TEXAS COURT OF APPEALS, THIRD DISTRICT, AT AUSTIN
NO. 03-17-00483-CV
Integrity Global Security, LLC, and Green Hills Software, Inc., Appellants
v.
Dell Marketing L.P., Dell Federal Systems, L.P., and Dell Products, L.P., Appellees
FROM THE DISTRICT COURT OF TRAVIS COUNTY, 345TH JUDICIAL DISTRICT
NO. D-1-GN-16-000345, HONORABLE JAN SOIFER, JUDGE PRESIDING
OPINION
Appellants Integrity Global Security, LLC, and Green Hills Software, Inc.,
(collectively, “IGS”)1 sued appellees Dell Marketing L.P., Dell Federal Systems, L.P., and Dell
Products, L.P., (collectively, “Dell”) for breach of contract. Dell answered, asserting several
affirmative defenses and an alternative counterclaim for fraudulent inducement. Dell moved for
summary judgment, and the trial court granted the motion, dismissing IGS’s claims against Dell.
On appeal, IGS argues that the trial court erred in granting Dell’s motion for summary judgment, in
refusing to rule on IGS’s objections to Dell’s summary judgment evidence, in refusing to grant IGS’s
1
We refer to appellants collectively as IGS for ease of discussion. However, there are
several related entities involved in this case—Integrity Global Security, LLC, Green Hills Software,
Inc., appellants and plaintiffs below, and Integrity Global Security Systems, LLC, formed in 2008
as a subsidiary of Green Hills Software to develop and sell Security software based on Green Hills’
technology. We will specify the individual entity only if necessary for clarity.
motion to amend its original petition, and in refusing to grant IGS’s motion for new trial. We will
affirm in part and reverse in part the trial court’s granting of summary judgment.
Factual and Procedural Background
IGS makes software for the storage and use of classified or otherwise sensitive
information—such software systems are called multi-level security solutions, or MLS
solutions. IGS developed and sold security solutions based on a “Real Time Operating System” that
was certified in 2008 for the highest level of security classification by the National Security Agency.
In 2008 and 2009, Dell and IGS discussed developing and selling a MLS solution that
integrated IGS’s technology with Dell’s computers—the Dell/Integrity Secure Consolidated Client.
The parties sought to develop two versions of the software platform—one for general-purpose
commercial and governmental computing (“Integrity PC”) and one that would be certified at “PL4
or . . . Top Secret level”2 and that would be marketed to governmental entities that had to store, use,
and communicate classified information (“Integrity CSE”). When referring to the two versions of
the software platform collectively, we will follow the parties’ lead and use “Integrity Enterprise.”
In May 2009, Dell and IGS signed a three-year contract under which they agreed to
work together to develop and market Integrity Enterprise to “governmental and general purpose
enterprise computing.” IGS agreed to pursue Top Secret certification under a timetable set out in
the agreement, while Dell agreed to provide IGS access to Dell’s source code “so that IGS can work
2
“PL4” is “Protection Level 4” security certification. PL certification goes from PL1 to PL5,
with PL5 being the highest level, and the level of certification required by a governmental entity
varies depending on the sensitivity of the information the entity has to store and use. Under the
contract, “Top Secret” is defined as a security level of PL4 or higher.
2
toward achieving desired certifications.” Dell obtained “Top Secret Exclusivity,” which was defined
as the exclusive, non-transferrable right to sell Integrity CSE to any “Top Secret Accounts” in the
United States or to “the United States Government Top Secret Accounts worldwide.” In exchange
for Top Secret Exclusivity, Dell agreed to pay IGS a “minimum license commitment” (“MLC”) of
$66 million over the three-year term, made in quarterly payments (“MLC payments”).3 In September
2009, IGS learned that the relevant BIOS4 was programmed and/or maintained in China and that Dell
could not provide the source code. Because of those circumstances, Integrity CSE was ineligible for
PL5 certification, and the parties instead decided to seek PL4 certification.
In June 2010, the parties terminated the original agreement and entered into an
Amended and Restated Global Alliance Agreement (“the Agreement”). The Agreement provided
that Dell would pay a slightly higher MLC—$66,230,000 total—in exchange for Top Secret
Exclusivity. Dell could terminate for “convenience and without cause” with thirty days’ notice on
January 28, 2011, or with ninety days’ notice thereafter, and IGS was allowed to terminate Dell’s
Top Secret Exclusivity if Dell had not sold a certain number of Integrity CSE licenses by certain
dates. The Agreement provided that if a “termination event” by Dell or IGS occurred, “Dell’s MLC
shall terminate” and Dell would pay a prorated MLC payment for any “partial quarter shortened due
to the termination.” The Agreement further stated that if Integrity CSE “loses its Top Secret
3
MLC is defined as “the minimum dollar value of” the license and maintenance fees Dell
would pay IGS during the term of the contract. Dell had the discretion to determine “[t]he mix of
Integrity PC and Integrity CSE licenses pre-purchased by Dell through payment of the MLC.”
4
BIOS stands for basic input/output system, which essentially is a computer’s software
framework on which other software programs run.
3
certification, accrual of the MLC ceases on the effective date of decertification and commences again
upon recertification, unless otherwise terminated in accordance with this Agreement.”
The parties sought to have Integrity CSE Top Secret certified, but had to obtain a new
governmental sponsor when the original sponsor—the Air Force Research Laboratory—decided it
did not need PL4. As a result, the Integrity CSE was not certified as PL4 in or by August 2010, as
contemplated by the parties. A new governmental sponsor—the National Air and Space Intelligence
Command—was identified in November 2010, and that sponsor added certain requirements for
Integrity CSE and the computers on which it would be installed.
