United States Court of Appeals
Fifth Circuit
F I L E D
IN THE UNITED STATES COURT OF APPEALS
November 8, 2004
FOR THE FIFTH CIRCUIT
Charles R. Fulbruge III
Clerk
No. 03-50866
DELL COMPUTER CORPORATION,
Plaintiff - Counter Defendant - Appellee
versus
SIXTO RODRIGUEZ,
Defendant - Counter Claimant - Appellant
Appeal from the United States District Court
for the Western District of Texas
Before GARWOOD, WIENER, and DeMOSS, Circuit Judges.
WIENER, Circuit Judge:
In this diversity action, Dell Computer Corporation (“Dell”)
sued Sixto Rodriguez, the former managing director and chief
executive officer of Dell’s operations in Spain, asserting various
causes of action based on several contracts between the parties.
Rodriguez counter-claimed, also seeking damages for breach of the
agreements. After a jury returned a verdict in favor of Dell for
approximately $3.5 million, the district court entered judgment for
Dell in that amount. Rodriguez timely appealed, asserting several
points of error. We affirm in part, vacate in part, and reverse
and remand in part.
I. FACTS & PROCEEDINGS
A. BACKGROUND
1. The Dell-Rodriguez Relationship and the
Underlying Contracts
In 1991, Dell hired Rodriguez as the managing director and
chief executive officer of Dell’s operations in Spain. The parties
executed an employment contract that entitled Rodriguez to
severance benefits if Dell should terminate his employment without
cause.1 During the course of Rodriguez’s employment, Dell issued
stock options to him under various stock option agreements
(“SOAs”).
In 1992, Dell granted Rodriguez a special restricted SOA,
called the “Penny Share Agreement” (“PSA”). Unlike other
traditional fair-market-value SOAs that Dell granted to Rodriguez,
the PSA entitled Rodriguez to purchase Dell stock for 1¢ per share,
regardless of the market price of the stock at the time he
exercised the option. The PSA specified that after Rodriguez’s
options vested and he exercised them, Dell would withhold 60% of
the exercised shares for a period of two years; only at the end of
this two year period would Rodriguez receive the stock certificates
1
If Rodriguez was terminated with cause, though, he would
not be entitled to receive any severance benefits. The
employment agreement specifically permitted Dell to terminate
Rodriguez for lack of honesty, neglect of the business, or
conviction of a criminal offense that would damage Dell’s image.
The employment agreement further stated that if the basis for
Rodriguez’s disciplinary termination was “prove[d] unlawful or
invalid,” he would be entitled to his severance.
2
for those shares. Further, a “claw-back” termination provision
required Rodriguez to return any profits realized from the PSA if
he breached his employment agreement or violated specified
provisions of the PSA.2
On February 12, 1998, Rodriguez and Dell executed a four-page
“Separation Agreement” that specified the terms and conditions of
Rodriguez’s termination and severance from employment by Dell.
Part A of the Separation Agreement, titled “Stock Option
Agreements,” set out Rodriguez’s “amended rights” regarding (1) the
Penny Share Agreement, (2) a June 1994 SOA, and (3) his deferred
bonus stock. In Part B of the Separation Agreement, titled
“Transition Arrangements,” Dell agreed to retain Rodriguez as an
unpaid honorary consultant through June 30, 1999. Although the
Separation Agreement immediately relieved Rodriguez of his
management duties, his formal resignation was not to become
effective until June 30, 1998, at which time his one-year role as
honorary consultant would commence. This time frame was adopted to
allow additional stock options to vest under the PSA and under one
of Rodriguez’s other fair-market-value SOAs.
As honorary consultant, Rodriguez was to “promote and develop
Dell’s positive image in the Spanish market; in particular, and as
reasonably requested by Dell from time to time, [Rodriguez would]
2
In contrast, the traditional fair market value SOAs
specified that on termination of his employment, Rodriguez would
be entitled to no further stock, but that he could retain any
profits already realized.
3
help enhance specific customer relationships.” Under the “Sole
Discretion Clause,” however, Dell retained the discretion to
terminate Rodriguez under particular circumstances:
3) Dell may terminate these Transition Agreements with
immediate effect:-
(i) if you are in breach of any of your
obligations hereunder; or
(ii) if Dell has determined, in Dell’s sole
discretion, that your conduct is creating, or
has created, a negative impact on Dell or on
Dell’s reputation in the Spanish market and
Dell has provided you with written notice of
such negative impact.
If Dell should terminate the Transition Agreements, it could
withhold stock to which Rodriguez would otherwise have been
entitled:
4) Dell has the right to withhold any stock which
would otherwise be released to you as set out in
(A) above, in the event of termination pursuant to
3) above.
At the time that the parties executed the Separation Agreement,
Rodriguez was unaware that Dell had commenced an internal
investigation into the operations in Spain.
2. Dell Investigates Suspicious Deals Involving
Rodriguez and Terminates Him
On May 6, 1998, three months after the parties signed the
Separation Agreement but almost two months before its effective
date, Dell wrote to Rodriguez informing him that Dell had been
conducting a wide-ranging examination of Dell Spain, and that it
“revealed specific irregularities which appear to have been within
4
[Rodriguez’s] responsibility.” The May 6 letter identified eight
separate irregularities under investigation.
