Retail Pipeline, LLC v. Blue Yonder, Inc. ( 2022 )

21-2401-cv
Retail Pipeline, LLC v. Blue Yonder, Inc., et al.
UNITED STATES COURT OF APPEALS
FOR THE SECOND CIRCUIT
SUMMARY ORDER
RULINGS BY SUMMARY ORDER DO NOT HAVE PRECEDENTIAL EFFECT. CITATION TO A
SUMMARY ORDER FILED ON OR AFTER JANUARY 1, 2007, IS PERMITTED AND IS GOVERNED BY
FEDERAL RULE OF APPELLATE PROCEDURE 32.1 AND THIS COURT=S LOCAL RULE 32.1.1.
WHEN CITING A SUMMARY ORDER IN A DOCUMENT FILED WITH THIS COURT, A PARTY MUST
CITE EITHER THE FEDERAL APPENDIX OR AN ELECTRONIC DATABASE (WITH THE NOTATION
“SUMMARY ORDER”). A PARTY CITING A SUMMARY ORDER MUST SERVE A COPY OF IT ON
ANY PARTY NOT REPRESENTED BY COUNSEL.
At a stated term of the United States Court of Appeals for the Second Circuit, held at the
Thurgood Marshall United States Courthouse, 40 Foley Square, in the City of New York, on the
14th day of December, two thousand twenty-two.
Present:
DEBRA ANN LIVINGSTON,
Chief Judge,
GUIDO CALABRESI,
GERARD E. LYNCH,
Circuit Judges.
_____________________________________
RETAIL PIPELINE, LLC,
Plaintiff-Appellant,
DARRYL LANDVATER,
Plaintiff,
v. 21-2401-cv
BLUE YONDER, INC., FKA JDA SOFTWARE GROUP,
INC., AND BLUE YONDER GROUP, INC.,FKA JDA
SOFTWARE, INC.,
Defendants-Appellees. *
_____________________________________
*
The Clerk of Court is respectfully directed to amend the official caption as set forth above.
For Petitioner-Appellant: JENNIFER E. MCDONALD (William T. Clark, on the
brief), Downs Rachlin Martin PLLC, Burlington, VT.
For Respondent-Appellee: JUSTIN B. BARNARD (Karen McAndrew, on the brief),
DINSE, P.C., Burlington, VT.
Appeal from a judgment of the United States District Court for the District of Vermont
(Reiss, J.).
UPON DUE CONSIDERATION, IT IS HEREBY ORDERED, ADJUDGED, AND
DECREED that the judgment of the district court is AFFIRMED.
Plaintiff-Appellant Retail Pipeline, LLC appeals from the August 31, 2021 order of the
United State District Court for the District of Vermont (Reiss, J.), granting the motion for summary
judgment of Defendants-Appellees Blue Yonder Group, Inc. and Blue Yonder, Inc. (collectively
“JDA”). 1 The proceedings arise from JDA’s acquisition of Retail Pipeline’s interest in the
intellectual property associated with “Flowcasting”—a software product used for supply chain
management that was developed by Retail Pipeline’s principals, Darryl Landvater and Andre
Martin—pursuant to the parties’ Membership Interest Purchase Agreement (“MIPA”) executed on
February 25, 2014. On appeal, Retail Pipeline argues that the district court erred in dismissing
its breach of contract and breach of the implied covenant of good faith and fair dealing claims on
summary judgment. 2 For the following reasons, we AFFIRM the order and judgment below.
We assume the parties’ familiarity with the underlying facts, the procedural history of the case,
and the issues on appeal, which we reference here only as necessary to explain our decision.
1
In 2020, during the pendency of the proceedings below, JDA Software, Inc. and JDA Software
Group, Inc. changed their corporate names to Blue Yonder, Inc. and Blue Yonder Group, Inc.,
respectively. For consistency with the record and the parties’ briefs, Defendants-Appellees are
collectively referred to as “JDA” here.
2
The district court also granted summary judgment on Retail Pipeline’s implied contract claim
and on its claim for constructive fraud. Retail Pipeline does not appeal those portions of the
* * *
“We review a district court’s grant of summary judgment de novo.” Moreno-Godoy v.