In January 2011, the parties signed Amendment Three to the Agreement (“the
Amendment”). The Amendment provided a three-quarter long “On-Hold Time Frame” from
February 1, 2011, through October 28, 2011. During the On-Hold Time Frame, Dell had “no right
to terminate the Agreement,” but it could terminate the Agreement “for convenience and without
cause, upon not less than thirty (30) days prior written notice to IGS on November 30, 2011,” or with
ninety days notice thereafter. Dell’s quarterly MLC payments during the On-Hold Time Frame were
reduced from $3.75 million to $1.75 million, and Dell agreed to pay those quarterly MLC
installments within thirty days “after the date of delivery of the deliverables” set out in the
Amendment, most of which involved the provision of Integrity CSE “C&A materials”5 or
documentation. The Amendment further provided that because the quarterly payments were each
$2 million less than the payments originally anticipated under the Agreement,“[n]o later than twelve
5
“C&A” is “[c]ertification and accreditation at PL4 or at the Top Secret level or above
if/when such certification is granted by the United States Government.”
4
(12) months after the On-Hold Time Frame expires or is terminated, Dell, shall pay to IGS the
difference between the MLC payments for each Period during the On-Hold Time Frame . . . and the
MLC payments actually made by Dell to IGS during the On-Hold Time Frame.”
In mid-August 2011, Dell emailed IGS notice that it would be “suspending MLC
payments until we obtain PL4 certification” and that it would continue with its sales efforts based
on the “PL3 that we’ve just obtained.” In its notice, Dell expressed concerns that Integrity CSE
would not achieve Top Secret certification and that Dell would therefore be unable to sell it to Top
Secret Accounts, “which effectively nullifies the Top Secret Exclusivity.” Dell referenced the
Agreement’s provision that stated that MLC would cease to accrue if Integrity CSE loses Top Secret
certification, stating that “this clause, and Dell’s obligation to pay the MLC, presupposes that
Integrity CSE actually obtained a Top Secret certification. Again, the principal basis for the MLC
payments is Top Secret exclusivity, and if the Integrity CSE is not Top Secret certified, the purpose
of the Agreement is commercially frustrated and fails for lack of consideration.” Dell explained that
it would discontinue its MLC payments until Integrity CSE attained Top Secret certification, at
which time it would recommence its payments.
IGS responded, disagreeing that Dell could suspend its payment obligations and
noting that Dell had agreed to the On-Hold Time Frame, during which Dell’s sales obligations were
suspended and its MLC payments were reduced. IGS stated that it had met its deliverable
requirements as set out in the Amendment and that the Amendment required Dell to make its MLC
payments within thirty days of IGS satisfying its deliverable requirements. IGS also asserted that
none of the MLC payments “are conditional on the achievement of top secret certification.” IGS
5
stated that it wanted to continue working with Dell on Integrity Enterprise and expressed confidence
that “this misunderstanding will be cleared up before the next payment is due.”
On October 28, 2011, Dell sent IGS notice that it was terminating the Agreement
without cause effective November 20, 2011. In August 2015, IGS sued Dell in federal court, but that
suit was dismissed for lack of diversity of citizenship in December 2015. See 28 U.S.C. § 1332. In
January 2016, IGS filed the underlying suit in Travis County, asserting that Dell had breached the
contract in failing to make three specific MLC payments—$1.75 million due under the third
amendment on October 28, 2011, $1.25 million due November 30, 2011,6 and $6 million due
October 28, 2012. It further claimed that Dell had breached the contract by terminating it in October
2011 and by telling would-be customers that Integrity Enterprise was not commercially viable. IGS
alleged damages “in an amount believed to exceed $9,000,000.”
Dell filed a traditional motion for summary judgment asserting: that IGS’s claim for
breach of contract failed because Dell terminated the contract effective October 28, 2011, relieving
it of the obligation to make the $6 million MLC payment due under the Amendment on October 28,
2012; that IGS could not seek any other damages beyond those three MLC payments because it had
conceded in discovery that the only damages it sought were those three payments; that the Delaware
three-year statute of limitations on claims for breach of contract applied to bar IGS’s claims; and that
Delaware law barred IGS’s claim for attorney’s fees.7 In its summary judgment response, IGS
6
IGS sought the $1.25 million for November 2011, “assuming, arguendo, that the
[Agreement] was terminated as of October 28, 2011.”
7
Dell initially also argued that its MLC payment obligation was dependent on Integrity CSE
obtaining Top Secret certification, which never happened, and thus Dell did not owe IGS the $1.75
million due October 28, 2011, or the $1.25 million due November 30, 2012. In its reply to IGS’s
6
argued that Texas’s four-year statute of limitations applied, not Delaware’s; that Dell breached the
contract by suspending its MLC payments and refusing to pay IGS; that Dell sought to rely on
inadmissable parol evidence; and that IGS’s claims against Dell did not accrue until thirty days after
it sent Dell a demand letter in January 2012. The trial court held a hearing on Dell’s motion on
March 28, 2017.
About a month later, on April 26, IGS filed a motion for leave to file an amended
petition, stating that in his deposition in mid-April, Frank Muehleman, former General Manager of
Dell Federal, testified that he had terminated the Agreement in August 2011. IGS argued that if the
Agreement had been terminated in August 2011, it “could not be terminated without cause at the end
of November 2011.” IGS asked for leave to amend its petition to allege that “Dell terminated the
Agreement in early August 2011 for cause,” in violation of and “contrary to the terms of” the
Amendment, amounting to breach of contract or wrongful termination of the contract. On May 5,
the trial court signed its order granting Dell’s motion for summary judgment “on all grounds”
without having ruled on IGS’s motion for leave to amend. IGS filed a timely motion for new trial,
in which it noted that its motion was still pending, as was its “Request for Ruling, or in the
Alternative, Request for Hearing to Argue Pending Evidentiary Objections,” which objected to
Dell’s summary judgment evidence. IGS asserted that Muehleman’s deposition had provided newly
discovered evidence of additional breaches of the Agreement and Amendment. The trial court did
not rule on IGS’s motion for new trial, which was overruled by operation of law, see Tex. R. Civ.
summary judgment response, however, Dell withdrew that argument, conceding “that IGS has likely
created disputed issues of fact that foreclose Dell’s argument that IGS’s claims for the $1.75 and
$1.25 million MLC payments fail as matter of law.”