Dell uncovered these improprieties when it began negotiating
the severance of Bienvenido Valero, the finance manager for Dell’s
operation in Spain. In the course of those negotiations, Valero
produced an employment contract dated 1992 (the “Valero Contract”),
purportedly signed by Rodriguez, granting Valero a $1.7 million
“golden parachute” in the event he was terminated. Dell had not
previously seen the 1992 Valero Contract. Before Valero produced
a copy of that agreement, Dell was aware of only a standard
employment agreement of indefinite duration dated June 1991, which
entitled Valero to only a limited severance as required under
Spanish law.3 When Dell became suspicious of the authenticity of
the Valero Contract and asked Rodriguez to authenticate his
signature on it, Rodriguez responded by stating only, “I don’t
know. It’s a photocopy.” Dell commissioned two handwriting
experts to analyze the signatures on the Valero Contract; they
concluded that the document was signed in 1997, not 1992 as
indicated by its date.
Dell then initiated a thorough audit of Rodriguez’s activities
and learned that he had engaged in several questionable financial
3
In October 1995, Valero executed an agreement that
appears to be an amendment to the June 1991 agreement. This
amendment stated that it was an “[a]dditional clause or section
to the employment contract signed in June 1991 between” (emphasis
added) Valero and Dell. The October 1995 amendment made no
reference to a contract signed in 1992.
5
transactions with friends and family members in contravention of
Dell’s policies and practices. Included in these suspect
transactions were payments of some $23,000 to an employment agency
called Powerline. After further investigation, Dell learned that
these payments were supposedly made for the services of Rodriguez’s
sister-in-law. Dell also discovered that Rodriguez had authorized
payments of approximately $2,400 per month to a company called POAS
for salary and office rent in the Canary Islands, where Dell did
not maintain an office. It turned out that the managing director
of POAS was Rodriguez’s brother. Similarly, Dell determined that
Rodriguez had authorized “installation and maintenance” payments of
about $300,000 to “I.B. y Asociados.” When Dell questioned
Rodriguez about the I.B. y Asociados payments, however, he
explained that they were for consultancy and lobbying commissions.
In light of these and other dubious transactions, Dell
informed Rodriguez in the May 6 letter that all of his “legal
entitlements from Dell” were being suspended pending an evidentiary
hearing and review by Dell’s Ethics Committee. Rodriguez disputed
all of Dell’s allegations and met with its representative to
explain how the transactions were legitimate and justified.
In June 1998, after reviewing Rodriguez’s conduct, Dell’s
Ethics Committee concluded that he had breached his obligations to
Dell. In a letter dated June 26, Dell informed Rodriguez that the
Ethics Committee had “found unanimously that the evidence presented
justified the termination of all legal relationships” between the
6
parties and further “recommended the termination of the contractual
relationship between [Rodriguez] and Dell Espana S.A.”
3. Rodriguez Exercises His Stock Options, and
Dell Initiates Criminal and Civil Proceedings
in Spain
Two days after receiving Dell’s June 26 letter, Rodriguez
exercised numerous stock options under various SOAs, with the
aggregate value of approximately $1.08 million. On July 13, July
20, and July 24, Rodriguez called his broker and exercised
additional options worth some $753,000, $114,000, and $780,000,
respectively. In all, Rodriguez realized profits of $2,728,898.11
on the exercise of these stock options.
In the fall of 1998, Dell initiated criminal proceedings
against Rodriguez in Spain,4 but the Spanish court ruled that there
was insufficient evidence to sustain the criminal charge under
Spanish law. Dell twice appealed that adverse decision in the
Spanish courts without success. Next, Dell brought a civil suit
against Rodriguez in Spain to recover the losses that Dell
sustained as a result of Rodriguez’s allegedly improper exercise of
the stock options. In December 2001, though, Dell voluntarily
dismissed this Spanish civil suit; on March 13, 2002, Dell filed
the instant action.
B. PROCEEDINGS
After failing in the Spanish courts, Dell sued Rodriguez in
4
As explained by Dell’s counsel, Spanish law permits a
civilian to initiate criminal proceedings against an individual.
7
Texas state court. Rodriguez removed the action to district court
on grounds of diversity of citizenship. Dell’s complaint asserted
various causes of action, including fraud, breach of fiduciary
duty, breach of the Separation Agreement, and breach of the Penny
Share Agreement. Rodriguez counter-claimed, also alleging breach
of the Separation Agreement by virtue of Dell’s refusal to release
particular SOAs, as well as claims grounded in replevin,
defamation, abuse of process, and malicious prosecution.
In February 2003, Dell filed a motion for summary judgment on
Rodriguez’s counterclaims. The district court granted summary
judgment against Rodriguez on all his counterclaims except those
for breach of contract. Dell also filed a motion in limine to
preclude Rodriguez and his counsel from making any reference at
trial to “parol evidence to interpret the February 12, 1998
Separation Agreement,” which motion the district court granted.
In March 2003, the parties’ remaining claims were tried to a
jury. During the trial, the district court granted Rodriguez’s
motion for judgment as a matter of law on Dell’s fraud claim but
denied all his and Dell’s other motions for judgment as a matter of
law. The jury returned a verdict in Dell’s favor on each of Dell’s
contract claims and against Rodriguez on his breach of contract
counterclaim. Dell was awarded approximately $2.7 million for
breach of the Separation Agreement and almost $800,000 for breach
of the Penny Share Agreement. The following month, the district
court entered judgment on the verdict in favor of Dell for
8
$3,526,672.71, plus post-judgment interest and costs. Rodriguez
filed a motion for judgment notwithstanding the verdict and for a
new trial, which was denied.
