Sensormatic Security Corp. v. Sensormatic Electronics Corp. , 273 F. App'x 256 ( 2008 )

UNPUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
No. 06-2097
SENSORMATIC SECURITY CORPORATION,
Plaintiff - Appellant,
versus
SENSORMATIC ELECTRONICS CORPORATION; ADT
SECURITY SYSTEMS, INCORPORATED,
Defendants - Appellees.
No. 06-2099
SENSORMATIC SECURITY CORPORATION,
Plaintiff - Appellant,
versus
SENSORMATIC ELECTRONICS CORPORATION,
Defendant - Appellee.
No. 06-2124
SENSORMATIC SECURITY CORPORATION,
Plaintiff - Appellee,
versus
SENSORMATIC ELECTRONICS CORPORATION; ADT
SECURITY SYSTEMS, INCORPORATED,
Defendants - Appellants.
Appeals from the United States District Court for the District of
Maryland, at Greenbelt. Deborah K. Chasanow, District Judge.
(8:04-cv-00174-DKC; 8:05-cv-03473-DKC)
Argued: November 1, 2007 Decided: March 31, 2008
Before WILKINSON and SHEDD, Circuit Judges, and Claude M. HILTON,
Senior United States District Judge for the Eastern District of
Virginia, sitting by designation.
Affirmed in part, reversed in part, and remanded by unpublished per
curiam opinion.
ARGUED: Robert V. Zener, BINGHAM & MCCUTCHEN, L.L.P., Washington,
D.C., for Sensormatic Security Corporation. Edward C. Barnidge,
III, WILLIAMS & CONNOLLY, L.L.P., Washington, D.C., for Sensormatic
Electronics Corporation and ADT Security Systems, Incorporated. ON
BRIEF: David J. Butler, Jason R. Scherr, BINGHAM & MCCUTCHEN,
L.L.P., Washington, D.C., for Sensormatic Security Corporation.
Bruce R. Genderson, George A. Borden, Katherine G. Lindsey,
WILLIAMS & CONNOLLY, L.L.P., Washington, D.C., for Sensormatic
Electronics Corporation and ADT Security Systems, Incorporated.
Unpublished opinions are not binding precedent in this circuit.
2
PER CURIAM:
Franchisee Sensormatic Security Corporation (“SSC”) brought
these actions against its franchisor, Sensormatic Electronics
Corporation (“Sensormatic”), and ADT Security Systems (“ADT”) for
breach of contract. There are three issues before this Court on
appeal. First, SSC seeks entitlement to certain contract terms and
commission rates contained in Sensormatic’s agreement with another
franchisee pursuant to a More Favorable Contracts clause in the
SSC-Sensormatic Franchise Agreement. Next SSC argues that
Sensormatic and ADT breached the Franchise Agreement by failing to
sell certain products through the procedures established by the
Franchise Agreement. Finally, in a counterclaim Sensormatic seeks
declaration that certain language in the Agreement grants
Sensormatic the right to terminate the Franchise Agreement without
cause and pay only damages specified by the contract. The district
court held on summary judgment that certain products were outside
the purview of the Franchise Agreement. The district court
dismissed two of SSC’s claims under the rule against claim
splitting. The district court granted summary judgment to SSC on
Sensormatic’s counterclaim. We affirm in part and reverse in part.
I.
Sensormatic pioneered the development of anti-theft devices in
the 1960s and continues to develop and sell related products today.
3
In the 1960s and 1970s, Sensormatic’s primary product was the
“Sensormatic System,” which it sold to retail customers through a
franchise arrangement, with franchisees servicing various
territories in the United States. In recent years, Sensormatic
chose to move away from the franchise model and has now bought out
all but two of its franchisees.
SSC has been the Sensormatic franchisee for the
Maryland/Washington, D.C./Virginia territory since 1967. The
present disputes arise under a 1976 Amended Franchise Agreement
between SSC and Sensormatic. The Agreement grants SSC an exclusive
right to sell and/or distribute within the franchise territory
“Detection Devices, Tags, Accessories and Supplies for Automatic
Theft Detection Uses.” “Detection Devices” and “Automatic Theft
Detection Uses” are defined in the contract.
A “More Favorable Contracts” (“MFC”) clause provides SSC with
an option to amend the Agreement if Sensormatic “enters into any
contract” with another similarly situated franchisee that contains
more favorable terms and conditions.
