In the
United States Court of Appeals
For the Seventh Circuit
Nos. 10-1525 & 10-1652
D IGITECH C OMPUTER, INC.,
Plaintiff-Appellee,
Cross-Appellant,
v.
T RANS-C ARE, INC.,
Defendant-Appellant,
Cross-Appellee.
Appeals from the United States District Court
for the Southern District of Indiana, Terre Haute Division.
No. 2:07-cv-00225—William G. Hussmann, Jr., Magistrate Judge.
A RGUED O CTOBER 25, 2010—D ECIDED M AY 20, 2011
Before W OOD , W ILLIAMS, and T INDER, Circuit Judges.
W OOD , Circuit Judge. Trans-Care, an Indiana company
that furnishes ambulance and other medical transporta-
tion services, wanted to replace its dispatch and billing
software. After looking around, it chose Digitech Com-
puter for the job. The two executed a software licensing
agreement, but it was not long before the deal went sour.
2 Nos. 10-1525 & 10-1652
The software did not work as Trans-Care expected, and
so Trans-Care attempted to exercise an option to
terminate the agreement. Digitech believed that Trans-
Care had no such option and that its attempted ter-
mination was a breach of the contract. It sued, and
Trans-Care shot back with a counterclaim for fraud. The
court, acting through a magistrate judge presiding by
the consent of the parties under 28 U.S.C. § 636(c), dis-
missed Trans-Care’s claim for fraud and found for
Digitech on the breach of contract claim. The court then
awarded Digitech fees under the contract, including
attorneys’ fees for pursuing the contractual damages.
It refused, however, to award Digitech any attorneys’ fees
for defending the counterclaim. Both parties appeal.
Trans-Care challenges the decision on fraud, breach of
contract, and the amount of damages awarded. Digitech
challenges the limited award of attorneys’ fees. We
affirm the decisions on fraud and breach of contract,
but we vacate the damages award and remand for
further proceedings.
I
After some preliminary exchanges, Digitech sent an
initial proposal to Trans-Care on February 3, 2006. That
proposal set out the basic features of Digitech’s dispatch
and billing software and details on pricing; it also
included a provision that the parties have described as a
90-day satisfaction guarantee. This guarantee stated that
during the first 90 days, billing would be limited to pro-
gramming charges; within that period, if Trans-Care was
Nos. 10-1525 & 10-1652 3
not completely satisfied, it could walk away from the
contract without paying any software licensing fees.
This initial proposal did not purport to be a take-it-or-
leave-it contract; instead, it launched a period of exten-
sive negotiations between the parties, which ended
when Digitech sent Trans-Care the final Agreement dated
May 8, 2006. Trans-Care signed and returned it, along
with a purchase order. The purchase order concluded
with the following “Additional Conditions”: “The
Proposal and clarifications of Digitech are attached to
this purchase order and incorporated herein.” It also
represented that Digitech would “fulfill all requirements
and specifications as represented in the Agreement,
proposal and clarification . . . .” The purchase order
allowed deviations, but only after advance approval
from the President of Trans-Care or his designee.
The Agreement stated that it was to run for three years
starting May 8, 2006. Trans-Care’s obligation to make
monthly software licensing payments was to begin
90 days after the software was installed. For its part,
Digitech could “suspend or terminate” the software
products and services in the event that Trans-Care was
delinquent in payment for 60 days. The Agreement pro-
vided that Digitech could recover attorneys’ fees for
“collections of any unpaid balances.” Finally, it required
notice and the opportunity to cure before termination.
The parties planned to go live with the software on
August 1, 2006, but it was not until January 1, 2007, that
the software was finally up and running. Even after this,
the software was plagued with malfunctions relating to,
4 Nos. 10-1525 & 10-1652
among other things, transferring data from Trans-Care’s
previous software system, training Trans-Care employees
to use the system, and operating the system to fit
Trans-Care’s regular needs. In light of these problems,
on March 1, 2007, Trans-Care attempted to exercise its
opportunity to walk away from the arrangement within
the 90-day “guarantee” period. But that provision had
not been repeated in the Agreement, and so Digitech
refused to honor it. Trans-Care parried by withholding
its payments to Digitech. Finally, on April 3, 2007,
Digitech locked the software because of Trans-Care’s
failure to make the contractual payments.
