Atlantis Information Technology, GmbH v. CA, Inc.
Filing
163
MEMORANDUM AND ORDER granting in part and denying in part 108 Motion for Summary Judgment; denying 113 Motion for Summary Judgment; denying as moot 118 Motion for Partial Summary Judgment; granting 156 Motion to Strike. For the foregoin g reasons, Atlantis' motion for partial summary judgment on the liability aspect of its breach of contract claim (Docket Entry 113) is DENIED. Its motion for summary judgment on CA's affirmative defense (Docket Entry 108) is GRANTED IN PART AND DENIED IN PART. Specifically, it is granted as to CA's theory that it would have begun developing software similar to E/NAT as soon as it learned of Atlantis' alleged breach. It is also granted to the extent that it seeks to prevent CA from asserting its affirmative defense or counterclaims for the period prior to the date of the Settlement Agreement. It is denied in all other respects. CA's motion for partial summary judgment as to the meanings of "install" and &qu ot;use" (Docket Entry 118) is DENIED AS MOOT inasmuch as the Court ruled on these issues in the context of Atlantis' motion for partial summary judgment on its breach of contract claim. Atlantis' letter motion to preclude further testimony of Dieter Storr (Docket Entry 156) is GRANTED. CA is precluded from offering Storr's testimony at trial. So Ordered by Judge Joanna Seybert on 9/28/11. C/ECF (Valle, Christine)
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF NEW YORK
--------------------------------------X
ATLANTIS INFORMATION
TECHNOLOGY, GmbH,
Plaintiff,
-against-
MEMORANDUM & ORDER
06-CV-3921(JS)(ETB)
CA, INC.,
Defendant.
--------------------------------------X
APPEARANCES:
For Plaintiff:
J. Christopher Jensen, Esq.
Ronald W. Meister, Esq.
Eric Joseph Shimanoff, Esq.
Jonathan Z. King, Esq.
Cowan, Liebowitz & Latman, P.C.
1133 Avenue of the Americas
New York, NY 10036-6799
For Defendant:
John P. McEntee, Esq.
Norma B. Levy, Esq.
Patrick Collins, Esq.
Kevin Patrick Mulry, Esq.
Farrell Fritz, P.C.
EAB Plaza, West Tower, 14th Floor
Uniondale, NY 11556-0120
Michael D. Schissel, Esq.
Pamela Addison Miller, Esq.
Anthony D. Boccanfuso, Esq.
Arnold & Porter LLP
399 Park Avenue
New York, NY 10020-4690
Adam T. Bernstein, Esq.
CA, Inc.
1 CA Plaza
Islandia, NY 11749
SEYBERT, District Judge:
Plaintiff
Atlantis
Information
Technology,
GmbH
(“Atlantis”) sued Defendant CA, Inc. (“CA”) for CA’s alleged
underpayment of software royalties under the parties’ licensing
agreement.
CA
asserted
counterclaim
based
on
both
an
Atlantis’
updates for the software.
affirmative
alleged
defense
failure
to
and
a
develop
Pending before the Court are three
motions for summary judgment: (1) Atlantis’ motion for partial
summary judgment on liability for its breach of contract claim;
(2) Atlantis’ motion for summary judgment on CA’s affirmative
defense and breach of contract counterclaim; and (3) CA’s motion
for partial summary judgment as to the meaning of the words
“installation” and “use” in the Software License Agreement (the
“SLA”).1
The first motion is DENIED and the second motion is
GRANTED IN PART AND DENIED IN PART.
The third motion is DENIED
AS MOOT, inasmuch as the Court addressed CA’s arguments on that
motion in its rulings on Atlantis’ first motion.
1
There are three sets of motion papers pending before the Court.
For relative ease of reference, the Court refers to the papers
in support of the first motion as “Pl. Breach Br. __,” “Def.
Breach Opp. __,” and “Pl. Breach Reply __,” respectively.
The
Court refers to the papers in the second motion, which concerns
Atlantis’ alleged failure to enhance and update the E/NAT
software, as “Pl. Update Br. __,” “Def. Update Opp. __,” and
“Pl. Update Reply __,” respectively.
The Court refers to the
third set of papers as “Def. Interpretation Br. __,” “Pl.
Interpretation Opp. __,” and “Def. Interpretation Reply __,”
respectively.
2
Also pending is Atlantis’ letter motion to preclude
the testimony of one of CA’s expert witnesses.
That motion is
GRANTED.
BACKGROUND
CA developed and licensed a software program called CA
Endevor Software Change Manager (“Endevor”) to businesses that
develop mainframe applications.
(Def. Update Opp. 2.)
As CA
helpfully explains, Endevor is akin to a “track changes” tool
for software developers.
IBM-supported
computer
The program works with certain
(Id.)
programming
languages.
(Id.)
Programmers who use the “Natural” computer language, which is
not
supported
by
IBM,
cannot
use
Endevor
to
manage
their
development unless they also deploy interfacing software as a
bridge between Endevor’s track changes function and the Natural
programming language.
bridged
that
gap.
(See id.)
(Alexander
“Gaugler Breach Decl.” ¶ 4.)
Atlantis’ “E/NAT” software
Gaugler
Breach
Declaration
With E/NAT, CA’s customers could
use Endevor to track the development of applications rooted in
the Natural programming language.
I. The Software License Agreement
In February 1997, CA and Atlantis entered into a SLA
that granted CA a worldwide license to use, market, distribute
and sublicense E/NAT software.
(See generally Gaugler Breach
Decl. Ex. A, SLA (“SLA ¶ _”).)
3
In general terms, the SLA
required CA to pay Atlantis substantial royalties in exchange
for its licensing rights.
Subsection
1(a)
(See SLA ¶ 5.1.)
of
Exhibit
B
to
the
SLA
(the
“Royalties Provision”) described how to calculate royalties:
Royalties.
For each copy of the Product
distributed by CA to Customers, CA shall pay
a royalty equal to forty percent (40%) of
the Net License Fees revenues received by CA
from the licensing of the Products by CA to
Customers or Distributors and fifty percent
(50%) of the Net Maintenance Fee revenues.
