United States Court of Appeals
For the First Circuit
Nos. 05-1635, 05-1636
TERAGRAM CORPORATION,
Plaintiff, Appellant/Cross-Appellee,
v.
MARKETWATCH.COM, INC.,
Defendant, Appellee/Cross-Appellant.
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MASSACHUSETTS
[Hon. Douglas P. Woodlock, U.S. District Judge]
Before
Lynch, Circuit Judge,
Bowman,* Senior Circuit Judge,
and Howard, Circuit Judge.
Lee T. Gesmer, with whom Joseph J. Laferrera, Kurt E. Bratten,
and Gesmer Updegrove LLP were on brief, for appellant/cross-
appellee.
Maria E. Recalde, with whom Mark J. Ventola, Sheehan Phinney
Bass + Green, P.A., William P. Kelly, and McCarthy & Kelly LLP were
on brief, for appellee/cross-appellant.
April 5, 2006
*
Of the United States Court of Appeals for the Eighth
Circuit, sitting by designation.
LYNCH, Circuit Judge. This is a contract dispute between
Teragram Corporation and Marketwatch.com, Inc., a.k.a.
"ScreamingMedia."1 The dispute centers on three software products,
referred to collectively as "the Teragram Software," which Teragram
licensed to ScreamingMedia. The first two products, (1) Entity
Extraction, SDK, and TLGREP Entity Compilers and (2) Entity
Extraction English Dictionaries and Grammars, are together referred
to as the "Entity Extraction Software," while the third,
Summarization Engine with English Data, is referred to as the
"Summarization Software."
Teragram sued for breach of contract and sought damages
of $193,520, representing the annual licensing and support fees for
the first two years of the three-year contract; ScreamingMedia
counterclaimed that Teragram misrepresented its products and was
itself in breach of contract, thus excusing ScreamingMedia from its
payment obligations. The district court, on cross-motions for
summary judgment, issued judgment in favor of Teragram with respect
to the Summarization Software and limited Teragram's damages award
to the amount of one year's licensing and support fees for that
1
The defendant, which was originally known as
ScreamingMedia, Inc., has changed its name twice during the course
of this litigation, most recently in 2004. On July 12, 2004, the
district court approved a stipulated motion by the parties to
substitute Marketwatch.com, Inc. for ScreamingMedia, Inc. as the
defendant in this action. See Fed. R. Civ. P. 25(c). The parties
and the district court have continued to refer to the defendant as
"ScreamingMedia," and we thus retain that denomination.
-2-
product, totaling $36,816. The court also entered judgment in
favor of ScreamingMedia with respect to the Entity Extraction
Software and awarded nominal damages of $1.00. The court reached
different results as to each product in part because ScreamingMedia
did not give timely notice to Teragram of the alleged material
failure of the Summarization Software, but did give timely notice
of the alleged material failure of the Entity Extraction Software.
Teragram appeals the issuance of summary judgment against
it with respect to the Entity Extraction Software; it also appeals
the limit the district court set on the damages award in its favor.
ScreamingMedia cross-appeals from the issuance of summary judgment
in Teragram's favor with respect to the Summarization Software.
We affirm the district court's judgment.
I.
The facts are not in dispute. ScreamingMedia was, at all
relevant times, in the business of providing summarized textual
content, such as news stories, to mobile phone users and other
third parties. Initially, the company employed human editors to
consolidate full-text news stories into 160-character digests that
would fit on mobile phone screens. In 2001, however, it began to
seek out software that would both automate the summarization
process and insert hyperlinked stock market ticker symbols into the
text of summarized articles.
-3-
To this end, in June 2001, ScreamingMedia entered into
discussions with Teragram, a linguistic technology company.
Teragram accepted ScreamingMedia's invitation to participate in a
competitive evaluation of its software and installed LINUX versions
of its software on ScreamingMedia's computer server. At the
conclusion of that evaluation process, ScreamingMedia decided to
license Teragram's software, and the parties entered into a
licensing agreement ("Agreement") effective on October 17, 2001.
The interpretation of this Agreement is at the crux of the present
dispute.
Under the Agreement, ScreamingMedia received from
Teragram a limited license to the Teragram Software. The Agreement
also required Teragram to provide to ScreamingMedia certain
maintenance and support services that were set forth in an Exhibit
B.
Pursuant to the Agreement, ScreamingMedia was obliged to
pay Teragram a total of $59,944 annually (over a three-year period)
for the Entity Extraction Software, consisting of $50,800 in
license fees and $9144 in support fees. As for the Summarization
Software, ScreamingMedia was to pay Teragram a total of $36,816
annually, consisting of $31,200 in license fees and $5616 for
support fees. Payment of these fees was due "30 days following the
Delivery Date of [the] software and on the anniversaries of the
Delivery Date." The Agreement defined "Delivery Date" as "the date
-4-
[the particular Teragram Software in question] is delivered to
Licensee."
