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Integrity Global Security, LLC v. Dell Marketing L.P.

Court of Appeals of Texas, Third District, Austin

May 17, 2019

Integrity Global Security, LLC, and Green Hills Software, Inc., Appellants
Dell Marketing L.P., Dell Federal Systems, L.P., and Dell Products, L.P., Appellees


          Before Chief Justice Rose, Justices Kelly and Smith.


          Jeff Rose, Chief Justice.

         Appellants Integrity Global Security, LLC, and Green Hills Software, Inc., (collectively, "IGS")[1] sued appellees Dell Marketing L.P., Dell Federal Systems, L.P., and Dell Products, L.P., (collectively, "Dell") for breach of contract. Dell answered, asserting several affirmative defenses and an alternative counterclaim for fraudulent inducement. Dell moved for summary judgment, and the trial court granted the motion, dismissing IGS's claims against Dell. On appeal, IGS argues that the trial court erred in granting Dell's motion for summary judgment, in refusing to rule on IGS's objections to Dell's summary judgment evidence, in refusing to grant IGS's motion to amend its original petition, and in refusing to grant IGS's motion for new trial. We will affirm in part and reverse in part the trial court's granting of summary judgment.

         Factual and Procedural Background

         IGS makes software for the storage and use of classified or otherwise sensitive information-such software systems are called multi-level security solutions, or MLS solutions. IGS developed and sold security solutions based on a "Real Time Operating System" that was certified in 2008 for the highest level of security classification by the National Security Agency.

         In 2008 and 2009, Dell and IGS discussed developing and selling a MLS solution that integrated IGS's technology with Dell's computers-the Dell/Integrity Secure Consolidated Client. The parties sought to develop two versions of the software platform-one for general-purpose commercial and governmental computing ("Integrity PC") and one that would be certified at "PL4 or . . . Top Secret level"[2] and that would be marketed to governmental entities that had to store, use, and communicate classified information ("Integrity CSE"). When referring to the two versions of the software platform collectively, we will follow the parties' lead and use "Integrity Enterprise."

         In May 2009, Dell and IGS signed a three-year contract under which they agreed to work together to develop and market Integrity Enterprise to "governmental and general purpose enterprise computing." IGS agreed to pursue Top Secret certification under a timetable set out in the agreement, while Dell agreed to provide IGS access to Dell's source code "so that IGS can work toward achieving desired certifications." Dell obtained "Top Secret Exclusivity," which was defined as the exclusive, non-transferrable right to sell Integrity CSE to any "Top Secret Accounts" in the United States or to "the United States Government Top Secret Accounts worldwide." In exchange for Top Secret Exclusivity, Dell agreed to pay IGS a "minimum license commitment" ("MLC") of $66 million over the three-year term, made in quarterly payments ("MLC payments").[3] In September 2009, IGS learned that the relevant BIOS[4] was programmed and/or maintained in China and that Dell could not provide the source code. Because of those circumstances, Integrity CSE was ineligible for PL5 certification, and the parties instead decided to seek PL4 certification.

         In June 2010, the parties terminated the original agreement and entered into an Amended and Restated Global Alliance Agreement ("the Agreement"). The Agreement provided that Dell would pay a slightly higher MLC-$66, 230, 000 total-in exchange for Top Secret Exclusivity. Dell could terminate for "convenience and without cause" with thirty days' notice on January 28, 2011, or with ninety days' notice thereafter, and IGS was allowed to terminate Dell's Top Secret Exclusivity if Dell had not sold a certain number of Integrity CSE licenses by certain dates. The Agreement provided that if a "termination event" by Dell or IGS occurred, "Dell's MLC shall terminate" and Dell would pay a prorated MLC payment for any "partial quarter shortened due to the termination." The Agreement further stated that if Integrity CSE "loses its Top Secret certification, accrual of the MLC ceases on the effective date of decertification and commences again upon recertification, unless otherwise terminated in accordance with this Agreement."

         The parties sought to have Integrity CSE Top Secret certified, but had to obtain a new governmental sponsor when the original sponsor-the Air Force Research Laboratory-decided it did not need PL4. As a result, the Integrity CSE was not certified as PL4 in or by August 2010, as contemplated by the parties. A new governmental sponsor-the National Air and Space Intelligence Command-was identified in November 2010, and that sponsor added certain requirements for Integrity CSE and the computers on which it would be installed.

         In January 2011, the parties signed Amendment Three to the Agreement ("the Amendment"). The Amendment provided a three-quarter long "On-Hold Time Frame" from February 1, 2011, through October 28, 2011. During the On-Hold Time Frame, Dell had "no right to terminate the Agreement," but it could terminate the Agreement "for convenience and without cause, upon not less than thirty (30) days prior written notice to IGS on November 30, 2011," or with ninety days notice thereafter. Dell's quarterly MLC payments during the On-Hold Time Frame were reduced from $3.75 million to $1.75 million, and Dell agreed to pay those quarterly MLC installments within thirty days "after the date of delivery of the deliverables" set out in the Amendment, most of which involved the provision of Integrity CSE "C&A materials"[5] or documentation. The Amendment further provided that because the quarterly payments were each $2 million less than the payments originally anticipated under the Agreement, "[n]o later than twelve (12) months after the On-Hold Time Frame expires or is terminated, Dell, shall pay to IGS the difference between the MLC payments for each Period during the On-Hold Time Frame . . . and the MLC payments actually made by Dell to IGS during the On-Hold Time Frame."