The Agreement is not limited to a specific term, but permits
Sensormatic to terminate for various causes, such as SSC’s
insolvency. However, Section 12.H of the Agreement states that
“[t]he termination of this Agreement for any reason whatsoever
shall not terminate the obligations of the parties” and establishes
specific payments, which “are deemed to be full satisfaction . . .
4
of any claim . . . which the Franchisee may have or assert arising
from the termination of this agreement.”
In 1984, SSC and Sensormatic amended the Agreement to settle
a dispute over whether the Agreement covers certain closed-circuit
television (“CCTV”) products. This Settlement provides that
certain CCTV products are included in the franchise and that SSC
receive a commission rate of forty percent of the gross profits on
the sale of those products in the SSC territory. The 1976
Agreement establishes a commission rate of fifty percent of gross
revenue on sales of all other Sensormatic products covered by the
Agreement and sold in the SSC territory.
In 1978, Sensormatic entered into a Franchise Agreement with
Winner & Bagnara, Inc. (“Winner”) to cover the
Pennsylvania/Delaware territory. Winner’s Agreement is materially
identical to SSC’s 1976 Agreement, except that Winner’s contains an
addendum that broadens Winner’s franchise to include “access-
control” products. Access-control products are designed and
marketed to control whether an individual has access to enter a
building or a room within a building. At the same time Winner and
Sensormatic executed their Franchise Agreement, Sensormatic leased
from Winner the exclusive right to operate in the Winner franchise
territory for twenty years. At the end of the twenty year lease,
Sensormatic had the option to buy out Winner’s rights entirely as
the duration of Winner’s franchise, like SSC’s, was not limited to
5
a specific term. In 1998, Sensormatic attempted to buy out
Winner’s rights and a legal dispute ensued (the Winner litigation).
In United States District Court for the Western District of
Pennsylvania, Winner argued that Sensormatic’s attempted buyout
constituted breach of contract. The Winner court held that
Sensormatic forfeited its right to buy out the Winner franchise and
the Court of Appeals for the Third Circuit affirmed. Sensormatic
Electronics Corp. v. First Nat’l Bank Pa., 148 Fed. App’x. 99 (3rd
Cir. 2005)(unpublished).
To properly calculate damages, the Winner court considered
whether the sale of certain, more recently developed Sensormatic
products was covered by the Winner Agreement and subject to the
Agreement’s commission rate. The Winner court held that CCTV,
radio frequency identification device (“RFID”), and various other
more newly-developed products were covered by the Winner Agreement.
This ruling subjects the sale of CCTV products in the Winner
territory to the fifty percent of gross sales commission rate
stated in the Franchise Agreement rather than the forty percent of
gross profits rate agreed-upon by SSC and Sensormatic in their 1984
Settlement.
In 2002, SSC brought suit in United States District Court for
the District of Maryland against Sensormatic to challenge
Sensormatic’s distribution of newly-developed CCTV products in the
SSC franchise territory and its failure to pay commission to SSC on
6
those sales (Sensormatic I). Sensormatic I is currently pending at
the district court and is not on appeal. Over one year after
filing its complaint in Sensormatic I but prior to the deadline for
filing an amended complaint, SSC learned of the addendum
Sensormatic signed with Winner including access-control products in
the Winner franchise. By the time SSC decided to assert a claim
based on the Winner addendum, the deadline for filing an amended
complaint had passed. SSC sought leave to file an amended
complaint and the court denied SSC’s motion on the ground that SSC
“did not diligently address the need for an amendment of the
scheduling order when it first learned of the Winner Addendum,
before the scheduling order deadline passed.”
The day after its motion for leave was denied, SSC filed a
separate action in the same court asserting the identical MFC claim
it sought to add to Sensormatic I (Sensormatic II). SSC later
amended the Sensormatic II complaint to include claims that
Sensormatic breached the Franchise Agreement by failing to sell
RFID products in the SSC territory in accordance with the Franchise
Agreement. Sensormatic moved to dismiss both the access-control
claims and the RFID claims on the ground that the second suit
violates the rule against claim splitting. The district court
granted this motion with respect to the access-control claims, but
denied it with respect to the RFID claims. The district court
later granted Sensormatic’s motion for summary judgment on the RFID
7
claims, holding that RFID products are not covered by the Franchise
Agreement.