Section 4 of the Agreement, entitled "Term and
Termination," provided that "[t]he license for each Teragram
Product shall not commence until the Delivery Date for such
Teragram Product," and that the Agreement would "terminate as to
each Teragram Product upon the third anniversary of such Teragram
Product's Delivery Date, unless earlier terminated in accordance
with this [section]." The section went on to specify:
This Agreement and the licenses granted
hereunder may be terminated by either party in
the event of a material breach hereof by the
other which is not cured within thirty (30)
days after the breaching party's receipt of
notice of such breach from the nonbreaching
party . . . .
Section 7 of the Agreement set forth a standard "repair-
or-replace" warranty:
Teragram warrants that the Teragram Products,
for a period of thirty (30) days after
delivery to [ScreamingMedia], shall perform
substantially in accordance with the
Documentation. [ScreamingMedia's] exclusive
remedy and Teragram's sole liability under
this warranty shall be for Teragram to correct
any material failure of the Teragram Products
to perform as warranted, if such failure is
reported to Teragram within the warranty
period . . . . In the event that Teragram
cannot, after repeated efforts, remedy such
failure, Teragram shall refund all license and
support fees received by Teragram from
[ScreamingMedia] with respect to the defective
Teragram Product hereunder and terminate the
Agreement as to such Teragram Product . . . .
-5-
The next paragraph, which limits both the warranties and the
definition for breach of warranty, states in bold type:
THE ABOVE ARE THE ONLY WARRANTIES OF ANY KIND,
EITHER EXPRESS OR IMPLIED, THAT ARE MADE BY
TERAGRAM AND TERAGRAM DISCLAIMS ALL OTHER
WARRANTIES, INCLUDING BUT NOT LIMITED TO THE
IMPLIED WARRANTIES OF MERCHANTABILITY,
NONINFRINGEMENT, FITNESS FOR A PARTICULAR
PURPOSE OR THAT THE OPERATION OF THE TERAGRAM
PRODUCTS WILL BE UNINTERRUPTED OR ERROR-FREE.
NO ORAL OR WRITTEN INFORMATION OR ADVICE GIVEN
BY TERAGRAM, ITS AGENTS OR EMPLOYEES SHALL
CREATE A WARRANTY OR IN ANY WAY INCREASE THE
SCOPE OF THE WARRANTIES IN THIS AGREEMENT.
SUCH WARRANTIES SHALL NOT BE DEEMED TO HAVE
FAILED OF THEIR ESSENTIAL PURPOSE SO LONG AS
TERAGRAM IS MAKING GOOD FAITH EFFORTS TO
CORRECT DEFECTS OR FAILURES UNDER THE TERMS OF
THE WARRANTY.
Section 9(a) of the Agreement, entitled "Limitation of
Liability," set a limit on the form and amount of ScreamingMedia's
recovery in event of breach:
REGARDLESS OF WHETHER ANY REMEDY SET FORTH IN
THIS AGREEMENT FAILS OF ITS ESSENTIAL PURPOSE,
IN NO EVENT WILL TERAGRAM . . . BE LIABLE FOR
ANY INDIRECT, SPECIAL, PUNITIVE,
CONSEQUENTIAL, OR INCIDENTAL DAMAGES
(INCLUDING DAMAGES FOR LOSS OF BUSINESS
PROFITS, BUSINESS INTERRUPTION, LOSS OF
BUSINESS INFORMATION, AND THE LIKE) ARISING
OUT OF THIS AGREEMENT OR THE USE OF OR
INABILITY TO USE THE TERAGRAM PRODUCTS EVEN IF
SUCH PARTY HAS BEEN ADVISED OF THE POSSIBILITY
OF SUCH DAMAGES. IN NO CASE SHALL TERAGRAM'S
AGGREGATE LIABILITY FOR ANY ONE MATTER ARISING
OUT OF THE SUBJECT MATTER OF THIS AGREEMENT,
WHETHER IN CONTRACT, TORT OR OTHERWISE, EXCEED
THE AMOUNT ACTUALLY RECEIVED BY TERAGRAM FROM
[SCREAMINGMEDIA] UNDER THIS AGREEMENT IN THE
TWELVE (12) MONTHS PRECEDING THE OCCURRENCE OF
SUCH MATTER, AND FOR ALL MATTERS, IN THE
AGGREGATE, THE TOTAL AMOUNT ACTUALLY RECEIVED
-6-
BY TERAGRAM FROM [SCREAMINGMEDIA] UNDER THIS
AGREEMENT.
Teragram first delivered to ScreamingMedia a LINUX
version of the Summarization Software on October 23, 2001. It made
subsequent deliveries of new releases of the Summarization Software
on November 2, 6, 8, 9, and 27, 2001, and on December 10, 2001.
Also on December 10, 2001, Teragram made its first delivery of the
LINUX versions of the Entity Extraction Software. Teragram later
delivered new LINUX versions of that software on January 20, 2002
and Windows-compatible versions on January 21, 2002.2 In between
the various delivery dates, the parties frequently communicated by
e-mail.
