Dell Computer Corp. v. Rodriguez

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