Grady Lee Publishing v. Primedia, Inc ( 2000 )

IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
_____________________
No. 00-50094
Summary Calender
_____________________
GRADY LEE PUBLISHING
Plaintiff-Appellant
v.
PRIMEDIA, INC; ET AL
Defendants
PRIMEDIA, INC; HPC PUBLICATIONS, doing business as
Distributech
Defendants-Appellees
_________________________________________________________________
Appeal from the United States District Court
for the Western District of Texas
Docket No. EP-99-CV-191-DB
_________________________________________________________________
August 22, 2000
Before KING, Chief Judge, and POLITZ and DENNIS, Circuit Judges.
PER CURIAM:*
Plaintiff-Appellant Grady Lee Publishing (“Grady”) appeals
the district court’s entry of summary judgment in favor of
Defendants-Appellees Primedia, Inc., and HPC Publications, doing
*
Pursuant to 5TH CIR. R. 47.5, the court has determined that
this opinion should not be published and is not precedent except
under the limited circumstances set forth in 5TH CIR. R. 47.5.4.
business as Distributech. For the following reasons, we affirm.
I.
Grady is a publisher of free advertising leaflets that are
distributed in the El Paso, Texas area. Distributech1 owns and
manages “community racks” of free publications at various retail
outlets throughout the same area. Distributech leases spots in
its racks to advertisers who wish to distribute their materials.
In 1991, Grady and Distributech entered into five one-year
“Pocket Rental/Delivery Service” agreements (the “Agreements” or
“1991 Agreements”). The 1991 Agreements provided that
Distributech would provide space in its racks for Grady’s
materials at Circle-K and Seven-Eleven convenience stores, and at
Smith’s supermarkets (collectively, “the retailers”).
The Agreements also contained a “Special Conditions” section
which stated that Grady had the “[o]ption to renew at the same
rate for the term of DistribuTech [sic] agreements with the
stores on 12 month contracts.” The Agreements also specified
1
Distributech is a division of Haas Publishing Companies,
Inc. (“Haas”), which in turn is a wholly owned subsidiary of
Primedia, Inc. Grady originally named all three companies as
defendants in this suit. Primedia objected to its inclusion,
claiming that Haas and Distributech were the true parties in
interest, that Primedia had not abused the corporate privilege,
and therefore it was not a proper party. The district court
agreed, and granted Primedia’s motion for summary judgment. On
appeal, Grady does not dispute the district court’s entry of
judgment in favor of Primedia, but only challenges the result as
to Distributech.
2
that they were
contingent upon DistribuTech USA’s valid
contract with the owner/manager of the
location involved. Should such contract
expire or be cancelled, then this Agreement
shall terminate simultaneously and the
parties hereto will be obligated to each
other only for services/payment up to and
including the date of termination.
At the expiration of this contract, pursuant
to the terms as above set out, this
[Agreement] shall continue on a month-to-
month basis until such time as [Grady] signs
a new [Agreement] or either party gives 30-
day prior advance written notice of intent
not to continue under the terms hereof.
Beginning in 1992, Grady sent Distributech an annual letter
purporting to exercise the renewal clause of the 1991
Agreements.2 In March 1999, however, Distributech informed Grady
that it intended to terminate the 1991 Agreements, and that
Grady’s materials would be removed from Distributech’s racks
unless new agreements were executed. Grady believed that the
1991 Agreements had been properly renewed and remained in effect,
and that Distributech’s removal of Grady’s materials would
constitute a breach of the Agreements. Grady refused to
negotiate new agreements, and Distributech subsequently removed
2
In 1994, Distributech’s relationship with Circle-K
convenience stores ended. As a result, Distributech racks were
removed from those stores. Pursuant to the terms of the 1991
Agreements, Distributech informed Grady that the Agreements
covering the Circle-K stores were terminated. Grady does not
argue that the 1991 Agreements covering the Circle-K stores were
improperly terminated.
3
Grady’s materials. In May 1999, Grady filed suit in Texas state
court asserting a breach of contract by Distributech and seeking
actual and exemplary damages and costs. Distributech
subsequently removed the action to the United States District
Court for the Western District of Texas, invoking the court’s
diversity jurisdiction.
In the district court, Distributech moved for summary
judgment, arguing that Grady’s right of renewal existed only so
long as the underlying contracts between Distributech and the
retailers in effect at the time the 1991 Agreements were executed
remained in force. As Distributech had entered into new
contracts with the retailers since the execution of the 1991
Agreements, Grady no longer had a right of renewal. Therefore,
Distributech argued that the parties had been continuing under
the Agreements on a month-to-month basis, and that Distributech
had not breached the Agreements.3
Grady moved for partial summary judgment, arguing that the
option clause of the Agreements allowed him to renew the
Agreements for the “term” of Distributech’s agreements with the
retailers. Grady contended that it therefore had a right to
renew the Agreements so long as Distributech had some sort of
ongoing relationship with the retailers allowing the placement of
3
It is undisputed that the underlying contracts between
Distributech and the retailers in effect in 1991 began to expire
in 1992 and have subsequently been replaced by new agreements.