On December 18, 2001, ScreamingMedia sent an e-mail to
Teragram requesting an invoice for the 2001 annual fees. Teragram
replied by e-mail the next day, with an invoice for the amount of
$96,760. Teragram followed up on January 23, 2002 with a second e-
mail, again attaching a copy of the invoice; that same day,
ScreamingMedia responded by e-mail that the invoice had already
been approved and that payment was "probably caught up in [the]
2
The delivery date of the Windows version of the Entity
Extraction Software was initially the subject of dispute. At the
summary judgment hearing and in filings prior to the district
court's December 29, 2004 memorandum and order, Teragram argued
that the Windows version was delivered on January 20, 2002, with
the LINUX version, while ScreamingMedia maintained that it was
delivered separately on January 21, 2002. After the district court
issued its opinion, which relied on the January 21 date, both
parties adopted that as the delivery date for the Windows version.
-7-
morass" of the company's "end-of[-] quarter accounting." When
payment was not made by February 19, 2002, Teragram sent a third e-
mail and invoice to ScreamingMedia, again requesting payment.
These e-mails were cordial in tone.3
The next day, on February 20, 2002, Teragram received by
overnight mail a letter from ScreamingMedia. The letter, which was
dated February 19, 2002, alleged that "Teragram . . . is in
material breach of the . . . License Agreement" because the
Teragram Software "has substantially failed to achieve the results
that Teragram warranted."4 According to the letter, "Teragram
insisted, both in verbal communications between the parties as well
as in its product literature . . . , that its product would allow"
ScreamingMedia "to locate company names, names of executives,
places and other entities (concepts) within textual documents" and
"to discover associations such as 'employer - position - employee'
and many others, within the textual documents"; however, "[s]ince
[Teragram's] product was first delivered to ScreamingMedia on
January 20, 2002, it has substantially failed to achieve the
3
The third e-mail, for example, concluded: "We are looking
forward to meeting you and your team. We have other technologies
which further leverage what you already have."
4
The letter referred generally to "Teragram's software"
and did not specify which of the three products were
dissatisfactory. It appears from the content of the letter that
ScreamingMedia's complaints were largely directed toward the Entity
Extraction Software.
-8-
results that Teragram warranted."5 ScreamingMedia concluded its
letter as follows:
Pursuant to Section 4 of the Agreement,
ScreamingMedia hereby provides Teragram with
thirty (30) days notice of its intention to
terminate the Agreement if the material
breaches outlined herein have not been cured
within the notice period. Should Teragram be
unable to cure this material breach,
ScreamingMedia will make demand that all
license and support fees remitted to Teragram
pursuant to the Agreement be refunded in
accordance with the Limited Warranty provision
of Section 7.
Teragram did not respond.
On April 2, 2002, ScreamingMedia sent a second letter to
Teragram, stating that because "[t]o date, we have not received any
response to our [February 19] letter, nor have the material
5
ScreamingMedia enumerated the following problems it
allegedly encountered using the Teragram Software:
1. The supplied package does not extract the following
concepts listed in the "Teragram Concept and Relation
List": ADDRESS, PHONE, URL, FILENAME, SSN, TICKER, EVENT,
CONFERENCE, PRODUCT, COMPUTER, [and] SOFTWARE[.]
2. The supplied package shows very low extraction ratio
(recall) of supplied "relationship" concepts: COMPANY
MERGER AQ, IPO, BANKRUPTCY, PRODUCT LAUNCH, ALLIANCES,
STOCK SPLIT, MANAGEMENT EVENT, AND JOB POSITION.
3. The supplied package fails to extract COMPANY
PRODUCT concept.
4. Recall and precision for the majority of the simple
concepts listed in the "Teragram Concept and Relation
List" are substantially lower than recall and precision
demonstrated by leading concept extraction packages such
as SRA NetOwl and BBN IdentiFinder.
-9-
breaches been cured," it was thereby terminating the Agreement
pursuant to Section 4 of the Agreement.
Teragram finally replied to ScreamingMedia's letters on
April 5, 2002. In a letter of that date, Teragram countered that
it was ScreamingMedia -- not Teragram -- that was in material
breach of the Agreement by failing to make payment for the Teragram
Software. Teragram alleged that payment for the Summarization
Software was due on November 22, 2001, thirty days after October
23, 2001, when the software was first delivered to ScreamingMedia;
in turn, payment for the Entity Extraction Software was due on
January 9, 2002, thirty days after December 10, 2001, the date the
Linux versions of the products were initially delivered.
ScreamingMedia, Teragram maintained, "must cure [its] breach before
it demands warranty support under the Agreement." In any event,
Teragram continued, Section 7 of the Agreement limits the warranty
period to thirty days after delivery of the product; thus, in its
view, the warranty for the Summarization Software expired on
November 22, 2001, while the warranty for the Entity Extraction
Software expired on January 9, 2002 -- long before it received
ScreamingMedia's notice of breach.