This impasse led in short order to litigation. Digitech
sued in Indiana state court for breach of contract, and
Trans-Care responded with a counterclaim for fraud,
arguing that Digitech had misrepresented that the con-
tract contained the 90-day guarantee. Trans-Care then
removed the action to the federal district court, relying
on diversity jurisdiction. After about a year of discovery,
the court dismissed Trans-Care’s fraud and punitive
damages counterclaims in response to a motion for sum-
mary judgment. The rest of the case proceeded to a
bench trial, after which the court found for Digitech on
its breach of contract claim and awarded software
licensing payments for 33 months and fees for software
customization and training. In addition, the court or-
dered that Digitech was entitled to attorneys’ fees for
the breach of contract action, but not for defending
against Trans-Care’s counterclaims. This timely appeal
and cross-appeal followed.
Nos. 10-1525 & 10-1652 5
II
A
We first consider Trans-Care’s counterclaim for
fraud, which centers around the alleged 90-day, no-
questions-asked, guarantee that it thought Digitech had
offered in the initial proposal—a term that it contends
was later incorporated into the agreement by way of
the purchase order. When Digitech failed to honor this
guarantee, Trans-Care says, it did more than breach a
contract: it committed constructive fraud.
Indiana law recognizes that constructive fraud “may
arise where: (1) a seller makes unqualified statements
to induce another to make a purchase; (2) the buyer
relies upon the statements; and (3) the seller has
professed to the buyer that he has knowledge of the
truth of those statements.” Stoll v. Grimm, 681 N.E.2d 749,
757 (Ind. Ct. App. 1997). We can assume for now that
these principles apply to software licensing and that
Digitech, as the seller, made the kind of unqualified
statements that element (1) requires and that Trans-Care
relied on them, as element (2) requires. This permits us
to focus on the third element. The central question
is whether any such guarantee or warranty was part of
the final agreement between the parties. The Agreement
itself, dated May 8, 2006, does have a section entitled
“License: Representations and Warranties; Use of Soft-
ware,” but that section says nothing about a 90-day
guarantee. Nor does the later section on “Term and
Termination,” although it does provide that either party
may, upon 90 days’ written notice identifying a material
6 Nos. 10-1525 & 10-1652
breach, terminate the agreement if there is no cure within
that period. Thus, as of the time the Agreement was
signed, Digitech was not making any representation to
Trans-Care about an unqualified right to walk away
after 90 days. The elliptical reference to the Proposal in
the purchase order included by Trans-Care is not
specific enough to make such a material change in the
agreement, given the requirement in Section VI that
any changes had to be in writing.
Seeking to show that the lack of a writing may not be
fatal, Trans-Care points to the old case of Martin v.
Shoub, 113 N.E. 384 (Ind. App. 1916), which held that
warranties can sometimes serve as the basis of fraud
liability even if they were not included in the final
written contract. Id. at 385-86. In Martin, a horse seller
represented that a stallion was in sound health and
then executed a written contract to sell the horse in ex-
change for a buzz saw. Id. at 385. Soon after, the
buyer learned that the horse suffered from bone spavin
and was therefore worthless for breeding purposes. Id.
The Indiana Court of Appeals affirmed a judgment
against the seller for fraud, even though the written
contract made no mention of the horse’s condition. Id.
at 385.
All this shows, however, is that the court in Martin
enforced the requirement that the seller actually aver
the truth of the statement on which the buyer relied
(there, the health of the horse). Our case is quite dif-
ferent. After the initial proposal that contained the
90-day guarantee, there were extensive negotiations
Nos. 10-1525 & 10-1652 7
between the parties—both sophisticated businesses.
The last mention of the 90-day guarantee was on
February 16, 2006. Digitech sent the Agreement—
which by then had no 90-day option—to Trans-Care two-
and-a-half months later, on May 9, 2006. The lack of
such a term in that final draft is enough to defeat the
argument that Digitech was fraudulently telling Trans-
Care that such a clause was part of the deal.
In a last-ditch attempt to avoid this conclusion,
Trans-Care responds that Digitech did not actively dis-
claim that 90-day guarantee. But the implicit rule it
is arguing for makes no commercial sense. A party
should not be required to disclaim noisily any and
every departure from earlier proposals made during
negotiations before it can avoid liability for fraud.