4
community racks within the stores. As Distributech still had
agreements (albeit different agreements than those in effect in
1991) with Seven-Eleven and Smith’s supermarkets, argued Grady,
the renewal option was still valid and Distributech was obliged
to allow Grady to annually renew the 1991 Agreements at the same
rental rate.
The district court found that the 1991 Agreements were
unambiguous, and that Grady only had a right of renewal during
the term of the underlying contracts between Distributech and the
retailers that were in force in 1991. The court determined that
the language of the 1991 Agreements contemplated that as soon as
the underlying contracts between Distributech and the retailers
expired or were cancelled, the 1991 Agreements likewise ended.
Because the underlying contracts between Distributech and the
retailers in force in 1991 had expired and been replaced, the
district court found that the Agreements had formally terminated
and Distributech and Grady’s performance under the terms of the
Agreements had continued on a month-to-month, rather than a year-
to-year, basis. Finding that Distributech provided the requisite
notice to terminate the month-to-month performance of the
Agreements, and thus that there had been no breach, the district
court granted Distributech’s motion for summary judgment. Grady
timely appeals.
II.
5
We review a grant of summary judgment de novo, applying the
same standards as the district court. See Matagorda County v.
Law, 19 F.3d 215, 217 (5th Cir. 1994). Summary judgment is
proper when there is no genuine issue of material fact and 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). The interpretation of an unambiguous contract is a
question of law that we review de novo. See Clardy Mfg. Co. v.
Marine Midland Business Loans Inc., 88 F.3d 347, 351 (5th Cir.
1996) (citations omitted). In this case, neither party argues
that the district court erred in finding that the 1991 Agreements
are unambiguous. Rather, Grady claims that the district court
erroneously interpreted the Agreements’ unambiguous terms.
On appeal, Grady maintains that the parties’ course of
performance indicates that the district court’s interpretation of
the Agreements is flawed. Grady asserts that even though the
1991 Agreements are unambiguous, the parties’ course of
performance may nonetheless be used to interpret the Agreements.4
Grady argues that it sent Distributech an annual letter
4
Distributech argues that we should not consider Grady’s
argument on this issue because he failed to advance it before the
district court. We note, however, that Grady did include
extrinsic evidence regarding the parties’ course of performance
in his motions to the district court, even though this evidence
was offered to the district court in the event it found the 1991
Agreements ambiguous. Given that Distributech ultimately
prevails on the merits, and reading the record in a light most
favorable to Grady, we find that Grady sufficiently preserved the
issue.
6
purporting to renew the 1991 Agreements, that Distributech never
objected to Grady’s purported renewal, and that Distributech
continually acted as though the 1991 Agreements had been annually
renewed.5 As a result, Grady contends that Distributech’s course
of performance indicates that so long as Distributech maintained
community racks at the retailers, and Grady annually exercised
its right to renew, the 1991 Agreements remained in effect.
Under Texas contract law, it is quite settled that when a
contract is unambiguous, “extrinsic evidence will not be received
for the purpose of creating an ambiguity or to give the contract
a meaning different from that which its language imports.”
Clardy Mfg. Co., 88 F.3d at 352 (internal quotations omitted)
(citing Universal C.I.T. Credit Corp. v. Daniel, 243 S.W.2d 154,
157 (Tex. 1951)); accord Sun Oil Co. (Delaware) v. Madeley, 626
S.W.2d 726, 733 (Tex. 1981) (holding that when a contract is
unambiguous the court shall confine its review to the agreement
“as written”); East Montgomery County Mun. Util. Dist. No. 1 v.
Roman Forest Consol. Mun. Util. Dist., 620 S.W.2d 110, 112 (Tex.
1981) (“The conduct of the parties is ordinarily immaterial in
5
While we ultimately decline to consider any course of
performance evidence, we note that Grady’s offered evidence is
not entirely persuasive. While Grady contends that Distributech
acted as though the 1991 Agreements remained in force and had
been annually renewed, the record contains 1995 correspondence in
which Distributech challenges the continuing validity of the 1991
Agreements.
7
the determining of the meaning of an unambiguous instrument.”).6
We agree with Distributech that the Texas cases cited by Grady
for the proposition that a court may consider course of
performance evidence in interpreting an unambiguous contract are
inapposite. The cases Grady cites either involve the
interpretation of an ambiguous contract, see, e.g., Trinity
Universal Ins. Co. v. Ponsford Brothers, 423 S.W.2d 571, 575
(Tex. 1968), fail to discuss whether the agreement at issue was
ambiguous or unambiguous, see, e.g., United States v. Martin, 480
F. Supp. 880, 883 (S.D. Tex. 1979), or involve circumstances
entirely different than those at issue here, see, e.g., Enserch
Corp. v. Rebich, 925 S.W.2d 75 (Tex. App. 1996, writ dism’d by
6
We recognize that there is some disagreement among the
commentators regarding the use of course of performance evidence
in interpreting an unambiguous contract. Farnsworth suggests
that course of performance evidence may serve as an admission and
can be used in interpreting all types of contracts. See II E.
ALLAN FARNSWORTH, FARNSWORTH ON CONTRACTS § 7.13 (2d ed. 1998).
