Mfg Mgmt Sys Inc v. Camshaft Machine Co

UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT

______________________________

No. 96-21043
______________________________

MANUFACTURING MANAGEMENT SYSTEMS, INC.,

Plaintiff-Appellant,

versus

CAMSHAFT MACHINE CO.,
WOLVERINE GEAR & PARTS CO.,
CTG OPERATIONS, INC. and CRANE CAMS, INC.,

Defendants-Appellees.

_________________________________________________________________

Appeal from the United States District Court
for the Southern District of Texas
(H-95-CV-5431)
_________________________________________________________________

August 25, 1997
Before WISDOM, DUHÉ, and BARKSDALE, Circuit Judges.

PER CURIAM:1

At issue is whether a contract for joint development of a new

version of a computer program implicitly, but unambiguously, allows

one of the parties to keep a copy of the newly developed program

for private use upon termination of the agreement. On cross-

motions for summary judgment, the district court granted judgment

1
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that this opinion should not be published and is not precedent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.
for the defendants, finding that the contract so allowed. Because,

we conclude that the contract is ambiguous on this point, we

REVERSE and REMAND.

I.

Manufacturing Management Systems (MMS) developed a successful

computer program called the Capacity Management System (CMS). This

program was written for a specific computer. It could not run on

any others, including an IBM 38.

Camshaft Machine Co. had an IBM 38; again, a computer with

which the CMS was incompatible. Camshaft proposed in January 1984

that it and MMS jointly develop a version of the CMS that would run

on an IBM 38. The two agreed to a joint venture which covered both

the development and the marketing of the new computer program. The

agreement provides that Texas law controls. The other pertinent

provisions of the contract follow.

The purpose of the agreement was “to mutually benefit from the

development and sales of the new System 38 CMS, hereinafter

referred to as the ‘System’”. (Emphasis added.) MMS would manage

and direct development of the System, would provide the necessary

CMS documentation, and would write the System documentation.

Camshaft would provide time on its IBM 38 computer, technical

assistance, installation assistance at purchaser sites, and

enhancements and modifications of the System.

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 Camshaft also agreed to assist in marketing the System; and in

the section relating to the compensation to be received by Camshaft

for its assistance, the contract listed a 5% commission for certain

types of sales, a 10% commission for others, and compensation of

$500 per day for assistance in on-site installations. This section

does not list a free copy of the System as part of Camshaft’s

compensation.

Section 4, entitled “Title to the System”, provides:

All System sales shall be exclusively between
MMS and the System purchaser. MMS shall
retain ownership and title to the System and
rights to software license fees paid by
purchasers.

The contract states that, upon its termination, MMS shall

continue to compensate Camshaft, according to the contract, insofar

as such compensation was earned prior to termination. The contract

does not provide for new compensation terms upon its termination,

and does not state that, upon termination, Camshaft could retain a

copy of the System.

Section 7 requires each party to retain the confidentiality of

information received from the other, “and to make not further use

of such information”. That section also requires Camshaft, upon

termination, to “return to MMS all CMS source codes, object codes,

program listings and technical documentation in the possession of

Camshaft”. The parties agreed not to assign any of the rights they

held under the agreement.

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 In 1993, Camshaft requested MMS’ approval of an assignment of

Camshaft’s rights under the agreement to CTG Operations. MMS

refused and proposed a new agreement, which CTG rejected.

(Camshaft sold its assets to CTG in 1994.) MMS terminated the

agreement in 1995 and requested the return of all CMS materials,

including all System 38 CMS materials, along with a confirmation

that Camshaft had discontinued use of the System. Camshaft

returned nothing.

As of the filing of this action by MMS in 1995 for breach of

contract, conversion, fraud, and negligent misrepresentation,

Camshaft had been using the System internally for close to ten

years. The defendants (Camshaft, CTG, Crane Cams as parent company

of CTG, and Wolverine Gear & Parts Co.2) removed the action to

federal court. Both sides moved for summary judgment.

