United States Court of Appeals
Fifth Circuit
F I L E D
UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT December 27, 2004
_______________________ Charles R. Fulbruge III
Clerk
No. 03-21090
_______________________
CSC CREDIT SERVICES, INC., CREDIT BUREAU OF TULSA, INC.,
CSC ENTERPRISES INC.; CSC ENTERPRISES,
Plaintiffs-Appellants-Cross-Appellees,
versus
EQUIFAX INC.;
THE CREDIT BUREAU, INCORPORATED OF GEORGIA,
Defendants-Appellees-Cross-Appellants.
Appeals from the United States District Court
for the Southern District of Texas,
Houston Division
Civil Action No. H-99-4349
Before JONES, SMITH, and STEWART, Circuit Judges.
EDITH H. JONES, Circuit Judge:*
This case involves a dispute over a sixteen-year-old
contract that, despite the parties’ stipulation that the document
is “unambiguous,” has resulted in two diametrically opposed orders
from judges within the same district court. In this appeal, we
review both summary judgment orders. For the reasons stated below,
we AFFIRM IN PART and REVERSE AND REMAND IN PART, in favor of
Equifax.
I. Background
*
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opinion should not be published and is not precedent except under the limited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.
The issue in this case is whether a 1988 contract between
the two parties allowing CSC Credit Services, Inc. (“CSC”) access
to the storage and retrieval system maintained by Equifax, Inc.
(“Equifax”) also required giving CSC access to programs later
developed by Equifax that analyze the data contained therein. CSC
and Equifax are major, repeat players in the market for credit
reporting services. CSC owns millions of credit files on
individuals residing in Arkansas, Indiana, Iowa, Kansas, Nebraska,
Oklahoma, Texas, and Wisconsin. Equifax is a credit reporting
agency; unlike credit bureaus like CSC, Equifax collects and
maintains credit files owned by other entities, and then sells
access to the files. In some situations, the two companies compete
with one another, and in others they collaborate and combine their
respective resources.
In one of the collaborative endeavors, the parties
entered into a contract under which Equifax stores all of CSC’s
credit files in its computer system, Automated Credit Reporting
Online Package (“ACROPAC”). The 1988 Agreement for Computerized
Credit Reporting Services and Options to Purchase and Sell Assets
(“Agreement”) allowed third-party credit-granting customers to
access CSC’s files through ACROPAC. For every file accessed, CSC
agreed to pay Equifax a “billable inquiry” charge. Under the
Agreement’s “cost allocation system,” CSC paid Equifax fifteen
2
percent of its revenue from each file.1 ACROPAC stores files owned
by Equifax, CSC, and numerous other credit bureaus (which appa-
rently entered into similar agreements with Equifax).
The contract also requires Equifax to bear the costs
necessary to maintain and upgrade ACROPAC from time to time. Since
1988, Equifax has updated the hardware and the software on numerous
occasions. These upgrades have expanded the number and type of
search functions available to users (for example, allowing
customers to search files by zip code and Social Security number),
and have resulted in improvements to make ACROPAC faster and more
efficient. The contract also permits Equifax to modify the
distribution of revenue from customers accessing credit files.
Equifax has unilateral authority in this regard, but any altered
charges must be applied equally to all customers.
Additionally, Equifax created other products during this
period. One of them, “decisioning services,” is at the center of
this dispute. This product synthesizes data from numerous sources
(some of which are not owned by Equifax), and applies criteria
provided by the customer to create a complete credit decision for
a particular individual. Equifax uses its NextGen computer system
to perform this task. Decisioning services offers a finished
product, as opposed to the “raw material” provided by ACROPAC.
1
The Agreement does not explicitly include this percentage. Instead,
it establishes a general formula subject to change by the parties. This formula,
governed by Paragraph 8 of the Agreement, is discussed below.
3
Decisioning services relies upon numerous data sources, including
but not limited to ACROPAC.2 Decisioning services may need to
access only some of these products to give a customer a complete
report. When CSC files stored on ACROPAC are accessed during this
process, CSC receives revenue and pays a billable inquiry fee as it
would with a usual credit reporting transaction. However, Equifax
also deducts a “platform fee” from CSC’s transaction revenue.
Equifax asserts that this platform fee helps cover the costs
associated with the NextGen system.
