International Business Machines Corporation v. United Microelectronics Corporation
OPINION & ORDER re: 38 CROSS MOTION for Summary Judgment filed by International Business Machines Corporation, 33 MOTION to Dismiss filed by United Microelectronics Corporation: International Business Machines Corporation ("IBM& quot;) brings this breach of contract action against United Microelectronics Corporation ("UMC") seeking approximately $10 million in damages. UMC moves to dismiss IBM's Complaint for failure to plead a condition precedent under R ule 9(c). IBM moves separately for summary judgment. For the foregoing reasons, UMC's motion to dismiss is denied, and IBM's motion for summary judgment on its breach of contract claim is granted. IBM is awarded $10 million with inter est from December 31, 2015. The parties are directed to submit a proposed judgment to this Court by September 12, 2017. The Clerk of Court is directed to terminate the motions pending at ECF Nos. 33 and 38, and mark this case as closed. (Signed by Judge William H. Pauley, III on 9/7/2017) (jwh) Modified on 9/7/2017 (jwh).
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
-againstUNITED MICROELECTRONICS CORP.,
OPINION & ORDER
WILLIAM H. PAULEY III, United States District Judge:
International Business Machines Corporation (“IBM”) brings this breach of
contract action against United Microelectronics Corporation (“UMC”) seeking approximately
$10 million in damages. UMC moves to dismiss IBM’s Complaint for failure to plead a
condition precedent under Rule 9(c). IBM moves separately for summary judgment. For the
reasons that follow, UMC’s motion to dismiss is denied, and IBM’s motion for summary
judgment is granted.
The gravamen of IBM’s Complaint is that UMC failed to make a $10 million
“amendment” payment in breach of a 2013 Technology Licensing Agreement (the “2013
The 2013 Agreement
The 2013 Agreement amends a previous licensing agreement between the parties
in which IBM granted UMC a technology license to manufacture silicon wafers (the
“Technology License”) at facilities located in the United States, Japan, Singapore, and Taiwan.
In June 2013, following UMC’s request to expand the geographic scope of the Technology
License to the People’s Republic of China (“China”), the parties entered into the 2013
A. Majority Owned Subsidiary and Named Facility
Under the 2013 Agreement, the Technology License may only be sub-licensed to
what the agreement defines as a Majority Owned Subsidiary—a company in which UMC
maintains at least a 60% interest and a Chinese government agency owns the remaining 40%.
(Reply Declaration of Salvatore P. Tamburo, ECF No. 49, Ex. A (the “2013 Agreement”), §
1.19.) The 2013 Agreement further provides that the silicon wafers must be manufactured at a
Named Facility—a wafer semiconductor fabrication facility located in China owned and
controlled by the Majority Owned Subsidiary—that UMC must identify to IBM. (2013
Agreement, § 1.19B.)
B. Parties’ Obligations
Under the 2013 Agreement, IBM agreed to amend the parties’ previous licensing
agreement and granted a non-exclusive, perpetual, and irrevocable Technology License for use in
China. (2013 Agreement, § 3.) Use of such license, however, was conditioned on performance
by UMC. The 2013 Agreement sets forth UMC’s obligations in the following terms:
Anytime between January 1, 2015 and December 31, 2015
inclusive, [UMC] will pay IBM the fee set forth in Section 4.1A and
simultaneously therewith provide notice to IBM of the name of the
sole Majority Owned Subsidiary and the name and location of the
sole Named Facility. Upon receipt of such payment and notice by
IBM, [UMC] will have the rights associated with such Majority
Owned Subsidiary and Named Facility granted under this
(2013 Agreement, § 2A; see also § 4.1A.)
The $10 million payment represented “consideration for the licenses and other
rights granted for the Named Facility,” and could be paid anytime between January 1, 2015 and
December 15, 2015.1 (2013 Agreement, § 4.1A.)
C. Alleged Breach
In June 2013, the parties executed the 2013 Agreement. However, IBM alleges
that UMC paid nothing for the Technology License during the relevant period. (Compl., ¶ 15.)
As the payment deadline prescribed in the 2013 Agreement drew near, IBM contacted UMC
seeking payment. UMC responded that it had no obligation to pay. It further advised IBM that
“it could not obtain the required government regulatory approvals to perform the contract in
[China] and that therefore, in its view, it had no obligation to make” payment. (Compl., ¶ 15.)