The district court’s grant of summary judgment to
Digitech on Trans-Care’s counterclaim for fraud and
punitive damages was correct.
B
We turn now to Digitech’s claim for breach of contract.
After a bench trial, the magistrate judge held that there
was no 90-day satisfaction guarantee in the final agree-
ment. By trying to exercise this nonexistent option, the
judge concluded, Trans-Care was really attempting to
terminate the agreement without providing Digitech
the required written notice spelling out the details of
its failure to perform and giving Digitech an oppor-
tunity to cure. It was thus Trans-Care that breached the
agreement, Digitech argues, not itself. Trans-Care defends
8 Nos. 10-1525 & 10-1652
with the argument that the magistrate erred when he
concluded that the 90-day guarantee was not part of the
contract. Our review of these questions of contract inter-
pretation is de novo. Fulcrum Financial Partners v. Meridian
Leasing Corp., 230 F.3d 1004, 1007 (7th Cir. 2000).
The parties agree that the Agreement did not include
an integration clause, and thus that we may consult both
the written contract and extrinsic and parol evidence
in ascertaining its terms. Malo v. Gilman, 379 N.E.2d 554,
557 (Ind. Ct. App. 1978). As we have noted already, the
Agreement does not contain any express 90-day satis-
faction guarantee clause. Trans-Care argues nonetheless
that the final agreement incorporated the 90-day satis-
faction guarantee through the purchase order. When
returning the signed Agreement, Trans-Care included
a purchase order that required Digitech to satisfy the
terms of the initial proposal and thus arguably the
90-day satisfaction guarantee. For purposes of this
part of the case, Trans-Care does not care whether
Digitech tried to induce it to rely on that provision. In-
stead, it is arguing only that Digitech assented
to the terms of the purchase order, which incorporated
the 90-day guarantee.
There are two problems with this argument: timing and
lack of compliance with the modification terms of the
Agreement. If one reads the purchase order as Trans-
Care does, it is an attempt at a modification of the Agree-
ment. “The modification of a contract, since it is also
a contract, requires all the requisite elements of a con-
tract.” Hamlin v. Steward, 622 N.E.2d 535, 539 (Ind. Ct. App.
Nos. 10-1525 & 10-1652 9
1993). In order for the modification to be effective,
Section VI of the Agreement required written evidence
that Digitech accepted the new term. No such evidence
exists: Digitech did not sign the purchase order or
take any other action indicating its acceptance. The pur-
chase order was therefore at most a proposal for a modifi-
cation that was never accepted, and thus its terms did
not become part of the overall agreement between the
parties. Trans-Care thus cannot justify its repudiation
of the contract on this basis.
Trans-Care also argues that parol evidence indicates
that both parties intended that the 90-day satisfaction
guarantee would become part of the contract. For sup-
port, it points to the negotiations discussing the satisfac-
tion guarantee. For familiar reasons, we find this uncon-
vincing. The negotiations went on for some time, and
Digitech’s last mention of the 90-day satisfaction guaran-
tee occurred two-and-a-half months prior to the con-
clusion of the final agreement. Even without a formal
integration clause, we would need some clue in the
final agreement that the parties meant to carry this im-
portant provision forward. There is none.
Finally, Trans-Care notes that the Agreement states,
“DIGITECH represents and warrants that the Soft-
ware shall function as designed in accordance with
this Agreement (including any Riders hereto) and the
specifications and documentation supplied by DIGITECH
in all material respects.” Trans-Care claims that “specifica-
tions and documentation” incorporates the initial pro-
posal. But the natural meaning of this language is to
10 Nos. 10-1525 & 10-1652
refer to specifications and documentation that concern
the software, like user manuals and descriptions of the
software’s technical capability. It does not aim to incorpo-
rate every prior proposal or offer. Even if we found the
phrase potentially ambiguous, Trans-Care provides us
no reason to think—through extrinsic evidence or other-
wise—that the plain meaning is not the right one. Thus,
Trans-Care breached the agreement when it attempted
to terminate it without complying with the terms of
Section V.
C
The district court awarded Digitech a sum that equaled
33 monthly payments for the software license, but this
cannot be correct. That calculation took the term of the
contract—36 months—and subtracted three waived
monthly payments. But Section VIII.B. of Rider A to the
Agreement provided that the “START DATE” would be
the day when Digitech completed software installation,
and that payments would become due 90 days after
that. This works out to an initial due date of April 1,
2007. Since the contractual term ended on May 8, 2009,
Digitech could at most receive 25 months of full pay-
ments and a pro rata payment for seven days.