In Sensormatic II, Sensormatic filed a counterclaim seeking
declaration from the court that Section 12.H of the Franchise
Agreement establishing SSC’s damages in the event of termination
“for any reason whatsoever” constitutes a liquidated damages
provision and grants Sensormatic the right to terminate the
Franchise Agreement and pay only the damages stated in that
Section. The district court granted SSC’s motion for summary
judgment, holding that Section 12.H did not give Sensormatic the
right to terminate the Franchise Agreement and pay only liquidated
damages. The district court’s decisions to dismiss SSC’s access-
control claims, grant Sensormatic’s summary judgment motion on
SSC’s RFID claims, and grant SSC’s summary judgment motion on
Sensormatic’s counterclaim are all currently before this Court on
appeal.
After the Third Circuit affirmed the district court’s decision
in Winner — holding that the Winner Agreement covered certain CCTV
products — SSC filed a third lawsuit seeking a more favorable
commission rate for the sale of CCTV products (Sensormatic III).*
SSC argued that the MFC clause requires Sensormatic to give SSC the
more favorable forty percent of gross sales commission rate for the
sale of CCTV products rather than the fifty percent of gross-
*
ADT is not a party in Sensormatic III.
8
profits rate established by the 1984 Settlement. As Sensormatic
III was filed forty-two months after SSC filed Sensormatic I and
involves the same products at issue in that case, the district
court granted Sensormatic’s motion to dismiss on the ground that
the claims in Sensormatic III violate the rule against claim
splitting. SSC’s appeal of this decision is also currently before
this Court.
II.
This Court reviews de novo the district court’s grant of
Sensormatic’s motion for summary judgment on SSC’s RFID claims.
See Nat’l City Bank of Ind. v. Turnbaugh, 463 F.3d 325, 329 (4th
Cir. 2006)(“We review a grant of summary judgment de novo”). SSC
argued below that collateral estoppel ought to apply to the Winner
court’s decision that the Winner Agreement covers RFID products.
Review of a district court’s decision on collateral estoppel is
also de novo. See id. We consider SSC’s collateral estoppel
argument first.
A.
When federal jurisdiction in a prior case is based on
diversity of citizenship, for any subsequent suit in federal court,
federal law incorporates the preclusion law of the state in which
the court that rendered judgment in the prior suit sits. Semtek
9
Intern. Inc. v. Lockheed Martin Corp., 531 U.S. 497 (2001). As
Winner was a diversity case in Pennsylvania, this Court applies the
collateral estoppel law of Pennsylvania.
Collateral estoppel prevents “the relitigation of issues of
fact or law that are identical to issues which have been actually
determined and necessarily decided in prior litigation in which the
party against whom [collateral estoppel] is asserted had a full and
fair opportunity to litigate.” Ramsay v. I.N.S., 14 F.3d 206, 210
(4th Cir. 1994). The Winner court held that the Winner franchise
included all Sensormatic product lines that are used for the
prevention and detection of shoplifting and other theft and
concluded that RFID products are within the scope of that
definition.
The district court declined to apply collateral estoppel to
the RFID-coverage issue because that issue “was not actually
litigated in the Pennsylvania case because Sensormatic did not
contest that RFID products were an Automatic Theft Detection
Product.” See Uzdaviness v. Weeks Marine, Inc., 418 F.3d 138, 146
(2d Cir. 2005)(stating that “[m]ost courts have held that a fact
established in prior litigation by stipulation, rather than by
judicial resolution, has not been actually litigated”).
Stipulation is evidenced by the Winner court’s quotation from a
Sensormatic brief stating that newly-developed Sensormatic products
“are not ‘successors’ to the Sensormatic System. These products do
10
not use microwave technology and have not been marketed as
replacements to the microwave-based Sensormatic System.
Additionally, with the exception of the other electronic article
surveillance systems and RFID, none of them are even products for
Automatic Theft Detection.” (emphasis added).
SSC argues that the district court erred because the issue of
franchise coverage of RFID products is comprised of two more narrow
issues: whether RFID products are used for Automatic Theft
Detection under the Agreement and whether RFID products are
successor products to the Sensormatic System that existed in 1970s.
SSC argues that in Winner, Sensormatic chose to stipulate that RFID
products were used for Automatic Theft Detection and contested the
coverage issue on the ground that RFID products are not “successors
to” the 1970s Sensormatic System. SSC argues that “[a] finding
that rests in part on a stipulation and in part on litigation,
however, supports preclusion.” 18A Wright, Miller and Cooper,
Federal Practice and Procedure § 4443.