In July 2016, after the parties engaged in contractually mandated pre-suit negotiations that failed
to resolve the dispute, IBM filed this action. (Compl., ¶¶ 17–20.)
UMC’s Motion to Dismiss
In reviewing a motion to dismiss a breach of contract claim pursuant to Rule
12(b)(6), this Court accepts as true the non-conclusory factual allegations in the Complaint and
draws all reasonable inferences in IBM’s favor. See Roth v. Jennings, 489 F.3d 499, 501 (2d
Cir. 2007). The Complaint must contain enough “factual content” to allow a court “to draw the
The 2013 Agreement sets forth two different final payment deadlines. Section 2A sets the period for
payment between January 1, 2015 and December 31, 2015 while Section 4.1A requires payment at any time
between January 1, 2015 and December 15, 2015. IBM acknowledges the discrepancy between the two provisions
but notes that the deadline is “relevant only to the calculation of interest,” and has no bearing on its “case for
summary judgment on liability or the principal amount of its claim.” (Plaintiff’s Memo. of Law in Opposition to
Motion to Dismiss and Cross-Motion for Summary Judgment (“IBM MTD Opp. and SJ Mot.”), ECF No. 39, at 6
n.2.) Based on IBM’s decision to accept December 31, 2015 as the operative payment deadline, any interest should
be calculated as accruing from that date.
reasonable inference that the defendant is liable for the misconduct alleged.” Ashcroft v. Iqbal,
556 U.S. 662, 678 (2009). Further, where a contract is integral to the complaint, a court may
consider that document when assessing the merits of the motion to dismiss. See, e.g.,
Interpharm, Inc. v. Wells Fargo Bank, 655 F.3d 136, 141 (2d Cir. 2011).
“When interpreting disputed contract terms, a court should give effect to the
intent of the parties as revealed by the language and structure of the contract, and should
ascertain such intent by examining the document as a whole.” Am. Tax Funding, LLC v. City of
Syracuse, 41 F. Supp. 3d 188, 196–97 (N.D.N.Y 2014) (citing Peak Dev., LLC v. Constr. Exch.,
100 A.D.3d 1394, 1395 (App. Div. 4th Dep’t 2012)); Campbell v. Mark Hotel Sponsor, LLC,
2010 WL 3466020, at *4 (S.D.N.Y. Sept. 3, 2010). The language of a contract should be
interpreted so as to promote the “general or primary purpose” of the overall agreement. Peak
Dev., 100 A.D.3d at 1395. Moreover, courts “need not turn a blind eye to context. Rather, [ ]
[they] should accord contractual language its plain meaning giving due consideration to the
surrounding circumstances and apparent purpose which the parties sought to accomplish.” In re
Coudert Bros., 487 B.R. 375, 389 (S.D.N.Y. 2013) (alterations omitted).
The threshold question in resolving disputed contractual terms is whether they are
ambiguous. Ambiguity “is a question of law for the Court to decide on a claim-by-claim basis.”
Oppenheimer & Co., Inc. v. Trans Energy, Inc., 946 F. Supp. 2d 343, 348 (S.D.N.Y. 2013)
(internal citations omitted). A contract is considered unambiguous if it has “a definite and
precise meaning, unattended by danger of misconception in the purport of the contract itself, and
concerning which there is no reasonable basis for a difference of opinion.” Olin Corp. v. Am.
Home Assur. Co., 704 F.3d 89, 99 (2d Cir. 2012) (internal citations omitted).
If the terms are “susceptible to more than one reasonable interpretation,” the
contract is ambiguous. Evans v. Famous Music Corp., 1 N.Y.3d 452, 458 (2004). But the “mere
assertion of an ambiguity does not suffice to make an issue of fact.” Sayers v. Rochester Tel.