7
P. 329b(c), nor does it appear to have ruled on IGS’s evidentiary objections or its motion for leave
to amend.
IGS argues that the trial court erred in granting Dell’s motion for summary judgment.
It argues that there were genuine issues of material fact as to whether Dell properly suspended the
$1.75 million and $1.25 million payments due in October and November 2011 and whether the $6
million payment due in October 2012 was a “new” MLC or a preexisting obligation that survived
the termination of the Agreement. IGS further contends that Dell’s arguments related to limitations
are incorrect and could not be proper grounds for summary judgment and that the evidence raised
questions about whether Dell terminated the contract in August 2011, rendering the October 28,
2011 termination letter a nullity, or was estopped from terminating the contract by its representations
in August that it intended to continue working with IGS on the project. IGS also asserts that the trial
court erred in refusing to rule on its objections to Dell’s summary judgment evidence and on its
motion for leave to amend its petition and in refusing to grant its motion for new trial.
$6 Million MLC Payment
We first consider the parties’ arguments related to the $6 million payment. In
reviewing a trial court’s granting of summary judgment, we consider whether the movant showed
that it was entitled to judgment as a matter of law, taking as true all evidence favorable to the
non-movant and indulging reasonable inferences and resolving doubts in its favor. Community
Health Sys. Prof’l Servs. Corp. v. Hansen, 525 S.W.3d 671, 680 (Tex. 2017). The Agreement’s
choice-of-law provision requires us to apply the substantive law of Delaware in interpreting the
8
contract.8 See Arkoma Basin Expl. Co. v. FMF Assocs. 1990-A, Ltd., 249 S.W.3d 380, 387 & n.17
(Tex. 2008); HealthTronics, Inc. v. Lisa Laser USA, Inc., 382 S.W.3d 567, 576 (Tex. App.—Austin
2012, no pet.).
Dell asserted in its motion for summary judgment that when it terminated the contract
in October 2011, effective November 30, 2011, its obligation to make further MLC payments,
including the $6 million payment due in October 2012, also terminated. IGS, on the other hand,
insists that the $6 million MLC payment was “an existing obligation to pay the full MLC due” during
the On-Hold Time Frame and not a “new” MLC that could be terminated along with the Agreement.
IGS argues that Dell was required to pay MLC sums as set forth in Table 2 of the Agreement and
that the Amendment did not alter that table but instead merely put the “date of payment for the $6
million earned during [the On-Hold Time Frame] . . . on hold for one year.” Because the $6 million
was due under the Agreement, IGS contends, it survived Dell’s termination of the Agreement. Based
on the plain language of the Agreement and Amendment, we cannot agree.
The Agreement provides that “[t]he validity, construction, scope and performance of
the Agreement shall be governed by the laws of the State of Delaware, without giving effect to any
choice of law rules that may require the application of the laws of another jurisdiction.” Under
Delaware law, as in Texas, when “the plain language of a contract is unambiguous i.e., fairly or
reasonably susceptible to only one interpretation, we construe the contract in accordance with that
plain meaning and will not resort to extrinsic evidence to determine the parties’ intentions.” BLGH
8
The applicable limitations period in light of the Agreement’s choice-of-law provision is
discussed later in this opinion.
9
Holdings LLC v. enXco LFG Holding, LLC, 41 A.3d 410, 414 (Del. 2012). A contract is not
ambiguous simply because the parties disagree on its interpretation but when its language can fairly
or reasonably be given different interpretations or may have multiple meanings. Rhone-Poulenc
Basic Chems. Co. v. American Motorists Ins. Co., 616 A.2d 1192, 1196 (Del. 1992). A contract is
unambiguous if we can determine its meaning with only knowledge of the basic facts on which its
meaning depends. Id. “The true test is not what the parties to the contract intended it to mean, but
what a reasonable person in the position of the parties would have thought it meant.” Id.
IGS argues that the Amendment did not change Table 2 of the Agreement, which it
contends provided that IGS “earned” the $6 million during the On-Hold Time Frame in exchange
for granting Dell Top Secret Exclusivity during that time. Because the deferred $6 million was “due
under Table 2,” IGS argues, that obligation survived Dell’s termination of the contract.
The contract, when read as a whole, explicitly provides that Dell’s MLC obligation
was divided into payments through the term of the contract and that those payments would cease
upon termination of the contract. Although Dell agreed to pay $6 million a year after the On-Hold
Time Frame ended, the Agreement also provided that upon termination of the contract, “Dell’s MLC
shall terminate,” and the Amendment explicitly included a date of possible termination. The parties
thus appear to have contemplated that the contract might end before its intended three-year term, and
the Amendment does not state that the deferred $6 million was owed regardless of contract
termination. We construe the plain language of the contract to mean both that the $6 million MLC
was deferred while the parties continued to work on the project and achieving Top Secret
certification and that Dell’s obligation to make that payment ended when it terminated the contract.
10
This construction follows from the four corners of the contract. See BLGH Holdings, 41 A.3d at
414. Based on the summary judgment evidence before the trial court at the time it signed its order,
the court properly granted Dell summary judgment as to the $6 million MLC payment.9
9
IGS also argues that it produced evidence that Dell wrongfully breached the contract in
August 2011, pointing to deposition testimony by Frank Muehleman. Muehleman was asked about
Dell’s August 11 email stating that Dell was going to withhold its MLC payments and that if
Integrity CSE was not Top Secret certified, that fact “effectively nullifies Top Secret Exclusivity.”
