Leica Geosystems, AG v. Jefferson County, AL

[DO NOT PUBLISH]
IN THE UNITED STATES COURT OF APPEALS
FOR THE ELEVENTH CIRCUIT
________________________ FILED
U.S. COURT OF APPEALS
No. 08-15706 ELEVENTH CIRCUIT
APRIL 29, 2009
Non-Argument Calendar
THOMAS K. KAHN
________________________
CLERK
D. C. Docket No. 07-01614-CV-2-IPJ
LEICA GEOSYSTEMS, AG,
Plaintiff-Appellant,
versus
JEFFERSON COUNTY, AL,
BETTYE FINE COLLINS,
in her official capacity as President of the
Jefferson County, Alabama Commission,
SHEILA SMOOT,
JIM CARNS,
BOBBY HUMPHRYES,
in their official capacity as members of the
Jefferson County, Alabama Commission, et al.,
Defendants-Appellees.
________________________
Appeal from the United States District Court
for the Northern District of Alabama
_________________________
(April 29, 2009)
Before TJOFLAT, DUBINA and PRYOR, Circuit Judges.
PER CURIAM:
Leica Geosystems, AG appeals the summary judgment in favor of Jefferson
County, Alabama, and members of the Jefferson County Commission, and against
its complaint of breach of contract and breach of warranty of the letter of credit.
We affirm.
I. BACKGROUND
In 2001, Jefferson County submitted to potential vendors a request for bids
to upgrade the computer software for the Board of Equalization and the Tax
Assessor. The request required bidders to be solvent and to supply a performance
bond equal to the value of the contract. NovaLIS submitted a low bid in the hope
that it would win the project, which it could use to increase its client base and
cultivate future business. Because NovaLIS could not provide the required
performance bond, NovaLIS requested that Jefferson County instead accept a letter
of credit.
Jefferson County awarded a portion of the contract to NovaLIS, and
Jefferson County agreed to accept a letter of credit from NovaLIS. The Board of
Directors of NovaLIS requested that its minority shareholder, Leica, fund the letter
of credit. Leica agreed and obtained a standby letter of credit of 1,616,000 dollars
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that listed Leica as the applicant and Jefferson County as the beneficiary.
In April 2002, NovaLIS and Jefferson County executed an integrated tax
system agreement. The agreement provided that NovaLIS would develop, deliver,
and install the software, and provide technical support and training, and Jefferson
County would pay for those goods and services and retain rights to the software.
Section 5.4 of the agreement stated that Jefferson County agreed to accept a letter
of credit in lieu of a performance bond; explained that the purpose of the letter of
credit was to “mitigat[e] Jefferson County’s actual losses”; stated that Jefferson
County would remit to NovaLIS the difference between the amount of the letter of
credit and the actual loss; and outlined the terms of the letter of credit. The section
stated that the letter of credit would “be attached hereto as schedule D.” Schedule
D stated that “The Letter of Credit applied for by Leica Geosystems AG, of
Heerbrugg, Switzerland, executed in favour of Jefferson County on [date omitted
from the schedule], 2002 is incorporated herein by reference without attaching a
copy of the LOC herein, and each party acknowledges having received a copy of
the Letter of Credit.” The contract also included a non-transferability clause and
prohibited assignment of the contract “without the prior written consent of the
other party.” The agreement also denied both parties the “authority or power to
bind or contract in the name of or to create any liability against the other party in
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any way for any purpose.”
NovaLIS missed several deadlines and failed to complete the project, but
Jefferson County paid NovaLIS over 1.4 million dollars. In March 2005, Jefferson
County sent a letter to NovaLIS terminating their contract because of the “breaches
or defaults of material provisions” of the agreement by NovaLIS. NovaLIS
attempted to deliver a workable product in September and November 2005, but
Jefferson County alleged that the software did not function properly. In October
2005, Leica sold its minority interest in NovaLIS to ESRI Canada Ltd. In a share
purchase agreement executed by NovaLIS, Leica, and ESRI, NovaLIS agreed to
hold in trust, and waive “any right, title or interest” in, any money remitted by
Jefferson County.
In November 2005, NovaLIS filed a petition under the Bankruptcy and
Insolvency Act of Canada. In January 2006, Jefferson County drew the entire
amount of the letter of credit. NovaLIS later sold its assets and intellectual
property and notified Jefferson County that it was terminating the agreement.
Leica notified Jefferson County that it sought an accounting and reimbursement
under the letter of credit. Jefferson County denied the request.
Leica filed a complaint that Jefferson County failed to account for and remit
the difference between the amount of the letter of credit and its actual loss. Leica
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alleged that the failure to remit breached section 5.4 of the agreement and breached
the warranty by Jefferson County as the beneficiary of the letter of credit, Ala.
Code § 7-5-110(a)(2). Leica moved for summary judgment. Jefferson County and
the members of the Jefferson County Commission also moved for summary
judgment and argued that Leica lacked standing to sue for an alleged violation of
the agreement. Leica responded that it had standing as a third-party beneficiary of
the agreement and as the applicant for the letter of credit. The district court
granted summary judgment in favor of Jefferson County.
II. STANDARD OF REVIEW
We review a summary judgment de novo and view the evidence in the light
most favorable to the party that opposes the motion. Cotton v. Cracker Barrel Old
Country Store, Inc., 434 F.3d 1227, 1230 (11th Cir. 2006). Summary judgment
should be entered where there is no genuine issue of material fact and the moving
party is entitled to judgment as a matter of law. Fed. R. Civ. P. 56(c).