Kartagener, 7 F.4th 78, 84 (2d Cir. 2021). 3 “Summary judgment is properly granted when there
is no genuine issue of material fact and one party is entitled to judgment as a matter of law.” Id.“In assessing the record to determine whether there is a genuine issue to be tried as to any material
fact, 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.” Id.I. Breach of Contract Claim
Under the terms of the MIPA, Retail Pipeline agreed to transfer its interest in the
Flowcasting intellectual property to JDA in exchange for a guaranteed upfront payment of $3
million, paid in three installments, and up to an additional $7 million in earn-out payment for
revenue earned on certain products through December 31, 2018. In particular, the earn-out
provision, Section 1.3 of the MIPA, identified three revenue streams that would contribute to Retail
Pipeline’s compensation: (1) licensing revenue from (a) “Flowcasting 1.0,” under existing
contracts with a handful of identified customers, (b) JDA’s collaborative forecasting and
replenishment software, “Collaborative Shelf Planning Analytics” (“CSPA”), and (c)
“Flowcasting 2.0 or similar product”; (2) licensing revenue from the “Slow Mover module,” that
is, the software module implementing Retail Pipeline’s valuable slow-moving product algorithm;
and (3) licensing revenue in excess of the first $15 million per year on the sale of JDA’s own
decision and we therefore do not address them.
3
Unless otherwise indicated, we omit all internal citations, quotation marks, alterations, and
footnotes from citations.
3
supply chain management software, Demand and Fulfilment (“D&F”) to retail customers.
App’x 306.
The agreement provides that Retail Pipeline would begin receiving earn-out payments
(12.5% of the first two streams and 4% of the third) once the aggregate revenue from the first and
second streams exceeded $10 million. The MIPA also capped aggregate earn-out payments at
$7 million and provided JDA with a right of offset for, among other things, capital contributions
to the joint venture with Retail Pipeline made by JDA’s predecessor-in-interest. At the end of
the earn-out period in 2018, the combined revenue from the first two streams (in excess of a $10
million threshold for payments under the MIPA to begin) was $7,842,069.47, thus contributing
$980,258.68 to the earn-out (based on the agreed-upon 12.5% rate). There was no contribution
from the third revenue stream as sales of D&F to retail customers never exceeded the $15 million
annual revenue threshold necessary to trigger that stream’s contribution to the earn-out. After an
offset of $559,665.93 was applied, JDA made a $420,592.75 payment to Retail Pipeline under the
MIPA’s earn-out provision.
Retail Pipeline argues that JDA breached its obligations under the MIPA by failing to pay
to Retail Pipeline the full compensation due to it under the earn-out—specifically, by failing to
create and market a new product (referred to as “Flowcasting 2.0 or similar product” in the MIPA’s
earn-out provision) thus causing Retail Pipeline to receive less than the full amount of
consideration to which it was entitled. Notwithstanding that the MIPA contains no express
provision requiring JDA to develop a “Flowcasting 2.0 or similar product” or even use best efforts
toward the development of such a product, Retail Pipeline argues that the term “Flowcasting 2.0
or similar product” is ambiguous, necessitating reference to extrinsic evidence to interpret it.
Once that extrinsic evidence is considered, Retail Pipeline urges, it becomes evident that the term
4
“‘Flowcasting 2.0 or similar product’ was intentionally included in the MIPA to reflect a promise
from JDA to develop a new product” pursuant to the steps set forth in the “roadmap” email of a
JDA employee memorializing a December 16, 2013 meeting with Landvater and Martin regarding
ways in which D&F’s software could be improved by integrating features from Flowcasting.
Appellant’s Opening Br. at 11. For the following reasons, we disagree.