There is a further problem with the district court’s
calculation. It is elementary that contract damages are
intended only to compensate an injured party fairly
and adequately for the loss sustained; the injured party
is not to be placed in a better position than if the
breach had not occurred. It follows that the injured party
Nos. 10-1525 & 10-1652 11
cannot recover twice for the same breach. Bank One, Nat’l
Ass’n v. Surber, 899 N.E.2d 693, 704 (Ind. App. 2009);
Illinois Sch. Dist. Agency v. Pacific Ins. Co. Ltd., 571 F.3d
611, 615 (7th Cir. 2009). See also JOHN E DWARD M URRAY,
JR., M URRAY O N C ONTRACTS § 26(D) at 834-35 (4th ed.
2001). If Digitech opted to terminate the contract prior
to the end of the term, then Digitech should receive
licensing payments only to the point of that termination.
Otherwise Digitech would be in the position of both
enforcing the contract and repudiating it at the same
time. (We recognize that software is the kind of product
that is not exhausted by transmittal to one party, but
that fact does not relieve Digitech of deciding whether
to insist on its rights under the contract or to end the
arrangement.)
When Digitech locked the software on April 3, 2007, it
terminated the contract. Digitech may say that it was
exercising its contractual rights to suspend the software
in the event of nonpayment. But the same provision in
the contract permitted Digitech to terminate the agree-
ment in the event of nonpayment. The question for us
is which characterization of Digitech’s action better
matches the facts: was it suspending service, or was it
terminating the agreement? If this was just a suspension
of services for nonpayment, one would expect Digitech
to communicate the conditions of restart to Trans-Care.
But nothing like that ever happened; there was little
communication between the parties after the software
lockout. In light of that silence, we conclude that Digitech
chose to terminate the contract on the lockout date of
April 3, 2007. Because April 3, 2007 is three days beyond
12 Nos. 10-1525 & 10-1652
the 90-day waiver period that started on January 1, 2007
(the date of installation of the software), Digitech is
entitled to a pro rata software licensing payment for that
period, but for no more. Digitech was also entitled to
the fees that the court awarded for the software customiz-
ation and training it performed ($4,199.33 and $2,256.70,
respectively). The award of 33 months’ worth of soft-
ware licensing fees, however, was incorrect and must
be reduced as discussed above.
Finally, the district court correctly limited Digitech’s
award of attorneys’ fees to those relating to the breach
of contract action, excluding Digitech’s attorneys’ fees
relating to Trans-Care’s fraud counterclaims. This is
because the fee-shifting provision stated only that
Digitech was entitled to be reimbursed for “reasonable
legal fees and expenses incurred for collection on any
unpaid balances hereunder.” This language is narrowly
crafted; it does not state that Digitech was to be reim-
bursed for, say, “all legal costs of enforcement of the
contract.”
Digitech argues that it was required to defend against
Trans-Care’s counterclaims in order to collect any money
and therefore should be reimbursed for those attorneys’
fees. But suppose Trans-Care had timely paid all of its
balances, noting its objection, and then sued Digitech for
fraud. In that case, the contractual language would not
allow Digitech to recover its attorneys’ fees, because
there would be no “unpaid balances.” This just shows
that the fraud counterclaims are separable from the
collecting of unpaid balances. At best Digitech’s argument
Nos. 10-1525 & 10-1652 13
might indicate an ambiguity in the contractual language.
As Digitech drafted the contract, the doctrine of contra
proferentem directs a result against Digitech. MPACT
Constr. Grp., LLC v. Superior Concrete Constructors, Inc.,
802 N.E.2d 901, 910 (Ind. 2004) (“When there is am-
biguity in a contract, it is construed against its drafter.”).
Thus, the contractual language should be read to
limit attorneys’ fees only to the breach of contract action.
And in any event, the fact that Digitech’s award on
the breach of contract has been greatly reduced will
require a fresh look at its attorneys’ fees award.
Therefore, we A FFIRM the decisions on fraud and
breach of contract, but V ACATE the damages awarded
and R EMAND for a new calculation of damages and fees
in accordance with this opinion.
5-20-11