Corp. Supplemental Mgmt. Pension Plan, 7 F.3d 1091, 1095 (2d Cir. 1993). Nor does it exist if
the “interpretation urged by one party would strain [ ] the contract language beyond its
reasonable and ordinary meaning.” Law Debenture Trust Co. of N.Y. v. Maverick Tube Corp.,
595 F.3d 458, 467 (2d Cir. 2010) (internal citation omitted). Rather, ambiguity exists only when
the terms are “capable of more than one meaning when viewed objectively by a reasonably
intelligent person who has examined the context of the entire integrated agreement and who is
cognizant of the customs, practices, usages and terminology as generally understood in the
particular trade or business.” Revson v. Cinque & Cinque, P.C., 221 F.3d 59, 66 (2d Cir. 2000)
(internal quotation marks and citation omitted). A court’s “task is to determine whether such
clauses are ambiguous when read in the context of the entire agreement.” Sayers, 7 F.3d at 1095.
Importantly, an “interpretation of a contract that has the effect of rendering at
least one clause superfluous or meaningless . . . is not preferred and will be avoided if possible.
Rather, an interpretation that gives a reasonable and effective meaning to all terms of a contract
is generally preferred to one that leaves a part unreasonable or of no effect.” Galli v. Metz, 973
F.2d 145, 149 (2d Cir. 1992) (internal citations and quotation marks omitted); Columbus Park
Corp. v. Dep’t of Hous. Pres. & Dev., 80 N.Y.2d 19, 31 (N.Y. 1992) (“[A] construction which
makes a contract provision meaningless is contrary to basic principles of contract
interpretation.”). Thus, when interpreting a contract, a court “must consider the entire contract
and choose the interpretation of [the disputed provision] which best accords with the sense of the
remainder of the contract.” Galli, 973 F.2d at 149 (emphasis added).
The central basis for UMC’s motion to dismiss is that the Complaint fails to
allege the existence and satisfaction of a condition precedent. UMC contends that the language
of Section 2A—namely, that UMC “will pay IBM the fee set forth in Section 4.1A and
simultaneously therewith provide notice to IBM of the name of the sole Majority Owned
Subsidiary and the name and location of the sole Named Facility”—implicitly creates a condition
precedent that those entities exist. Without those entities, UMC argues there is nothing to
provide notice of, and therefore its performance is excused. (UMC Memo. of Law in Support of
Motion to Dismiss (“UMC MTD”), ECF No. 35, at 6–7.)
IBM counters that UMC has an unconditional obligation to pay $10 million
irrespective of whether notice is provided. According to IBM, any suggestion that Section 2A
creates a joint obligation to pay and provide notice is belied by other provisions of the contract
which outline an unconditional duty to pay.
Under New York law, a condition precedent is “an act or event, other than a lapse
of time, which, unless the condition is excused, must occur before a duty to perform a promise in
the agreement arises.” Oppenheimer & Co. v. Oppenheim, Appel, Dixon & Co., 86 N.Y.2d 685,
690 (N.Y. 1995) (internal quotation marks omitted). “Conditions can be express or implied.
Express conditions are those agreed to and imposed by the parties themselves. Implied or
constructive conditions are those imposed by law to do justice.” Oppenheimer, 86 N.Y.2d at 690
(internal citation and quotation marks omitted). The “law does not favor a construction which
creates a condition precedent.” General Elec. Capital Corp. v. D’Agostino Supermarkets, Inc.,
2005 WL 1683531, at *2 (S.D.N.Y. July 18, 2005) (citing Penn Intermodal Leasing, Inc. v.
Shipping Corp. of India, 1997 WL 431087, at *6 (S.D.N.Y. July 30, 1997)). Because of that,
“[c]onditions precedent are not readily assumed,” and must “be expressed in unmistakable
language.” Bank of N.Y. Mellon Trust Co., N.A. v. Morgan Stanley Mortg. Capital, Inc., 821
F.3d 297, 305 (2d Cir. 2016) (citing Oppenheimer, 86 N.Y.2d at 691)). Thus, a “condition
precedent will not be imposed unless the contract reveals it was the clear intent of the parties.”
Gen. Elec., 2005 WL 1683531, at *2.
The 2013 Agreement contains neither the “specific, talismanic words” nor the
“unmistakable language” that ordinarily give rise to an express or implied condition precedent.