         In mid-August 2011, Dell emailed IGS notice that it would be "suspending MLC payments until we obtain PL4 certification" and that it would continue with its sales efforts based on the "PL3 that we've just obtained." In its notice, Dell expressed concerns that Integrity CSE would not achieve Top Secret certification and that Dell would therefore be unable to sell it to Top Secret Accounts, "which effectively nullifies the Top Secret Exclusivity." Dell referenced the Agreement's provision that stated that MLC would cease to accrue if Integrity CSE loses Top Secret certification, stating that "this clause, and Dell's obligation to pay the MLC, presupposes that Integrity CSE actually obtained a Top Secret certification. Again, the principal basis for the MLC payments is Top Secret exclusivity, and if the Integrity CSE is not Top Secret certified, the purpose of the Agreement is commercially frustrated and fails for lack of consideration." Dell explained that it would discontinue its MLC payments until Integrity CSE attained Top Secret certification, at which time it would recommence its payments.

         IGS responded, disagreeing that Dell could suspend its payment obligations and noting that Dell had agreed to the On-Hold Time Frame, during which Dell's sales obligations were suspended and its MLC payments were reduced. IGS stated that it had met its deliverable requirements as set out in the Amendment and that the Amendment required Dell to make its MLC payments within thirty days of IGS satisfying its deliverable requirements. IGS also asserted that none of the MLC payments "are conditional on the achievement of top secret certification." IGS stated that it wanted to continue working with Dell on Integrity Enterprise and expressed confidence that "this misunderstanding will be cleared up before the next payment is due."

         On October 28, 2011, Dell sent IGS notice that it was terminating the Agreement without cause effective November 20, 2011. In August 2015, IGS sued Dell in federal court, but that suit was dismissed for lack of diversity of citizenship in December 2015. See 28 U.S.C. § 1332. In January 2016, IGS filed the underlying suit in Travis County, asserting that Dell had breached the contract in failing to make three specific MLC payments-$1.75 million due under the third amendment on October 28, 2011, $1.25 million due November 30, 2011, [6] and $6 million due October 28, 2012. It further claimed that Dell had breached the contract by terminating it in October 2011 and by telling would-be customers that Integrity Enterprise was not commercially viable. IGS alleged damages "in an amount believed to exceed $9, 000, 000."

         Dell filed a traditional motion for summary judgment asserting: that IGS's claim for breach of contract failed because Dell terminated the contract effective October 28, 2011, relieving it of the obligation to make the $6 million MLC payment due under the Amendment on October 28, 2012; that IGS could not seek any other damages beyond those three MLC payments because it had conceded in discovery that the only damages it sought were those three payments; that the Delaware three-year statute of limitations on claims for breach of contract applied to bar IGS's claims; and that Delaware law barred IGS's claim for attorney's fees.[7] In its summary judgment response, IGS argued that Texas's four-year statute of limitations applied, not Delaware's; that Dell breached the contract by suspending its MLC payments and refusing to pay IGS; that Dell sought to rely on inadmissable parol evidence; and that IGS's claims against Dell did not accrue until thirty days after it sent Dell a demand letter in January 2012. The trial court held a hearing on Dell's motion on March 28, 2017.

         About a month later, on April 26, IGS filed a motion for leave to file an amended petition, stating that in his deposition in mid-April, Frank Muehleman, former General Manager of Dell Federal, testified that he had terminated the Agreement in August 2011. IGS argued that if the Agreement had been terminated in August 2011, it "could not be terminated without cause at the end of November 2011." IGS asked for leave to amend its petition to allege that "Dell terminated the Agreement in early August 2011 for cause," in violation of and "contrary to the terms of" the Amendment, amounting to breach of contract or wrongful termination of the contract. On May 5, the trial court signed its order granting Dell's motion for summary judgment "on all grounds" without having ruled on IGS's motion for leave to amend. IGS filed a timely motion for new trial, in which it noted that its motion was still pending, as was its "Request for Ruling, or in the Alternative, Request for Hearing to Argue Pending Evidentiary Objections," which objected to Dell's summary judgment evidence. IGS asserted that Muehleman's deposition had provided newly discovered evidence of additional breaches of the Agreement and Amendment. The trial court did not rule on IGS's motion for new trial, which was overruled by operation of law, see Tex. R. Civ. P. 329b(c), nor does it appear to have ruled on IGS's evidentiary objections or its motion for leave to amend.