(SLA, Ex. B ¶ 1.a.)
“Net License Fees” were defined in relevant
part as “the aggregate license fee revenues (including year 1
maintenance service if bundled with the initial license price)
collected
license
by
CA
during
agreements
Maintenance
Fees”
each
CA
respecting
were
fiscal
the
defined
quarter
Product.”
in
relevant
pursuant
(Id.)
part
as
to
“Net
“the
aggregate maintenance renewal revenues collected by CA during
each CA fiscal quarter pursuant to license agreements respecting
the Product.”
(Id.)
Exhibit B’s “Bundled Product Sales” clause described
how
royalties
would
be
calculated
when
CA
licensed
together with its own software programs:
Bundled Product Sales.
If the Product is
licensed or leased with other hardware or
software products priced together or sold as
a single unit or as part of a combined lease
or license of the Product with such other
products (a “Bundled Product Sale”), then
the Net License Fee and Net Maintenance Fee
4
E/NAT
amounts arising from such Bundled Product
Sales
will
be
the
pro-rata
amount
attributable to the Product, with such
allocation being based on CA’s standard list
prices for each of the products included in
the Bundled Product Sale in question (i.e.,
a greater discount will not be applied to
the Supplier Products than to the bundled CA
software products included in the same
sale).
(SLA, Ex. B ¶ 1.b.)
Because royalties were pegged as a percentage of the
licensing
revenues
CA
received
from
its
customers,
the
SLA
contained a “reasonable efforts” clause that required CA to “use
reasonable efforts to ensure that it does not offer discounts in
excess of thirty percent (30%) from” Atlantis’ then-prevailing
list prices without first consulting Atlantis.
(SLA Ex. B ¶
1.c.)
II. The Second Amendment
In
July
1998,
CA
and
Atlantis
executed
Number Two to the SLA (the “Second Amendment”).2
Decl. ¶ 16.)
Amendment
(Gaugler Breach
The Second Amendment deleted the SLA’s Royalties
Provision and replaced with a clause that read, in relevant
part:
Royalties.
For each copy of the Product
distributed by CA to Customers, CA shall pay
an “Initial License Fee” which is defined as
an amount equal to thirty-four percent (34%)
of the “G1” list price for licensing and
2
The parties apparently amended the SLA once before, but the
“First Amendment” is not relevant to this dispute.
5
maintenance
during
the
Initial
License
Period . . . for each license agreement
respecting the Product.
(Gaugler Breach Decl. Ex. B, Second Amendment ¶ 1.a.)
The “G1
List Price” was “the one time [sic] fee paid by a licensee
inclusive of usage and maintenance for a one year period (as
provided in CA’s then standard ‘Order Form’).”
(Id. ¶ 1.b.)3
According
to
Atlantis,
determined
reference
to
a
table
the
where
G1
List
prices
Price
varied
was
according
to
by
the
processing power of the computer on which E/NAT was licensed, as
expressed in millions of instructions per second, or “MIPS.”
(Pl. Breach Br. 11.)
III. Royalty Dispute, Settlement Agreement and Third Amendment
Around 2004, the parties began disputing the amount of
CA’s royalty obligation.
eventually
resolved
(Gaugler Breach Decl. ¶ 25.)
their
differences,
and
They
simultaneously
executed a Settlement Agreement and a Third Amendment to the SLA
(the “Third Amendment”).
(Id. ¶ 26.)
A. Settlement Agreement
Dated
December
10,
2004,
the
Settlement
Agreement
provided in relevant part that CA would pay Atlantis $500,000
and both parties would release each other “from any and all
claims, known or unknown, asserted or unasserted, which arise
3
The parties dispute whether CA’s Order Form was incorporated by
reference into the Second Amendment, but this point is not
material to the Court’s analysis.
6
out
of
or
relate
in
any
way
to:
(i)
the
Software
License
Agreement for the period February 28th, 1997 until [December 10,
2004].”
(Gaugler Breach Decl. Ex. C, Settlement Agreement ¶ 3.)
The release had two exceptions, but only one is relevant here:
“Atlantis does not release CA . . . from any claims, obligations
or liabilities relating to any royalties due Atlantis for: . . .
any licensees and/or installations of the Products that have not
been
disclosed
on
any
royalty
report
prepared
delivered to Atlantis prior to June 30th, 2004.”
by
CA
and
(Id. ¶ 4.)
B. Third Amendment
The Third Amendment was another attempt to clarify the
royalty
formula.
In
relevant
part,
the
Third
provided:
WHEREAS, the parties wish to amend the [SLA]
by the addition of clarifying sections to
the existing royalty and payment terms of
the [SLA];
. . .
I. Amendments to the Principal Royalty and
Payment Terms of the Agreement
1. Any and all royalty and payment terms of
the
[SLA],
in
particular,
without
limitation,
Exhibit
B
of
the
[SLA],
“Commercial Terms”, shall hereby be amended
to the following effect:
Royalties.
For each copy of the Product
distributed by CA to customers, CA shall pay
to Atlantis an amount equal to thirty-four
percent (34%) of the “G1” list price, which
fee shall be inclusive of maintenance for
7
Amendment
the one (1) year period after the delivery
of the Product from CA to CA’s customer. . .
.
(Gaugler Breach Decl. Ex. D, Third Amendment at 1.)
Price
was
defined
in
a
way
similar
to
the
The G1 List
Second
Amendment
(id.), and this time the price table, which pegged royalties to
the computing power of the machine on which E/NAT was licensed,
was explicitly incorporated into the contract (id. at 2).
As
with the Second Amendment, the Third Amendment required CA to
report certain data about its customers and their computers.
(Id. at 3.)
The Third Amendment also contained language addressing
how
to
compute
royalties
when
E/NAT
was
used
on
multiple
computers:
In case a client uses the software on more
than one (1) MACHINE, the following rules
shall be applied:
1. The largest MACHINE on which the software
is installed shall be used to calculate the
basic fees (with 34% royalty).
2.
For
each
additional
MACHINE
the
additional royalties shall be 20% (instead
of 34%) of the “G1” list price.
(Id. at 2 (emphasis added).)