Muehleman was asked whether that letter released IGS from the Top Secret Exclusivity
arrangements so that it could sell to other buyers, and he answered:
Well, at this point we’re terminating the contract. We don’t have a PL4 solution, so,
you know, the—at this point I think the contract is gone. Now, if . . . at this point
IGS went and turned around to HP and said, Hey, we’ve got a PL4 product and we’re
ready to go, I would have been royally pissed off, right, because at this point they’re
telling me they—they aren’t there and they’re going to have trouble getting there and
it’s going to be a long period. So, . . . we’re terminating at this point because of an
inability to deliver a product that we could jointly sell; and if you’re asking, well,
does that mean they can go on and sell to someone—to someone else, the technical
answer is yeah, but ethically they just told me they couldn’t deliver the product.
IGS insists that Muehleman’s testimony conflicted with Dell’s assertions that it merely suspended
its MLC payments until its October 28, 2011 termination letter; that Dell wrongfully terminated the
contract in August, during the On-Hold Time Frame; and that Dell was estopped from terminating
the Agreement in October. See Wilson v. American Ins. Co., 209 A.2d 902, 903-04 (Del. 1965)
(estoppel may arise if party’s conduct leads another to change position to his detriment).
Even if it were proper to consider Muehleman’s testimony in reviewing the granting of
summary judgment related to an unambiguous contract, see BLGH Holdings LLC v. enXco LFG
Holding, LLC, 41 A.3d 410, 414 (Del. 2012) (courts should not resort to extrinsic evidence to
determine parties’ intent related to unambiguous contract), asked whether the August 11 letter was
a termination or suspension letter, Muehleman said that it was “probably” a suspension letter and
that he was trying to stop paying for licenses. He also said that if the product obtained Top Secret
certification, “I believe we were all in agreement that we would continue, but at this point we’re
saying you need—you know, this is now step-up time.” Further, Muehleman’s statements appear
to be subjective statements of his opinion, not of Dell’s official stance, particularly in the context of
his other testimony. Muehleman’s testimony does not establish that Dell attempted to terminate the
contract in August or misled IGS into continuing under the contract while intending to terminate—it
establishes that Dell had serious concerns about the viability of the project.
11
$1.75 and $1.25 Million MLC Payments
We next consider whether the trial court properly granted summary judgment as to
the $1.75 million due October 28, 2011, and $1.25 million due November 30, 2011. Dell argues that
IGS’s claims related to those payments were brought too late and are barred by limitations.
1. Does Texas’s or Delaware’s Statute of Limitations Apply?
The Agreement provides, “The validity, construction, scope and performance of the
Agreement shall be governed by the laws of the State of Delaware, without giving effect to any
choice of law rules that may require the application of the laws of another jurisdiction.” The
provision goes on to specify that if IGS is the first party to file suit, it was to sue “in the Texas State
or Federal Court in Travis County,” whereas a suit brought by Dell would be filed in “a California
State Court in Santa Barbara County, California,” or in a federal court in Los Angeles, if the suit
included claims “with exclusive Federal jurisdiction.”
IGS argues that we should follow the general rule related to choice-of-law provisions,
under which we apply the chosen state’s law to substantive questions and Texas law to procedural
matters. Arkoma Basin Expl. Co., 249 S.W.3d at 387 & n.17; Lisa Laser, 382 S.W.3d at 576.
“[W]hat is a matter of substance and what is a matter of procedure is determined by the law of the
forum state.” Brandon v. Ivie, No. 12-17-00344-CV, 2018 WL 4212883, at *2 (Tex. App.—Tyler
Aug. 22, 2018, no pet.) (mem. op.); PennWell Corp. v. Ken Assocs., Inc., 123 S.W.3d 756, 764 (Tex.
App.—Houston [14th Dist.] 2003, pet. denied). Procedural matters include standards of review,
preservation of error, and admissibility of evidence. Lisa Laser, 382 S.W.3d at 576; see Autonation
Direct.com, Inc. v. Thomas A. Moorehead, Inc., 278 S.W.3d 470, 472 (Tex. App.—Houston [14th
12
Dist.] 2009, no pet.). Dell, on the other hand, argues that by choosing the language used in the
choice-of-law provision, “the parties made clear that they intended for Delaware law to apply broadly
to matters relating to their agreement and that any general choice of laws rules that may require the
application of the laws of another jurisdiction should not be given effect.” Therefore, it argues,
Delaware’s three-year statute of limitations should be applied, see Del. Code § 8106, making IGS’s
claims as to the October and November 2011 MLC payments brought too late.
In Texas, “[s]tatutes of limitations are procedural.” Baker Hughes, Inc. v. Keco R.
& D., Inc., 12 S.W.3d 1, 4 (Tex. 1999). Delaware law similarly states that “choice-of-law provisions
in contracts do not apply to statutes of limitations, unless a provision expressly includes it. If no
provision expressly includes it, then the law of the forum applies because the statute of limitations
is a procedural matter.” Pivotal Payments Direct Corp. v. Planet Payment, Inc.,
No. CVN15C02059EMDCCLD, 2015 WL 11120934, at *3 (Del. Super. Ct. Dec. 29, 2015); see
American Energy Techs., Inc. v. Colley & McCoy Co., No. CIV. A. 98-398 MMS, 1999 WL 301648,
at *2 (D. Del. Apr. 15, 1999) (“Choice of law provisions in contracts are generally understood to
incorporate only substantive law, not procedural law such as statutes of limitation.”); Lumb v.
Cooper, 266 A.2d 196, 198 (Del. Super. Ct. 1970) (“limitations questions are generally settled by
the law of the forum”).
The Agreement’s choice-of-law provision does not expressly state that it is intended
to require the application of Delaware law to issues such as statutes of limitations or other procedural
matters, and we therefore apply Texas’s four-year statute of limitations. See Tex. Civ. Prac. & Rem.
Code § 16.004; B.E. Capital Mgmt. Fund LP v. Fund.com Inc., 171 A.3d 140, 147 (Del. Ch. 2017)
13
(choice-of-law provision did not expressly state that parties intended to apply New York’s statute
of limitations, and court thus applied Delaware’s statute of limitations).