SSC’s argument is unpersuasive because the rule giving
preclusive effect to issues established by stipulation in prior
litigation has only a narrow exception. In recognizing the
exception for findings that rest partially on stipulation and
partially on litigation, the Seventh Circuit commented that:
[t]he decisive reason for giving [stipulations]
collateral estoppel effect is that a lawyer’s recognition
that the evidence is so stacked against him on some point
that a failure to admit it will open him to sanctions
11
under Fed. R. Civ. P. 37(c) is as good an indication of
where the truth probably lies as a determination by a
judge or jury.
Kairys v. I.N.S., 981 F.2d 937, 941 (7th Cir. 1992)(holding the
rule against collateral estoppel of stipulated issues did not apply
where the party against whom estoppel was sought stipulated that
Nazi Germany invaded the Soviet Union on June 22, 1941). Indeed,
the court in Kairys distinguished the case where a prior judgment
rested solely on an admission — preclusion does not apply — from
the case where “the party later sought to be estopped had put up a
fight, conceding only the points hopelessly against him.” Id.While we can only speculate as to why Sensormatic conceded in
Winner that RFID products were used for Automatic Theft Detection,
it is clear that this issue is not a mere background fact like
whether Nazi Germany invaded the Soviet Union on a particular date.
There is no indication that Sensormatic conceded the “Automatic
Theft Detection Uses” issue because the point was “hopelessly
against” it.
An issue for collateral estoppel purposes is “a single certain
and material point arising out of the allegations and contentions
of the parties.” 18 Moore’s Federal Practice § 132.02. Whether
RFID products are used for Automatic Theft Detection is such an
issue and the district court correctly ruled that its prior
stipulation not be given collateral estoppel effect.
12
We now turn to whether the district court properly granted
summary judgment to Sensormatic, holding that RFID products are not
covered by the Franchise Agreement.
B.
Summary judgment is appropriate where there is no genuine
issue as to any material fact. See Fed. R. Civ. P. 56 (c). Once a
motion for summary judgment is properly made and supported, the
opposing party has the burden of showing that a genuine dispute
exists. See Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475
U.S. 574, 586-87 (1986). A material fact in dispute appears when
its existence or non-existence could lead a jury to different
outcomes. See Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248
(1986). A genuine issue exists when there is sufficient evidence
on which a reasonable jury could return a verdict in favor of the
non-moving party. See id. Mere speculation by the non-moving
party "cannot create a genuine issue of material fact." Beale v.
Hardy, 769 F.2d 213, 214 (4th Cir. 1985); see also Ash v. United
Parcel Serv., Inc., 800 F.2d 409, 411-12 (4th Cir. 1986). Summary
judgment is appropriate when, after discovery, a party has failed
to make a "showing sufficient to establish the existence of an
element essential to that party’s case, and on which that party
will bear the burden of proof at trial." Celotex Corp. v. Catrett,
477 U.S. 317, 322 (1986). When a motion for summary judgment is
13
made, the evidence presented must always be taken in the light most
favorable to the non-moving party. See Smith v. Virginia
Commonwealth Univ., 84 F.3d 672, 675 (4th Cir. 1996) (en banc).
RFID technology is used to identify and track products along
the distribution chain. A RFID tag houses a chip that communicates
product information to a “reader,” which feeds the information to
a computer database. The current primary use of RFID technology is
to track pallets of a particular good — laundry detergent, for
example — so that a particular quantity of that good can be more
easily sent to the retail location that needs it most. For
example, RFID enables Wal-Mart to know that its Manassas, Virginia
location is running low on laundry detergent and to divert to
Manassas a shipment currently en route to another store. SSC
argues that, despite its current primary use, RFID technology can
be used to prevent theft. Because RFID can be used to track
pallets of a particular good, it stands to reason that RFID could
be used to signal when a pallet has gone missing.
By contrast, the Sensormatic System is a microwave-emitting
“electronic article surveillance” device. The System typically
sits at a retail store’s exit and is designed to detect tags
attached to merchandise that are not removed, as is typically done
after an item has been purchased. When the System detects a tag,
an alarm or other control device is activated, automatically
signaling a potential theft.
14
Section 2 of the Franchise Agreement gives SSC the right to
sell/lease within the franchise territory “Detection Devices, Tags,
Accessories and Supplies for Automatic Theft Detection Uses.”
