Vaulting & Cash Svc v. Diebold Inc

IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
_______________
No. 99-30294
Summary Calendar
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VAULTING AND CASH SERVICES, INC.,
Plaintiff-Appellant,
VERSUS
DIEBOLD, INC.,
Defendant-Appellee.
_________________________
Appeal from the United States District Court
for the Eastern District of Louisiana
(97-CV-3686-N)
_________________________
October 22, 1999
Before SMITH, BARKSDALE, and Diebold is a major manufacturer of automated
STEWART, Circuit Judges. teller machines (ATM’s); V&C is an armored
car company that provides cash-handling and
JERRY E. SMITH, Circuit Judge:* first-line services for ATM owners.1 In
August 1995, Diebold signed a contract with
Vaulting & Cash Services, Inc. (“V&C”), First National Bank of Commerce to provide
appeals a summary judgment in favor of all-inclusive servicing of its ATM’s. The
Diebold, Inc. (“Diebold”), in V&C’s suit contract required Diebold to provide the cash-
against Diebold for breach of contract. V&C handling as well as first- and second-line
contends that the district court erred in holding services on the bank’s ATM’s. Because
that the contract barred V&C from recovering Diebold lacked the capability to provide cash-
lost profits on showing breach of contract. handling services, it subcontracted them to
Finding no error, we affirm. V&C.
I.
1
The suit arose from the termination of the There are three types of services performed on
ATM Transit and Service Agreement (the ATM’s: cash-handling services; first-line services;
“Agreement”) between V&C and Diebold. and second-line services. Cash-handling services
consist of picking up deposits and replenishing the
cash supply at the ATM’s. First-line servicing
deals with paper shortages, paper jams, currency
*
Pursuant to 5TH CIR. R. 47.5, the court has jams, r ibbon shortages, and the like. Second-line
determined that this opinion should not be servicing is generally provided by the manufacturer
published and is not precedent except under the and consists of providing technical assistance and
limited circumstances set forth in 5TH CIR. performing repairs that are beyond the capabilities
R. 47.5.4. of the cash handlers or first-line servicers.
The Agreement specified a term of three II.
years but provided that either party might V&C claims the court erred in holding
terminate the contract for non-performance (1) that Clause Three unambiguously denied
after thirty days’ notice. The Agreement any form of lost-profits measure of remedy;
contained a “rider,” clause three of which (2) that the Agreement remained an
(“Clause Three”) stated: enforceable contract, given the decision that
Clause Three unambiguously denied a lost-
Notwithstanding anything to the profits measure of remedy; and (3) that the
contrary, in no event shall Diebold be unambiguous Clause Three should be honored
liable to Subcontractor for indirect, without regard to parol evidence of the
incidental, consequential or similar conditions surrounding its adoption. We
damages, lost profits, [sic] lost business consider each contention in turn.
opportunities, whether arising under
contract, tort, strict liability or other A.
form of action, even if Diebold has been V&C argues that Clause Three does not
apprized of the possibility of such unambiguously deny all lost-profit measures of
damages. remedy for breach of contract, and thus that
parol evidence should be admitted to
Diebold alleged that, from the beginning of determine the clause’s meaning. We agree
the Agreement, V&C had failed to perform with the district court that this clause is not
satisfactorily, and it claimed further that, from ambiguous.
the first year of the Agreement, it had
informed V&C of its displeasure with V&C’s The contract is not artfully drafted.
quality of service without V&C’s acting to Nonetheless, the words “in no event shall
remedy the situation. Finally, in October Diebold be liable to Subcontractor for . . . lost
1997, Diebold gave notice to V&C of its intent profits” establish that at least some form of
to terminate the Agreement for non- lost profits are denied in a suit on contract.
performance. V&C responded by suing for The only ambiguity that could possibly remain
breach of contract, “bad-faith breach,” and for is whether the words “indirect, incidental,
violations of the Louisiana Unfair Trade consequential or similar” modify only
Practices Act (“LUTPA”). “damages,” or also “damages, lost profits, [or]
lost business opportunities.”
