CECG, Inc. v. Magic Software Enterprises, Inc. ( 2002 )

Opinions of the United
2002 Decisions States Court of Appeals
for the Third Circuit
10-8-2002
CEGG Inc v. Magic Software Entr
Precedential or Non-Precedential: Non-Precedential
Docket No. 02-1036
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NOT PRECEDENTIAL
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
No. 02-1036
CECG, INC., a corporation of the
State of New Jersey,
Appellant
v.
MAGIC SOFTWARE ENTERPRISES, INC. and
MAGIC SOFTWARE ENTERPRISES, LTD.
__________
On Appeal from the United States District Court
for the District of New Jersey
(Civil Action No. 00-cv-02262)
District Judge: Judge Harold A. Ackerman
__________
Submitted Under Third Circuit LAR 34.1(a)
September 27, 2002
___________
Before: BARRY, AMBRO and GARTH, Circuit Judges
(Opinion Filed: October 8, 2002)
__________
OPINION
__________
GARTH, Circuit Judge:
In this contractual dispute, Plaintiff-Appellant CECG, Inc., appeals the district
court’s grant of summary judgment to Defendant-Appellees Magic Software Enterprises,
Inc. and Magic Software Enterprises, Ltd.
We will affirm the district court’s judgment.
I.
Because we write solely for the benefit of the parties, we recount the facts and the
procedural history of the case only as they are relevant to the following discussion.
This case involves a contractual dispute over the sale and licensing of Magic, a
computer software program that can be used to develop other software. Appellees Magic
Software Enterprises, Ltd. and Magic Software Enterprises, Inc. (hereinafter referred to
collectively as “MSE”) are, respectively, an Israel-based software company and its
California subsidiary, which sells Magic software in the United States.
The parties have had a prior round of litigation. In 1988, CECG made its first
purchase of Magic software. Magic software has two components: (1) a development
“engine” that allows computer programmers to develop software; and (2) a “runtime
module” that allows users of software developed through Magic’s engine to operate that
software. CECG claimed that when it purchased its first Magic development engine and
purchased an accompanying single-user runtime module, the MSE software salesperson
made an oral promise to provide a free runtime module upgrade every time that CECG
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purchased an upgrade of the development engine. Later, when MSE stopped offering
unlimited runtime modules in the United States, CECG sued MSE in federal court to
enforce its claim that MSE was obligated to continue to provide CECG with free unlimited
runtime module upgrades. The district court entered summary judgment for MSE on the
basis that the Statute of Frauds required such a promise to be in writing to be enforceable.
CECG, Inc. v. Magic Software Enterprises, No. 95-800 (JCL) (D. N.J. Sept. 13, 1996), at
10-11.
In September 1999, CECG asked MSE to upgrade its development engine to the
most recent version of Magic software. CECG’s president, Mitch Geier, requested a copy
of the license agreement as well as a demonstration or evaluation copy of the software.
The Magic software license agreement sent to Geier along with the demonstration
copy contained limitations on use, allowing the purchaser to
[u]se the Product as licensed with respect to number of users. The Product is
packaged in a manner to provide a specific number of users per package. If
several persons use this Product at the same time or if one person uses it on
more than one computer, you must pay one license fee for each copy being
used. This includes use on a computer network. You must pay a license fee
for the number of users specified in the Product package. You may not use
the Product for more than the specified number of users. In case you have
any questions regarding the number of users permitted you should
immediately contact MSE.
Magic License Agreement, Def.-Appellee’s App. 11. There was no mention of an unlimited
runtime license in the license agreement. The agreement also provided that
“MSE may from time to time revise or update its Products. Such updates and revisions will
be supplied only to registered users and according to MSE’s then prevailing update and
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support policies. MSE is not obligated to make any Product revisions or to supply them.”
Id. at 12.
The Magic license agreement contained a forum selection clause as well.1
Additionally, the agreement contained a complete merger clause. Id. The license
agreement provided for its own acceptance if the software package is opened: “OPENING
THIS PACKAGE CONSTITUTES YOUR ACCEPTANCE OF THE LICENSE AGREEMENT
SET FORTH BELOW.” Id. at 11.