2. When Did The Claims Accrue?
We next consider when IGS’s claims related to those two payments accrued. IGS
asserts that under the terms of the Agreement, they accrued on February 8, 2012, while Dell insists
that they accrued on October 28 and November 30, 2011. The party seeking summary judgment on
limitations must prove that the nonmovant’s cause of action accrued outside the applicable
limitations period. ExxonMobil Corp. v. Lazy R Ranch, LP, 511 S.W.3d 538, 542 (Tex. 2017);
Burns v. Thomas, 786 S.W.2d 266, 267 (Tex. 1990). It was therefore Dell’s burden to establish as
a matter of law when IGS’s claims accrued.
“A cause of action generally accrues when facts come into existence that authorize
a claimant to seek a judicial remedy.” Provident Life & Accident Ins. Co. v. Knott, 128 S.W.3d 211,
221 (Tex. 2003); see Gabriel v. Alhabbal, 618 S.W.2d 894, 896 (Tex. App.—Houston [1st Dist.]
1981, writ ref’d n.r.e.) (“A cause of action does not accrue until facts exist which authorize the
claimant to seek relief in a court of competent jurisdiction from the person due to make reparation.”).
In general, a claim for breach of contract accrues when the contract is breached. Stine v. Stewart,
80 S.W.3d 586, 592 (Tex. 2002); see E.P. Towne Ctr. Partners, L.P. v. Chopsticks, Inc., 242 S.W.3d
117, 123 (Tex. App.—El Paso 2007, no pet.) (“A party breaches a contract by failing to perform
when that party’s performance is due.”); TeleVentures, Inc. v. International Game Tech., 12 S.W.3d
900, 910 (Tex. App.—Austin 2000, pet. denied) (“if there was a breach, it occurred when and where
IGT ceased its performance of the contract”); see also Worrel v. Farmers Bank of State of Del., 430
14
A.2d 469, 472 (Del. 1981) (claim for breach of contract accrues when contract is broken, not when
actual damages result or are discovered). “For breach of contracts requiring fixed, periodic
payments, Texas law is clear that a separate cause of action arises for each missed payment.” F.D.
Stella Prods. Co. v. Scott, 875 S.W.2d 462, 465 (Tex. App.—Austin 1994, no writ); see Hooks v.
Samson Lone Star, Ltd. P’ship, 457 S.W.3d 52, 68 (Tex. 2015); Townewest Homeowners Ass’n, Inc.
v. Warner Commc’n Inc., 826 S.W.2d 638, 640 (Tex. App.—Houston [14th Dist.] 1992, no writ).
However, if a demand is an integral part of or a condition precedent to the right to sue on a claim for
breach of contract, limitations generally do not begin to run until a demand is made unless it is
waived or unreasonably delayed. Wiman v. Tomaszewicz, 877 S.W.2d 1, 5 (Tex. App.—Dallas 1994,
no writ); Gabriel, 618 S.W.2d at 896.
Paragraph 8.2 of the Agreement states:
8.2 In the event the Parties are unable to resolve the Dispute within thirty days of
notice of the Dispute to the other Party, the Parties shall be free to pursue all
remedies available at law or in equity.
IGS asserts that under paragraph 8.2, its claims did not accrue until February 8, 2012, thirty days
after it sent Dell a letter requesting mediation of the payment dispute. Dell, on the other hand, argues
that the claims accrued on October 28 and November 30, 2011, the dates the payments were
allegedly due, noting that paragraph 8.1 contemplates that limitations would run during the parties’
attempts to avoid litigation.10
10
Paragraph 8.1 provides:
8.1 Regarding disputes related to the Agreement, the Parties will attempt to resolve
any claim, difference, dispute or controversy (whether in contract, tort or otherwise)
against the other party . . . arising out of or relating to the Agreement . . . through face
15
This is not a case in which the contract makes demand—in the form of notice of a
dispute—a condition precedent to filing suit. See Cummins & Walker Oil Co. v. Smith, 814 S.W.2d
884, 887 (Tex. App.—San Antonio 1991, no writ) (“[W]here the parties so frame their contract as
to make prior demand an integral part of a cause of action or a condition precedent to a right to sue,
the statute of limitations does not begin to run until demand is made. Limitations will run from the
date of demand or refusal.”). Instead, IGS’s claims related to the $1.75 million and $1.25 million
MLC payments accrued on their due dates. See Hooks, 457 S.W.3d at 68; Scott, 875 S.W.2d at 465.
3. Tolling Under Section 16.064(a)
IGS next argues that if its claims accrued on October 28 and November 30, 2011,
limitations were tolled under section 16.064(a) of the civil practice and remedies code. See Tex. Civ.
Prac. Rem. Code § 16.064(a).11 Dell contends that section 16.064(a) does not apply because IGS’s
federal filing was made with intentional disregard for the federal court’s diversity jurisdiction.
to face negotiation . . . or through mediation . . . rather than through litigation. . . .
Notwithstanding the foregoing, either Party will have the right to obtain from a court
of competent jurisdiction a temporary restraining order, preliminary injunction, or
other equitable relief to prevent irreparable harm, avoid the expiration of any
applicable limitations period, or preserve a superior position with respect to other
creditors, although the merits of the underlying Dispute will be resolved in
accordance with this paragraph.
11
The period between the filing an action in a trial court and a second filing of the same
action in a different court suspends the running of limitations during that period if the first action
was, as applicable here, dismissed due to lack of jurisdiction and the second suit is filed within sixty
days “in a court of proper jurisdiction.” Tex. Civ. Prac. & Rem. Code § 16.064(a).
16
See id. § 16.064(b) (“This section does not apply if the adverse party has shown in abatement that
the first filing was made with intentional disregard of proper jurisdiction.”).
IGS filed its claim for breach of contract in federal court in August 2015, within four
years of the alleged breaches. That suit was dismissed on December 14, 2015, and IGS filed the
underlying suit within sixty days. In its motion for summary judgment, Dell argued that section
16.064(a) did not toll limitations because “IGS intentionally, or at the very least negligently, made
its original filing in the wrong court,” pointing as evidence of that intentional or negligent behavior
to IGS’s petition in the federal case and the federal court’s order of dismissal.