Diebold moved for summary judgment on
all claims, or in the alternative on V&C’s Mere complexity of construction does not
claims for lost profits and attorneys’ fees and justify a finding of ambiguity. See Ellsworth v.
its claims under LUTPA. The court granted West, 668 So. 2d 402 (La. App. 4th Cir), writ
this motion in part, ruling that Clause Three denied, 669 So. 2d 1212 (La. 1996). Neither
unambiguously denied V&C the opportunity is a contractual provision ambiguous when
to recover lost profits for breach of contract.2 two interpretations are technically possible,
The court clarified that the denial of a lost- but only one is reasonable. See Texas E.
profits measure of recovery applied to all lost Transmission Corp. v. Amerada Hess Corp.,
profits, whether “direct” or “indirect.” 145 F.3d 737 (5th Cir. 1998). Rather, a
provision is considered ambiguous if
susceptible to more than one reasonable
meaning under the circumstance after
2 application of established rules of construction.
The court denied summary judgment on the
LUTPA claim and on V&C’s “bad-faith breach” See id.; see also Lloyds of London v.
claim. By the terms of a partial settlement, Transcontinental Gas Pipe Line Corp., 101
however, V&C agreed to dismiss these claims with F.3d 425 (5th Cir. 1996). These established
prejudice, and Diebold agreed similarly to dismiss rules of construction include the “ordinary
its counterclaims. Thus, we consider only the meaning of words” and of the English
breach of contract claim. language. See Slocum-Stevens Ins. Agency,
2
Inc. v. International Risk Consultants, Inc., reading posited by Diebold and endorsed by
666 So. 2d 352 (La. App. 2d Cir. 1995), writ the district court is applied, then Clause Three
denied, 669 So. 2d 399 (La. 1996). excludes as possible items of recovery for
claims on the contract all indirect, incidental,
The common usages of the English and consequential (“indirect”) damages and all
language render Clause Three susceptible to lost profits and all damages arising from claims
one primary interpretation. As a rule, a of lost business opportunity. Under this
nominative adjective modifies the noun that interpretation, each of the phrases in the clause
most closely follows it; the lack of a comma carries independent meaning.
between the final adjective of a series and the
noun following that series indicates that the If, on the other hand, V&C’s interpretation
series mo difies the noun immediately is followed, then the phrases “lost profits” and
following.3 When a writer intends an “lost business opportunities” become
adjectiveSSand especially an adjectival surplusage, because, if modified by “indirect”
seriesSSto modify a series of nouns following to mean “indirect lost profits” and “indirect
the adjective(s), he so signals by insertion of a business opportunities,” then each is wholly
colon or other separator between the adjectival subsumed in the already stated universe of
and nominative series to indicate the unusual “indirect damages.” Moreover, by V&C’s
usage.4 Lacking such a signal, the Third own admission, the phrase “indirect lost
Clause should be subjected to the primary, profits” is doubly meaningless because, as a
common-usage reading: that the adjectival matter of law, lost profits are always
series “indirect, incidental, consequential or considered direct damages in breach-of-
similar” modifies “damages” merely, and not contract actions; thus a contract provision
the entire series of nouns following the forbidding recovery of “indirect lost profits”
adjectives. would forbid recovery of, by legal definition,
a null set.6 Reason thus seconds better
Largely because the clause is poorly grammar, supporting Diebold’s and the district
drafted, however, we do not rest our decision court’s reading of Clause Three: “[I]ndirect,
merely on a grammatical parsing.5 Rather, we incidental, consequential or similar” modifies
look also to the reasonableness of the “damages” alone, and thus the Clause denies
interpretation advanced by each party. If the recovery of all lost profits.
B.
3
See BRYAN A. GARNER, T HE ELEMENTS OF V&C contends, in the alternative to its
LEGAL STYLE 22 (1991); RUTH PARLE CRAIG & interpretation of Clause Three, that should the
VINCENT F. HOPPER, 1001 PITFALLS IN ENGLISH district court’s interpretation be adopted, then
GRAMMAR 1 (3d ed. 1986); cf. THEODORE M. the Agreement cannot be considered an
BERNSTEIN, THE CAREFUL WRITER: A MODERN enforceable contract against Diebold, because
GUIDE TO ENGLISH USAGE 20 (1965) (stating that it allows V&C no remedy should Diebold
“intimate . . . is the relationship of an adjective to breach its obligations. We find no merit in this
the noun it modifies”). contention.
4
EUGENE EHRLICH, THE BANTAM CONCISE As noted above, the district court’s
HANDBOOK OF ENGLISH 166-67 (1986). interpretation of Clause Three effectively
5 denies V&C recovery of all indirect damages,
Had the drafters of Clause Three followed the
conventions of the English language with
exactitude, they not only would have included an
6
“or” after “lost profits” but also would have See Moore v. Boating Indus. Ass’ns, 754 F.2d
separated “damages, lost profits, [or] lost business 698, 717 (7th Cir. 1985), vacated on other
opportunities” with semi-colons rather than grounds, 474 U.S. 895 (holding that “[l]ost profits
commas. See id. at 166; BERNSTEIN, supra n.3, at are considered to be general or direct damages in a
362, 373. breach of contract case”).