Oppenheimer, 86 N.Y.2d at 691. UMC argues that the first sentence of Section 2A creates a
simultaneous obligation to pay and give notice, and that it cannot give notice if the Majority
Owned Subsidiary and Named Facility do not exist. But the notion that this clause creates a
condition precedent by implication is belied by the existence of express conditions elsewhere in
the contract. For starters, the sentence immediately following the “simultaneously herewith”
language in Section 2A is worded in expressly conditional terms: “Upon receipt of such payment
and notice by IBM, [UMC] will have the rights associated with such Majority Owned Subsidiary
and Named Facility granted under this Agreement.” (2013 Agreement, § 2A (emphasis added).)
Other sections of the 2013 Agreement also create conditions precedent in unmistakable
language. (See, e.g., 2013 Agreement, § 3.1 (“IBM hereby grants to [UMC], under IBM’s trade
secret/know-how rights in the Licensed Technology, a non-exclusive worldwide, fully-paid (for
the Named Facility, upon completion of payments due under Section 4.1A) . . . license.”)
(emphasis added); see also §§ 3.2–3.3.) These provisions evidence the parties’ intent to insert
conditions in certain sections of the 2013 Agreement while omitting them from others. If the
parties wished to condition both UMC’s payment and notice obligations on the existence of a
Majority Owned Subsidiary and Named Facility, they would have done so in equally explicit
UMC’s argument that “the obligation at issue is the simultaneous notice and
payment” is also flawed. (UMC Reply Brief in Support of Motion to Dismiss and Opposition to
Summary Judgment (“UMC Reply and SJ Opp.”), ECF No. 43, at 3.) Section 2A states that
payment and notice should be given “simultaneously” at any time between January 2015 and
December 2015, but that does not mean the former cannot be performed without the latter.
UMC’s simultaneous obligation argument flounders when Section 2A is read together with the
other provisions of the 2013 Agreement, all of which provide for scenarios in which payment
and notice occur separately.
As an initial matter, Section 4.1A provides that “[a]s consideration for the licenses
and other rights granted for the Named Facility [UMC] shall pay to IBM a total nonrefundable
payment of Ten Million Dollars ($10,000,000).” Nothing in this section mandates that notice
must be provided at the same time payment is tendered. Rather, Section 4.1A’s use of the word
“shall” unequivocally mandates payment. Dallio v. Spitzer, 343 F.3d 553, 562 (2d Cir. 2003)
(“ ‘Shall’ is universally understood to indicate an imperative or mandate.”).
Moreover, at least three other clauses in the 2013 Agreement reveal the parties’
intent to make payment unconditional without the need for notice to occur at the same time.
Section 5.3, for example, permits a party to cure any breach except the failure to pay. If either
[I]n material breach of any obligation, other than payments under
4.1A, 4.2, and/or 4.3, and the other Party (“Non-Breaching Party”)
provides written notice to the Breaching Party specifying the nature
of such breach, the Breaching Party shall either cure such breach or
produce a plan for such cure acceptable to the Non-Breaching Party
within thirty (30) Days after such written notice.
(2013 Agreement, § 5.3 (emphasis added).) Notably, the cure provision not only permits an
opportunity to cure, but affords the breaching party the flexibility to propose a plan for cure. The
parties contemplated that most breaches—including the failure to provide notice—could be
cured. If, for whatever reason, UMC could not find a Majority Owned Subsidiary and Named
Facility by the end of December 2015, it could always invoke Section 5.3 and propose a plan for
cure, buying itself more time to provide notice. By contrast, failure to pay $10 million after the
prescribed period could neither be excused nor cured.
Similarly, Sections 9 and 12 afford a breaching party relief under certain
circumstances except with respect to payment. Section 9 provides that UMC’s “cumulative
liability to IBM for direct damages under [the 2013 Agreement] . . . shall be limited to Two
Million Dollars ($2,000,000)” except “for breach by [UMC] of . . . liabilities relating to
payments under Sections 4.1, 4.3, or 4.4.” (2013 Agreement, § 4.) And Section 12.5’s force
majeure clause excuses performance if an event renders a party “wholly or partially unable . . . to
carry out its obligations” except the “payment obligations under Section 4.” (2013 Agreement,
§ 12.5.) As in Section 5.3, the parties contemplated and excused performance if certain external
events—like “restraints by or actions of any governmental body”—precluded a party from
performing its obligations. (2013 Agreement, § 12.5.) But the clear delineation between the
duty to pay and all other duties underscores the parties’ intent that payment would occur without
condition and, if necessary, separately from the performance of other obligations, including
The common thread among these provisions—each of which account for the
various circumstances where performance may be excused—is that they exclude from
application the duty to pay. By singling out UMC’s duty to pay as the only thing over which
their terms have no bearing, these provisions amplify the parties’ intent to make that obligation
unconditional. Importantly, that UMC could be relieved of every contractual obligation except
the duty to pay undermines the notion that payment had to occur with notice.