Teragram acknowledged, however, that it had delivered
Windows versions of the Entity Extraction Software to
ScreamingMedia on January 20, 2002. The Windows versions, it
claimed, were "complimentary" and not contemplated by the
-10-
Agreement. It asserted that "[t]o the extent that a court might
conclude that there was any warranty on these deliveries (Teragram
takes the position that there was none), the 30 day warranty on
this version of the software expired on February 19, 2002," one day
before Teragram received ScreamingMedia's letter alleging breach,
and thus ScreamingMedia's letter had no legal effect.
Teragram concluded its letter by stating that it was
"more than willing to work with ScreamingMedia to answer technical
questions," but that "[i]f ScreamingMedia does not comply with its
payment obligations under the Agreement by April 26, 2002, Teragram
will file suit in the Federal District Court for the District of
Massachusetts" under Massachusetts law, in accordance with the
forum selection and choice of law provisions of the Agreement.
By June 4, 2002, ScreamingMedia had yet to reply to
Teragram's letter or to tender any payment. On that date, Teragram
filed this diversity action in federal district court, claiming
breach of contract and seeking declaratory judgment on account of
ScreamingMedia's failure to pay licensing and support fees
allegedly due under the Agreement. Teragram initially sought
damages in the amount of $96,760, representing "the first of three
annual license and support fees," but subsequently was granted
leave to amend its complaint to seek damages for $193,520,
comprising "the first and second of three annual license and
support fees."
-11-
ScreamingMedia counterclaimed for breach of
contract/warranty, misrepresentation, and declaratory judgment. As
to its own alleged breach of contract, ScreamingMedia argued that
it was relieved of all payment obligations as a result of
Teragram's prior material breach, namely, its failure to provide
software in conformance with, and technical support as required by,
Sections 6 and 7 of the Agreement.
The parties cross-moved for summary judgment, and the
court issued an order and opinion on December 29, 2004 and judgment
on March 17, 2005. As to ScreamingMedia's breach of
contract/warranty counterclaim, the court noted that Section 7 of
the Agreement required any material failure of the Teragram
Products to be reported to Teragram within the warranty period of
thirty days. "[F]inding that the delivery of each new version of
the Software to ScreamingMedia by Teragram set the warranty clock
running anew," the court concluded that ScreamingMedia did not
provide timely notice of any breach of warranty with respect to the
Summarization Software, but did provide timely notice with respect
to the Entity Extraction software.
The court denied the parties' summary judgment motions
with respect to the Entity Extraction Software, however, because it
determined that material disputes remained regarding whether the
software and technical support provided by Teragram complied with
the Agreement. But after Teragram stipulated that the Entity
-12-
Extraction Software did not "'perform substantially in accordance
with the documentation' within the meaning of [Section] 7 of the
Agreement," and that "[a]fter February 20, 2002, Teragram did not
provide any support services to ScreamingMedia in connection with
the Entity Extraction Software," the court entered judgment against
Teragram on its breach of contract claim and in favor of
ScreamingMedia on its parallel counterclaim solely with respect to
the Entity Extraction Software. It awarded ScreamingMedia nominal
damages in the amount of one dollar.
As to Teragram's breach of contract claim against
ScreamingMedia, the district court concluded that ScreamingMedia's
failure to make payments under the Agreement constituted a material
breach. Because ScreamingMedia failed to provide notice of alleged
prior material breach by Teragram regarding the Summarization
Software, the court granted summary judgment to Teragram on the
breach of contract claim and against ScreamingMedia on its
counterclaim with respect to that software only. It awarded
damages to Teragram in the amount of $36,916.00, representing the
first year's licensing and support fees for the Summarization
Software.
The court also issued summary judgment in favor of
Teragram on ScreamingMedia's misrepresentation counterclaim and
declared moot the parties' respective requests for declaratory
judgment "to the degree not otherwise fully addressed in this
-13-
Judgment." Finally, it denied Teragram's motion to amend its
complaint a third time to seek licensing and support fees for the
third year of the contract.6
Neither party was fully satisfied by the district court's
resolution of the breach of contract claims.7 After the district
court denied its motion for reconsideration, Teragram filed this
appeal from the judgment against it with respect to the Entity
Extraction Software. In turn, ScreamingMedia cross-appealed from
the judgment against it with respect to the Summarization Software.
Teragram also appealed the district court's decision to limit the
amount of its damages award against ScreamingMedia to only the
first year of licensing and support fees for the Summarization
Software.
II.
We review cross-motions for summary judgment de novo,
construing "all facts, as well as reasonable inferences therefrom,
. . . in the light most favorable to the respective non-moving
parties." Medeiros v. Vincent, 431 F.3d 25, 29 (1st Cir. 2005).
6
The district court characterized the motion it was
denying as Teragram's motion "to amend its Complaint to include the
second year's worth of the annual license and support fees." It is
clear from the context, however, that the district court was in
fact denying a request for the third year's worth of fees.
7
ScreamingMedia does not appeal the court's dismissal of
its misrepresentation claim, and neither party appeals from the
dismissal as moot of the declaratory judgment claims or from the
award of nominal damages to ScreamingMedia.