Dell next filed a motion for attorney’s fees under § 38.0001
of the Texas Civil Practice and Remedies Code.5 The district court
initially denied this motion, finding inadequate documentary
support. Dell then filed a motion for reconsideration together
with additional documentation supporting its attorney’s fees
request, which the district court granted. Rodriguez timely filed
his notice of appeal.
II. ANALYSIS
Rodriguez advances several claims on appeal.6 We must
determine whether the “Sole Discretion” clause in the Separation
Agreement was ambiguous and whether Dell’s claims for breach of the
Penny Share and Separation Agreements were time-barred.
A. STANDARD OF REVIEW
The interpretation of a contract and the determination of
5
See TEX. CIV. PRAC. & REM. CODE ANN. § 38.001(8) (Vernon 2002)
(“A person may recover reasonable attorney’s fees from an
individual or corporation, in addition to the amount of a valid
claim and costs, if the claim is for ... (8) an oral or written
contract.”).
6
Both parties have filed “kitchen sink” briefs, advancing
numerous points, alternative points, and rebuttal points. Our
opinion addresses only those arguments that warrant extended
treatment. Any contention not expressly addressed here is either
without merit or is immaterial to our decision today.
9
ambiguity are questions of law, which we review de novo.7 “This
broad standard of review includes the initial determination of
whether the contract is ambiguous.”8 We review a district court’s
evidentiary rulings for abuse of discretion.9 We will reverse a
judgment for an erroneous evidentiary rulings only when the
challenged ruling affects a party’s substantial rights.10 We review
de novo a district court’s determination of the applicable
limitations period.11
B. THE DISTRICT COURT’S EXCLUSION OF PAROL EVIDENCE
In determining whether the district court committed reversible
error by prohibiting Rodriguez from introducing parol evidence to
explain the meaning of the Sole Discretion Clause of the Separation
Agreement, we encounter two separate standards. On the one hand,
interpretations of a contract and determinations of ambiguity are
questions of law, which we review de novo. This includes a review
of the district court’s determination whether the contract is
7
See Reliant Energy Servs., Inc. v. Enron Canada Corp., 349
F.3d 816, 821 (5th Cir. 2003); FDIC v. McFarland, 33 F.3d 532,
539 (5th Cir. 1994).
8
Am. Totalisator Co. v. Fair Grounds Corp., 3 F.3d 810, 813
(5th Cir. 1993).
9
DIJO, Inc. v. Hilton Hotels Corp., 351 F.3d 679, 685 (5th
Cir. 2003).
10
Id. at 687.
11
Mayo v. Hartford Life Ins. Co., 354 F.3d 400, 409 (5th
Cir. 2004).
10
ambiguous.12 On the other hand, a district court’s evidentiary
ruling is generally reviewed for abuse of discretion, and we
reverse only when the evidentiary ruling affects a party’s
substantial rights.13 As we here conclude that the district court’s
evidentiary ruling was predicated on, and a corollary of, its
construction of the contract as unambiguous, we review this
decision de novo. If we conclude de novo that the district court
erred as a matter of law in ruling that the Sole Discretion clause
is not ambiguous, it will follow that the district court’s
subsequent grant of Dell’s motion in limine must necessarily be an
abuse of discretion.14
1. Sole Discretion clause unambiguous;
introduction of parol evidence denied
Section B(3)(ii) of the Separation Agreement, called the “Sole
Discretion Clause” by the parties, allows Dell to “terminate these
Transition Agreements with immediate effect if Dell has determined,
in Dell’s sole discretion, that [Rodriguez’s] conduct is creating,
12
McFarland, 33 F.3d at 539. Accord Reliant Energy, 349
F.3d at 821; Am. Totalisator Co., 3 F.3d at 813.
13
Mayo, 354 F.3d at 409; DIJO, Inc., 351 F.3d at 687.
14
“‘[A]buse of discretion’ is a phrase which sounds worse
than it really is; it is simply a legal term of art which carries
no pejorative connotations. . . .” United States v. Logan, 861
F.2d 859, 866 n.5 (5th Cir. 1988)(internal citations omitted).
Thus, “when judicial action is taken in a discretionary matter,”
that action may be set aside by a reviewing court if “it has a
definite and firm conviction that the court below committed a
clear error of judgment in the conclusion it reached upon a
weighing of the relevant factors.” United States v. Walker, 772
F.2d 1172, 1176 n.9 (5th Cir. 1985).
11
or has created, a negative impact on Dell or on Dell’s reputation
in the Spanish market and Dell has provided [Rodriguez] with
written notice of such negative impact” (emphasis added). In
ruling on Dell’s motion for partial summary judgment, the district
court stated:
Rodriguez argues that the Separation Agreement’s sole
discretion clause only applies to his performance as a
consultant and not his previous conduct as a Dell employee.
Unfortunately for Rodriguez, this theory contradicts the plain
language of the agreement. The Separation Agreement covers
past behavior when it states that if Rodriguez’ conduct “is
creating, or has created, a negative impact on Dell,” Dell may
terminate the agreement and withhold any stock that was going
to be released pursuant to the agreement. Rodriguez attempts
to overcome the plain language of the Separation Agreement by
offering parol evidence including deposition testimony and
email correspondence. The Court, however, cannot look to
parol evidence for the purpose of creating ambiguity.... The
Court, therefore, finds that the plain language of the
contract allowed Dell to look to Rodriguez’ past conduct as a
Dell employee in determining whether he had created a negative
impact on Dell.