UMC’s efforts to fuse payment with notice as inseparable obligations and its
insistence that they are subject to a condition precedent essentially converts the notice provision
into a condition precedent to the obligation to pay. That is, notice triggers payment, but not the
other way around. And while the ability to give notice is contingent on what UMC claims is a
necessary event—the existence of a Majority Owned Subsidiary and a Named Facility—the duty
to pay is not subject to any such externalities. Thus, what UMC says is a condition precedent
“necessary to [its] ability to perform the obligation at issue” is really only a “triggering event” to
its duty to provide notice. Bank of N.Y., 821 F.3d at 307. Adopting UMC’s interpretation of the
contract would result in an incongruous reading of the contract that would render many of its
provisions surplusage. For instance, both Section 12.5, which excuses performance as to notice
but not payment, and Section 5.3, which allows a cure period for failure to provide notice but not
payment, “would appear to serve no purpose.” Int’l Multifoods Corp. v. Comm. Union Ins. Co.,
309 F.3d 76, 86 (2d Cir. 2002).
The reasonable interpretation of the 2013 Agreement is that UMC had from
January 2015 to December 2015 to find a Majority Owned Subsidiary and Named Facility to use
the Technology License in China. If UMC found these entities within the relevant period, it was
required to simultaneously provide notice and make payment to IBM. If UMC failed to timely
notify IBM of a Majority Owned Subsidiary and Named Facility, the contract provided a number
of options through which UMC could comply after December 2015. But this also means that the
parties contemplated the possibility that notice and payment would not occur simultaneously.
While Section 5.3, for example, could relieve UMC from its duty to provide notice before the
end of December 2015, it expressly foreclosed that option for UMC’s duty to pay. The
inevitable outcome resulting from these clauses is that payment had to occur between January
2015 and December 2015 while notice could occur within that period or after. “This
interpretation gives meaning to both [Section 2A] and preserves the meaning of the other
provisions of the [2013 Agreement]. It most closely follows the intention of the parties as
discerned from a review of the agreement as a whole.” Hamilton v. Dep’t of Labor, 2008 WL
2605128, at *7 (S.D.N.Y. July 1, 2008).
Because no condition precedent exists, UMC’s motion to dismiss is denied.
Motion for Summary Judgment
Under Rule 56, summary judgment is proper where “there is no genuine issue as
to any material fact and [ ] the moving party is entitled to judgment as a matter of law.” Celotex
Corp. v. Catrett, 477 U.S. 317, 322 (1986). Where “it is clear that the defendant cannot defeat
the motion by showing facts sufficient to require a trial for resolution, summary judgment may
be granted notwithstanding the absence of discovery.” Wells Fargo Bank Nw., N.A. v. Taca
Int’l Airlines, S.A., 247 F. Supp. 2d 352, 360 (S.D.N.Y. 2002). In a breach of contract action,
the “proper interpretation of an unambiguous contract is a question of law for the court, and a
dispute on such an issue may properly be resolved by summary judgment.” Omni Quartz v. CVS
Corp., 287 F.3d 61, 64 (2d Cir. 2002); Consarc Corp. v. Marine Midland Bank, N.A., 996 F.2d
568, 573 (2d Cir. 1993) (“If a contract is unambiguous, courts are required to give effect to the
contract as written and may not consider the extrinsic evidence to alter or interpret its
IBM contends that it is entitled to summary judgment because there is no genuine
dispute of material fact. That position is premised on IBM’s view that the 2013 Agreement is
unambiguous and does not require extrinsic evidence to aid this Court in resolving disputed
issues of fact. In response, UMC levels a number of objections, citing not one, but two
conditions precedent that excuse payment. The first condition precedent—that the Majority
Owned Subsidiary and Named Facility must exist—has already been discussed at length. The
second condition, which UMC raises for the first time in response to IBM’s motion, is that it
must have the “ability to use IBM’s technology in [China].” (UMC Reply to Motion to Dismiss
and Opposition to Summary Judgment (“UMC MTD Reply and SJ Opp.”), ECF No., at 11.)