-14-
We also review de novo contractual interpretation questions left to
a judge to resolve. See Principal Mut. Life Ins. Co. v. Racal-
Datacom, Inc., 233 F.3d 1, 3 (1st Cir. 2000).
Under the terms of the Agreement, the substantive law of
Massachusetts governs this case. "[U]nder Massachusetts law,
interpretation of a contract is ordinarily a question of law for
the court," Bank v. Int'l Bus. Mach. Corp., 145 F.3d 420, 424 (1st
Cir. 1998) (quoting Coll v. PB Diagnostic Sys., Inc., 50 F.3d 1115,
1122 (1st Cir. 1995)) (internal quotation marks omitted), "unless
there are material disputes as to extrinsic facts bearing on the
correct interpretation," McAdams v. Mass. Mut. Life Ins. Co., 391
F.3d 287, 298 (1st Cir. 2004). "This is true even in 'close
cases'; the jury does not become involved when words and context
alone are used, but only when extrinsic evidence is at issue." Id.
"Even if a contract might arguably appear ambiguous from its words
alone, the decision remains with the judge if the alternative
reading is inherently unreasonable when placed in context." Id. at
299. When construing a commercial contract, "[c]ommon sense is as
much a part of contract interpretation as is the dictionary or the
arsenal of canons." Fishman v. LaSalle Nat'l Bank, 247 F.3d 300,
302 (1st Cir. 2001); see also id. ("The presumption in commercial
contracts is that the parties were trying to accomplish something
rational.").
-15-
In this case, there are no relevant material disputes as
to extrinsic facts requiring resolution by a factfinder.8 We thus
proceed to "interpret[] [the Agreement] on the face of the
document," taking into account its plain language and context.
McAdams, 391 F.3d at 299.
A. Breach of Contract Claims
1. ScreamingMedia's Cross-Appeal
ScreamingMedia argues on its cross-appeal, as well as in
its defense to Teragram's successful claim, that summary judgment
should have been granted in its favor with respect to the
Summarization Software because the district court erred in
concluding that it had not provided timely notice of Teragram's
alleged prior material breach. Moreover, ScreamingMedia argues
that even if its notice were untimely, its withholding of payment
was no more than an immaterial breach of the Agreement, and so
Teragram was still obligated to perform. Neither argument is
persuasive.
ScreamingMedia alleges that Teragram committed a breach
of warranty by failing to provide specification-compliant software
and ongoing support, and that ScreamingMedia gave timely notice of
the breach to Teragram. It cites to Section 6 of the Agreement,
8
ScreamingMedia does argue, but only as a last resort,
that the materiality of its breach with respect to the
Summarization Software should have been left to a trier of fact.
We reject this argument below.
-16-
which required Teragram to "provide to Licensee the maintenance and
support services set forth in Exhibit B." It further relies on
Section 7, which "warrant[ed] that the Teragram [Software], for a
period of thirty (30) days after delivery to Licensee, shall
perform substantially in accordance with the Documentation" and
also required "Teragram to correct any material failure of the
Teragram [Software] to perform as warranted," but only so long as
"such failure is reported to Teragram within the warranty period"
of thirty days. ScreamingMedia argues, and Teragram does not
dispute, that its receipt of specification-compliant software and
support is "an essential and inducing feature of the contract[],"
Bucholz v. Green Bros. Co., 172 N.E. 101, 102 (Mass. 1930), the
failure of which would release it from further performance under
the Agreement, see Ward v. Am. Mut. Liab. Ins. Co., 443 N.E.2d
1342, 1343 (Mass. 1983).
The parties agree, for the purpose of construing the
warranty provision of the Agreement, that the last "delivery" of
the Summarization Software occurred on December 10, 2001 and that
ScreamingMedia had to give notice to Teragram within thirty days of
that date -- that is, by January 9, 2002 -- if it wished to invoke
the warranty. ScreamingMedia claims that it complied with Section
7 because, beginning as early as November 1, 2001, it sent numerous
e-mails to Teragram, purportedly apprising the latter of problems
it was having with the Summarization Software. The argument fails
-17-
for two reasons: the notice required was not notice by e-mail, and
the e-mails ScreamingMedia sent did not, in any event, provide
adequate notice.
Section 7 specified that an allegation of material
failure of the software must be "reported to Teragram within the
warranty period." It did not permit "report[ing]" by e-mail.
Although Section 7 did not itself describe the medium by which
reporting was to have been effected, subsection 12(a) of the
Agreement mandated that "[a]ll notices shall be in writing and
given by personal delivery, certified mail, return receipt
requested, or by commercial overnight courier for next business day
delivery, to the recipient's address set forth above." E-mail
plainly was not among the recognized forms of notice.