(emphasis added). The district court subsequently granted Dell’s
motion in limine, prohibiting Rodriguez from introducing any parol
evidence to interpret the Separation Agreement.
On appeal, Rodriguez’s first contention is that the district
court erred in ruling that the Separation Agreement’s Sole
Discretion clause unambiguously permitted Dell to terminate
Rodriguez’s severance rights based on conduct that occurred either
(1) before execution of the Separation Agreement (while Rodriguez
was employed as Dell’s managing director) or (2) after its
execution (while Rodriguez would be serving as a consultant to
Dell). It is evident from the above-quoted ruling that the
12
district court placed dispositive importance on the presence of the
words “has created” in the Sole Discretion clause.
Rodriguez maintains that the Sole Discretion clause only
refers to Dell’s right to terminate “these Transition
Arrangements,” which addresses his future role as consultant.
Rodriguez further contends that the Separation Agreement provides
for the structured, periodic release of stock options, with the
release of the shares corresponding to Rodriguez’s two different
roles. He insists that this further supports his interpretation
of the Sole Discretion clause as applicable only to his conduct as
consultant on a going-forward basis.
Rodriguez thus argues that the district court’s ruling —— that
the Sole Discretion clause was unambiguous as a matter of law ——
was error. He charges that the term “has created” covers only
those circumstances in which Dell learns of prior actionable
conduct taken after Rodriguez signed the Separation Agreement.
Rodriguez insists that, as the subject clause is susceptible to two
reasonable but different interpretations —— the one ascribed to it
by the district court and the one he advances —— the clause is
ambiguous, entitling him to introduce parol evidence to support his
interpretation. In addition to his own testimony, the key parol
evidence that Rodriguez claims was improperly excluded includes (1)
deposition testimony of Eric Meurice, the Dell employee who
negotiated the Separation Agreement, indicating that the Sole
Discretion clause was forward-looking only, and (2) an e-mail
13
written by Nicholas Taylor (the “Taylor Memo”), the lawyer for Dell
who drafted the Separation Agreement, noting only “some penny stock
as held back on good conduct conditions.”15
2. Preservation of error
Despite the district court’s clear ruling on Dell’s summary
judgment motion and its grant of Dell’s motion in limine, Dell
asserts that “[n]o ruling by the trial court prevented Rodriguez
from offering evidence regarding the interpretation and termination
provision of the Separation Agreement.” Dell’s contention is
constructed on four elements.
First, Dell argues that because the ruling (that “the plain
language of the contract allowed Dell to look to Rodriguez’ past
conduct as a Dell employee in determining whether he had created a
negative impact on Dell”) was in the context of a denial of Dell’s
motion for partial summary judgment, that ruling was merely dicta
and therefore had “no effect on the district court’s decision,
which was based on other grounds.” Thus, argues Dell, the summary
judgment ruling did not preclude Rodriguez from introducing parol
evidence at trial to explain the Separation Agreement.
This contention is incorrect. The district court granted
Dell’s motion in limine, which was expressly predicated on the
court’s earlier determination that the Sole Discretion clause was
15
Rodriguez further complains that he was wrongly precluded
from using the Taylor Memo to impeach Taylor on the witness
stand.
14
unambiguous and clearly prevented Rodriguez from introducing the
parol evidence in question at trial.
Second, Dell continues to urge that the district court’s grant
of Dell’s motion in limine did not prevent Rodriguez from
introducing parol evidence at trial, citing several examples of
Rodriguez’s purported introduction of extrinsic evidence regarding
the interpretation of the Separation Agreement. But these cited
instances do not address evidence concerning the Sole Discretion
clause. In fact, a pre-trial discussion between the court and
counsel confirms that both the court and Rodriguez’s counsel
understood that parole evidence concerning whether the Separation
Agreement was exclusively forward-looking could not be presented at
trial:16
MR. HANTZES [Rodriguez’s counsel]: “We put before the
court the proposition that the agreement was exclusively
forward-looking and the Court rejected that after
announcement [sic] of the contract and found that it was
unambiguous in that regard. . . There will be other
issues in that document that we intend to raise at some
point that are ambiguous, so that – I understand that the
Court does not want parole evidence on the issue of
whether it’s forward-looking versus backward-looking.
But there are other issues in that document, Your Honor,
which are ambiguous in my analysis of the document.
THE COURT: “Who do you propose to ask about that?”
16
Dell stated at oral argument that the trial court
modified its motion in limine to apply only to opening
statements. The trial transcript shows, however, that Dell moved
in limine to have the prior motion also apply to opening
statements. The trial court replied, “But that’s not admissible,”
and remarked that it trusted Rodriguez’s counsel would not
address this evidence in his opening.
15
MR. HANTZES: “Mr. Taylor. . .”
THE COURT: “Well, I suppose that the attorneys that
represent the plaintiff and counter-defendant have
sufficient experience that they know how to jump up and
say, “I object” if you start asking a question that they
think is not calling for admissible testimony.”
Rodriguez absolutely was prevented from introducing parole evidence
during trial regarding whether the contract was exclusively
forward-looking. He was not permitted to introduce the Taylor
Memo: When Rodriguez tried to do so, the district court sustained
Dell’s objection.
The third element that Dell advances is that Rodriguez made no
offer of proof at trial regarding the parol evidence that he sought
to introduce. It is true that Rodriguez did not make an offer of
proof for Meurice’s deposition testimony; Rodriguez is relying on
evidence he put forth in opposing Dell’s summary judgment motion.