In IGS’s federal pleading, it stated that Integrity Global Security, LLC is “a Delaware
limited liability company with its principal of business in Santa Barbara, California,” and “wholly
owned by Plaintiff Green Hills Software, Inc.,” and that Green Hills Software, Inc. is “a Delaware
corporation with its principal place of business in Santa Barbara, California.” In its listing of the
defendants, it alleged that Dell Marketing, L.P. “is a Texas limited partnership with its principal
place of business in Round Rock, Texas,” that Dell Federal Systems, L.P. “is a Texas limited
partnership with its principal place of business in Round Rock, Texas, and that Dell Products, L.P.
“is a Texas limited partnership with its principal place of business in Round Rock, Texas.”
In the federal court’s order of dismissal, the court noted that the citizenship of a
limited partnership “is determined by the citizenship of all its members.” The court stated that Dell
had produced documents on file with the Texas Secretary of State showing that Dell Marketing’s
general partner “is Dell Marketing GP, LLC which is identified as a foreign company in the
jurisdiction of Delaware,” and that Dell Marketing GP, LLC “is identified as owned by Dell
17
Marketing Corp. which was formed in Delaware”; that Dell Federal’s general partner “is Dell
Federal Systems GP, LLC which is identified as a foreign company in the jurisdiction of Delaware,”
and that Dell Federal Systems GP, LLC “is identified as owned by Dell Federal Systems Corp. which
was formed in Delaware”; and that Dell Product’s general partner “is Dell Products GP, LLC which
is identified as a foreign company in the jurisdiction of Delaware,” and that Dell Products GP, LLC
“is identified as owned by Dell Products Corp. which was formed in Delaware.” The court explained
that IGS’s “focus on the state of formation of a partnership is misplaced” and disagreed with IGS’s
assertion that the citizenship of the various Dell entities was unclear because all of the entities have
Texas addresses and list Texas residents as officers. It also disagreed with IGS that there were
internal inconsistencies in Dell’s filings with the Secretary of State, relying on a declaration by
Christopher R. Stidvent, an attorney for Dell, who “confirms the ownership structure of Defendants.”
The court stated that IGS’s challenges to the filed documents “ignore the evidence presented by
Stidvent confirming the citizenship of Defendants.” The court concluded that IGS had not carried
its burden of distinctly and affirmatively alleging the parties’ citizenship. See Getty Oil Corp. v.
Insurance Co. of N. Am., 841 F.2d 1254, 1259 (5th Cir. 1988).
In its motion for summary judgment, Dell referred to IGS’s federal petition and the
federal dismissal order and asserted that IGS “is charged with knowledge of the law,” that its federal
petition “establishe[d] that IGS failed to allege the citizenship of each” Dell entity, that the petition’s
listing of the IGS entities’ ownership structure “demonstrat[ed] that IGS understood how to properly
allege citizenship for an entity such as a limited liability company or a partnership,” and that IGS
“could easily have known the ownership structure of the Dell entities because that information was
18
publicly available on the Texas Secretary of State’s website.” Thus, Dell contended, IGS
“intentionally or negligently” misfiled its original suit in federal court, and section 16.064 did not
toll limitations.
On appeal, Dell asserts that even if IGS was mistaken about how to allege the
citizenship of a limited partnership or made any other mistake of law, IGS is “charged with
knowledge of the law” and the lack of the necessary citizenship allegations in IGS’s federal petition
“establishes IGS’s disregard for proper jurisdiction.”12 It also notes that the supreme court has held,
“Once an adverse party has moved for relief under the ‘intentional disregard’ provision, the
nonmovant must show that he did not intentionally disregard proper jurisdiction when filing the case.
12
Dell points to Parker v. Cumming, 216 S.W.3d 905 (Tex. App.—Eastland 2007, pet.
denied), and French v. Gill, 252 S.W.3d 748 (Tex. App.—Texarkana 2008, pet. denied), to support
its assertion that any mistake related to pleading citizenship in a federal petition is immaterial
because IGS was “charged with knowledge of the law.” The facts presented in this case, however,
are distinguishable from those in Parker and French.
In Parker, the petition filed in the first lawsuit plainly showed the jurisdictional issue at the
outset, and the plaintiff did not create a fact question as to an intentional disregard of jurisdiction,
despite the issue being pointed out by the defendants. 216 S.W.3d at 911. In French, the plaintiffs
sued in federal court under diversity jurisdiction; added two non-diverse defendants; and when the
federal court disallowed the amended pleading, sued the non-diverse defendants in state court.
252 S.W.3d at 750. Because the attempted amended petition stated outright that the new defendants
would defeat federal jurisdiction—indeed, the federal court denied leave to file the amended petition
because the additional defendants “were clearly added solely for the purposes of defeating diversity
jurisdiction”—the plaintiffs could not rely on section 16.064 because their attorney was charged with
knowledge of the law, there was no indication of any mistaken understandings of fact, and the
evidence instead showed that his filing was made in intentional disregard of the federal court’s
jurisdiction. Id. at 752, 756-57.
Here, by contrast, IGS’s federal petition, although not fully pleading citizenship of the Dell
entities, does not on its face show a lack of diversity jurisdiction or other jurisdictional defect, nor
does the evidence contain indications that IGS knew diversity jurisdiction did not exist.
19
As it is the nonmovant who has this information, he should bear the burden of producing it.” In re
United Servs. Auto. Ass’n, 307 S.W.3d 299, 312 (Tex. 2010) (orig. proceeding).
A mistake of law may be a sufficient excuse under section 16.064, which “was drafted
precisely because capable lawyers often make good faith mistakes about the jurisdiction of Texas
courts,” although it does not protect a plaintiff who misfiles as a part of a “strategic decision to seek
relief” from a court that lacked jurisdiction.13 Id. at 313 (cleaned up).