ScreamingMedia argues that Section 7 did not require
"notice," but merely "report[ing]," and thus subsection 12(a) did
not apply. Nothing in the Agreement, however, indicated that the
term "report" in Section 7 was a term of art, used only, as
ScreamingMedia asserts, "in connection with efforts to deal with
Software problems that cause the Software to fail to perform
substantially in accordance with Documentation." Rather, because
the formal notification procedures were set forth under Section 12,
which was entitled "General," those procedures applied to any type
of situation in which notice to the other party was required,
unless otherwise specified. Indeed, only Exhibit B of the
-18-
Agreement, which detailed Teragram's annual support obligations,
provided for e-mail reporting, and it did so solely with respect to
minor maintenance problems ("bugs"), not to material failures of
the software. See G.M. Abodeely Ins. v. Commerce Ins., 669 N.E.2d
787, 789 (Mass. App. Ct. 1996) ("Every phrase and clause must be
presumed to have been designedly employed, and must be given
meaning and effect, whenever practicable, when construed with all
the other phraseology contained in the instrument, which must be
considered as a workable and harmonious means for carrying out and
effectuating the intent of the parties." (quoting J.A. Sullivan
Corp. v. Commonwealth, 494 N.E.2d 374, 378 (Mass. 1986)) (internal
quotation marks omitted)). Moreover, since subsection 12(a) notice
is required when one party seeks to notify the other of material
breach under Section 4 of the Agreement, it would make little sense
to construe Section 7 differently.
In any event, as the district court correctly noted,
ScreamingMedia never once alleged in the course of its e-mail
correspondence that there had been a "material failure" of the
software or that the software was not performing "substantially in
accordance with the Documentation." Consequently, the e-mails
could not have put Teragram on fair notice. Finally, that
ScreamingMedia requested from Teragram an invoice for the first
year's fees as late as December 18, 2001 -- at least a week after
it had sent the very last of its e-mails to Teragram regarding the
-19-
Summarization Software -- shows that ScreamingMedia did not, as a
matter of fact, intend for its e-mails to serve as notices of
material failures of the software.9
It was not until February 20, 2002 that Teragram received
from ScreamingMedia a notice of breach in a form recognized by
subsection 12(a) of the Agreement. By that date, the warranty
period for the Summarization Software had expired, and Teragram was
no longer under obligation "to correct any material failure of
[that software] to perform as warranted."10
Since Teragram could not have been in prior material
breach of the warranty with respect to the Summarization Software,
ScreamingMedia was obligated to fulfill its obligations under the
Agreement, namely, to pay the applicable annual license and support
9
That last e-mail, which was sent on December 11, 2001,
did not even voice a complaint about the Summarization Software;
instead, the e-mail asked whether a certain function that was
available in the Entity Extraction Software was also available in
the Summarization Software.
10
As a last-ditch effort, ScreamingMedia argues that even
if it did not properly terminate under Section 7, it nonetheless
effectively terminated the Agreement independently under Section 4,
because Teragram failed to provide specification-compliant software
from the outset. This argument has no merit. Section 7 made clear
that Teragram was providing a warranty for only thirty days, and
that it disclaimed all other warranties on the software. The only
way to give effect to this section is to read it as a limitation
upon Section 4 -- that is, as permitting termination on account of
a material failure of the software only when notice has been given
within the thirty-day warranty period. See McMahon v. Monarch Life
Ins. Co., 186 N.E.2d 827, 830 (Mass. 1962) ("[A] contract is to be
construed to give a reasonable effect to each of its provisions if
possible.").
-20-
fees. On appeal, as before the district court, ScreamingMedia does
not argue that it had, in fact, fulfilled its end of the bargain.
Rather, it argues that the breach, if not excused by Teragram's
breach, was immaterial. See Lease-It, Inc. v. Mass. Port Auth.,
600 N.E.2d 599, 602 (Mass. App. Ct. 1992) ("When a party to an
agreement commits an immaterial breach of that agreement, the
injured party . . . may not stop performing its obligations under
the agreement."). Alternatively, it argues that the materiality of
the breach should have been left to the trier of fact. We
disagree.
"A material breach of an agreement occurs when there is
a breach of 'an essential and inducing feature of the contract[].'"
Id. (alteration in original) (quoting Bucholz, 172 N.E. at 102).
"[A] material breach by one party excuses the other party from
further performance under the contract," id. (quoting Ward, 443
N.E.2d at 1343), and "[o]nce relieved from performance, the injured
party is not liable for further damages incurred by the party in
material breach," id.
ScreamingMedia relies heavily on the rule that the
materiality of a breach of contract is generally a question for the
trier of fact to decide. See id. Nevertheless, "[a]s is true of
virtually any factual question, if the materiality question in a
given case admits of only one reasonable answer (because the
evidence on the point is either undisputed or sufficiently
-21-
lopsided), then the court must intervene and address what is
ordinarily a factual question as a question of law." Gibson v.
City of Cranston, 37 F.3d 731, 736 (1st Cir. 1994); see also Lease-
It, 600 N.E.2d at 602 (noting that the materiality of breach
"normally is a question for the jury to decide," but that "[o]n
this record, . . . we may decide the matter on our own").