Insofar as the Taylor Memo is concerned, though, Rodriguez
unmistakably made an offer of proof at trial when he tried
unsuccessfully to introduce the memo to impeach Taylor on the
stand.
As explained in Mathis v. Exxon Corp., a “pre-trial objection
is sufficient to preserve the error for appellate review.”17 A
renewed objection at trial is no longer required to preserve
17
302 F.3d 448, 459 (5th Cir. 2002).
16
error.18 Furthermore, we have recognized that “excluded evidence
is sufficiently preserved for review when the trial court has been
informed as to what counsel intends to show by the evidence and why
it should be admitted, and this court has a record upon which we
may adequately examine the propriety and harmfulness of the
ruling.”19 Rodriguez explained his argument concerning the
backward-looking clause in the Separation Agreement in his
opposition to summary judgment, and he attached excerpts of the
testimonial evidence that he proposed to introduce. His actions
were sufficient to inform the trial court of the substance of his
evidence and to create an adequate record for our review.
Dell’s last element in support of its contention is that
Rodriguez failed to preserve error because he failed to seek a jury
instruction regarding the district court’s interpretation of the
termination provision. Dell contends that if Rodriguez believed
that the Sole Discretion clause was ambiguous, he should have
objected and requested a jury instruction asking the jury to
interpret the clause. But the question “[w]hether a contract is
ambiguous is a question of law for the courts to decide by looking
18
Id. at 459 n.16 (observing that the 2000 amendment to
Federal Rule of Evidence 103(a) changed the law that had
prevailed in this Circuit). See also RUTTER PRACTICE GUIDE: FED.
CIV. TRIALS & EV. CH. 4-F(6)(c) (2003).
19
United States v. Jimenez, 256 F.3d 330, 343 (5th Cir.
2001) (citations omitted). “The latter rule has particular force
when the trial court makes clear that it does not wish to hear
further argument on the issue.” Id.
17
at the contract as a whole in light of the circumstances present at
the time the contract was executed.”20 “Only when a contract is
first determined to be ambiguous may the courts consider the
parties’ interpretation and admit extrinsic evidence to determine
the true meaning of the instrument.”21 As the district court ruled
that the Sole Discretion clause was unambiguous as a matter of law,
Dell’s appellate contention that Rodriguez was required to seek a
jury instruction on this issue to preserve error is feckless. It
was the district court’s ruling on Dell’s motion in limine that
kept the jury from hearing Rodriguez’s evidence on this issue. The
question whether the Separation Agreement was ambiguous is properly
before us on appeal.
3. The district court’s ruling was reversible
error.
a. Standard of Review
As stated above, if the district court erred as a matter of
law in ruling that the Sole Discretion clause is unambiguous, a
ruling that we review de novo, then of necessity that court’s
subsequent grant of Dell’s motion in limine constitutes an abuse of
discretion.22
20
Kelly v. Rio Grande Computerland Group, 128 S.W.3d 759,
768 (Tex. App. - El Paso 2004, no pet.) (emphasis added) (citing
Nat’l Union Fire Ins. Co. v. CBI Indus., Inc., 907 S.W.2d 517,
520 (Tex. 1995)).
21
Id.
22
Cf. Tapatio Springs Builders, Inc. v. Maryland Cas. Ins.
Co., 82 F. Supp. 2d 633, 643 & n.78 (W.D. Tex. 1999).
18
b. The Sole Discretion Clause is
Susceptible to Two Different but
Reasonable Interpretations
Texas law on contract construction and the admission of parol
evidence is well-settled:
The primary concern of a court in construing a written
contract is to ascertain the true intent of the parties as
expressed in the instrument. If a written contract is so
worded that it can be given a definite or certain legal
meaning, then it is not ambiguous. Parol evidence is not
admissible for the purpose of creating an ambiguity.
If, however, the language of a policy or contract is subject
to two or more reasonable interpretations, it is ambiguous.
Whether a contract is ambiguous is a question of law for the
court to decide by looking at the contract as a whole in light
of the circumstances present when the contract was entered.
Only where a contract is first determined to be ambiguous may
the courts consider the parties’ interpretation, and admit
extraneous evidence to determine the true meaning of the
instrument.
An ambiguity in a contract may be said to be “patent” or
“latent.” A patent ambiguity is evident on the face of the
contract. A latent ambiguity arises when a contract which is
unambiguous on its face is applied to the subject matter with
which it deals and an ambiguity appears by reason of some
collateral matter.23
Applying these principles to the Separation Agreement and the
facts of this case, Rodriguez makes a compelling argument that the
Sole Discretion clause contains a latent ambiguity.24 It is
23
CBI Indus., Inc., 907 S.W.2d at 520 (citations omitted).
See also H.E. Butt Grocery Co. v. Nat’l Union Fire Ins. Co., 150
F.3d 526, 529 (5th Cir. 1998).
24
See Loaiza v. Loaiza, 130 S.W.3d 894, 905 (Tex. App. -
Fort Worth 2004, no pet. h.) (“Although the determination of
whether a contract is ambiguous should be limited to an
examination of the language of the agreement, appellate courts
may examine extrinsic evidence of ‘surrounding circumstances’ or
‘the subject matter of the contract’ to determine if a latent
19
anything but pellucid whether the “or has created” language in the
clause —— which permits Dell to terminate Rodriguez if he “is
creating, or has created, a negative impact on Dell or on Dell’s
reputation in the Spanish market” —— is only prospective or is both
retrospective and prospective. It is susceptible of either
reading, both of which are reasonable. As this is the very
definition of ambiguity, the district court’s grant of summary
judgment in Dell’s favor on this point was reversible error.