After receiving the evaluation software and license, Geier said that he did not accept
the terms of the license agreement. After the evaluation period ended, Geier decided he
wished to purchase the new version of the development engine. Geier recalls speaking with
MSE and telling the salesperson that there had been prior litigation between CECG and
MSE; and that though he wanted to purchase the software, he would not do so on the terms
of MSE’s license agreement. He told the salesperson that he would not provide a credit
card, but instead would send in a purchase order with modified terms and conditions. See
Appellant’s Br. at 10; Appellee’s Br. at 15.2
Geier then sent a purchase order to MSE along with a check. On its face, the
1
The license agreement provides: “You acknowledge that any action or suit brought
to enforce any right or remedy of this Agreement shall be subject to the exclusive
jurisdiction and venue of the California State or Federal Courts sitting in Orange County,
California.” Magic License Agreement, Def.-Appellee’s App. 12.
2
The salesperson does not recall any discussion with Geier relating to prior
litigation or the unlimited runtime license. See Appellee’s Br. at 13 n. 3. She does
apparently recall asking for a credit card number. See Appellant’s Br. at 10 (citing Urschel
Dep. Tr. at 25, 3 Pl.-Appellant’s App. 372).
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purchase order listed a “Development Universal Client Server” ($3600) and “Technical
support contract including updates as well as contract pricing for upgrades” at a price of
$880 for one year. CECG Purchase Order, Def.-Appellee’s App. 22. At the bottom of the
front side of the purchase order, the order stated: “P.O. Number Must Be Referenced On
Each Package, Packing Slip, Invoice, And/Or Any Correspondence. Please Enter Our Order
for the Goods Described Herein, Subject to the Terms and Provisions Set Forth on the Face
and Reverse Side of this Purchase Order.” Id. The reverse side of the order contained
several terms. The key provision at issue, relating to the unlimited runtime license, is
contained within a paragraph with the caption “Intellectual Property Rights”:
This order shall also reinstate the buyer[’]s understanding of the unlimited
run time license. The seller shall update and upgrade the unlimited runtime
license currently called deployment without charge to the buyer whenever the
buyer upgrades or updates the development tools or program generator to any
version or renamed product so that the licensed versions and names shall
match. . . . This reinstatement is irrevocable.
CECG Purchase Order ¶ 4, Def.-Appellee’s App. 23. The purchase order contained its own
forum-selection clause.3 The purchase order provided for its own acceptance and provided
that it was the exclusive agreement between the parties.4
3
The forum-selection clause in the purchase order states: “This Purchase Order and
the acceptance of it shall, as provided herein, constitute a contract made in, and to be
governed in all respects by the laws of the state of New Jersey. Venue shall be in
Middlesex County, NJ.” CECG Purchase Order ¶ 8, Def.-Appellee’s App. 23.
4
The purchase order provided:
Commencement of performance pursuant to this Purchase Order constitutes
acceptance hereof by Seller. If specified delivery dates cannot be met, Seller
shall notify Buyer promptly of Seller’s best alternative. The terms of this
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MSE received the purchase order and deposited CECG’s check. MSE then shipped a
CD-ROM containing the program, along with another copy of the license agreement.
CECG communicated with MSE to explain that it only required the “Product Authorization
Key” (the codes) necessary to unlock the evaluation software for use. MSE faxed a
Product Authorization Key to CECG, which stated that
The PAK is an integral part of licensed software product identified on the
front of this document . . . and is provided subject to the licence [sic] terms
applicable to the software. Licensee shall maintain the PAK as confidential,
and not transfer, disclose, or otherwise make it available to any third party.
Any copies of the PAK must be limited to internal use by licensee only.
Def.-Appellee’s App. 29. After CECG found that its old runtime module was incompatible
with the new version of Magic’s development engine, Geier again communicated with MSE
in an attempt to obtain an unlimited runtime license in the belief that the contract obligated
MSE to provide such a license.
According to Geier’s notes, Russell Taitz, the vice president of operations for MSE,
told Geier that MSE would not honor the purchase order, but would be willing to refund
CECG the purchase price. Def-Appellee’s App. 31.
Purchase Order may not be modified, superseded or amended except in a
writing signed by an authorized representative of Buyer. Each shipment
received by Buyer shall only be upon the terms of this Purchase Order,
notwithstanding any terms contained in any quotation, acknowledgment,
license agreement, invoice or other form of Seller, or Buyer’s acceptance of,
or payment for, any shipment or any other act.
Id. ¶ 1.
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CECG filed a complaint in the Superior Court of New Jersey, Middlesex County, on
April 7, 2000, alleging breach of contract and seeking damages and specific performance.
MSE removed the case to federal district court for the District of New Jersey on the basis
of diversity jurisdiction. CECG filed a motion for remand to state court. The district court
denied the motion, holding that there was diversity jurisdiction because the parties were
diverse and the amount-in-controversy requirement was met; and that the venue provisions
contained in CECG’s Purchase Order and the Magic License Agreement negated one
another pursuant to § 2-207 of the Uniform Commercial Code, as adopted by New Jersey.