IV. MIPS Licensing and the Present Royalty Dispute
The
present
royalty
dispute
centers
around
the
two
methods CA allegedly used to calculate its royalty obligation.
To understand Atlantis’ claims, however, it is helpful to start
8
with a discussion of “MIPS Licensing.”
licensed
E/NAT
in
a
software products.
bundle,
often
In almost all cases, CA
with
(Def. Breach Opp. 4.)
hundreds
of
other
Although customers
had the option of licensing a software product for use on a
specified mainframe, a so-called “Designated CPU License,” the
majority of CA’s customers opted for a “MIPS License.”
As CA
explains, a MIPS License:
allows a client to use a licensed bundle of
software products up to a certain MIPS
capacity.
The customer may install any or
all of the licensed products on one or more
of its CPUs, provided that the aggregate
power of those computers does not exceed the
total licensed MIPS capacity in the license
agreement.
(Def.
Contract
Opp.
5
(citations
omitted).)
There
is
no
evidence that any MIPS License customer actually installed E/NAT
on more than one computer; in CA’s view, that is unsurprising
because E/NAT is designed for the type of database development
work
that
is
typically
performed
on
mainframes within each customer’s network.
Atlantis
alleges
that
CA
single,
segregated
(See id.)
devised
two
formulas
for
calculating royalties, neither of which conformed to the SLA or
the applicable amendments.
First, Atlantis claims that during
the Second Amendment Atlantis simply paid a royalty based on the
G1
List
Price
of
each
customer’s
most
powerful
computer,
regardless of whether that customer was licensed to use E/NAT on
9
more than one computer.
(Pl. Breach Br. 14.)
Second, Atlantis
claims that, during the Third Amendment, CA devised a complex
“MIPS
allocation”
formula
are
not
formula.
entirely
Although
clear
to
the
the
contours
Court,
it
of
this
apparently
determined royalties in part based on the relative number of
MIPS each customer needed to run E/NAT as compared to the MIPS
it needed for the other software in the licensed bundle.
Pl. Breach Br. 19.)
(See
In Atlantis’ view, both formulas violated
the unambiguous language of the SLA and its amendments.
V. The Enhance and Update Clause
Apart
from
the
royalty
dispute,
the
parties
also
disagree whether Atlantis breached the SLA’s “Update Clause,”
which required Atlantis to “continuously enhance and update the
Product to ensure that the Product supplied to CA will include .
. . all modifications necessary to support new versions of the
CA Software on the MVS Operating Environment.”
(SLA ¶ 2.4.)
According to CA, Atlantis was slow to develop updates for E/NAT,
unveiling only one “version” upgrade and one “point” upgrade in
ten years.
(Def. Update Br. 3.)4
From as early as 1999, Atlantis repeatedly reassured
CA that it was working on E/NAT Version 3.0.
4
For example, in
A “version” upgrade (e.g., Version 2.0 to Version 3.0) is a
change to the software’s core functionality, while a “point”
upgrade (e.g., Version 2.2 to Version 2.3) is a change to the
software’s features without changes to its core functionality.
(Def. Update Br. 3.)
10
June 1999, Alexander Gaugler--Atlantis’ Managing Director (see
Pl. Breach 56.1 Stmt. ¶ 20)--told a CA employee that “We are
currently
developing
the
basic
functions
for
E/NAT
(Pamela Miller Declaration (“Miller Decl.”) Ex. 2.)
3.0.”
Two years
later, he told a different CA employee that Atlantis expected to
be ready for beta-testing on Version 3.0 in the fourth quarter
of 2001 and that the final version should be ready by the second
quarter of 2002.
(Miller Decl. Ex. 3.)
In March 2002, Gaugler
told the same employee that Atlantis was not yet beta-testing
Version 3.0, but that “I’m sure that we are close to it now.”
(Id.)
More than a year later, CA again asked about Version
3.0’s status, and Gaugler responded: “We are making progress
with E/NAT 3.0 but still not the exicting [sic], news you are
waiting for.”
(Miller Decl. Ex. 4.)
Less than two weeks later,
Gaugler told CA that Version 3.0 would not be ready for beta
testing until at least 2004.
(See Miller Decl. Ex. 5.)
In
November 2003, CA received an inquiry about possible updates to
E/NAT, and Gaugler again reassured that Atlantis was developing
a new release:
Unfortunately your impression about the
updates is correct. However, we are working
on the new release, but for several reasons
it took much longer than ever expected. Due
to our move to the new office (and the side
effects) I now hope that we’ll do the big
step in the 2nd quarter next year. I know,
it looks like we aren’t doing further
development, but that’s not the reality! Of
11
course, we provided all fixes necessary and
see some increase in sales requests.
(Miller Decl. Ex. 8.)
Despite
Gaugler’s
assurances,
ready even towards the end of 2005.
Version
3.0
was
not
In November 2005, CA asked
Gaugler whether Atlantis had updated E/NAT to address a specific
customer’s concern.
(Miller Decl. Ex. 9.)
Gaugler responded:
“E/NAT v3 is not yet available (no comments, please).
will become available!!!”
But it
(Id.)
During his 2008 deposition, Gaugler stated that, due
to
Atlantis’
earlier
royalty
dispute
with
CA,
Atlantis
had
stopped development on E/NAT Version 3.0 between 2002 and 2003.
(Miller Decl. Ex. 10, Gaugler 1/24/08 Dep. 93-94.)
According to CA, when the parties’ relationship began
deteriorating in 2006, it developed its own software to replace
E/NAT.
The development took approximately one year and cost
approximately $650,000.
(See Def. Update Opp. 9.)
DISCUSSION
The Court first addresses Atlantis’ motion for partial
summary
judgment
contract claim.
the
arguments
judgment
“use.”
on
the
liability
aspect
of
its
breach
of
In ruling on this motion, the Court addresses
CA
concerning
makes
the
in
its
plain
motion
meanings
for
of
partial
summary
“installation”
and
The Court next considers Atlantis’ motion for summary
12
judgment
on
CA’s
counterclaim.
affirmative
Finally,
the
defense
Court
and
breach
considers
of
contract
Atlantis’
letter
motion to preclude one of CA’s experts.