Rodriguez should have been allowed to submit parol evidence to the
jury in an effort to convince it that his interpretation of this
ambiguous clause of the contract was correct.25 We therefore
reverse the district court’s ruling that the Sole Discretion clause
was unambiguous and remand for further proceedings on this issue.
C. STATUTE OF LIMITATIONS
Rodriguez’s second appellate point is that Dell’s claims for
breach of contract under the Penny Share and the Separation
Agreements were time-barred by Texas’s four-year statute of
limitations for contract claims.26 Dell’s claims, Rodriguez
ambiguity exists.”).
25
See Geoscan, Inc. of Tex. v. Geotrace Techs., Inc., 226
F.3d 387, 390 (5th Cir. 2000) (“If a contract is ambiguous,
‘summary judgment is inappropriate because the interpretation of
a contract is a question of fact.’” (citations omitted)).
26
See TEX. CIV. PRAC. & REM.CODE ANN. § 16.004; Willis v.
Donnelly, 118 S.W.3d 10, 28 (Tex. App. - Houston [14 Dist.] 2003,
no pet.) (“A breach of contract action is subject to a four-year
statute of limitations.”).
20
contends, accrued when he allegedly back-dated the Valero contract
and engaged in other questioned behavior; Dell concedes to having
received the “obviously false” Valero Contract on March 6, 1998.
In its Texas action, which was not filed until March 13, 2002, Dell
asserted claims for two distinct breaches —— one of the Separation
Agreement and the other of the Penny Share Agreement. Under Texas
law, “[g]enerally, a cause of action accrues, and the statute of
limitations begins to run, when facts come into existence that
authorize a claimant to seek a judicial remedy.”27 “A breach of
contract claim accrues when the contract is breached.”28 The time
at which a cause of action for breach of contract accrues is a
question of law.29
1. Separation Agreement
Rodriguez argues that the trial court erred in not dismissing
Dell’s Separation Agreement claim because it was filed more than
four years after Dell learned of his dubious conduct. Assuming that
Rodriguez preserved this claim for appeal, however, Dell’s claim
for breach of the Separation Agreement was clearly not barred by
27
Willis, 118 S.W.3d at 28 (citing Johnson & Higgins of
Tex., Inc. v. Kenneco Energy, Inc., 962 S.W.2d 507, 514 (Tex.
1998)).
28
Id. (citing Stine v. Stewart, 80 S.W.3d 586, 592 (Tex.
2002)).
29
Willis, 118 S.W.3d at 28 (citing Moreno v. Sterling
Drug, Inc., 787 S.W. 2d 348, 351 (Tex. 1990)).
21
the relevant statute of limitations.30
Rodriguez’s pre-termination conduct, which underlies Dell’s
other claims, does not form the basis of Dell’s claim for breach of
the Separation Agreement.31 Rather, this claim is grounded in
Rodriguez’s exercise of stock options after Dell terminated that
contract. As Dell’s counsel pointed out at oral argument,
Rodriguez’s improper pre-termination conduct underlies his
counterclaim against Dell, not Dell’s claim against him. Whether
Dell had sole discretion to terminate Rodriguez for his behavior
pre-dating the Separation Agreement is ambiguous and a matter for
the court to decide on remand as we have stated above. Assuming,
however, that Dell’s decision was proper, there was no breach of
the Separation Agreement until Rodriguez refused to accept his
termination and proceeded to exercise stock options. As it is
clear that (1) Dell’s Separation Agreement claim is based on
Rodriguez’s exercise of stock options after Dell terminated that
Agreement on June 26, 1998, and (2) Dell brought its claim on March
13, 2002 —— less than four years after such exercise —— the trial
court did not err in holding that Dell’s claim under the Separation
30
Dell argues that Rodriguez did not properly preserve for
appeal his statute of limitations arguments under the Separation
Agreement because he did not raise it in his Rule 50 motions for
judgment notwithstanding the verdict. As we find that Dell’s
Separation Agreement claim is not time-barred, we need not
address whether the issue was properly preserved.
31
We address below Dell’s contention that its claim for
breach of the PSA is founded on Rodriguez’s refusal to return his
profits from the penny shares.
22
Agreement is not time-barred.
2. Penny Share Agreement
Rodriguez likewise contends that, under Dell’s theory of the
case, he breached the PSA when the Valero contract was backdated in
1997 and when the irregularities with the vendor transactions
occurred. Thus, argues Rodriguez, the claim for breach of the PSA,
which was asserted in the suit filed by Dell on March 13, 2002, had
prescribed; as a result, he is entitled to judgment as a matter of
law on Dell’s Penny Share claims.32 Dell counters that the terms
of the PSA require Rodriguez to return any gains that he
recognized on the penny stocks if he violates or breaches any
provision of his employment agreement with Dell. Rodriguez did not
violate the PSA, argues Dell, until he refused to return past penny
share profits following Dell’s determination that he had breached
his employment agreement and demanded that he disgorge those
profits. This disagreement thus turns on whether the PSA was
breached (1) by Rodriguez’s pre-termination misconduct or (2) by
his post-termination refusal to return his penny share profits
after Dell demanded the return of those profits.