CECG, Inc. v. Magic Software Enterprises, No. 00-2262 (HAA) (D. N.J. Feb. 26, 2001),
at 5-7, 8-11.
Following discovery, MSE filed a motion for summary judgment, and CECG filed a
cross-motion for summary judgment and a motion for reconsideration of the district
court’s denial of remand to state court.
The district court denied CECG’s motions and granted MSE’s motion for summary
judgment. The district court granted summary judgment for MSE on the contract claims,
finding that the terms of MSE’s license agreement and CECG’s subsequent purchase order
conflicted with one another with respect to whether MSE was obligated to provide CECG
with an unlimited runtime license, and that, because the purchase order’s term concerning
the unlimited runtime license was “a material alteration of the contract,” accordingly, under
UCC § 2-207, “the contradictory term falls out of the parties’ agreement.” CECG, Inc. v.
Magic Software Enterprises, No. 00-CV-2262 (HAA) (D. N.J. Dec. 11, 2001), at 18
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(citing N.J. Stat. Ann. § 12A:2-207).5
This timely appeal followed.
II.
We have jurisdiction to hear this appeal of the district court’s final judgment in this
diversity action pursuant to 28 U.S.C. § 1291. We have plenary review of a district court’s
order granting summary judgment. See, e.g., Carter v. McGrady, 292 F.3d 152, 157 (3d
Cir. 2002). Accordingly, we apply those standards that the district court should have
applied below. Chisolm v. McManimon, 275 F.3d 315, 321 (3d Cir. 2001). Summary
judgment is proper if there is no genuine issue of material fact and if, viewing the facts in
the light most favorable to the nonmoving party, the moving party is entitled to judgment as
a matter of law. See Fed. R. Civ. P. 56(c); Celotex Corp. v. Catrett, 477 U.S. 317 (1986).
Our function at the summary judgment stage is not to weigh the evidence and determine the
truth of the matter, but to determine whether there is a genuine issue for trial. See
Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249 (1986).
The parties do not dispute the contents of the writings that the parties have
exchanged; rather, they disagree on the documents’ legal effect. There are therefore no
5
The district court also granted summary judgment to MSE on CECG’s claim under
the New Jersey consumer fraud statute, N.J. Stat. Ann. § 56:8-2, concluding that “CECG
provides no evidence of deception” that would suffice to “establish that MSE engaged in
any acts of fraud, unconscionable commercial practice, deception or false promises.” Id. at
20. In addition, the district court denied CECG’s motion for reconsideration of its earlier
denial of CECG’s motion for remand.
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genuine issues of material fact; the only question before us is which party is entitled to
judgment as a matter of law.
Section 2-207 of the Uniform Commercial Code governs the transaction between
CECG and MSE. 6 In Step-Saver Data Systems, Inc. v. Wyse Technology, 939 F.2d 91 (3d
Cir. 1991), a case which both parties cite as controlling, we analyzed the effect of
contradictory documents relating to the sale of software: the buyer’s telephone order
(followed by a purchase order) and the seller’s software box-top license. See id. at 95-96.
We held that UCC § 2-207 governed the transaction, stating that “[i]n the absence of a
party's express assent to the additional or different terms of the writing, section 2-207
6
UCC § 2-207 provides:
(1) A definite and seasonable expression of acceptance or a written
confirmation which is sent within a reasonable time operates as an
acceptance even though it states terms additional to or different from those
offered or agreed upon, unless acceptance is expressly made conditional on
assent to the additional or different terms.
(2) The additional terms are to be construed as proposals for addition to the
contract. Between merchants such terms become part of the contract unless:
(a) the offer expressly limits acceptance to the terms of the offer;
(b) they materially alter it; or
(c) notification of objection to them has already been given or is given within
a reasonable time after notice of them is received.
(3) Conduct by both parties which recognizes the existence of a contract is
sufficient to establish a contract for sale although the writings of the parties
do not otherwise establish a contract. In such case the terms of the particular
contract consist of those terms on which the writings of the parties agree,
together with any supplementary terms incorporated under any other
provisions of this Act.
N.J. Stat. Ann. § 12A: 2-207.
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provides a default rule that the parties intended, as the terms of their agreement, those
terms to which both parties have agreed,” with any gaps to be filled by the UCC’s
provisions. Id. at 99 (footnote omitted).