Camshaft and the other defendants contended, inter alia, that

the contract stated that, upon termination, Camshaft (or its

successor) was only required to return to MMS the CMS source codes,

program listings and technical documentation; and that MMS had

already received the consideration for which it had bargained — the

2
MMS states that the defendants other than Camshaft “are
in the case only because of a corporate acquisition”. And,
although the district court noted that “[MMS’] Original Complaint
does not raise allegations against Defendant Wolverine Gear & Parts
Company ... and that [MMS’] response in Opposition to Defendants’
joint Motion for Summary Judgment raises no allegations against
Wolverine”, it did not dispose of any of MMS’ claims on that basis.
The liability vel non on the part of each defendant is for the
district court on remand.

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development of the System. In its cross-motion, MMS contended that

the requirement to return the CMS materials included the System

materials, in that the System was just one version, a subset, of

the CMS.

The district court granted summary judgment for the

defendants, concluded that the return-CMS-materials requirement did

not include the System.

II.

MMS appeals both the summary judgment awarded defendants and

the denial of its similar motion. It requests that we find breach

of contract and conversion and remand for ancillary matters, such

as damages. It does not appeal the dismissal of its fraud and

negligent misrepresentation claims; it has abandoned those claims.

On remand, only the breach of contract and conversion claims

remain.

Pursuant to our de novo review of a summary judgment, e.g.,

Vera v. Tue, 73 F.3d 604, 607 (5th Cir. 1996), we apply the same

standard as the district court. As the parties agreed, Texas law

applies.

The primary question for review of a summary judgment on a

contract claim is whether the contract’s terms are unambiguous; we

can determine whether a party is entitled to summary judgment only

if they are. Coker v. Coker, 650 S.W. 2d 391, 393 (Tex. 1983)

(“When a contract contains an ambiguity, the granting of a motion

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for summary judgment is improper because the interpretation of the

instrument becomes a fact issue”).

Appellees’ contention that we are barred from finding the

contract ambiguous because both sides contended in district court

that the contract unambiguously supported their positions

misunderstands our role in reviewing a contract-based summary

judgment. It is true that a “disagreement regarding the meaning of

a clause in a contract does not render the clause ambiguous”.

First City Nat’l Bank of Midland v. Concord Oil Co., 808 S.W. 2d

133, 136 (Tex. App.--El Paso 1991, no writ). But, we review each

of the motions anew. Based on the contract, we may refuse summary

judgment, despite the parties’ contending, as they do here, that

the contract is unambiguous. In other words, we can conclude that

it is ambiguous.

A contract is unambiguous if it can be given a certain or

definite legal meaning or interpretation; conversely, it is

ambiguous when its meaning is uncertain and doubtful, or it is

reasonably susceptible to more than one meaning. Coker, 650 S.W.

2d at 393; see also Purvis Oil Corp. v. Hillin, 890 S.W. 2d 931

(Tex. App.--El Paso 1994, no writ) (ambiguity determination to be

made in the light of the circumstances at the time of the contract

formation). Of course, although we look to the intent of the

parties to determine the meaning of a contract, that intent must be

such as is expressed in the terms of the agreement. Cap Rock Elec.

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Coop., Inc. v. Texas Utilities Electric Company, 874 S.W. 2d 92, 98

(Tex. App.--El Paso 1994, no writ). And, we may apply many of the

usual rules of construction before declaring a contract ambiguous.

City of Pinehurst v. Spooner Addition Water Co. 432 S.W. 2d 515,

519 (Tex. 1968); see also Austin Hardwoods, Inc. v. Vanden Berghe,

917 S.W. 2d 320, 323 (Tex. App.--El Paso 1995, writ denied) (the

court will attempt to determine objective intent of parties through

harmonization of all provisions so no provision rendered

meaningless).

Turning to the contract at issue, with this standard for its

interpretation in mind, we note preliminarily that the instrument

does not expressly grant Camshaft the right to keep a copy of the

System for its use. Not only does this omission require us to find

a new term of the contract “unambiguously” by negative inference

from the rest of the contract’s terms, it also requires us to

consider whether, as posited by MMS, the contract instead

unambiguously precludes Camshaft’s retention of a copy.