Rodriguez’s duty to reimburse Dell for his penny stock gains
is triggered by a “breach” of any provision of his employment
agreement. Unlike Dell’s claim under the Separation Agreement, its
32
See Lincoln v. Case, 340 F.3d 283, 289-90 (5th Cir. 2003)
(“We review the district court’s ruling on a motion for judgment
as a matter of law de novo, applying the same legal standard as
the district court.”).
23
PSA cause of action does not arise from injury to Dell resulting
from Rodriguez’s post-termination conduct; he merely became liable
for the return of his profits when he breached his
employment agreement. We hold as a matter of law that it was
Rodriguez’s breach of the employment agreement itself that violated
the PSA, so the statute of limitations began to run on this earlier
date.33 Dell advances two arguments in its defense which we now
address.
a. Continuing Contract
As noted, the general rule in Texas is that contracts are
breached, and the statute of limitations begins to run, when “facts
come into existence that authorize a claimant to seek a judicial
remedy.”34 “A cause of action arising out of contractual relations
between the parties accrues as soon as the contract or agreement is
33
Dell also contends that Rodriguez’s failure to seek a
jury instruction with respect to the accrual of Dell’s cause of
action bars his complaint on appeal. This argument fails,
however, given the testimony of Nicholas Taylor that he received
a copy of the allegedly fraudulent Valero contract on March 6,
1998, and that he immediately knew it was fraudulent because it
was “preposterous.” Also undisputed is the fact that by March 11,
1998, a formal Dell investigation had determined that the
contract was fraudulent. If “the facts as to when the cause of
action accrued were undisputed, it was not necessary to obtain
jury findings as to that fact.” Sun Medical, Inc. v. Overton,
864 S.W.2d 558, 561 (Tex. App. – Fort Worth 1993, writ denied).
As a result, Rodriguez’s Rule 50 motions on this ground should
have been granted.
34
Willis, 118 S.W.3d at 28 (citing Johnson & Higgins, 962
S.W.2d at 514).
24
breached.”35 “A continuing contract is an agreement where the
contemplated performance and payment are divided into several parts
or, where the work is continuous and indivisible, the payment for
work is made in installments as the work is completed.”36 On a
continuing contract, however, the statute of limitations does not
commence to run until the contract is terminated or fully
performed.37 Dell urges that the PSA was a “continuing contract”
for which limitations could not begin to run until Dell made the
determination that Rodriguez’s conduct was in breach of his
obligations and elected to terminate his continuing relationship
with Dell, thereby triggering the clawback provision.
In Texas, parties typically enter into continuing contracts
for projects such as construction, during which performance is made
35
Wichita Nat’l Bank v. U.S. Fidelity & Guaranty Co., 147
S.W.2d 295, 297 (Tex. Civ. App. – Fort Worth 1941, no writ). See
also Slusser v. Union Bankers Ins. Co., 72 S.W.3d 713, 717 (Tex.
App. – Eastland 2002, no pet’n) (“A cause of action generally
accrues when the wrongful act effects an injury, regardless of
when the plaintiff learned of the injury”)(citing Moreno, 787
S.W.2d at 351).
36
Hubble v. Lone Star Contracting Corp., 883 S.W.2d 379,
381 (Tex. App. – Fort Worth 1994, writ denied)(citing Godde v.
Wood, 509 S.W.2d 435, 441 (Tex. Civ. App. – Corpus Christi 1974,
writ ref’d n.r.e.); City & County of Dallas Levee Improv. Dist.
v. Halsey, Stuart & Co., 202 S.W.2d 957, 961 (Tex. Civ. App. –
Amarillo 1947, no writ)).
37
Kona Tech. Corp. v. Southern Pacific Transp. Co., 225
F.3d 595, 606 (5th Cir. 2003). If a continuing contract calls
for fixed, periodic payments, however, a separate cause of action
accrues at each missed payment. Davis Apparel v. Gale-Sobel, 117
S.W.3d 15, 18 (Tex. App. – Eastland 2003, no pet. h.).
25
in measurable increments and compensated based on the value of work
completed in each period, and for which there is a clear end-
point.38 To be sure, not every contract that Texas courts have
declared to be a “continuing contract” fits this definition.39
38
See Hubble, 883 S.W.2d 379, 381-82 (Tex. App. – Fort
Worth 1994, writ denied) (“Typically, construction is performed
under a continuing contract”); Thomason v. Freberg, 588 S.W.2d
821, 828 (Tex. App. – Corpus Christi 1979, no writ)(finding a
continuing contract when the services performed by a contractor
were not indefinite in nature, but were specific tasks meant to
continue until home improvements were completed); Godde, 509
S.W.2d at 441 (“[B]oth plaintiff and defendant clearly
contemplated a continuing contract, i.e., the contract was to
continue until plaintiff had completed the improvements in
accordance with the plans and specifications. Where a claim for
work, labor, or materials performed or furnished is the outgrowth
of an entire contract for continuous work, labor or materials
(until the work project has been completed), the claim with [sic]
be treated and considered as an entire demand and limitations
will not commence to run until the contract has been
finished”)(citations omitted); Alexander & Polley Const. Co. v.