“To prevail on a breach of contract claim, a party must prove the existence of a contractual
obligation, the breach of that obligation, and resulting damages.” Arwood v. AW Site Servs., LLC,
2022 WL 705841, at *27 (Del. Ch. Mar. 9, 2022) (citing VLIW Tech., LLC v. Hewlett-Packard
Co., 840 A.2d 606, 612 (Del. 2003)). 4 Under Delaware law, “[a]n ambiguity exists ‘when the
provisions in controversy are fairly susceptible of different interpretations or may have two or
more different meanings.’” Nicholas v. Nat’l Union Fire Ins. Co. of Pittsburgh, 83 A.3d 731,
735 (Del. 2013) (quoting Eagle Indus., Inc. v. DeVilbiss Health Care, Inc., 702 A.2d 1228, 1232
(Del. 1997)). “Where a contract is ambiguous, ‘the interpreting court must look beyond the
language of the contract to ascertain the parties’ intentions’” and consider “extrinsic evidence to
arrive at a proper interpretation of contractual terms.” Id. (quoting Eagle Indus., 702 A.2d at
1232). “[W]here a contract is unambiguous on its face, the parol evidence rule bars the
introduction of extrinsic evidence.” In re Viking Pump, Inc., 148 A.3d 633, 646–47 (Del. 2016).
Retail Pipeline argues that the term “Flowcasting 2.0 or similar product” is ambiguous
because it is not defined in the agreement between the parties, does not have a dictionary definition,
is not in common usage, and appears only once in the contract. While Retail Pipeline
4
The MIPA provides that it “will be governed by, and construed in accordance with, the laws of
the State of Delaware,” App’x 314, and the parties agree that the claims on appeal are governed
by Delaware law.
5
acknowledges that the use of an undefined term does not alone render a contract ambiguous, see
Sassano v. CIBC World Mkts. Corp., 948 A.2d 453, 468 n.86 (Del. Ch. 2008), it argues that this is
an instance in which “multiple and different interpretations may reasonably be ascribed” to the
disputed term, 5 ConAgra Foods, Inc. v. Lexington Ins. Co., 21 A.3d 62, 69 (Del. 2011). The
purported ambiguity on which Retail Pipeline relies, however, is simply beside the point.
Even assuming some ambiguity over the scope of the “Flowcasting 2.0 or similar product”
language in the MIPA, it does not follow that the Court may rely on extrinsic evidence to infer an
affirmative obligation to develop such a product (or to use best efforts to develop such a product)
when the contract unambiguously contains no express provision creating such an obligation. The
MIPA requires JDA to pay an earn-out based on revenues earned on “Flowcasting 2.0 or similar
product.” If Retail Pipeline were adequately contending that JDA had failed to make payments
based on revenues from a particular product that it believed falls within the meaning of that phrase,
we might be required to resolve any ambiguity about its meaning in order to determine whether
the product constituted either “Flowcasting 2.0” or a “similar product.” Here, however, no such
contention is adequately made. Rather, Retail Pipeline essentially alleges that no such product
was ever created, and that the contract implicitly imposed an obligation on JDA to create one.
But resolving a dispute over the definition of “Flowcasting 2.0 or similar product” cannot impose
an obligation on JDA, found nowhere in the MIPA, to create a product that fits that definition.
5
Specifically, while JDA has read the term capaciously to include everything from a rebranded
version of JDA’s preexisting CSPA product to undeveloped products incorporating the
Flowcasting intellectual property, Retail Pipeline has interpreted the term to refer to something
much narrower—namely, a new product converging the technology of Flowcasting with JDA’s
D&F software in a manner consistent with the “roadmap” allegedly agreed upon during the
December 16, 2013 meeting. App’x 650.
6
Although Delaware law, as already noted, permits extrinsic evidence “to resolve a
contractual term that is ambiguous,” “[t]he parol evidence rule bars evidence of additional terms
to a written contract, when that contract is a complete integration of the agreement of the parties.”
Peden v. Gray, 886 A.2d 1278, 1278 (Del. 2005). A written agreement is “totally integrated”
when it is intended to be “the final and complete” expression of the parties’ agreement. Carrow
v. Arnold, 2006 WL 3289582, at *4 (Del. Ch. Oct. 31, 2006), aff’d, 933 A.2d 1249 (Del. 2007).
Retail Pipeline does not dispute that the MIPA constitutes a fully integrated contract. We may
not, therefore, supplement the terms of the contract based on alleged antecedent understandings or
negotiations in order to create an obligation that does not appear in the MIPA. Accordingly, the
district court did not err in granting summary judgment to JDA on Retail Pipeline’s breach of
contract claim.