Here, the district court correctly concluded that as a
matter of law, the breach was material. Under the Agreement,
payment was due "30 days following the Delivery Date of [the]
Software," with "Delivery Date" being defined as "the date [the
particular] Teragram Product is delivered to Licensee."
ScreamingMedia admitted that it never made any payment to Teragram
at any time during the course of their contractual relationship.
ScreamingMedia's failure to pay, the only obligation it had under
the contract, constitutes a material breach. See Lease-It, 600
N.E.2d at 602 (holding that where a party's "sole obligation [under
a contract] was to pay," its failure to do so is "a substantial
breach going to the root of the contract" that releases the other
party from further performance (quoting Aerostatic Eng'g Corp. v.
Szczawinski, 294 N.E.2d 521, 523 (Mass. App. Ct. 1973))).
2. Teragram's Appeal
Teragram appeals from the district court's entry of
summary judgment in favor of ScreamingMedia as to the Entity
Extraction Software. Teragram's theory on appeal is that
-22-
ScreamingMedia was in prior material breach of contract on the
Entity Extraction Software by failing to pay licensing and support
fees for that software.
The record shows that the latest, Windows-compatible
versions of the Entity Extraction Software were delivered to
ScreamingMedia on January 21, 2002. Teragram states that it "does
not challenge the [district] court's conclusion that each new
update of the Entity Extraction Software gave rise to a new 30 day
warranty period." Nor does it challenge, on appeal, the use of the
delivery date of the Windows, rather than the LINUX, versions of
the software. Accordingly, there is no dispute that the letter
Teragram received from ScreamingMedia on February 20, 2002 --
thirty days after the delivery of the Windows-versions of the
Entity Extraction Software -- constituted a valid and timely notice
of an alleged material failure of that software to perform as
warranted and triggered Teragram's obligation to cure under Section
7. There is also no dispute that Teragram failed to make any
efforts "to correct [the] material failure," as required by the
warranty. In fact, Teragram stipulated that the Entity Extraction
Software did not "'perform substantially in accordance with the
Documentation' within the meaning of [Section] 7 of the Agreement,"
and that "[a]fter February 20, 2002, Teragram did not provide any
support services to ScreamingMedia in connection with the Entity
Extraction software." The only conclusion a reasonable factfinder
-23-
could draw on these facts is that ScreamingMedia was within its
rights to terminate pursuant to Section 4.11
Teragram attempts to ward off this result by arguing that
ScreamingMedia breached first with respect to the Entity Extraction
Software by failing to pay for it. It suggests that under the
Agreement, payment was due "30 days following the Delivery Date of
the software"; that the term "Delivery Date" referred to the
initial date of delivery of the software and not to the dates of
delivery for any subsequent "updates"; and that by failing to pay,
ScreamingMedia was in material breach as of January 10, 2002,
thirty-one days after the first, LINUX-compatible versions of the
Entity Extraction Software were delivered on December 10, 2001.
Teragram says this failure to pay released it from having to
perform under the Agreement. Neither a reasonable construction of
the contract nor the record itself bears out this theory.
This dispute turns on what constitutes the "Delivery Date
of the software." The Agreement itself stated that the "Delivery
11
As a last resort, Teragram relies on the following
language in Section 7, to argue that only it, and not
ScreamingMedia, had the right to terminate: "In the event that
Teragram cannot, after repeated efforts, remedy such failure,
Teragram shall refund all license and support fees received by
Teragram from Licensee with respect to the defective Teragram
Product hereunder and terminate the Agreement as to such Teragram
Product . . . ." Teragram makes too much of this language. The
excerpted text merely states that Teragram has an obligation to
terminate the Agreement and to refund any fees paid in the event
that it tries, and repeatedly fails, to cure; the provision creates
no restrictions on ScreamingMedia's power to terminate.
-24-
Date" is "the date such Teragram Product is delivered to Licensee."
This means that the earliest date that payment for the Entity
Extraction Software could have been due is February 20, 2002,
thirty days after the latest versions of the Entity Extraction
Software were delivered. Teragram has already conceded that, for
purposes of the warranty, the delivery date of a given set of
Teragram Software is the date on which the latest version(s) of
that software is delivered to ScreamingMedia. We see no reason to
construe "delivery" differently for the purpose of determining when
payment was due. Moreover, Teragram did not send an invoice to
ScreamingMedia for the products until ScreamingMedia requested it
on December 18, 2001 -- almost a month after when, according to
Teragram's theory, payment for the Summarization Software would
have been due.12 Further, Teragram provided ScreamingMedia with two
additional deliveries of the Entity Extraction Software after
January 10, 2002, the date on which, according to Teragram's
theory, ScreamingMedia would have been in breach. Finally, the
record shows that Teragram did not at any point prior to February
20, 2002 communicate to ScreamingMedia its alleged understanding
that ScreamingMedia was in breach for failure to pay; indeed, its
e-mail correspondence as late as February 19, 2002 had been
12
Although subsection 12(g) of the Agreement provided that
Teragram may assess a monthly interest charge "on all payments more
than fifteen (15) days past due," the amount invoiced did not
include any such overdue charges.