Equifax also used its purported authority under the
Agreement to supplement the cost allocation system by assessing
additional charges to CSC. Beginning in 1989, Fair Isaac & Company
(“FICO”) developed a credit scoring model known as the Beacon
Score. A Beacon Score applies numerous factors from a credit
report to assign a numerical grade to a given consumer. This score
allows a creditor to predict the likelihood that a potential
consumer will be a credit risk. When Equifax’s customers purchase
a credit report owned by CSC and also request a Beacon Score, FICO
assesses a royalty. To cover this expense, Equifax modified the
revenue sharing agreement to pass this charge on to CSC. Equifax
continued to charge a separate fee after it developed its own
2
Up to sixteen sources may be used. The other potential sources
include Equifax ACIS, Income Predictor, HMC Gemini Verify, Equifax Exchanges,
Equifax Canadian Consumer Credit, National Telecommunications Data Exchange,
Experian Consumer Credit, Experian Small Business Data, Check Services, Check
Authorization, RiskWise, Choice Point, Dun & Bradstreet, MetroNet, and Compliance
Data Center.
4
credit scoring models. Although CSC did not initially object to
this adjustment of the revenue sharing agreement, it now contests
this “modeling royalty” fee.
In 1999, CSC filed the instant action, claiming that
Equifax breached the 1988 Agreement by assessing the platform fees
and modeling royalties.3 Both parties moved for summary judgment,
and Judge Gilmore found in Equifax’s favor as to the platform fees
on April 11, 2001. While Judge Gilmore was considering the
parties’ summary judgment motions, preparation for trial continued.
On April 12, 2001, the parties, who had not yet received Judge
Gilmore’s Summary Judgment Order filed the previous day, consented
to proceed before magistrate Judge Milloy under 28 U.S.C. § 636(c).
Determining that Judge Gilmore’s Order had not disposed of all
issues in the case, Judge Milloy denied Equifax’s motion for final
judgment based on Judge Gilmore’s conclusions and proceeded to
consider the issue of modeling royalties. Based on a contradictory
contract interpretation, Judge Milloy granted summary judgment to
CSC sua sponte on the issue of modeling royalties on April 9, 2002.
Additionally, on September 10, 2003, Judge Milloy granted CSC’s
motion for attorneys’ fees pursuant to Texas Civil Practice &
Remedies Code § § 38.001 et seq. Judge Milloy denied CSC’s Motion
for Reconsideration on the platform fees issue initially decided by
3
The initial Complaint included other claims against Equifax. The
parties have resolved these other disputes, and only these two outstanding claims
are before this court.
5
Judge Gilmore, and entered an Amended Final Judgment on September
29, 2003. Both parties appealed to this court.
II. Standard of Review
We review a district court’s grant of summary judgment de
novo, using the same standards as the district court. U.E. Texas
One-Barrington, Ltd. v. Gen. Star Indem. Co., 332 F.3d 274, 276
(5th Cir. 2003); FED. R. CIV. P. 56. We review the district court’s
ruling on the motion for reconsideration only for an abuse of
discretion. Lake Hill Motors, Inc. v. Jim Bennett Yacht Sales,
Inc., 246 F.3d 752, 757 (5th Cir. 2001).
III. Judge Gilmore’s Order Granting Summary Judgment
to Equifax on Platform Fees
Judge Gilmore awarded summary judgment to Equifax on the claim
that the 1988 Agreement required Equifax to provide the decisioning
services to CSC without charging any additional fee. After
reviewing the law and the record, we agree that decisioning
services is a discrete, analytical product that is not covered by
the 1988 Agreement, and, thus, Equifax may assess the platform
fees. We therefore affirm this portion of the judgment.
As this is a diversity suit filed in Texas, Texas law
applies. 28 U.S.C. § 1332; Assicurazioni Generali, S.P.A. v.
Ranger Ins. Co., 64 F.3d 979, 980 (5th Cir. 1995). Under Texas
law, contract interpretation is a matter of law for the court to
decide. Elliott-Williams Co., Inc. v. Diaz, 9 S.W.3d 801, 803
(Tex. 1999). In construing a contract, “the court’s primary
6
concern is to give effect to the written expression of the parties’
intent.” Forbau v. Aetna Life Ins. Co., 876 S.W.2d 132, 133 (Tex.
1994). The starting point of this analysis is the actual language
of the contract. Empire Fire and Marine Ins. Co. v. Brantley
Trucking, Inc., 220 F.3d 679, 681 (5th Cir. 2000) (citing Puckett
v. U.S. Fire Ins. Co., 678 S.W.2d 936, 938 (Tex. 1984)).
Both parties agree, as do we, that this contract is
unambiguous. When a contract is unambiguous, the court may not
rely upon extrinsic evidence “to contradict or vary the meaning of
the explicit language of the parties’ written agreement.” Nat’l
Union Fire Ins. Co. of Pittsburgh, PA v. CBI Indus., Inc., 907
S.W.2d 517, 520 (Tex. 1995). The court presumes that every phrase
of the contract has some effect. Coker v. Coker, 650 S.W.2d 391,
393 (Tex. 1983). The effect of each phrase is determined by
looking at the entire contract; “no one phrase, sentence, or
section should be isolated from its setting and considered apart
from the other provisions.” Forbau, 876 S.W.2d at 134. Any
contractual term that is not defined within the contract itself
must be given its “plain, ordinary, and generally accepted
meaning.” Heritage Resources, Inc. v. NationsBank, 939 S.W.2d 118,
121 (Tex. 1996).