The first question, then, is whether it would have been

natural for the parties to have included such compensation

(retention of the System) in the agreement had they intended it to

be a term of the agreement. The contract contains a detailed list

of all of the types of compensation to be received by Camshaft for

the donation of its computer time and technical advice. The

contract lists commissions on sales for which Camshaft is partially

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responsible; it also provides that Camshaft will be compensated for

assisting in the installation of such programs at the purchasers’

places of business. Despite this extensive explanation of what

rewards will be received for what performances, there is no mention

of a free copy of the System. In the light of the fact that, while

the other types of compensation are mere possibilities in terms of

when they would be received by Camshaft (they would all be

dependent on System sales), and yet the compensation in the form of

a free copy of the System would be a certainty (depending only on

the successful conversion of the CMS), it would seem that the

parties would naturally list such compensation, a free copy,

somewhere in the contract, most likely in the section labeled

“Compensation”. They did not.

Furthermore, while the declarations at the beginning of the

contract list the parties’ intentions and desires, including

selling copies of the System, this list does not include Camshaft’s

desire to use the System to manage its own operations. Again, the

parties saw fit to include some fairly finer aspects of the

agreement, such as exactly what Camshaft was willing to offer to

the deal, including exactly to which type of computer MMS was

allowed access in order to complete the conversion, and yet we are

asked to conclude that the parties simply omitted their intention

for a copy of the System to be given Camshaft upon termination.

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Needless to say, if the parties had intended such a provision, they

certainly could, and should, have included it.

On the other hand, this is not to say that the contract

unambiguously supports MMS’ position. Perhaps the parties did

agree implicitly to such compensation; the language of the contract

explaining the rights and obligations of the parties upon

termination of the agreement might allow for such a reading.

Moreover, the fact that, under the contract, Camshaft had the use

of a copy of the System, throughout the life of the agreement could

militates in favor of such a reading.

The contract grants to MMS all title to the System. This

section, quoted above in full, consists of only two sentences and

falls under the heading “Title to the System”. Although one of the

two sentences in this section deals with sales of the System to

third parties, the other, final, sentence states in general terms

that “MMS shall retain ownership and title to the System”. This

would appear to grant, unambiguously, full title not to Camshaft,

but rather to MMS. Camshaft attempts to counter this provision by

contending that the apparently general language of title must be

read in the light of the preceding language/sentence dealing only

with System sales, and that we must therefore conclude that the

parties were only talking about title with respect to sales, while,

on the other hand, Camshaft retained title with respect to its use

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of one copy of the program. There are two problems with this

contention, both insurmountable.

First, while the first/preceding sentence may speak of sales,

the heading of the section deals with title generally, without

limitation. While it is plausible that the first/preceding

sentence might color our reading of the sentence that follows, that

coloring must give way to such an explicit statement in the section

heading. In other words, the express intent of a section heading

cannot be implicitly limited merely by including a sentence in that

section limited to only one aspect of the issue at hand. The

general language in the second sentence retains its generality;

and, under that umbrella, MMS would retain title to the System.

See, e.g., Vail v. Henry S. Miller Co., 592 S.W. 2d 410, 411-12

(Tex. App.--Dallas, 1979 writ denied) (using section headings of

contract to interpret provisions of that contract); Canadian River

Municipal Water Authority v. City of Amarillo, 517 S.W. 2d 572, 582

(Tex. App.--Amarillo, 1974 writ denied) (same).

Second, the canon of construction on which Camshaft and the

other appellees rely in contending that the first/preceding

sentence should limit our reading of the sentence at issue is the

rule of ejusdem generis: if words of a specific meaning are

followed by general words, the general words are interpreted to

mean only the class or category framed by the specific words. This

canon, however, applies only when the contract has already been

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found to be ambiguous. Hussong v. Schwan’s Sales Enterprises,

Inc., 896 S.W. 2d 320, 325 (Tex. App.--Houston (1 Dist.) 1995, no

writ); Corpus Christi v. Bayfront Assoc. Ltd., 814 S.W. 2d 98, 104

(Tex. App.--Corpus Christi 1991, writ denied). In other words, by

contending that assessing the meaning of the first/prior sentence

is required to fully understand the meaning of the second/final

sentence granting title to MMS, Camshaft has implicitly admitted

that the section is ambiguous absent such a construction. We

agree. The section is ambiguous with respect to the scope of

applicability of the sentence retaining System title in MMS.