Spain, 477 S.W.2d 301, 302-03 (Tex Civ. App. – Tyler 1972, no
writ)(ruling that a plaintiff’s agreement to remove dirt from the
premises of the defendant at a rate of $.15 per cubic foot was a
continuing contract – to continue until the plaintiff had removed
all of the dirt – and that the right to demand full payment could
not accrue until all of the dirt had been moved and the final
amount could be calculated); Halsey & Stuart, 202 S.W.2d at 960-
61 (holding that a corporation providing bond exchange services
for the city over the course of several years with payment due
upon consummation of the plan had entered into a continuing
contract which tolled the statute of limitations until the
contract had been terminated).
39
See City of Corpus Christi v. Taylor, 126 S.W.3d 712,
722, 725 (Tex. App. – Corpus Christi 2004, no pet. h.) (holding
that a restrictive covenant running with the land was a
continuing contract of indefinite duration, for purposes of
deciding whether the contract was terminable at will by either
party); Wilson v. Woolf, 274 S.W.2d 154, 156 (Tex. Civ. App. –
Fort Worth 1955, writ ref’d n.r.e) (describing a contract between
ex-spouses for the return of funds exchanged during the marriage
in the form of lifetime payments to the wife as a “continuing
26
Still, Dell has referred us to no authority —— and we have found
none on our own —— supporting the proposition that an employment
compensation agreement, payable at fixed intervals, should be
treated as a continuing contract. Indeed, Rodriguez points to at
least one Texas Court of Appeals case holding that “[t]he cause of
action for the breach of an employment contract arises immediately
upon the breach of the contract and limitations run from that
time.”40
Dell insists that its claim against Rodriguez is for breach of
the PSA, not breach of his employment contract. By its terms,
however, the PSA specified the regular issuance of shares to
Rodriguez, contingent on his continued employment with Dell. We
decline the invitation to be the first court to expand the
definition of “continuing contract” to include such an employment
agreement.
b. Discovery Rule
Dell also contends that the so-called discovery rule defeats
any limitations defense that might bar its PSA claim against
Rodriguez. Although limitations usually begin to run when facts
have come into existence that authorize a claimant to seek a
contract” under which the wife would be entitled to sue without
voiding the contract).
40
Sun Medical, 864 S.W.2d at 560 (holding that the statute
of limitations began to run immediately on an employer’s breach
of a commission contract with its employee).
27
judicial remedy, “[t]he discovery rule. . . , when applicable,
provides that limitations run from the date the plaintiff discovers
or should have discovered, in the exercise of reasonable care and
diligence, the nature of the injury.”41 We have ruled that under
Texas law, “[t]he discovery rule affords protection in only limited
instances, applying in (1) cases of fraudulent concealment; and (2)
when the nature of the injury is inherently undiscoverable and the
injury itself is objectively verifiable.”42
Even assuming, arguendo, that the discovery rule tolled the
statute of limitations until Dell learned of Rodriguez’s breach,
that occurred no later than March 6, 1998, when Nicholas Taylor
(Dell’s attorney who drafted the Separation Agreement) received the
Valero contract. Taylor testified that, as soon as he read the
Valero contract, he knew that it was a “false contract” because its
contents were “preposterous” and “outrageous” and so “totally
unusual” as to “beg disbelief.” Thus, even under the discovery
rule, the statute of limitations would have started to run on March
41
Willis v. Maverick, 760 S.W.2d 642, 644 (Tex. 1988)
(citation omitted). See also Booker v. Real Homes, Inc., 103
S.W.3d 487, 492 (Tex. App. - San Antonio 2003, pet. denied)
(“[A]ll that is required to commence the running of the
limitations period is the discovery of an injury and its general
cause, not the exact cause in fact and the specific parties
responsible.”).
42
Jackson v. West Telemarketing Corp. Outbound, 245 F.3d
518, 524 (5th Cir. 2001) (citations omitted) (emphasis added);
accord Nat’l Western Life Ins. Co. v. Rowe, 86 S.W.3d 285, 297
(Tex. App. - Austin 2002, pet. filed) (citations omitted).
28
6, 1998, making Dell’s suit, filed on March 13, 2002, (more than
four years later), time-barred.
III. CONCLUSION
Although we conclude that Dell’s claim under the Separation
Agreement is not time-barred, its claim under the Penny Share
Agreement is.43 Accordingly, we reverse the portion of the judgment
implementing the jury’s verdict in favor of Dell on the Penny Share
Agreement, and we remand this action to the district court with
instructions to enter judgment in favor of Rodriguez on Dell’s
breach of the Penny Share Agreement claim.
We also hold that (1) the trial court ruled incorrectly that
the Separation Agreement was unambiguous, and (2) Rodriguez
properly preserved this claim for appeal. We further conclude that
the trial court’s erroneous ruling on the question of ambiguity
resulted in the improper exclusion of parole evidence favorable to
Rodriguez’s proffered interpretation of the Separation Agreement;
for this reason we reverse and remand for further proceedings not
inconsistent with this opinion. In light of this disposition, the
district court’s order awarding Dell attorney’s fees must be
43
As we decide that Dell’s claim under the Penny Share
Agreement is time-barred, we need not address Rodriguez’s
argument that the merger clause in the Separation Agreement
caused the PSA’s “clawback” provision to be replaced by remedies
in the Separation Agreement. Likewise, our disposition of Dell’s
breach of contract claims makes it unnecessary to address
Rodriguez’s requests for new trial or judgment notwithstanding
the verdict.
29
vacated as well, albeit without prejudice.
AFFIRMED in part; VACATED in part; REVERSED in part and
REMANDED for further proceedings.
30