“Detection Devices” are defined by the Agreement as:
the detection systems and devices presently being
marketed by the Franchisor for Automatic Theft Detection
Uses . . . which include a transmitter and coordinated
receiver and alarm console, and which may be installed
and used as a system or device to detect Tags, sounding
an alarm, or otherwise activating a control device, and
all successors thereto.
“Automatic Theft Detection Uses” are defined in pertinent part as
“uses for the prevention of shoplifting and other theft,” which
includes “the control and surveillance of inventory and merchandise
offered for resale by retailers, wholesalers, manufacturers,
government agencies, and others.” To be covered by the Agreement,
RFID products must be used for “Automatic Theft Detection” and must
also satisfy the Agreement’s definition of “Detection Devices.”
We first consider whether RFID products are used for
“Automatic Theft Detection.” Sensormatic argues that summary
judgment is appropriate because there is no evidence in the record
showing that a single Sensormatic customer uses RFID products for
theft detection. Indeed, the record contains testimony from
various industry participants, including SSC’s President, stating
that Sensormatic RFID products are not currently being used or sold
for theft detection, but rather are used to more efficiently
distribute inventory among retail locations. Whether RFID could be
15
used for theft detection is not relevant to whether the Franchise
Agreement covers these products as the Agreement only covers
Sensormatic products sold for theft detection.
Certain Sensormatic/ADT marketing materials indicate that, at
one time, Sensormatic and ADT considered theft detection to be a
potential use for RFID products. However, a Sensormatic product is
not covered by the Franchise Agreement simply because it was, at
some point in time, marketed for theft detection. The Agreement
covers “Detection Devices” “presently being marketed for” theft
detection. As the Agreement was signed in 1976, the “presently
being marketed for” language refers only to those products being
marketed by Sensormatic for theft detection in 1976. This reading
does not prevent post-1976 products from being covered by the
Agreement, however. Whether a newly-developed Sensormatic product
is a “Detection Device” covered by the Agreement depends on whether
it is a “successor” to the 1976 Sensormatic System. Moreover, the
“presently being marketed for” language applies only to the
question of whether a product at issue is a “Detection Device,” not
whether the product is used for “Automatic Theft Detection.”
Therefore these marketing materials do not create a genuine issue
of material fact with regard to whether RFID products are used for
“Automatic Theft Detection.”
As there is no material fact issue regarding whether RFID
products are used for “Automatic Theft Detection,” we hold that the
16
district court did not err in awarding summary judgment to
Sensormatic. We need not consider whether RFID constitutes a
“Detection Device” under the contract, as coverage under the
Agreement requires both that a product be used for “Automatic Theft
Detection” and be a “Detection Device.”
III.
The rule against claim splitting is one of the principles of
res judicata. See Nash County Bd. of Educ. v. Biltmore Co., 640
F.2d 484, 490 (4th Cir. 1981). Consequently, the standard of
review on the district court’s decisions to dismiss two of SSC’s
claims as violations of the rule against claim splitting is de
novo. Pueschel v. United States, 369 F.3d 345, 354 (4th Cir.
2004)(“We review de novo a district court’s application of the
principles of res judicata”).
A.
In Sensormatic I, SSC sought leave to file an amended
complaint after the district court’s deadline for filing an amended
complaint had passed. This claim was based on the Winner
Agreement’s addendum making access control products part of the
Winner Franchise. SSC sought to use the MFC clause to require
Sensormatic to offer it the same terms as Winner, thus making
access-control products part of the SSC Franchise. Although the
17
Winner Agreement and addendum were signed in 1978, SSC did not
learn of the addendum until May 9, 2003. The Sensormatic I court
denied SSC’s request for leave to amend on the ground that SSC
learned of the addendum approximately one month prior to the
deadline for filing an amended complaint yet failed to timely
amend. That court held that SSC’s failure to timely amend was
without good cause and denied the request. SSC asserted the same
claim in a new lawsuit, Sensormatic II, the day after the
Sensormatic I court denied its motion for leave.
The rule against claim splitting “prohibits a plaintiff from
prosecuting its case piecemeal and requires that all claims arising
out of a single wrong be presented in one action.” Myers v.
Colgate-Palmolive Co., 102 F. Supp. 2d 1208, 1224 (D. Kan. 2000).