As previously discussed, Section 2A is not ambiguous and does not impliedly
create a condition precedent. While the parties offer competing interpretations of that clause,2
where “consideration of the contract as a whole [ ] remove[s] [any] ambiguity created by a
particular clause, there is no ambiguity.” W.W.W. Assocs., Inc. v. Giancontieri, 77 N.Y.2d 157,
162–63 (1990) (any ambiguity of disputed provision resolved by consideration of contract in its
entirety and recognition of the contrasting provisions adopted by parties). Here, the 2013
Agreement mandates that the duty to pay and provide notice are two separate and independent
UMC offers a raft of extrinsic evidence, including two internal IBM emails from 2014 to support its
position that IBM acknowledged “UMC’s payment would not be due unless the Majority Owned Subsidiary and
Named Facility existed.” (UMC MTD Reply and SJ Opp., at 14–15 (citing Reply Decl. of Salvatore Tamburo, Exs.
K and N).) But consideration of extrinsic evidence is only proper if the contract is ambiguous. Even if this Court
concluded that Section 2A is ambiguous, extrinsic evidence that UMC offers in support of its argument that IBM
purportedly was aware that “payment [was] linked to the existence of the subsidiary and facility” post-dates the
2013 Agreement. (UMC MTD Reply and SJ Opp., at 14–15.) Fundamental principles of contract law dictate that
the parties’ intentions must be determined at the time the contract was made. Granite Computer Leasing Corp. v.
Travelers Indem. Corp., 1987 WL 8647, at *3 (S.D.N.Y. Mar. 23, 1987) (citing Greenwich Vill. Assocs. v. Salle,
493 N.Y.S.2d 461, 463 (App. Div. 1st Dep’t 1985)). Thus, even on summary judgment, the extrinsic evidence
would not resolve a genuine dispute concerning the existence of a condition precedent.
UMC’s argument that the 2013 Agreement contains a second condition
precedent—that it must have the ability to use the Technology License in China before it pays—
is without merit. As with the first condition, nothing in the 2013 Agreement unmistakably states
that UMC’s duty to pay was conditioned on its ability to use the Technology License. But aside
from the absence of such language, UMC overlooks IBM’s performance—it granted a perpetual,
irrevocable license that UMC was free to use so long as it paid and and provided notice. Despite
its then-inability to use the Technology License, UMC received it knowing that it would not
expire and that it could not be revoked. UMC got what it bargained for.
In any event, as UMC concedes, it knew during negotiations of the 2013
Agreement that there were “technical and regulatory obstacles” to using the Licensed
Technology in China. (UMC MTD Reply and SJ Opp., at 19.) And it was aware that
“Taiwanese regulations restricted transfers to [China] of technology that was two generations
older than what was used in Taiwan.” (UMC MTD Reply and SJ Opp., at 19.) Given these
concerns, and the probable limitations regarding use of the Technology License, there is even
more reason to believe that UMC could have expressly conditioned payment on its ability to use
the license if it wanted to.
Having found that Section 2A is not ambiguous, this Court turns to IBM’s motion
for summary judgment. To establish a claim for breach of contract under New York law, a
plaintiff must demonstrate: “(1) the existence of an agreement, (2) adequate performance of the
contract by the claimant, (3) breach of contract by the accused, and (4) damages.” Stadt v. Fox
News Network LLC, 719 F. Supp. 2d 312, 318 (S.D.N.Y. 2010) (internal quotation marks and
alterations omitted). Here, there is no dispute that the 2013 Agreement exists—it amended the
terms of a previous agreement that the parties entered into in 2012. IBM performed its duties
under the contract when it “grant[ed] to [UMC] . . . a non-exclusive worldwide, fully-paid (for
the Named facility, upon completion of payments due under Section 4.1A) royalty-free,
perpetual and irrevocable . . . license to use.” (2013 Agreement, §§ 3.1–3.3.) UMC had an
obligation to pay and to provide notice, neither of which were performed during the prescribed
time period. And because there is no condition precedent to UMC’s duty to pay, UMC is not
excused from performance.
