requires the Court to determine
    whether a settlement agreement between Xtria LLC (“Xtria”) and Tracking
    Systems, Inc. (“Tracking Systems”) is ambiguous. Because the district court
    erroneously concluded that the agreement is ambiguous, we reverse and remand.
    I.
    Tracking Systems sold Xtria a data management system known as the
    eLiens Notification System. As part of their sales agreement, Xtria agreed to
    *
    Pursuant to 5TH CIR . R. 47.5, the court has determined that this opinion should not
    be published and is not precedent except under the limited circumstances set forth in 5TH CIR .
    R. 47.5.4.
    No. 08-11123
    pay Tracking Systems a portion of any profit Xtria received if it resold the eLiens
    system. Later, in an effort to market the eLiens system, Xtria entered into a
    sales representation agreement with Tracking Systems’ affiliate International
    Insurance Alliance, Inc. (“IIAI”). Pursuant to their agreement, IIAI was to act
    as Xtria’s non-exclusive sales agent in exchange for commissions.
    In 2005, Xtria sold the eLiens system, triggering Xtria’s obligation to pay
    Tracking Systems a portion of the profits. A dispute soon arose between the
    parties as to the amount Xtria owed pursuant to their sales agreement. After
    mediation, the parties entered into a “Settlement Agreement and Release” (the
    “Settlement Agreement”). That agreement is the subject of this dispute.
    Under the Settlement Agreement, “TSI” released, covenanted not to sue
    and forever discharged Xtria “from and against all manner of action . . . relating
    to or arising from (i) the TSI-Xtria Agreement, and/or (ii) any oral or other
    written agreement between TSI and Xtria entered into prior to the Effective
    Date.” TSI was defined under the agreement to include Tracking Systems and
    its affiliates. However, only Tracking Systems and Xtria were parties to the
    agreement.
    After the effective date of the Settlement Agreement, IIAI filed an
    arbitration proceeding against Xtria alleging that Xtria breached their sales
    representative agreement. Xtria demanded that Tracking Systems cause IIAI
    to dismiss the arbitration pursuant to the Settlement Agreement. Tracking
    Systems refused. Consequently, Xtria sued Tracking Systems for breach of the
    Settlement Agreement.
    In its complaint, Xtria reasoned that because IIAI was an affiliate of
    Tracking Systems, the Settlement Agreement released Xtria from all liabilities
    arising from the agreement between Xtria and IIAI and provided a covenant that
    IIAI would not sue Xtria. Xtria alleged that Tracking Systems breached the
    Settlement Agreement by allowing IIAI to initiate and maintain the arbitration
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    No. 08-11123
    proceeding against Xtria. Tracking Systems moved to dismiss alleging that
    Xtria stated a claim against IIAI but had failed to state a claim for breach of
    contract against Tracking Systems. Tracking Systems surmised that it had no
    duty under the contract to prevent IIAI from initiating a suit against Xtria. In
    deciding the motion to dismiss, the district court determined that the Settlement
    Agreement was ambiguous. The court found that the Settlement Agreement
    could be construed to impose an obligation on Tracking Systems to prevent IIAI
    from initiating or maintaining an arbitration proceeding. But, the agreement
    could also be construed to provide a defense for Xtria against any claim by IIAI,
    rather than an affirmative obligation on Tracking Systems to control its affiliate.
    The matter proceeded to a bench trial to determine whether the parties
    intended for Tracking Systems to prevent its affiliates from initiating, or to
    cause its affiliates to dismiss, a suit against Xtria. The district court found that
    Xtria failed to prove that the parties intended for Tracking Systems to control
    IIAI and thus, failed to prove breach of the Settlement Agreement.            Xtria
    appealed the district court’s judgment in favor of Tracking Systems.
    II.
    The question before the Court is whether the Settlement Agreement
    between Xtria and Tracking Systems is ambiguous. “Whether a contract is
    ambiguous is a question of law for the court to decide.” Barnard Constr. Co. v.
    City of Lubbock, 
    457 F.3d 425
    , 428 (5th Cir. 2007) (citing Coker v. Coker, 
    650 S.W.2d 391
    , 394 (Tex. 1983)). Accordingly, we review the question of whether
    the contract is ambiguous de novo. 
    Id. at 427.
          Settlement agreements are subject to the general principles of contract
    construction. See Texas v. Am. Tobacco Co., 
    463 F.3d 399
    , 407 (5th Cir. 2006).
    In interpreting a contract, a court’s primary concern is ascertaining the parties’
    intent. Nat’l Union Fire Ins. Co. v. CBI Indus., Inc., 
    907 S.W.2d 517
    , 520 (Tex.
    1995). If a contract “is so worded that it can be given a certain or definite legal
    3
    No. 08-11123
    meaning or interpretation, then it is not ambiguous and the court will construe
    the contract as a matter of law.” 
    Coker, 650 S.W.2d at 393
    . However, when the
    language in the contract is “susceptible to two or more reasonable
    interpretations” an ambiguity exists. Enter. Leasing Co. of Houston v. Barrios,
    
    156 S.W.3d 547
    , 549 (Tex. 2004) (citing Am. Mfrs. Mut. Ins. Co. v. Schaefer, 
    124 S.W.3d 154
    , 157 (Tex. 2003)). Only when an ambiguity exists may the court
    consider parol evidence to determine the parties’ true intent. Nat’l Union Fire
    
    Ins., 907 S.W.2d at 520
    .