In a claim splitting case, the second suit will be barred if the
claim involves the same parties and “arises out of the same
transaction or series of transactions as the first claim.” See
Trustmark Insur. Co. v ESULU, Inc., 299 F.3d 1265, 1269-70 (11th
Cir. 2002). When one suit is pending in federal court, a plaintiff
has no right to assert another action “on the same subject in the
same court, against the same defendant at the same time.” Curtis
v. Citibank, N.A., 226 F.3d 133, 139-39 (2d Cir. 2000). Often, the
rule against claim splitting applies to prevent a plaintiff from
filing a new lawsuit after the court in an earlier action has
denied the plaintiff’s request for leave to amend to add the claims
18
later asserted in the second lawsuit. See Northern Assurance Co.
Of Am. v. Square D. Co., 201 F.3d 84, 87-88 (2d Cir. 2000)(citing
string of cases dismissing claim in second suit that was
duplicative of claim sough to be amended to first suit); Devoc,
Inc. v. NGC, 309 B.R. 458, 465-66 (Bankr. N.D. Tex. 2004)(same).
In support of its motion for leave to amend the Sensormatic I
complaint, SSC argued that amendment was permissible “because the
new breach of contract claim is based upon the same Restated
Franchise Agreement that is currently at issue.” In Sensormatic
II, SSC argued against dismissal on claim splitting grounds because
the claims in Sensormatic II are based on the Winner Agreement,
rather than the SSC-Sensormatic Franchise Agreement that is the
subject of Sensormatic I. Notwithstanding the fact that SSC has
taken fundamentally different positions in arguing two different
motions, its argument in Sensormatic II is incorrect. The factual
allegations to be resolved in Sensormatic II do not concern the
validity or scope of the Winner addendum, but the scope of the SSC-
Sensormatic Franchise Agreement.
Dismissal pursuant to the rule against claim splitting is
appropriate in this case for two reasons. First, it is apparent
that SSC sought to circumvent the Sensormatic I court’s decision to
deny SSC’s motion for leave to file an amended complaint.
Presuming that SSC felt that this denial was in error, it should
have waited to appeal the decision until Sensormatic I becomes
19
final. Second, the access-control claims at issue are “on the same
subject in the same court, against the same defendant at the same
time,” Curtis, 226 F.3d at 139-140, and therefore are in violation
of the rule against claim splitting. Consequently, we believe that
the district court properly dismissed SSC’s access-control claims
in Sensormatic II.
B.
In Sensormatic III, SSC brought suit under the MFC clause
seeking more favorable commission rates for the sale of CCTV
products. Whether certain CCTV products are covered by the
Franchise Agreement was a subject of dispute between SSC and
Sensormatic in the early 1980s. A 1984 Settlement resolved the
dispute and established that Sensormatic pay SSC a fifty percent of
gross profits commission rate for CCTV sales in the SSC territory
rather than the forty percent of gross sales rate paid for all
other Sensormatic products covered by the Agreement. The Winner
court held that these CCTV products were covered by the Winner
Franchise Agreement and therefore subject to the forty percent of
gross sales commission rate. As Winner did not dispute this issue
in the 1980s it did not get resolved until Winner and Sensormatic
engaged in litigation in the late 1990s. SSC now seeks to invoke
the MFC clause to obtain the more favorable commission rate Winner
obtained in court.
20
SSC argues that it failed to bring this claim in Sensormatic
I or Sensormatic II because it did not obtain the more favorable
rights with respect to the sale of CCTV products until after the
Third Circuit affirmed the Winner court’s decision. This argument
is not persuasive because SSC brought its RFID claims in
Sensormatic II — claims that the district court decided did not
violate the rule against claim splitting — based on the Winner
court’s decision that the Winner Agreement covered RFID products.
SSC offers no plausible reason why it had to wait for the Third
Circuit’s decision before bringing its CCTV claims but was able to
bring its RFID claims in the wake of the district court’s decision
in Winner. Consequently, SSC offers no plausible reason why it did
not bring these claims in Sensormatic II. As this is an action “on
the same subject in the same court, against the same defendant at
the same time,” Curtis, 226 F.3d at 139-39, we hold that the
district court did not err in dismissing Sensormatic III on
improper claim splitting grounds.
IV.