The only issue that remains is damages. “When the court determines that a
contract has been breached, the non-breaching party is entitled to recover damages that arise
naturally from the breach or that were reasonably foreseeable at the time the contract was made.”
Umbach v. Carrington Inv. Partners (US), LP, 851 F.3d 147, 162 (2d Cir. 2017) (internal citation
and quotation marks omitted). The “goal is to place the injured party in the same place as he
would have been if the contract had been performed because the standard remedy for breach of
contract is based upon the reasonable expectations of the parties ex ante. This principle of
expectation damages is measured by the amount of money that would put the promisee in the
same position as if the promisor had performed the contract.” Umbach, 851 F.3d at 162 (internal
citations and alterations omitted). Expectation damages are appropriate here. Had UMC
performed its obligation to pay at some point between January 2015 and December 2015, IBM
would have received $10 million.
Ancillary to the type of damages at issue is whether the amount of damages
arising from UMC’s breach should be the full contract price of $10 million or limited to $2
million. UMC urges the latter, citing Section 9.3, which limits damages to $2 million dollars
except with regard to “liabilities relating to payments under Sections 4.1, 4.3 or 4.4.” (2013
Agreement, § 9.3.) But Section 9.3 makes no reference to Section 4.1A. UMC seizes on this
omission to argue that damages arising from a breach of Section 4.1A should be limited to $2
million. It raises a fair point that the parties “showed they considered sections 4.1 and 4.1A to be
two separate sections with their own identity and meaning and that they knew how to specifically
recite section 4.1A, where intended.” (UMC MTD Reply and SJ Opp., at 22.) However, Section
4.1 has no application to the 2013 Agreement since it pertains to a $45 million payment for the
original license granted under a previous agreement and was tendered long before the parties
entered into the 2013 Agreement.
Courts have “long insisted that contracts may not be interpreted in [a] manner [ ]
so as to frustrate and distort the intentions of the parties.” Mailer v. RKO Teleradio Pictures,
Inc., 332 F.2d 747, 749 (2d Cir. 1964). Read in its entirety, the contract identifies a singular
obligation—the duty to pay—that cannot be excused by a force majeure event, or cured from
breach, or constrained by preconditions. Simply put, the parties intended to make the $10
million payment an unconditional, independent obligation. To limit liability to $2 million for
breach of that provision simply because, for whatever reason, the parties failed to insert Section
4.1A in place of an obsolete, unrelated payment clause would result in “a woodenly technical
parsing of language to create a meaning wholly at variance from that which the parties plainly
intended.” Mailer, 332 F.2d at 749.
Indeed, there is no conceivable scenario under which the carve-out clause in
Section 9.3 could have any meaning or application to Section 4.1 because it is impossible to
breach a provision that has already been fully performed. A fairer reading of Section 9.3 is that
it does not limit damages arising from a breach of the obligation to make the $10 million
payment required by Section 4.1A. This interpretation gives meaning to all provisions in the
contract, renders Section 9.3 consistent with other sections, and harmonizes the intent of the
parties. Reape v. New York News, 122 A.D.2d 29, 30 (App. Div. 2d Dep’t 1986) (“[T]he actual
words [of the contract] may be transplanted, supplied or entirely rejected to clarify the meaning
of the contract.”).
Accordingly, UMC is liable for breach of Sections 2A and 4.1A, and is directed to
pay damages in the amount of $10 million with accrued interest as of December 31, 2015.
For the foregoing reasons, UMC’s motion to dismiss is denied, and IBM’s motion
for summary judgment on its breach of contract claim is granted. IBM is awarded $10 million
with interest from December 31, 2015. The parties are directed to submit a proposed judgment
to this Court by September 12, 2017. The Clerk of Court is directed to terminate the motions
pending at ECF Nos. 33 and 38, and mark this case as closed.
Dated: September 7, 2017
New York, New York
WILLIAM H. PAULEY III
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