    An ambiguity in a contract can be either “patent” or “latent.” A
    patent ambiguity is evident on the face of the contract while a latent
    ambiguity arises when a contract which is unambiguous on its face
    is applied to the subject matter with which it deals and an
    ambiguity appears by reason of some collateral matter. If a latent
    ambiguity arises, parol evidence is admissible for ascertaining the
    true intentions of the parties as expressed in the agreement. The
    classic example of a latent ambiguity cited by a variety of
    authorities is a contract that calls for goods to be delivered to the
    “green house on Pecan Street” when there are, in fact, two or more
    green houses on Pecan Street.
    Am. Tobacco 
    Co., 463 F.3d at 409
    (internal citations and quotations omitted).
    III.
    In the instant case, the district court in essence held that a latent
    ambiguity existed as to what obligations Tracking Systems assumed under the
    Settlement Agreement.      Specifically, the court found that when applied to
    Tracking Systems’ affiliates the agreement could be read to either (1) obligate
    Tracking Systems to control its affiliates or (2) provide a defense in the event
    that an affiliate sued Xtria.
    The pertinent langauge is as follows:
    1.3  Tracking Systems, Inc.: The term “TSI” means the Nevada
    Corporation, . . . its past, present and future affiliates and their
    predecessors and successors . . . and any companies, affiliates,
    4
    No. 08-11123
    corporations, entities or associations that it does or may hereafter
    own, control, operate, manage or direct.
    3.1   Release by TSI:
    3.1.1 TSI does hereby release, remise, covenant not to sue and
    forever discharge: (a) Xtria . . . as follows: from and against all
    manner of action . . . relating to or arising from (i) the TSI-Xtria
    Agreement, and/or (ii) any oral or other written agreement between
    TSI and Xtria entered into prior to the Effective Date.
    Having reviewed the Settlement Agreement as a whole, we believe that
    the Settlement Agreement is not latently ambiguous. Tracking Systems and
    Xtria are the only parties to the agreement. Under the agreement, Xtria agreed,
    among other things, to pay Tracking Systems in exchange for Tracking Systems’
    assurance that “TSI” would release and covenant not to sue Xtria. Tracking
    Systems made an unqualified, unconditional promise that its affiliates would
    release Xtria and not sue relating to any previous agreement made between
    Xtria and Tracking Systems’ affiliates. Although the agreement is silent as to
    how Tracking Systems might fulfill its commitment (e.g. control its affiliates)
    or how a breach of the agreement may be remedied (e.g. an affirmative defense
    may be raised in response to an affiliate’s suit, or indemnification by Tracking
    Systems), the agreement is not ambiguous as a result of the silence. Imprecision
    is not tantamount to ambiguity. See Landry’s Seafood Rests., Inc. v. Waterfront
    Cafe, Inc., 
    49 S.W.3d 544
    , 549 (Tex. App.—Austin 2001, pet. dism’d). Whether
    the parties intended a certain course of performance or remedy for breach is
    irrelevant because the promise by Tracking Systems can be fulfilled without
    further clarification. Accordingly, the agreement is not latently ambiguous. See
    Ludwig v. Encore Med., L.P., 
    191 S.W.3d 285
    , 290 (Tex. App.—Austin 2006, pet.
    denied) (a latent ambiguity exists “when the contract appears to convey a
    5
    No. 08-11123
    sensible meaning on its face, but it cannot be carried out without further
    clarification”).
    Tracking Systems urges us to hold that either Tracking Systems did not
    assume an obligation under the Settlement Agreement to control its affiliates or
    the agreement is ambiguous as to whether Tracking Systems assumed such an
    obligation. To support its argument, Tracking Systems points to the lack of an
    explicit provision obligating Tracking Systems to control its affiliates or any
    provision indicating that Tracking Systems was acting on behalf of its affiliates.
    Tracking Systems further argues that it “would not make sense” that Tracking
    Systems would obligate itself to control affiliates whose activities it could not
    direct.
    Tracking Systems’ arguments are unavailing. We do not hold that the
    Settlement Agreement explicitly obligated Tracking Systems to control its
    affiliates.   Rather, we conclude that Tracking Systems promised that its
    affiliates would not sue Xtria. One who promises to “produce a result for which
    it is necessary to obtain the co-operation of third persons” generally assumes the
    risk that the third party may not comply.                 Toyo Cotton Co. v. Cotton
    Concentration Co., 
    461 S.W.2d 116
    , 118 (Tex. 1971) (quoting 6 C ORBIN ON
    C ONTRACTS § 1340 (1962)). Although it may be unwise to covenant on behalf of
    an entity one cannot actually control, an agreement should be enforced as
    written, “without regard to whether [the parties] contracted wisely.” CMS
    Partners,     Ltd.   v.   Plumrose   USA,       Inc.,   
    101 S.W.3d 730
    ,   733   (Tex.
    App.—Texarkana 2003, no pet.).
    IV.
    For the reasons set forth above, we reverse the district court’s
    determination of ambiguity and remand to the district court for further
    proceedings on the issues of breach and damages.
    REVERSED AND REMANDED.
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