It is true, as Dell notes, that a party suing in federal court under diversity jurisdiction
must distinctly and affirmatively allege the citizenship of the parties, which, for a limited
partnership, is “that of all its partners, general and limited.” Mullins v. Testamerica Inc., 300 F.
App’x 259, 259-60 (5th Cir. 2008). It is also true that IGS’s federal petition contained incomplete
allegations of citizenship. However, a mere mistake as to federal jurisdiction is not enough to satisfy
13
In In re United Services Automobile Association, the plaintiff filed his original suit in a
county court at law, alleging that he sought damages in excess of the statutory minimum but omitting
the required allegation that his damages were below the $100,000 statutory maximum. 307 S.W.3d
299, 305 (Tex. 2010) (orig. proceeding). USAA filed a plea to the jurisdiction noting that omission,
and the plaintiff amended his petition to allege damages exceeding $1 million. Id. After a jury
awarded the plaintiff more than $900,000, USAA appealed, and the supreme court reversed on
grounds that the amount in controversy at the time the plaintiff filed suit exceeded the county court
at law’s jurisdiction. Id. The plaintiff then filed his suit in a district court, and USAA filed another
plea to the jurisdiction, asserting the plaintiff could not rely on section 16.064(a) for limitations
tolling because the original suit had been filed with intentional disregard for jurisdiction, and sought
mandamus relief when the district court denied the plea. Id. The supreme court agreed, stating that
the plaintiff could not rely on section 16.064 because the original suit “unquestionably sought
damages in excess of” the county court’s jurisdictional cap. Id. at 313. The supreme court noted that
the original petition omitted the required allegation about maximum damages, that the plaintiff had
never contended that he was unaware of or confused about the county court’s jurisdictional limits,
and that he instead made a “strategic decision to seek relief” from the county court. Id. In this case,
by contrast, Dell did not unequivocally allege that IGS had intentionally disregarded the federal
court’s jurisdiction, nor does the record establish a strategic decision to file in the federal court in
disregard of jurisdiction.
20
subsection (b). United Servs. Auto. Ass’n, 307 S.W.3d at 313. We note that in dismissing IGS’s
lawsuit, the federal court went into some depth in explaining issues related to the ownership of
limited partnerships and discussed Dell’s filings with the Secretary of State and the attorney’s
declaration about Dell’s citizenship, but in seeking summary judgment, Dell did not provide copies
of the Secretary of State filings and simply asserted that they were “publicly available on the Texas
Secretary of State’s website,” nor did it attach the attorney’s declaration.
Furthermore—and importantly—Dell alleged in its motion for summary judgment
that IGS “intentionally or negligently” filed its suit in federal court. (Emphasis added.) However,
whether IGS was negligent in its federal filing is not the correct standard—section 16.064 required
Dell to “show[] in abatement that the first filing was made with intentional disregard of proper
jurisdiction.” See Tex. Civ. Prac. & Rem. Code § 16.064 (emphasis added); Chacon v. Andrews
Distrib. Co., 295 S.W.3d 715, 722-23 (Tex. App.—Corpus Christi 2009, pet. denied). To hold that
Dell’s allegations of intentional or negligent misfiling, coupled with the evidence discussed above,
triggered a requirement that IGS prove its lack of intentional conduct would eliminate
section 16.064(b)’s requirement that the party seeking to avoid tolling must “show[] in abatement”
the intentional nature of the misfiling. Dell’s allegations thus did not fully invoke section 16.064(b).
The federal dismissal order and IGS’s federal petition together do not show that IGS
intentionally disregarded that court’s jurisdiction in filing its suit, and Dell’s assertion that IGS
intentionally or negligently filed its federal suit did not shift to IGS the burden to produce evidence
that it did not intentionally disregard the federal court’s jurisdiction. See United Servs. Auto. Ass’n,
307 S.W.3d at 312. On this record, Dell did not show as a matter of law that limitations barred
21
IGS’s claims for $1.75 million and $1.25 million. The trial court therefore erred in granting
summary judgment as to those two claims on grounds of limitations.14
IGS’s Other Damages
Dell’s motion for summary judgment asserted that two IGS witnesses testified that
“there were no damages other than the $1.75, $1.25, and $6 million MLC payments” and noted that
the Agreement included a limitation on liability providing that neither party would be liable “for any
indirect, incidental, special, punitive or consequential damages of any type including, without
limitation, lost projects and lost sales, arising out of or in connection with the agreement.” The only
portions of IGS’s summary judgment response that can be read as responding to that argument are:
(1) the statement in its “Summary of the IGS Opposition,” “Whether IGS’ damages are limited to
the three payments as Dell argues depends on the disputed genuine issues of material fact asserted
in IGS’ opposition,” citing to IGS’s original petition; (2) a reference in its “Factual Background”
portion to deposition testimony by Michael Liacko, a former Dell employee, that in January 2012,
Dell contacted potential Integrity CSE customers to tell them that Dell was pulling out of its
arrangement with IGS and to wait for a Dell solution, which “had the effect of killing IGS’
business”; and (3) IGS’s statement that its claims of breach of contract “are not limited, as Dell
argues, to Dell’s failure to make three payments,” and that Dell’s “de facto termination of IGS rights
. . . ruined IGS independent efforts after November 30, 2011 to market and sell its security solution
14
Because we have held that summary judgment was improper as to the October 28 and
November 30, 2011 MLC payments, we need not address IGS’s arguments related to whether Dell
was estopped from withholding those payments by its earlier representations and its alleged wrongful
termination of the contract in August 2011, before it sent its termination letter in October.