At long last, we arrive at the primary basis for Camshaft’s

contention that the contract grants it a copy of the System. Upon

termination, Camshaft is directed in section 7 to “return to MMS

all CMS source codes, object codes, program listings and technical

documentation in the possession of Camshaft”. Camshaft contends

that, because the System is distinct from the CMS, the foregoing

CMS return requirement implicitly allows keeping one copy of the

System for Camshaft’s continued use. Perhaps, but not necessarily.

Part of the foundation for this contention, that the System is

treated as distinct from the CMS by the rest of the contract, is

dubious. The declarations at the beginning of the contract

describe the System as “the new System 38 CMS”. This would appear

to mean that the System is in fact a CMS, and the requirement of

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the return of all of the CMS materials would therefore naturally

include the System.

Furthermore, the contract states that, upon termination,

Camshaft shall make no further use of the technical documentation

of the System and no use of any of the confidential information

received from MMS. It is difficult, at best, to read this

provision in harmony with an implied provision allowing Camshaft to

retain and utilize a copy of the System. See Purvis, 890 S.W. 2d

at 935 (court must attempt to “harmonize all provisions” of

contract in its interpretation). Discontinuing use, in a natural

language interpretation of the contract, must mean exactly that;

Camshaft may no longer use the information, including use on

Camshaft’s computer to manage its operations.

Camshaft offers nothing to contradict this, and we are left

with the conclusion that inferring otherwise would contradict the

requirement to discontinue use of the System technical

documentation and the other confidential MMS information. On

remand, perhaps, Camshaft can adduce evidence that the program

might be used without reference to the technical documentation or

to other confidential information; but, on this record, this point

involves a genuine issue of material fact -- the dreaded death

knell of summary judgment.

As stated, we must read a contract to “harmonize and give

effect to all the provisions of the contract so that none will be

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rendered meaningless”. Coker, 650 S.W. 2d at 393. A reading of

this contract which allows Camshaft to retain a copy of the System

certainly puts several other provisions in obsolescence. In

particular, the terms requiring Camshaft to retain the

confidentiality of all information acquired from MMS, and the

provision retaining title to the System in MMS would be under

threat in the light of the rest of the contract.

It is safe to assume that MMS already has its own copies of

both the CMS generally and the System in particular. Camshaft’s

return of the CMS materials, then, could not be for the purpose of

getting a copy into MMS’ hands. Furthermore, Camshaft is expressly

forbidden to sell either the System or the CMS to anyone after the

contract is terminated. It is also not allowed to divulge for free

any of the information it has received. Return of the CMS

materials therefore cannot be for the purpose of retaining the

confidentiality of those materials — that has been taken care of in

other provisions. Thus when read in the context of the rest of the

contract, the only way for the section requiring the return of the

CMS materials to have effect on the parties’ positions upon

termination of the agreement is if the section intends to get the

materials out of Camshaft’s hands altogether, in order to prevent

use by Camshaft.

If this is so, then the return of only the original CMS

program, and not the System, is meaningless, because Camshaft does

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not need the old CMS; its IBM 38 computer cannot use that version.

It would need to keep a copy of “the new System 38 CMS”, the only

version of use to it. Therefore, for the return language of the

contract to have meaning, it must include the System. Holding

otherwise would render that section meaningless to the parties, and

such a reading must give way to a reading which gives the provision

effect.

Perhaps on remand, Camshaft and the other defendants can

adduce evidence that use of one copy of the System to manage their

operations would not interfere with an effective return of all CMS

material, perhaps including the System 38 CMS material.

III.

For the foregoing reasons, the summary judgment awarded

Camshaft Machine Co. and the other defendants is REVERSED; the

denial of summary judgment to Manufacturing Management Systems,

Inc., is AFFIRMED; and the case is REMANDED for further

proceedings.

AFFIRMED IN PART; REVERSED IN PART; and REMANDED

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