Summary judgment is only appropriate where the moving
party can demonstrate that there is “no genuine dispute as to
any material fact” and that the moving party is entitled to
judgment
as
a
matter
of
law.
FED. R. CIV. P.
56(a).
In
considering this question, the Court considers “the pleadings,
depositions, answers to interrogatories and admissions on file,
together
any
other
firsthand
limited to affidavits.”
information
including
but
not
Nnebe v. Daus, 644 F.3d 147, 156 (2d
Cir. 2011); see also Celotex Corp. v. Catrett, 477 U.S. 317,
322, 106 S. Ct. 2548, 2552, 91 L. Ed. 2d 265, 273 (1986); McLee
v. Chrysler Corp., 109 F.3d 130, 134 (2d Cir. 1997); see also
FED. R. CIV. P. 56(c).
“In assessing the record to determine
whether there is a genuine issue to be tried . . . the court is
required to resolve all ambiguities and draw all permissible
factual inferences in favor of the party against whom summary
judgment is sought.”
McLee, 109 F.3d at 134.
The burden of
proving that there is no genuine issue of material fact rests
with the moving party.
Gallo v. Prudential Residential Servs.,
L.P., 22 F.3d 1219, 1223 (2d Cir. 1994) (citing Heyman v. Com. &
Indus. Ins. Co., 524 F.2d 1317, 1320 (2d Cir. 1975)).
Once that
burden is met, the non-moving party must “come forward with
13
specific facts,” LaBounty v. Coughlin, 137 F.3d 68, 73 (2d Cir.
1998),
to
demonstrate
that
“the
evidence
is
such
that
a
reasonable jury could return a verdict for the nonmoving party,”
Anderson
v. Liberty Lobby, 477 U.S. 242, 257, 106 S. Ct. 2505,
2514-15,
91
L.
Ed.
2d
202,
218
(1986).
allegations or denials will not suffice.”
781 F.2d 319, 323 (2d Cir. 1986).
“Mere
conclusory
Williams v. Smith,
And “unsupported allegations
do not create a material issue of fact.”
Weinstock v. Columbia
Univ., 224 F.3d 33, 41 (2d Cir. 2000).
I. Royalty Payments
Atlantis claims that CA breached the SLA by improperly
calculating its E/NAT royalty obligations under the Second and
Third
Amendments
and
by
failing
to
obligations under the Third Amendment.
meet
its
reporting
These disputes stem from
an overall failure of the SLA to speak more directly to the
concept
of
MIPS
Licenses
as
opposed
understood CPU-specific licenses.
best
understood
by
breaking
it
to
the
more
commonly
In any event, the case is
down
into
two
time
periods:
during the Second Amendment and during the Third Amendment.
A. The Second Amendment
During the Second Amendment, Atlantis claims that CA
only
paid
royalties
on
one
CPU
per
customer,
regardless
of
whether that customer was licensed to use E/NAT on more than one
machine.
According
to
Atlantis,
14
CA
deliberately
failed
to
report customers’ additional CPUs, thereby cheating Atlantis out
of royalties owed to it under the Second Amendment, which pegged
royalty payments as a percentage of the “list price” for each
CPU.
(Pl. Breach Br. 3.)
This theory is largely foreclosed by
the Settlement Agreement.5
In
unambiguously
relevant
releases
part,
CA
the
from
Settlement
royalty
claims
Agreement
except
those
relating “to any royalties due Atlantis for: (A) any licensees
and/or
installations
of
the
Products
that
have
not
been
disclosed on any royalty report prepared by CA and delivered to
Atlantis prior to June 30th, 2004 . . . .”
C, Settlement Agreement ¶ 4.)
“installations”
plainly
The Court agrees with CA that
means
“licensed for installation.”
(Gaugler Decl. Ex.
“actually
installed,”
not
Contract terms must be given their
plain and ordinary meaning, e.g., Nisari v. Ramjohn, 85 A.D.3d
987, 989, 927 N.Y.S.2d 358, 361 (2d Dep’t 2011), and MerriamWebster’s,
for
example,
defines
5
the
term
as
“1:
the
act
of
Atlantis argues that CA’s motion for partial summary judgment
on Atlantis’ breach of contract claim, which asks the Court to
rule on the meaning of the words “installation” and “use” within
the meaning of the Settlement Agreement and Third Amendment,
respectively, is procedurally improper because it would not
dispose of an entire claim.
(Pl. Interpretation Opp. 3.)
The
Court rejects Atlantis’ effort to convince it to ignore the
language of the Settlement Agreement and the Third Amendment.
The arguments CA advances in its partial summary judgment motion
are the same ones it raises in opposition to Atlantis’ own
motion for partial summary judgment on its breach of contract
claim, and the Court would thus consider these arguments
regardless of the procedural vehicle used to make them.
15
installing:
the
state
of
being
installed
2:
something
is
installed for use,” MERRIAM-WEBSTER’S COLL. DICT. (10th ed. 2002)
(emphasis added).
Atlantis’ reliance on terms in the SLA and
its amendments suggesting that licensing (rather than “use”) was
the
touchstone
irrelevant
the
the
in
of
face
parties’
of
an
business
unambiguous
arrangement
term
such
is
as
See, e.g., Greenfield v. Philles Records, Inc.,
“installation.”
98 N.Y.2d 562, 569, 780 N.E.2d 166, 170, 750 N.Y.S.2d 565, 569
(2002)
(“[A]
written
agreement
that
is
complete,
clear
and
unambiguous on its face must be enforced according to the plain
meaning of its terms.”).
Accordingly, CA can only be liable for
royalties under the Second Amendment to the extent they arise
from unreported licensees or instances where E/NAT was actually
installed on its customers’ machines.
CA
admits
that
it
failed
to
disclose
a
relative
handful of licensees or installations prior to the Settlement
Date, and concedes that it owes Atlantis a corresponding amount
of royalties.
party
has
(Def. Interpretation Br. 7.)
moved
for
summary
judgment
on
Inasmuch as neither
the
amount
of
CA’s
outstanding liability, how to calculate the royalties under the
Second Amendment for the undisclosed licensees or installations
is not before the Court.