Looking to the Agreement as a whole, as required under
Texas law, it appears that decisioning services, which is an
analytical tool operated by a completely different computer system,
NextGen, that accesses up to sixteen data bases, sometimes, but not
7
always, including ACROPAC, is not covered by the 1988 Agreement
and, thus, Equifax may charge CSC platform fees for decisioning
services. The ninety-six-page Agreement includes many exhibits,
yet, as the district court noted, no other database or computer
program other than ACROPAC is mentioned. Paragraph 4(a)(i)
requires Equifax to furnish CSC only “ACROPAC online services.”
The Agreement further defines “online” to mean “direct access to
credit information maintained in the ACROPAC system.” Agreement
¶4(c); R. vol. 8 at 319. Direct access is obtained “by means of
the appropriate inquiry through a terminal maintained by such
Bureau [like CSC] or by a customer of such Bureau.” Id.
Taken as a whole, the above provisions impose three
specific limitations on the services Equifax must provide CSC.
First, the parties’ Agreement covers “online services,” which
implicate “direct access to credit information” maintained by
ACROPAC. Second, the access must be generated via an “inquiry” by
CSC or its customers. Additionally, the inquiry must originate
from a “terminal maintained by [CSC] or by a customer of [CSC].”
By contrast, decisioning services are not “maintained in the
ACROPAC” system, but instead are in the NextGen system, which in
turn directly accesses ACROPAC and up to fifteen other sources of
information. See R. vol. 8 at 351-52. Decisioning services are
not requested by CSC or a CSC customer, but are instead a separate
product sold by Equifax to its own customers. CSC’s response that
“direct access” is not defined in the Agreement does not alter this
8
analysis. “Direct” usually and customarily4 means “from point to
point without deviation” or “by the shortest way.” Webster’s New
Collegiate Dictionary (9th ed.) at 358. Decisioning services do
not provide the shortest way to the raw credit information stored
in ACROPAC; instead, this product provides a final answer to a
potential creditor by analyzing the raw data. The Agreement covers
only those situations where CSC or its customers enter ACROPAC
directly.
CSC next argues that the district court’s characteriza-
tion of ACROPAC as only a storage and retrieval system required the
court to read several other provisions out of the contract in
contravention of Texas law. Specifically, CSC points to language
in Exhibit A and the Agreement referencing “different computer
systems,” “all consumer credit reporting and similar or related
services,” and “any other sale of products or services derived from
a consumer credit reporting database.” We disagree. The language
put forward by CSC is taken out of context. The relevant, complete
language states,
System software encompasses the following primary tasks:
. . . Processing of credit grantor automated account
history information to update and create new files on a
periodic basis. ACROPAC II offers various programs to
extract data from a wide range of different computer
systems and record formats in order to process such data
into the online system. . . .
4
See Heritage Resources, 939 S.W.2d at 121.
9
Exhibit A; R. vol. 8 at 239. This language, read in the broader
context of the Agreement as a whole, describes ACROPAC’s inherent
function: storing data from many sources, updating the information,
and making it available to credit grantors who access the system
with their “different computer systems and record formats.”
See id.
Finally, CSC argues that decisioning services fall within
the plain meaning of “new product developments” and “system
enhancements” as defined by the Agreement. This reading of the
contract would have the absurd result of requiring Equifax to
provide to CSC, at no cost whatsoever, every new product it
develops. See Tarrant Distributors Inc. v. Heublein Inc., 127 F.3d
375, 379 (5th Cir. 1997) (holding that an agreement “unambiguously
supports one interpretation because the other [interpretation] is
unreasonable”); Columbia Gas Transmission Corp. v. New Ulm Gas,
Ltd., 940 S.W.2d 587, 591 (Tex. 1996). As demonstrated above, the
Agreement pertained only to the ACROPAC system. The provision
cited by CSC reads, in whole, “[Equifax] shall provide, at
[Equifax]’s expense, all new product developments, system
enhancements, advertising and promotion of the ACROPAC system.”
Agreement ¶4(g); R. vol. 8 at 319. This language expressly limits
itself to ACROPAC. Equifax complied with the “system enhancements”
requirement by continuously updating the ACROPAC system hardware
and software. Decisioning services represent a unique product sold
by Equifax; the NextGen computer system runs this program, which
10
uses complex algorithms and decision-tree logic to provide a
complete credit decision to a customer. The mere fact that
decisioning services may utilize ACROPAC (or one of several other
data sources, several of which are not owned by Equifax) does not
make decisioning services part of ACROPAC or covered by the 1988
Agreement. Judge Gilmore’s summary judgment order is affirmed.