III. DISCUSSION
Leica challenges two aspects of the summary judgment in favor of Jefferson
County. Leica argues that it may maintain a claim for breach of warranty. Leica
also argues that it was a third-party beneficiary to the agreement between Jefferson
County and NovaLIS. These arguments fail.
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Leica cannot maintain a claim against Jefferson County for breach of
warranty of the letter of credit. An applicant for a letter of credit may bring a cause
of action for a breach of warranty against the beneficiary if it draws on the letter of
credit “in violation of its authorization.” Ala. Code § 7-5-110(a)(2) cmt. n.2.
When a beneficiary draws on a letter of credit, it “warrants . . . to the applicant that
the drawing does not violate any agreement between the applicant and beneficiary
or any other agreement intended by them to be augmented by the letter of credit.”
Ala. Code § 7-5-110(a)(2). The warranty guarantees “that the beneficiary has
performed all the acts expressly and implicitly necessary under any underlying
agreement to entitle [it] to honor” the letter of credit. Id. cmt. n.2. Lecia argues
that Jefferson County violated section 5.4 of the agreement because it failed to
account for and remit the difference between the amount of the letter of credit and
its actual loss, but Lecia focuses incorrectly on conduct expected of Jefferson
County after it drew on the letter of credit. The requirement that Jefferson County
remit payment to NovaLIS did not “create[] a condition for honoring a draft.”
Pringle-Associated Mortgage Corp. v. S. Nat’l Bank of Hattiesburg, Miss., 871
F.2d 871, 874 (5th Cir. 1978) (ruling that a contract between the beneficiary, a
mortgage company, and the applicants, developers of an apartment complex, was
irrelevant to the interpretation of and the duty of the issuer to honor the letter of
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credit). Leica failed to argue or present substantial evidence that Jefferson County
“drew in violation of its authorization.” Ala. Code § 7-5-110 cmt. n.2.
Lecia also is not a third-party beneficiary of the agreement between
Jefferson County and NovaLIS. The agreement states that it “shall be construed in
accordance with the law of the State of Alabama.” Under Alabama law, “the party
claiming status as a third-party beneficiary must establish that the contracting
parties intended, at the time the contract was created, to bestow a direct benefit
upon the third party.” Airlines Reporting Corp. v. Higginbotham, 643 So. 2d 952,
954 (Ala. 1994); see H.R.H. Metals, Inc. v. Miller, 833 So. 2d 18, 24 (Ala. 2002).
“In determining the parties’ intent, [a court] must first look to the contract itself,
because, while ‘the intention of the parties controls in construing a written
contract,’‘the intention of the parties is to be derived from the contract itself, where
the language is plain and unambiguous.’” Airlines Reporting Corp., 643 So. 2d at
954 (quoting Loerch v. Nat’l Bank of Commerce of Birmingham, 624 So. 2d 552,
553 (Ala. 1993)). Only when the contract is ambiguous does it “become necessary
to consider the surrounding circumstances and the construction the parties gave the
language in order to determine the intent of the contracting parties.” H.R.H.
Metals, Inc., 833 So. 2d at 24 (citing Mann v. GTE Mobilnet of Birmingham, Inc.,
730 So. 2d 150 (Ala. 1999)).
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Section 5.4 of the agreement is not ambiguous and does not confer any
direct benefit on Leica. Section 5.4 required NovaLIS to provide a letter of credit
on which Jefferson County was allowed to draw “upon a failure of NovaLIS to
fulfill a material condition or upon termination of [the] Agreement . . . where
NovaLIS is the defaulting party.” If it drew on the letter of credit, Jefferson
County was required to “promptly remit the difference between” the amount of the
letter of credit and its actual loss “to NovaLIS.” Section 5.4 provided for the letter
of credit to “be attached hereto as schedule D[,]” but did not state that Leica had
any rights as applicant for the letter of credit. The plain language of the contract
does not establish that Leica is a third-party beneficiary.
Even if the contract were ambiguous and we considered, as Leica requests,
the circumstances surrounding the formation of the contract, those circumstances
do not establish that Leica is a third-party beneficiary of the agreement. Leica
argues that NovaLIS and Jefferson County “knew and intended that Leica would
benefit from the parties’ performance of the Contract,” but the role Leica served
did not alter the fundamental purpose of the agreement to engage in a mutually
beneficial business transaction. Jefferson County contracted for NovaLIS to devise
and implement software and, in return, NovaLIS enlarged its client base. The
agreement at most would have benefitted Leica indirectly. If NovaLIS had
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successfully completed the project, it might have parlayed that experience into
future business and indirectly increased the value of the stock held by Leica. Leica
argues that it wrote a letter to Jefferson County that stated it “was backing
NovaLIS’s performance,” but the letter did not convey that Leica was reliant on or
would obtain any direct rights as a result of the contract. See Beverly v. Macy, 702
F.2d 931, 940, 941 (11th Cir. 1983) (determining the intent of the parties from the
“circumstances surrounding its formation” and “reliance on the part of the putative
third-party beneficiary”). Leica wrote the letter to assure Jefferson County that
NovaLIS was solvent; as stated by a representative of Leica, “[t]he intent of the
letter was to say that NovaLIS, being a small company, is nevertheless owned
through shareholding by some bigger companies . . . [s]uch as Leica.”
IV. CONCLUSION
The summary judgment in favor of Jefferson County is AFFIRMED.
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