22
to Top Secret Accounts and killed its government security business,” citing again to its original
petition. IGS did not refer again to Liacko’s testimony or attempt to explain how it was evidence
of extra-contractual damages for which Dell might be liable. In its arguments, IGS pointed only to
its own petition. See, e.g., Laidlaw Waste Sys. (Dall.), Inc. v. City of Wilmer, 904 S.W.2d 656, 660-
61 (Tex. 1995) (sworn pleadings that “set out in ‘great detail’ the essential facts” might be able to
be used as proof in summary judgment proceeding); Chamie v. Memorial Hermann Health Sys., 561
S.W.3d 253, 256 (Tex. App.—Houston [14th Dist.] 2018, no pet.) (“Pleadings generally are not
proper summary judgment evidence. Chamie offers no explanation as to why this court should treat
his pleadings as summary judgment evidence, and we discern no reason to do so; the pleadings
simply contain Chamie’s allegations in this case and are not evidence. Likewise, we cannot consider
the attachments to Chamie’s brief, as they are not a part of the appellate record.” (citations omitted)).
IGS thus did not counter Dell’s evidence and show that it suffered damages beyond the disputed
MLC payments.
Further, on appeal, the portions of IGS’s briefing related to the damages it might have
suffered outside of the MLC payments state in full:
Liacko, in his deposition testimony explains how Dell, in January 2012, put a stake
in the heart of IGS’s security business.[15] This must be taken as true. This opens up
damages issues which Dell does not attempt to address.
IGS offered Mr. Liacko’s deposition testimony and contemporaneous
correspondence, including Dell communications to potential DISCC [Dell/Integrity
15
IGS points to Liacko’s testimony that in January 2012, a Dell employee “picked up the
phone and called—which we knew because we spoke to the customers and they told us that, and he
confirmed it. And his intent, from what we were told, was to try to create a case to prove that
[Integrity CSE] was commercially not viable. That’s what he was trying to do.”
23
Secure Consolidated Client] customers, evidencing Dell’s successful effort to prevent
IGS from selling DISCC to the DISCC pipeline, resulting in damages exceeding
$9,000,000. This evidence must be taken as true.
Further, if Muehleman’s testimony is believed, Dell’s termination of the Restated
Agreement and Third Amendment breached the Third Amendment and precluded any
right of Dell to terminate the Agreements for convenience and without cause.
Although IGS refers to Liacko’s and Muehleman’s deposition testimony, it does not
explain how IGS suffered recoverable damages beyond the three disputed MLC payments. See Tex.
R. App. P. 38.1(I); Gunn v. McCoy, 554 S.W.3d 645, 677 (Tex. 2018); ETC Mktg., Ltd. v. Harris
Cty. Appraisal Dist., 528 S.W.3d 70, 75-76 (Tex. 2017).
We conclude that the trial court did not err in granting of summary judgment related
to any damages beyond the three disputed MLC payments.
IGS’s Pending Motions
IGS argues that the trial court abused its discretion in not granting its motion for leave
to amend its petition16 and its motion for new trial, both of which rely on what IGS described as
“newly discovered evidence” in the form of deposition testimony by Frank Muehleman.17 It further
16
IGS filed its motion for leave to amend its petition after the hearing on Dell’s motion for
summary judgment but before the trial court signed its order granting summary judgment, pointing
to Muehleman’s deposition, which occurred in the interim. IGS sought to amend its petition to
allege that Dell breached the contract in attempting to terminate the Agreement during the On-Hold
Time Frame and that Dell violated the duty of good faith and fair dealing. IGS asserted that if Dell
had terminated or attempted to terminate the contract in August 2011, that act was a breach of
contract, that Dell’s August representations to IGS that it wanted to continue working together were
misrepresentations on which IGS relied, and that the October 2011 notice of termination was a
nullity. IGS also contended that if Dell wrongfully breached the contract in August 2011, IGS was
entitled to unspecified damages beyond the three MLC payments.
17
A party seeking a new trial on grounds of newly-discovered evidence must show the trial
court that it learned of the evidence since trial, its failure to discover the evidence sooner was not due
24
argues that the court abused its discretion in not ruling on IGS’s pending motion objecting to Dell’s
summary judgment evidence, IGS’s request for ruling on its evidentiary objections, and its motion
to stay.18 However, Dell withdrew its summary-judgment contention that it had shown as a matter
of law that it was entitled to withhold MLC payments until the parties achieved PL4 certification,
which was the argument to which much, if not all, of the disputed evidence was germane. Further,
because we are reversing the granting of summary judgment as to two of the disputed MLC
payments, IGS may reurge and seek rulings on those pending motions, if still relevant. We thus need
not consider these arguments on appeal.
Conclusion
The trial court erred in granting summary judgment as to IGS’s claims for the $1.75
million and $1.25 million MLC payments. We therefore reverse and remand the trial court’s order
granting summary judgment as to those two payments. We affirm the remainder of the court’s
rulings on summary judgment.
to its lack of diligence, and the evidence is not cumulative and would probably produce a different
result on retrial. Waffle House, Inc. v. Williams, 313 S.W.3d 796, 813 (Tex. 2010).
18
A trial court’s decisions on the admissibility of evidence, a motion for leave to amend its
petition, a motion for stay, and a motion for new trial are all reviewed for an abuse of discretion. See
Caffe Ribs., Inc. v. State, 487 S.W.3d 137, 142 (Tex. 2016) (exclusion of evidence); Waffle House,
313 S.W.3d at 813 (motion for new trial); Warner Bros. Entm’t, Inc. v. Jones, 538 S.W.3d 781, 817
(Tex. App.—Austin 2017, pet. filed) (admission of evidence); Silverman v. Johnson, 317 S.W.3d
846, 849 (Tex. App.—Austin 2010, no pet.) (motion to stay); Perez v. Embree Constr. Grp., Inc.,
228 S.W.3d 875, 882-83 (Tex. App.—Austin 2007, pet. denied) (amendment of pleadings).
25
__________________________________________
Jeff Rose, Chief Justice
Before Chief Justice Rose, Justices Kelly and Smith
Affirmed in Part; Reversed and Remanded in Part
Filed: May 17, 2019
26