IV. Judge Milloy’s Order Granting Summary Judgment
to CSC on Modeling Royalties
After assuming control of the case pursuant to the
parties’ agreement, Magistrate Judge Milloy rejected Equifax’s
motion for final judgment. Although Judge Gilmore had found in
Equifax’s favor on the decisioning services fee issue, Judge
Milloy’s review of the record and Judge Gilmore’s Order led her to
conclude that the modeling royalties issue remained unresolved.
She then determined that CSC should prevail on this issue and
awarded CSC summary judgment sua sponte. Judge Milloy correctly
found the modeling royalties issue in need of adjudication.
However, because our reading of the Agreement, taken in its
entirety, demands the opposite result, we reverse.
CSC asserts that it need pay only a single charge, the
billable inquiry fee, in return for all of Equifax’s services,
including reports that include a credit score. Judge Milloy agreed
with CSC that the “new product developments” and “system
enhancement” language in Paragraph 4(g) included the credit scoring
models. Based on the same reading of the Agreement applied to the
11
decisioning services issue, we disagree. The credit scoring model
provides a number that a customer may analyze, leaving the
application and final decision as to a specific, potential creditor
to the customer. Thus, credit scoring models, in a similar,
although more nuanced, manner as decisioning services, apply
criteria to the data available on ACROPAC.
To conceptualize the difference, a spectrum is helpful:
on one end of the spectrum are pure, raw data; on the other end is
a complete, finalized credit answer like, “Lend Jane Doe $12,000.”
In this view, the scoring model is closer to “raw data” on the
spectrum than decisioning services. Nevertheless, the credit
scoring reports require the application of several analytical steps
to the raw data; this process takes the credit scoring reports
beyond the scope of ACROPAC and, thus, the Agreement. The
affidavit of CSC’s own witness confirms this understanding: the
credit scoring reports involve analysis of the data contained
within ACROPAC. See R. vol. 7 at 725-36. Nothing in Paragraph
4(g) requires Equifax to provide CSC with any “new” or “enhanced”
product beyond the scope of ACROPAC. Therefore, the credit scoring
models, which are separate products from ACROPAC, do not fall under
this provision.
The credit scoring models were thus subject to royalty
charges as provided by Paragraph 8(c) of the Agreement. See R.
vol. 8 at 310. This provision allows Equifax, in its sole
discretion, to impose royalty fees for services provided beyond
12
access to ACROPAC.5 Equifax has exercised this discretion before.
When a customer seeks Beacon Scores, for example, a royalty is
charged. CSC has not disputed these charges, but now claims that
Equifax cannot impose similar charges for its own scoring models.
CSC’s sole reliance for this distinction is on the “new product
development” and “system enhancement” language, which we have
determined does not apply to this service. We therefore reverse
that part of the judgment that favored CSC on this issue and remand
for further proceedings.
V. Judge Milloy’s Order Denying CSC’s Motion
for Reconsideration
After prevailing on the issue of modeling royalties, CSC
moved for reconsideration of the platform fee issue based on new
evidence. Judge Milloy denied this motion. Because the court did
not abuse its discretion in denying this motion, we affirm. See
Lake Hill Motors, 246 F.3d at 757.
Hoping to persuade Judge Milloy to overturn Judge
Gilmore’s Order, CSC moved for reconsideration based on new
evidence, namely, a contract between Equifax and DealerTrack.Com,
another credit reporting company. See R. vol. 2 at 1753-66. This
contract also referenced ACROPAC. However, the contract is between
Equifax and a third party, uses different terms, and was drafted 14
years after the Agreement at issue here. Even assuming that this
5
This discretion is not unfettered. Any alteration in the cost
allocation must be applied equally to all of Equifax’s affiliates and
subsidiaries.
13
contract is probative, it constitutes parol evidence. Because CSC
stipulated (as did Equifax) that the Agreement is unambiguous, this
contract is inadmissible under the Texas parol evidence rule. Sun
Oil Co. v. Madeley, 626 S.W.2d 726, 732 (Tex. 1981). Inadmissible
evidence cannot be used to support a motion for summary judgment,
so Judge Milloy rightly rejected the introduction of this evidence.
See Instone Travel Tech Marine & Offshore v. Int’l Shipping, 334
F.3d 423, 431 (5th Cir. 2003).
VI. Conclusion
For the reasons stated above, we AFFIRM IN PART, and
REVERSE and REMAND IN PART, all in favor of Equifax. Because we
reverse the award of partial summary judgment to CSC by the
district court, the order awarding attorneys’ fees to CSC is
similarly REVERSED.
AFFIRMED IN PART; REVERSED AND REMANDED IN PART.
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