         IGS argues that the trial court erred in granting Dell's motion for summary judgment. It argues that there were genuine issues of material fact as to whether Dell properly suspended the $1.75 million and $1.25 million payments due in October and November 2011 and whether the $6 million payment due in October 2012 was a "new" MLC or a preexisting obligation that survived the termination of the Agreement. IGS further contends that Dell's arguments related to limitations are incorrect and could not be proper grounds for summary judgment and that the evidence raised questions about whether Dell terminated the contract in August 2011, rendering the October 28, 2011 termination letter a nullity, or was estopped from terminating the contract by its representations in August that it intended to continue working with IGS on the project. IGS also asserts that the trial court erred in refusing to rule on its objections to Dell's summary judgment evidence and on its motion for leave to amend its petition and in refusing to grant its motion for new trial.

         $6 Million MLC Payment

         We first consider the parties' arguments related to the $6 million payment. In reviewing a trial court's granting of summary judgment, we consider whether the movant showed that it was entitled to judgment as a matter of law, taking as true all evidence favorable to the non-movant and indulging reasonable inferences and resolving doubts in its favor. Community Health Sys. Prof'l Servs. Corp. v. Hansen, 525 S.W.3d 671, 680 (Tex. 2017). The Agreement's choice-of-law provision requires us to apply the substantive law of Delaware in interpreting the contract.[8] See Arkoma Basin Expl. Co. v. FMF Assocs. 1990-A, Ltd., 249 S.W.3d 380, 387 & n.17 (Tex. 2008); HealthTronics, Inc. v. Lisa Laser USA, Inc., 382 S.W.3d 567, 576 (Tex. App.-Austin 2012, no pet.).

         Dell asserted in its motion for summary judgment that when it terminated the contract in October 2011, effective November 30, 2011, its obligation to make further MLC payments, including the $6 million payment due in October 2012, also terminated. IGS, on the other hand, insists that the $6 million MLC payment was "an existing obligation to pay the full MLC due" during the On-Hold Time Frame and not a "new" MLC that could be terminated along with the Agreement. IGS argues that Dell was required to pay MLC sums as set forth in Table 2 of the Agreement and that the Amendment did not alter that table but instead merely put the "date of payment for the $6 million earned during [the On-Hold Time Frame] . . . on hold for one year." Because the $6 million was due under the Agreement, IGS contends, it survived Dell's termination of the Agreement. Based on the plain language of the Agreement and Amendment, we cannot agree.

         The Agreement provides that "[t]he validity, construction, scope and performance of the Agreement shall be governed by the laws of the State of Delaware, without giving effect to any choice of law rules that may require the application of the laws of another jurisdiction." Under Delaware law, as in Texas, when "the plain language of a contract is unambiguous i.e., fairly or reasonably susceptible to only one interpretation, we construe the contract in accordance with that plain meaning and will not resort to extrinsic evidence to determine the parties' intentions." BLGH Holdings LLC v. enXco LFG Holding, LLC, 41 A.3d 410, 414 (Del. 2012). A contract is not ambiguous simply because the parties disagree on its interpretation but when its language can fairly or reasonably be given different interpretations or may have multiple meanings. Rhone-Poulenc Basic Chems. Co. v. American Motorists Ins. Co., 616 A.2d 1192, 1196 (Del. 1992). A contract is unambiguous if we can determine its meaning with only knowledge of the basic facts on which its meaning depends. Id. "The true test is not what the parties to the contract intended it to mean, but what a reasonable person in the position of the parties would have thought it meant." Id.

         IGS argues that the Amendment did not change Table 2 of the Agreement, which it contends provided that IGS "earned" the $6 million during the On-Hold Time Frame in exchange for granting Dell Top Secret Exclusivity during that time. Because the deferred $6 million was "due under Table 2," IGS argues, that obligation survived Dell's termination of the contract.

         The contract, when read as a whole, explicitly provides that Dell's MLC obligation was divided into payments through the term of the contract and that those payments would cease upon termination of the contract. Although Dell agreed to pay $6 million a year after the On-Hold Time Frame ended, the Agreement also provided that upon termination of the contract, "Dell's MLC shall terminate," and the Amendment explicitly included a date of possible termination. The parties thus appear to have contemplated that the contract might end before its intended three-year term, and the Amendment does not state that the deferred $6 million was owed regardless of contract termination. We construe the plain language of the contract to mean both that the $6 million MLC was deferred while the parties continued to work on the project and achieving Top Secret certification and that Dell's obligation to make that payment ended when it terminated the contract. This construction follows from the four corners of the contract. See BLGH Holdings, 41 A.3d at 414. Based on the summary judgment evidence before the trial court at the time it signed its order, the court properly granted Dell summary judgment as to the $6 million MLC payment.[9]

         $1.75 and $1.25 Million MLC Payments

         We next consider whether the trial court properly granted summary judgment as to the $1.75 million due October 28, 2011, and $1.25 million due November 30, 2011. Dell argues that IGS's claims related to those payments were brought too late and are barred by limitations.

         1.Does Texas's or Delaware's Statute of ...

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