16
B. The Third Amendment
Atlantis claims that CA breached the Third Amendment
by not complying with its reporting obligation and by improperly
calculating
royalty
payments
during
this
period.
“[S]ummary
judgment may be granted in a contract dispute only when the
contractual language on which the moving party's case rests is
found
to
meaning.”
be
wholly
unambiguous
and
to
convey
a
definite
Topps Co., Inc. v. Cadbury Stani S.A.I.C., 526 F.3d
63, 68 (2d Cir. 2008).
An agreement is ambiguous where “a
reasonably intelligent person viewing the contract objectively
could interpret the language in more than one way.”
Id.
“To the extent the moving party's case
hinges
on
ambiguous
contract
language,
summary judgment may be granted only if the
ambiguities
may
be
resolved
through
extrinsic evidence that is itself capable of
only one interpretation, or where there is
no extrinsic evidence that would support a
resolution of these ambiguities in favor of
the nonmoving party's case.”
Id.
1. Calculating Royalties under the Third Amendment
Under the Third Amendment, the issue is whether CA
breached
its
according
to
Amendment
does
royalty
its
obligations
not
“allocated
“convey
by
MIPS”
a
computing
formula.
definite
its
As
meaning”
payments
the
as
to
Third
how
royalties should have been calculated for MIPS Licenses during
17
this period, summary judgment is denied.
See Topps Co., 526
F.3d at 68.
Atlantis
maintains
that
the
Third
Amendment
unambiguously required CA to pay it a percentage of the G1 List
Price for every CPU on which customers could have used E/NAT
(See Pl. Breach Br. 16-17.)
under their licenses.
While this
formula applies to Designated-CPU Licenses in a straightforward
way, it is not at all clear that this scheme applies to MIPS
Licenses.
bundle
of
A
MIPS
software
License
to
use
allowed
that
customers
software
on
who
any
paid
for
number
a
of
computers, provided that the combined computing power of these
machines stayed under an agreed-upon MIPS cap.
In other words,
if a customer paid for a MIPS License and had five mainframes,
it theoretically could run E/NAT on all five machines as long as
the combined computing power of the mainframes did not exceed
the MIPS capacity specified in the license.6
(See id.)
In
Atlantis’ view, if CA gave a MIPS License to a customer with
five computers, CA was obligated to pay royalties calculated as
a percentage of the list price of each machine, regardless of
whether E/NAT was ever installed or used on more than one CPU.
(Pl. Breach Reply 4 (arguing that “CA did not pay Atlantis [the]
6
As mentioned in the background section, CA asserts that because
E/NAT was meant for development work, CA’s customers typically
used the software on only one of its machines, which was kept
segregated from the customers’ network. See supra at 9.
18
list
price
for
each
one
of
its
customers’
CPUs
that
were
licensed to use E/NAT.”) (emphasis added).)
Atlantis’
position
Amendment’s plain language.
is
undercut
by
the
Third
As discussed earlier, the Third
Amendment contained the following two provisions.
The first is
what the Court will refer to as the “first computer” royalty
provision:
Royalties.
For each copy of [E/NAT]
distributed by CA to customers, CA shall pay
to Atlantis an amount equal to thirty-four
percent (34%) of the “G1” list price, which
fee shall be inclusive of maintenance for
the first one (1) year period after the
delivery
of
[E/NAT]
from
CA
to
CA’s
customer.
(Gaugler Decl. Ex. D at 1.)
The second is what the Court will
refer to as the “more than one computer” provision:
In case a client uses the software on more
than one (1) MACHINE, the following rules
shall be applied:
1. The largest MACHINE on which the software
is installed shall be used to calculate the
basic fees (with 34% royalty).
2.
For
each
additional
MACHINE
the
additional royalties shall be 20% (instead
of 34%) of the “G1” list price.
(Gaugler
Breach
Decl.
Ex.
D
at
2
(emphasis
added).)
Read
together, these provisions strongly suggest that after the first
computer, CA would only be liable for royalties to the extent
its customers actually used E/NAT on their second, third or
19
fourth machines.
that
in
the
Atlantis’ interpretation of the Agreement--
MIPS
License
scenario,
CA
was
responsible
for
royalties for every computer on which its customers could have
used
E/NAT--would
render
computer” provision.
in such a way.
meaningless
the
“more
than
one
Courts are loathe to interpret a contract
See, e.g., Manley v. AmBase Corp., 337 F.3d 237,
250 (2d Cir. 2003) (New York law “disfavors interpretations that
render contract provisions meaningless or superfluous”).
Atlantis
has
failed
to
meet
its
burden
of
demonstrating that the Third Amendment is “wholly unambiguous”
and “convey[s] a definite meaning” with respect to how CA’s
royalty obligation is computed when E/NAT is bundled with other
software in a MIPS License.
See Topps. Co., 526 F.3d at 68.
To state the obvious, this decision should not be read to mean
that CA had leave to invent any type of royalty formula it
thought appropriate; rather, Atlantis simply has not proven at
this
stage
that
CA’s
parties’ agreement.
“allocated
MIPS”
method
violated
the
The Third Amendment does not provide a
clear answer, and Atlantis has not pointed to extrinsic evidence
that
sheds
judgment
is
any
light
denied
on
on
the
this
issue.
aspect
contract claim.
20
of
Accordingly,
Atlantis’
summary
breach
of
2. CA’s Reporting Obligation
Atlantis also maintains that CA breached its reporting
obligations under the Third Amendment.
Third Amendment at 3.)
(Gaugler Decl. Ex. D,
It is unclear what, if any, Atlantis’
damages were for this alleged breach, particularly in light of
its failure to establish as a matter of law how MIPS License
royalties should have been calculated under the Third Amendment.
Because damages is an element of a breach of contract claim,
summary judgment is denied on this point.
First Investors Corp.
v. Liberty Mut. Ins. Co., 152 F.3d 162, 168 (2d Cir. 1998).
II. Atlantis’ Obligation to Develop Updates
CA argues that Atlantis failed to “enhance and update”
E/NAT during the life of the SLA.
CA asserts this argument as
both a breach of contract counterclaim and as an affirmative
defense to Atlantis’ breach of contract claim.