-25-
cordial. These facts are consistent only with our reading of the
contract.
Because ScreamingMedia was not in prior material breach
of the Agreement with respect to the Entity Extraction Software,
Teragram was obligated to provide conforming software and support
under the terms of Sections 6 and 7 of the Agreement. Having
failed to do so, it is in material breach of the warranty and the
Agreement, and no reasonable factfinder could conclude otherwise.
B. Damages
This leaves one final issue. Teragram, having prevailed
on its breach of contract claim with respect to the Summarization
Software, challenges the amount of its damages award. The district
court limited the money judgment against ScreamingMedia to the
first year's licensing and support fees for the Summarization
Software, a total of $36,816. Teragram asserts that because
ScreamingMedia did not effectively terminate the Agreement as to
the Summarization Software, Teragram was entitled, at the very
least, to licensing and support fees for the Summarization Software
for the balance of the Agreement's three-year term.13
13
Teragram also argues that, despite its own breach of the
warranty with respect to the Entity Extraction Software, it is
entitled to the fees for the full term of the contract, including
the second and third years, for both products. To state this
argument is to refute it. Teragram is not entitled to recover
payment for a benefit it did not provide.
-26-
As an initial matter, Teragram never was granted leave to
amend its complaint to seek anything more than "the first and
second of three annual license and support fees."14 In any case,
the district court did not err in awarding only the first year's
fees for the Summarization Software. The court's result is correct
as a matter both of contract interpretation and of the law of
remedies for breach of contract.
ScreamingMedia terminated the Agreement on April 2, 2002.
Subsection 12(f) of the Agreement stated: "Upon termination of this
Agreement, all outstanding payment obligations and the following
sections of this Agreement will survive: 1, 5, 7, 9, 11 and 12."
The Agreement characterized the licensing and support fees as
"annual" fees. By the time of ScreamingMedia's breach, which took
place not even a half year into the Agreement's term, only the
first year's fees had been invoiced and were due. Moreover,
regardless of whether ScreamingMedia received the benefit of its
bargain during those months preceding the breach, there is no
dispute that it did not continue to make use of, and Teragram
ceased to provide support for, the Teragram Software after February
14
Teragram's motion to amend its complaint to seek the
third year's fees was denied by the district court. Teragram tacks
on to its brief a two-sentence argument, asserting that the
district court erred in denying its motion to amend. Its
conclusory argument amounts to waiver, see United States v.
Zannino, 895 F.2d 1, 17 (1st Cir. 1990) ("[I]ssues adverted to in
a perfunctory manner, unaccompanied by some effort at developed
argumentation, are deemed waived."), and we will not consider it.
-27-
2002. Under these circumstances, the only payments reasonably
"outstanding" at the time of the termination were the first year's
fees. Because Teragram itself was in breach with respect to the
Entity Extraction Software, the only fees due are for the
Summarization Software. See Lease-It, 600 N.E.2d at 602 ("Once
relieved from performance, the injured party is not liable for
further damages incurred by the party in material breach.").
The only provisions in the Agreement that arguably could
support Teragram's theory of damages did not survive termination.
Section 6, for example, which required the "Licensee . . . to pay
the Support Fees, with respect to each Teragram Product for three
(3) years, commencing on such Teragram Product's Delivery Date,"
did not survive. And Section 4, which defined the term of the
Agreement, specifically provided that "[t]he term of this Agreement
. . . shall terminate as to each Teragram Product upon the third
anniversary of such Teragram Product's Delivery Date, unless
earlier terminated in accordance with this Section 4."15
15
Teragram argues the Agreement was a "divisible" contract,
such that even if ScreamingMedia properly terminated the Agreement
with respect to the Entity Extraction Software, it did not do so
with respect to the Summarization Software, and so ScreamingMedia
owes damages for the entire three-year term of the contract with
respect to the latter software. First, "[t]he conclusion that a
contract is 'divisible' rather than 'entire' may be confusing and
is not invariably dispositive of all related issues." Potter &
McArthur, Inc. v. City of Boston, 446 N.E.2d 718, 719 (Mass. App.
Ct. 1983) (citing 3A Corbin, Corbin on Contracts § 694 (1960 &
Supp. 1982)). Second, Teragram's argument is based on a faulty
premise. That ScreamingMedia wrongfully terminated with respect to
the Summarization Software does not make its termination of the
-28-
We affirm the district court's award of damages to
Teragram in the amount of $36,816.
III.
The district court's judgment is affirmed. Each party
shall bear its own costs.
Agreement any less effective. Wrongful termination merely gives
rise to a claim for damages; it does not negate the fact of
termination. See 2 Farnsworth, Farnsworth on Contracts §§ 8.15,
.18 (3d ed. 2004).
-29-
Teragram Corporation v. MarketWatch.com,Inc.
Court: Court of Appeals for the First Circuit
Date filed: 2006-04-05
Citations: 444 F.3d 1
Copy Citations