Williston, however, maintains that “the parties’ [course of
performance] conduct, no matter how probative in the abstract,
will not be considered by many and perhaps most courts unless the
contract is ambiguous.” 11 RICHARD A. LORD, WILLISTON ON CONTRACTS
§ 32:14 (1999) (citing East Montgomery County, 620 S.W.2d 110).
Corbin, on the other hand, maintains that “there is no good
reason why the courts should not give great weight to the further
expressions” of the parties through their course of conduct. 3
ARTHUR L. CORBIN, CORBIN ON CONTRACTS § 558 (1960); but see id.
(stating that if the contract is “plain and unambiguous” the
court may determine that “a different meaning will not be adopted
on the basis of the practical application of the parties”).
Given the clear statements by the Texas Supreme Court in Sun Oil
and East Montgomery County, however, we find that the law in
Texas is quite settled: If a contract is unambiguous, extrinsic
evidence regarding the parties’ course of performance may not be
used to interpret the contract’s terms.
8
agr.) (discussing whether a contract had been materially modified
based on the parties’ course of performance).7 As a result, we
refuse to consider the parties’ course of performance in
interpreting the 1991 Agreements.
Grady also argues that, regardless of the parties’ course of
performance, the district court’s interpretation of the
Agreements nullified the option clause because the underlying
contracts between Distributech and the retailers began expiring
in 1992 – before Grady would have had the opportunity to exercise
the option to renew in the first instance. Grady’s argument
focuses on the meaning of the word “term” as it is used in the
Agreements’ option to renew. According to Grady, so long as
Distributech continued to place community racks in the retailers’
stores, the “term” of Distributech’s agreements with the
retailers had not ended and, therefore, Grady had a right to
renew the 1991 Agreements. We disagree. Grady’s argument is
thwarted by both the plain language of the Agreements and the
general rules of contract interpretation.
“In construing the unambiguous terms of a contract, we give
7
We also note Grady’s reliance on Ervay, Inc. v. Wood, 373
S.W.2d 380 (Tex. Civ. App. 1963, writ ref’d n.r.e.). Indeed, the
language of Evray tends to suggest that the court may consider
post formation evidence in interpreting an unambiguous contract.
As Distributech points out, however, Evray was decided nearly
twenty years before the Texas Supreme Court’s decisions in Sun
Oil and East Montgomery County. Given the more recent
pronouncements of the Texas Supreme Court, we do not find Ervay
to be persuasive on this issue.
9
the words their ordinary meaning unless other provisions suggest
a contrary meaning.” Scot Properties, Ltd. v. Wal-Mart Stores,
Inc., 138 F.3d 571, 573 (5th Cir. 1998) (citations omitted).
Initially, we note that Grady’s interpretation of “term” is
contrary to the word’s plain meaning. The word “term” is
commonly defined as a “limited or definite extent of time.”
WEBSTER’S THIRD INTERNATIONAL DICTIONARY (1963). “Term” does not, as
Grady suggests, refer to an unquantifiable period of time – such
as the amount of time that Distributech will continue to display
community racks at the retailers.
Furthermore, in interpreting a contract, the court is to
“consider the entire writing in an effort to harmonize and give
effect to all the provisions of the contract so that none will be
rendered meaningless.” Coker v. Coker, 650 S.W.2d 391, 393 (Tex.
1983). The Agreements specifically state that when the
underlying contracts between Distributech and the retailers
“expire” or are “cancelled,” the Agreements also terminate. The
term “expire” connotes a “termination from mere lapse of time.”
BLACK’S LAW DICTIONARY 579 (6th ed. 1990). “Cancelled,” meanwhile,
suggests a deliberate abandonment or cessation of the
relationship between Distributech and the retailers. See, e.g.,
id. at 206. Grady’s interpretation of the Agreements recognizes
that the Agreements would terminate if the contracts between
Distributech and the retailers were cancelled, but it ignores the
effect of those contracts’ expiration. The plain language of the
10
contract indicates that the parties contemplated that the 1991
Agreements would terminate at the expiration of the underlying
contracts between Distributech and the retailers. A contrary
reading, whereupon Grady could continuously renew the 1991
Agreements until Distributech ceased placing racks at the
retailers, would render the term “expire” meaningless. Such a
reading would not give effect to all of the provisions of the
Agreements. See Coker, 650 S.W.2d at 393.
Had the underlying contracts between Distributech and the
retailers not expired and been replaced by new contracts, but
rather been extended for a longer term or continued on a month-
to-month basis, the 1991 Agreements would have remained in effect
and Grady would have retained the right to exercise the
Agreements’ renewal option. Therefore, the district court’s, and
our, interpretation of the Agreements does not nullify the option
clause. Based on the unambiguous language of the Agreements, we
conclude that once the underlying contracts between Distributech
and the retailers expired, the Agreements were no longer in force
and Distributech and Grady continued to transact business under
the Agreements on a month-to-month basis. As a result,
Distributech did not breach the 1991 Agreements when it gave
Grady proper notice of its intent to stop displaying Grady’s
materials unless new agreements were negotiated.
III.
11
For the above stated reasons, we AFFIRM.
12