The “Update
Clause”
provides
continuously
enhance
and
supplied
to
in
update
CA
part
the
will
that
Product
include:
.
Atlantis
to
“shall
ensure
.
.
(ii)
that
all
the
Product
modifications
necessary to support new versions of the CA Software on the MVS
Operating Environment.”
halted
development
concealed
that
work
fact
(SLA ¶ 2.4.)
as
from
early
CA.
CA claims that Atlantis
as
2002
and
deliberately
(See
Def.
Update
Opp.
1.)
Atlantis argues that CA’s damages theory is fatally flawed, that
CA
waived
its
right
to
assert
21
its
rights
under
the
Update
Clause, and that CA’s counterclaim is barred by the Settlement
Agreement.
(Pl. Update Br. 9, 16, 20.)
For the following
reasons, this motion is GRNATED IN PART AND DENIED IN PART.
A. CA’s Purported Damages
Atlantis argues CA’s flawed damages theory precludes
its affirmative defense and counterclaim.
an
action
for
breach
of
contract
“Under New York law,
requires
proof
of
(1)
a
contract; (2) performance of the contract by one party; (3)
breach by the other party; and (4) damages.”
First Investors,
152
omitted).
F.3d
at
168
(internal
quotation
marks
CA’s
alleged damages are based on restitution premised on a royalty
payment and on expectation damages premised on the idea that CA
would
have
ceased
paying
Atlantis
royalties
as
soon
as
it
learned of the alleged breach and developed a replacement for
E/NAT.
(Def. Update Opp. 18-19.)
As
an
initial
matter,
damages
is
not
a
element of CA’s nonperformance affirmative defense.
required
“Under New
York law, a party's performance under a contract is excused
where the other party has substantially failed to perform its
side
of
the
bargain
committed
a
material
Allegheny
Energy,
or,
synonymously,
breach.”
Inc.,
500
Merrill
F.3d
171,
where
that
Lynch
&
186
(2d
party
Co.
Inc.
Cir.
has
v.
2007).
Whether Atlantis’ alleged failure to enhance and update E/NAT
22
was a “substantial” failure to perform which thereby excused
CA’s performance under the SLA is a question of fact.
Atlantis
also
maintains
that
CA’s
Id.
restitution
and
damages theories fail, arguing that restitution is unavailable
and that CA’s damages theory is too speculative as a matter of
law.
(Pl. Update Br. 9, 14.)
The Court addresses each theory
in turn.
1. Restitution
CA claims that it is entitled to restitution in the
amount of royalties it paid to Atlantis after Atlantis halted
development on E/NAT.
(Def. Update Opp. 16.)
The Court agrees
with CA that restitution is an available remedy for its breach
of contract counterclaim.
See Bausch & Lomb Inc. v. Bressler,
977 F.2d 720, 729 (2d Cir. 1992) (“Upon a demonstration that a
defendant
recover
is
the
liable
for
reasonable
material
value
of
breach,
the
services
plaintiff
rendered,
may
goods
delivered, or property conveyed less the reasonable value of any
counter-performance received by him.” (internal quotation marks
omitted)) (applying New York law); see also Waxman v. Envipco
Pick
Up
236818,
&
at
Processing
*4
Serv.,
(S.D.N.Y.
Jan.
Inc.,
17,
No.
02-CV-10132,
2006).
On
a
2006
WL
restitution
theory, if CA can prove that Atlantis materially breached the
SLA by failing to update and enhance E/NAT, CA would be entitled
to recover as much of the royalties it paid to Atlantis as it
23
can show unjustly enriched Atlantis.
F.2d
at
730
(“Following
a
See Bausch & Lomb, 977
restitution
theory,
B&L
would
be
entitled to recover as much of the $500,000 payment it made to
Sonomed as it can show unjustly enriched Sonomed.”).
Because it
appears from the record that CA was able to license non-enhanced
versions of E/NAT to its customers, it seems likely that CA
derived a benefit from the SLA that would foreclose its right to
recover all of the money it paid Atlantis; rather, CA may be
entitled to recover the amount of the royalties less the value
of the benefit CA realized from the agreement.7
See id.
For the first time in its reply, Atlantis argues that
CA’s restitution theory fails because CA “has failed to identify
or quantify any loss it suffered as a result of [] Atlantis’
purported failures to upgrade E/NAT, much less show that the
loss was ‘material.’”
(Pl. Update Reply 2.)
The Court does not
consider arguments raised for the first time in reply papers,
e.g., United States v. Hatfield, __ F. Supp. 2d __, 2011 WL
2446430, at *20 (E.D.N.Y. June 14, 2011), but would nevertheless
reject this claim on its merits.
CA asserts that customers
questioned the pace at which Atlantis was enhancing E/NAT (see
Def. Update Opp. 5), and there is evidence suggesting that at
7
CA’s position on restitution is consistent with the Court’s
July 6, 2009 Order, which characterized CA’s affirmative defense
as an attempt to offset any damages that Atlantis might recover
from Atlantis’ breach of contract claim.
(July 6, 2009
Memorandum & Order at 18.)
24
least
one
customer
elected
not
to
license
because E/NAT lacked a certain enhancement.
9.)
E/NAT
through
CA
(Miller Decl. Ex.
Atlantis assured CA that this particular enhancement would
be available when E/NAT Version 3.0 launched.
Whether
Atlantis
materially
(Id.)
breached
the
SLA
and
whether and how much Atlantis was unjustly enriched as a result
of the breach are issues for trial.
Summary judgment is denied
on this point; subject to the discussion concerning the release
and Settlement Agreement, CA will be permitted to pursue this
theory at trial.
2. Counterclaim Damages
As an alternative to restitution, CA seeks breach of
contract damages premised on the curative steps CA claims it
would have taken in 2002 or 2003 had it known that Atlantis had
stopped developing updates for E/NAT, namely that it would have
developed
software
Atlantis royalties.
comparable
to
E/NAT
and
(Def. Update Opp. 18-19.)
stopped
paying
The Court agrees
with Atlantis that this theory is too speculative to go forward.