Section 12.H of the Agreement states that “the termination of
this Agreement for any reason whatsoever shall not terminate the
obligations of the parties . . . and, in particular, shall not
terminate the obligation of the Franchisor to make” certain
specified payments. Sensormatic seeks declaration that this clause
21
is a liquidated damages provision, granting it the authority to
terminate the Agreement “for any reason whatsoever” and pay only
the contractually specified payments. Section 12.C states that
“[t]he Franchisor shall have the right, at its option, to terminate
this Agreement and the franchise if” the franchisee fails in its
marketing commitments, defaults on specified covenants in the
Agreement, becomes insolvent, or ceases to continue in the business
of selling or servicing the equipment covered by the Agreement.
SSC argues that Section 12.H applies only to terminations made for
the reasons outlined in Section 12.C. SSC argues that if Section
12.H requires that Sensormatic pay only liquidated damages for
terminations that are not specifically authorized by Section 12.C,
then the Agreement makes no distinction between valid and invalid
terminations and the language in Section 12.C is superfluous. The
district court so found and granted SSC’s summary judgment motion.
The Agreement provides and the parties agree that Florida law
governs the Franchise Agreement. Florida contract law requires
that courts give effect to a contract’s plain meaning. See,
Volusia County v. Aberdeen at Ormond Beach, L.P., 760 So. 2d 126,
132 (Fla. 2000)(“It is axiomatic that when construing a document,
courts should give effect to the plain meaning of its terms”). A
fair reading of the phrase “for any reason whatsoever” is that it
refers to all possible reasons, not to a narrower subset of
reasons. Consequently the plain meaning of the phrase “for any
22
reason whatsoever” in Section 12.H is that the phrase applies to
any and all reasons for termination, not just the reasons specified
in the contract. Indeed, Florida courts have held that a
termination clause that grants the parties the right to terminate
“for any reason whatsoever” permits the parties to terminate for
“good cause, bad cause, or no cause.” Terranova Corp. v. 1550
Biscayane Assocs., 847 So. 2d 529, 532 (Fla. Dist. Ct. App. 2003).
SSC argues that interpreting the Agreement according to its
plan meaning would result in a conflict between Section 12.H and
the contract provisions outlining specific grounds for termination
by the franchisor. Where contract language is ambiguous, “an
interpretation which gives a reasonable meaning to all provisions
of a contract is preferred to one which leaves a part useless or
inexplicable.” Siedle v. Nat’l Ass’n of Sec. Dealers, Inc., 248 F.
Supp. 2d 1140, 1144 (M.D. Fla. 2002)(quoting Golden Door Jewelry
Creations v. Lloyds Underwriters Non-Marine Ass’n, 117 F.3d 1328,
1338 (11th Cir. 1997)). SSC argues that applying Section 12.H’s
limitation of liability clause to all terminations results in an
outcome where Section 12.C is rendered useless. This argument
ignores the fact that Section 12.H’s limitation of liability does
not bar claims for money owed prior to termination. Because the
Agreement is unambiguous, the plain meaning of the phrase “for any
reason whatsoever” is that Section 12.H’s limitation of liability
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applies to all terminations, including terminations for reasons not
specifically described in the Agreement.
The Fifth Circuit, in Sulzer Carbomedics, Inc. v. Oregon
Cardio-Devices, Inc., 257 F.3d 449 (5th Cir. 2001), interpreting a
Texas contract with a similar provision, considered whether to
enforce a contract clause limiting liability for termination “for
any reason whatsoever” when the contract also specified grounds for
termination. The court considered the argument that “the
limitation of liability clause renders meaningless the termination
provisions.” Id. at 456. The court held that the limitation of
liability clause applied to terminations made for the causes
defined by the contract as well as to all other terminations. Id.
at 457. The court reasoned that the limitation of liability clause
“does not render meaningless the section of the contract setting
out specific grounds of termination” as the limitation clause does
not bar claims for monies owed prior to termination. Id. at 456-
57. Furthermore, the court noted that the contract specifically
stated that no party was to be liable for incidental, special, or
consequential termination damages. Id. at 457.
Here, the parties explicitly excluded any damages not
described in Section 12.H and specifically identified lost profits
as non-recoverable. Section 12.H is clear and unambiguous. The
language in Section 12.H means what it says and should be given
plain meaning.
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V.
For the foregoing reasons, the judgment of the district court
is affirmed in part and reversed in part and remanded for entry of
summary judgment in favor of Sensormatic on its claim for
declaratory judgment and any further proceedings consistent with
this opinion.
AFFIRMED IN PART,
REVERSED IN PART,
AND REMANDED
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