II. Breach of the Implied Covenant of Good Faith and Fair Dealing
In the alternative, Retail Pipeline argues that JDA’s failure to develop a “Flowcasting 2.0”
product constitutes a breach of the implied covenant of good faith. Under Delaware law, “[t]he
implied covenant [of good faith and fair dealing] is inherent in all contracts . . . .” Dieckman v.
Regency GP LP, 155 A.3d 358, 367 (Del. 2017). The implied covenant “requires a party in a
contractual relationship to refrain from arbitrary or unreasonable conduct which has the effect of
preventing the other party to the contract from receiving the fruits of the bargain.” Dunlap v.
State Farm Fire & Cas. Co., 878 A.2d 434, 442 (Del. 2005). The “goal [of the doctrine] is to
preserve the economic expectations of the parties” by “ensur[ing] that the parties deal honestly
and fairly with each other when addressing gaps in their agreement.” Glaxo Grp. Ltd. v. DRIT
LP, 248 A.3d 911, 919 (Del. 2021).
7
As the Delaware Supreme Court has explained, absent contractual language to the contrary,
a buyer is not generally obligated to operate its business “so as to ensure or maximize the [seller’s]
earn-out payments.” Winshall v. Viacom Int’l, Inc., 76 A.3d 808, 811 (Del. 2013). However, a
breach of the implied covenant may occur when the buyer’s conduct demonstrates that it “acted
with the intent to deprive the seller of an earn-out payment,” Lazard Tech. Partners, LLC v. Qinetiq
N. Am. Operations LLC, 114 A.3d 193, 196 (Del. 2015), such as by “actively shifting costs into
the earn-out period that had no place there,” Winshall, 76 A.3d at 816. For example, in American
Capital Acquisition Partners, LLC v. LPL Holdings, Inc., the Delaware Court of Chancery
dismissed an implied covenant claim alleging that the defendants had an implied duty to implement
certain previously discussed modifications to their technological systems to aid the plaintiffs in
meeting their bonus targets, but held that the plaintiffs had stated an implied covenant claim based
on allegations that the defendants “affirmatively act[ed] to gut [the acquired division] to minimize
[earn-out] payments,” including by “pivot[ing]” sales away from the acquired division to other
divisions. 2014 WL 354496 at *6–7 (Del. Ch. Feb. 3, 2014).
These cases make clear that JDA cannot be held liable for breach of the implied covenant
merely because it failed to undertake some action that would have purportedly increased Retail
Pipeline’s earn-out—specifically, developing “Flowcasting 2.0 or similar product”—even if the
parties had discussed that JDA would undertake such an action. Indeed, the MIPA was executed
after more than a year of negotiations, much of which centered on the details of the earn-out
provision. During the course of those negotiations, Landvater and Martin pushed for the contract
to stipulate to the integration of certain Flowcasting features into D&F, but JDA rejected those
proposals. The fact that JDA rejected those proposals establishes that JDA’s failure to create a
product of that nature is not the sort of unanticipated gap on which an implied covenant claim can
8
rest. See Buckeye Partners, L.P. v. GT USA Wilmington, LLC, 2022 WL 906521, at *21 (Del.
Ch. Mar. 29, 2022) (“The implied covenant should not be used to fill the gap left by a rejected
term because doing so would grant a contractual right or protection that the party failed to secure
at the bargaining table.”).
Nevertheless, Retail Pipeline asserts that JDA did not merely fail to create “Flowcasting
2.0 or similar product” but rather took affirmative steps to “thwart” Retail Pipeline’s reasonable
expectations, including by failing to allocate the necessary resources to the development team and
by removing Landvater from his role in product management at JDA and eventually terminating
him altogether. Appellant’s Opening Br. at 56. But nothing in the evidence suggests that JDA’s
actions were intended to undermine the earn-out payment. Rather, the evidence demonstrates the
JDA legitimately focused its efforts and resources on monetizing those aspects of the acquired
intellectual property that it viewed as most promising. Accordingly, the district court did not err
in granting summary judgment to JDA on Retail Pipeline’s claim of a breach of the implied
covenant.
* * *
We have considered all of Retail Pipeline’s remaining arguments and find them to without
merit. Accordingly, we AFFIRM the judgment of the district court.
.
FOR THE COURT:
Catherine O’Hagan Wolfe, Clerk of Court
9