Although “[i]t is well-settled under New York law that [t]he
rule which proscribes the recovery of uncertain and speculative
damages applies where the fact of damages is uncertain, not
where the amount is uncertain,” the Court thinks that, in this
case, the very fact of damages is merely hypothetical.
25
Toporoff
Engineers, P.C. v. Fireman's Fund Ins. Co., 371 F.3d 105, 109
(2d Cir. 2004) (internal quotation marks omitted).
The only evidence CA offers on this theory is the
testimony
of
its
principal
product
manager,
John
Dueckman.
Dueckman, CA claims, testified that had CA known the true status
of Atlantis’ E/NAT development in 2002 or 2003, it would have
taken the very same steps that it eventually took in 2006 to
replace
the
software.
(Def.
Update
mischaracterizes its employee’s testimony.
Br.
18-19.)
Dueckman actually
said:
In preparing for this deposition, as
well as in the litigation in general, a part
of what I’ve been made aware of was the fact
that the development of E/Net Version 3, for
all intents and purposes, ceased entirely in
the years 2002 and 2003.
At CA, we were completely unaware that
that is, in fact, what had taken place. And
arguably, we believed in good faith that it
was still taking place.
Had we known back then, as certainly as
product manager, one of our job function
within the company is to ensure that our
brand maintains market value.
So in this
case, the Endeavor brand carries a very
large market value and a very strong
following.
And secondly, one of the things that as
product managers we have to do is make
ongoing
decisions
in
terms
of
our
marketplace and how to deliver to their
problems in terms of buy, build, acquire or
retire.
26
CA
In 2002, 2000 -- 2002, 2003, obviously,
we still believe this was still forthcoming.
Had we known at that time, we would have
immediately launched into a process where we
would have re-examined whether or not one,
do we want to stay in this marketplace, do
we want to stay in the natural environment,
do we want to acquire someone, or do we want
to buy a new solution?
Because
we
were
without
that
information from Atlantis, that effort was
never launched.
And so in good faith, we
just continued on, assuming it was going to
be coming as per what we felt was part of
the partnership.
(Miller Decl. Ex. 1, Dueckman Dep. II 102-104 (emphasis added).)
In other words, far from stating unequivocally that CA would
have
immediately
replaced
E/NAT
with
a
comparable
program,
Dueckman testified that had CA known the truth, it would have
weighed
its
comparable
options,
software,
which
included
acquiring
a
firm
buying
to
the
rights
develop
to
comparable
software, or leaving the E/NAT marketplace altogether.
Dueckman’s testimony undercuts CA’s request that the
Court
“presume
bilateral
that
contract
a
and
contracting
party
develop
replacement
learning of the other’s breach.”
a
might
terminate
a
product
upon
(Def. Update Opp. 19.)
This
is particularly true because Dueckman testified elsewhere that,
even after it learned that Atlantis had halted development on
E/NAT, CA’s reasons for building a comparable program were to
acquire “more latitude in terms of [CA’s] being able to offer
27
pricing and discounting” and to own the software and code “and
everything else [so] that we could provide permanent support and
maintenance
for.”
(Eric
Shimanoff
Dueckman Dep. I 114-15, 182.)
Reply
Declaration
Ex.
A,
Dueckman did not cite E/NAT’s
stagnant development as a reason for CA’s decision to write new
software.
In short, CA has not pointed to any evidence to show
that its theory that it would have begun developing comparable
software as soon as it learned of Atlantis’ alleged breach is
anything
more
entitled
to
than
speculation.
summary
counterclaim.
judgment
Accordingly,
on
this
Atlantis
aspect
of
is
CA’s
See, e.g., West, Weir & Bartel, Inc. v. Mary
Carter Paint Co., 25 A.D.2d 81, 86, 267 N.Y.S.2d 29, 34 (1st
Dep’t 1966) (“The rule is well-established that where it is
speculative
recovery.
whether
damages
were
sustained
there
may
be
no
The fact of damage must be clearly established.”).
B. CA did not Waive its Affirmative Defense or Counterclaim
In light of CA’s evidence that Atlantis deceived it
into believing that Atlantis was hard at work upgrading E/NAT,
Atlantis is not entitled to summary judgment on the basis that
CA waived its rights under the Update Clause.
See Computer
Possibilities Unlimited, Inc. v. Mobil Oil Corp., 301 A.D.2d 70,
80,
747
N.Y.S.2d
affirmative
468
defense
of
(1st
Dep’t
excuse
for
2002)
([A] party
breaching
a
loses
contract
an
only
where the party continues to carry out the contract in spite of
28
a known excuse for nonperformance.” (internal quotation marks
omitted)
(emphasis
in
Computer
Possibilities)).
“Waiver
requires the voluntary an intentional abandonment of a known
right,” id., and CA obviously could not abandon its rights under
the Update Clause if Atlantis was actively hiding its breach.
See
id.
(quotation
Possibilities).
marks
omitted)
(emphasis
in
Computer
Here, Atlantis repeatedly reassured CA--as late
as November 2005 (Miller Decl. Ex. 9)--that an updated version
of E/NAT was nearly ready.
In reality, though, Atlantis stopped
development work in 2002 or 2003, according to evidence that CA
obtained for the first time in 2008.
94.)
(Gaugler 1/24/08 Dep. 93-
This evidence precludes summary judgment.
Atlantis
argues
that
CA
waived
its
Update
claims
because it continued the parties’ relationship despite actual
notice of Atlantis’ breach (Pl. Update Br. 16.)
This argument
stems from the flawed premise that CA necessarily knew Atlantis
breached the Update Clause as soon as CA rolled out new Endevor
functionality that Atlantis failed to match with enhancements to
E/NAT.
(See Pl. Update Br. 5, 18.)
Because E/NAT did not keep
pace with Endevor’s “Application Programming Interface” that was
released in July 1998, for example, Atlantis argues that CA knew
about Atlantis’ breach from that moment forward.
Atlantis’
argument
ignores
both
language and the evidence in the record.
29
the
SLA’s
plain
The Update Clause
required Atlantis to “continuously enhance and update” E/NAT.