Similarly, in the dispute between CECG and MSE, the initial license agreement sent
by MSE along with the evaluation copy of the software became effective when CECG
obtained and installed the software. When CECG submitted its purchase order and check to
buy Magic software, CECG had objectively manifested its acceptance of the terms of the
license agreement. To the extent that the reverse side of the purchase order contained
additional or different terms, such terms, if they constituted material alterations of the
contract, would drop out of the contract formed, unless CECG’s purchase order indicated
that “acceptance is expressly made conditional on assent to the additional or different
terms.” UCC § 2-207(1). The purchase order did not so indicate.7 The provision on the
reverse side of CECG’s purchase order that allowed for CECG to receive a unlimited
runtime license at no additional cost for each purchase of a new version of Magic’s
development engine constituted a material alteration of the contract and therefore did not
7
Even if acceptance were expressly conditional on assent to these terms, and thus
there were no written contract, the conduct of the parties established a contractual
relationship. UCC § 2-207(3) provides that the conduct of both parties can establish a
contract, and that, to the extent that there is no agreement, the UCC fills any gaps in the
contract. Both parties clearly conducted themselves in a manner that reflected that there
was a contractual relationship; the disagreement is as to what the terms of the contract are.
The writings of the parties, however, do not agree on whether MSE is obligated to provide
CECG with an unlimited runtime license, and there is no provision of the UCC that would
allow for CECG to receive an unlimited runtime license.
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become part of the contract.
Accordingly, we will affirm the district court’s grant of summary judgment to MSE
on CECG’s contract claims. We also will affirm the district court’s grant of summary
judgment to MSE on the consumer fraud claim, as CECG has not made any argument of
substance on appeal that the district court erred.8
III.
Plaintiff also appears to appeal the district court’s denial of remand.9 We have
plenary review over a district court’s denial of remand. See Werwinski v. Ford Motor Co.,
286 F.3d 661, 665 (3d Cir. 2002).
CECG argues that the district court erroneously deleted the conflicting terms as it
viewed the forum-selection provisions in CECG’s purchase order and in MSE’s license
agreement as conflicting terms under UCC § 2-207. See Appellant’s Br. at 16-17.
Forum selection clauses are material terms to a contract. See, e.g., Cunningham v.
Fleetwood Homes of Georgia, Inc., 253 F.3d 611, 621 n. 13 (11th Cir. 2001) (“arbitration
8
CECG makes only the conclusory statement that “[t]he sale of the merchandise by
defendant and its subsequent conduct entitles the plaintiff to its day in court on the issue of
Consumer Fraud.” Appellant’s Br. at 34. Without anything more, we will not upset the
determination of the District Court.
9
The district court denied plaintiff’s motion for remand. Plaintiff moved for
reconsideration, which was denied. CECG requests remand as a possible form of relief.
See Appellant’s Br. at 38-39. It is not clear, however, whether plaintiff appeals the denial
of its motion for reconsideration or the denial of its motion for remand. We will assume
the latter.
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clauses, like other kinds of forum selection clauses, are generally considered material
terms under state law variants of the Uniform Commercial Code.”). Based on our analysis
of the conflicting writings, then, UCC § 2-207 requires that the conflicting term in CECG’s
purchase order either must give way to MSE’s forum-selection clause, or must drop out
because of the conflict between MSE and CECG’s writings. See UCC 2-207(3).
Accordingly, there is no basis for remanding the case to New Jersey state court. We
will affirm the district court’s denial of CECG’s motion for remand.
IV.
For the foregoing reasons, the judgment of the district court will be AFFIRMED.
TO THE CLERK:
Please file the foregoing opinion.
/s/ Leonard I. Garth
Circuit Judge
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UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
__________
No. 02-1036
__________
CECG, INC., a corporation of the
State of New Jersey,
Appellant
v.
MAGIC SOFTWARE ENTERPRISES, INC. and
MAGIC SOFTWARE ENTERPRISES, LTD.
__________
On Appeal from the United States District Court
for the District of New Jersey
(Civil Action No. 00-cv-02262)
District Judge: Judge Harold A. Ackerman
__________
Submitted Under Third Circuit LAR 34.1(a)
September 27, 2002
___________
Before: BARRY, AMBRO and GARTH, Circuit Judges
JUDGMENT
This cause came on to be heard on the record before the District Court for the
District of New Jersey and was submitted pursuant to Third Circuit LAR 34.1(a) on
September 27, 2002.
On consideration whereof, IT IS NOW HERE ORDERED AND ADJUDGED by this
Court that, the judgment of the said District Court dated December 11, 2001, be, and the
same is hereby, AFFIRMED. Costs taxed against appellant. All of the above in accordance
with the opinion of this Court.
ATTEST:
Acting Clerk
DATED: 8 October 20002
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