(SLA ¶ 2.4 (emphasis added).)
parties
understood
that
This language suggests that the
developing
the
required
enhancements
would be an ongoing process and that advancements in E/NAT would
not necessarily keep the exact pace as advancements in CA’s
software.
By the terms of the contract, Atlantis was under a
continuing obligation to develop updates for E/NAT and there is
evidence that Atlantis deceived CA into believing that it was
fulfilling its responsibilities.
C. The Release does not Completely bar CA’s Counterclaim
Atlantis’ argument that the Settlement Agreement bars
CA’s counterclaim is based on the same faulty premise as its
waiver argument.
(See Pl. Update Br. 20.)
Because Atlantis
owed a continuing duty to update and enhance E/NAT, CA’s claim
is not wholly precluded by the December 10, 2004 Settlement
Agreement.
Rather, as CA suggests, the Settlement Agreement
only bars CA from recovering damages that it incurred prior to
that the settlement date.
In
a
footnote,
(See Def. Update Opp. 20.)
CA
suggests
that
the
Settlement
Agreement does not prevent it from asserting its affirmative
defense against Atlantis’ Second Amendment claims.
Opp. 20.)
(Def. Update
As discussed above, Atlantis may only assert those
Second Amendment royalty claims to the extent that they arise
from undisclosed licensees or installations.
30
CA concedes that
it owes royalties for a handful of undisclosed licensees or
installations.
(See Def. Interpretation Br. 7.)
CA may not
invoke the affirmative defense as a basis for reducing these
royalties.
Pickwick
See
Comm.
v.
Weinberg,
No.
91-CV-1642,
1994 U.S. Dist. LEXIS 15680, at *42 (S.D.N.Y. Nov. 1, 1994).
III. Atlantis’ Motion to Preclude CA’s Expert
In a letter motion (Docket Entry 156), Atlantis seeks
to preclude testimony from Dieter Storr (“Storr”), a software
specialist who examined the E/NAT source code for CA during
discovery.
In its summary judgment briefing, CA submitted a
declaration in which Storr testified that he “saw no evidence”
that
Atlantis
approximately
performed
2002.
development
(See
Dieter
work
Storr
on
E/NAT
Declaration
since
¶¶
7-18.)
Storr did not submit an expert report, and Atlantis seeks to
preclude
his
Procedure
testimony
37(c)(1).
pursuant
CA
to
counters
Federal
that
(1)
Rule
of
Storr
Civil
is
not
testifying as an expert; and (2) even if he were, Atlantis has
not been prejudiced by CA’s failure to submit an expert report.
The
Court
flatly
rejects
CA’s
argument
that
Storr
is
not
offering expert testimony.
Storr’s characterizing that E/NAT’s
source
signs
code
evidenced
no
of
development
“technical[] or other specialized knowledge.”
is
patently
FED. R. CIV. P.
702; see also United States v. Ganier, 468 F.3d 920, 926 (6th
Cir.
2006)
(proposed
testimony
31
about
forensic
software
falls
under Evidence Rule 702); cf. United States v. Wilson, 408 Fed.
Appx. 798, 808 (5th Cir. 2010) (witness’ testimony concerning
search of email inboxes was lay, not expert, testimony).
The
under
Federal
issue,
Rule
then
37.
is
whether
Preclusion
preclusion
is
a
is
drastic
warranted
remedy;
to
determine whether it is appropriate here the Court considers the
following factors: “(1) [CA’s] explanation for its failure to
comply with the relevant scheduling Orders; (2) the importance
of [Storr’s] expert testimony; (3) the prejudice suffered by
[Atlantis] as a result of having to prepare to meet the new
testimony; and (4) the possibility of a continuance.”
See Exo-
Pro, Inc. v. Seirus Innovative Accessories, Inc., No. 05-CV3629,
WL
4878513,
at
*2-3
(E.D.N.Y.
Feb.
19,
2008)
(citing
Softel, Inc. v. Dragon Med. & Scientific Comm., Inc., 118 F.3d
955, 961 (2d Cir 1997)).
Having considered these factors, the
Court finds that preclusion is warranted.
convincing
report.
explanation
It
had
six
for
its
months
failure
between
CA has not offered a
to
when
submit
it
an
learned
expert
of
the
computer files and the deadline to submit an expert report.
(Docket Entry 156.)
Storr did not even examine the files until
after the deadline for expert reports had passed.
(Id.)
To the
Court’s knowledge, CA has not submitted an expert report to
date, and to permit Storr to testify at trial would require the
Court to re-open expert discovery to include Storr’s deposition
32
and
time
for
Atlantis
to
submit
a
rebuttal
expert
report.
Atlantis would be prejudiced by having to meet Storr’s evidence
at this late stage, and it would force the Court to delay an
already five-year-old case, cf. id. at *4 (declining to preclude
an
expert
witness
where
there
was
time
to
cure
the
moving
party’s prejudice before trial).
CONCLUSION
For
the
foregoing
reasons,
Atlantis’
motion
for
partial summary judgment on the liability aspect of its breach
of contract claim (Docket Entry 113) is DENIED.
Its motion for
summary judgment on CA’s affirmative defense (Docket Entry 108)
is GRANTED IN PART AND DENIED IN PART.
Specifically, it is
granted as to CA’s theory that it would have begun developing
software similar to E/NAT as soon as it learned of Atlantis’
alleged breach.
It is also granted to the extent that it seeks
to
from
prevent
CA
asserting
its
affirmative
defense
or
counterclaims for the period prior to the date of the Settlement
Agreement.
It is denied in all other respects.
CA’s motion for
partial summary judgment as to the meanings of “install” and
“use” (Docket Entry 118) is DENIED AS MOOT inasmuch as the Court
ruled on these issues in the context of Atlantis’ motion for
partial
summary
judgment
on
its
breach
of
contract
claim.
Atlantis’ letter motion to preclude further testimony of Dieter
33
Storr
(Docket
Entry
156)
is
GRANTED.
CA
is
precluded
offering Storr’s testimony at trial.
SO ORDERED.
/s/ JOANNA SEYBERT______
Joanna Seybert, U.S.D.J.
Dated:
September
28 , 2011
Central Islip, New York
34
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