3
lost profits, and damages for lost business its miscalculation of contractual risk
opportunities. Conceptually, these denials obligation.
leave, as a remedy, all direct damages that are
not characterized as lost-profits damages or C.
lost-business-opportuni ty damages, e.g., V&C contends that the summary judgment
restitutory and recissionary measures of on the breach-of-contract question is error
damages. By the language of Clause Three, because a material dispute arises with regard
then, breach-of-contract damages are merely to the parol evidence surrounding the
limited, not wholly denied. circumstances of the interpretation and
adoption of the contract, particularly Clause
V&C nevertheless argues that Louisiana Three. The parol evidence is inadmissible,
law permits, as breach-of-contract recovery, however.
only the damage remedies that Clause Three
eliminates, thereby rendering its retained Louisiana law bars parol evidence to
damage remedies nugatory. V&C contends evaluate contractual intent “[w]hen the words
that LA. CIV. CODE art. 1995 indicates that of a contract are clear and explicit and lead to
“the only damage for breach of this contract is no absurd consequences.”8 LA. CIV. CODE
lost profits.” This, however, represents an art. 2046. Because, as we have noted, Clause
unrealistic misreading of a one-sentence code Three is not ambiguous, parol evidence is not
provision that reads in full: “Damages are admissible to determine intent.9
measured by the loss sustained by the obligee
and the profit of which he has been deprived.” V&C contends, however, that in Louisiana,
Id. (emphasis added). Thus, the code did not parol evidence must be considered because, in
deny V&C the restitutory and recissionary V&C’s words, “[f]or a waiver of recoverable
remedies permitted by Clause Three and did damages to be effective it must be (1) written
not leave V&C without remedy.7 in clear and unambiguous terms; (2) contained
in the contract; and (3) brought to the
The Civil Code defines a contract as “an attention of and explained to the parties
agreement between two or more parties against whom it is to be enforced” (citing
whereby obligations are created, modified, or Fontenot v. F. Hollier & Sons, 478 So. 2d
extinguished,” LA. CIV. CODE art. 1906, and 1379, 1386 (La. App. 3d Cir. 1985), affirmed
an onerous contract (as opposed to a as amended, 491 So. 2d 624 (La. 1986); Gulf
gratuitous one) as one by which “each of the
parties obtains an advantage in exchange for
his obligation,” id. art. 1909. The Agreement, 8
V&C contends that an “absurd consequence”
then, Clause Three inclusive, does remain a as per the terms of this article would be reached by
contract. Duties applied to both parties under a contract in which one party was left by the terms
the Agreement, and remedies for breach of of the contract with no damage remedy in the case
duty remained to each party. If V&C chose to of the other party’s breach. Because, as we have
characterize its damages claims in a manner discussed above, the Agreement does not foreclose
denied by the terms of the contract, or if it had all damage measures, we need not address this
no damages claims other than those it agreed contention.
to forego under the terms of the contract, it 9
shall not complain of its error in pleading or of V&C correctly notes that Louisiana does
allow parol evidence to determine a claim of fraud
against a partner in contract. See LA. CIV. CODE
ANN. art. 1848; see also Harnischfeger Sale Corp.
7
See, e.g., Southwestern Eng’g Co. v. Cajun v. Sternberg Co., 154 So. 10 (1934); Broussard v.
Elec. Power Co-op, Inc., 915 F.2d 972 (5th Cir. Sudrique, 4 La. 347 (1832). V&C overlooks,
1990) (allowing recovery of “unabsorbed however, that it has, by consent, dismissed all its
overhead” by a company following breach of claims against Diebold except the breach-of-
contract by the other contracting party that resulted contract claim, so it is not availed by this exception
in the idling of the company’s plant). to the parol evidence rule.
4
Am. Indus. v. Airco Indus. Gases, 573 So. 2d
481, 573 (La. App. 5th Cir. 1990)). We first
note that Fontenot deals not with a contractual
waiver of remedies, but with a waiver of
warranties by a “poorly educated” farmer. See
Fontenot, 478 So. 2d at 1386. The holding of
Fontenot was part ially adopted by the Gulf
American court and applied, as modified, to
cases of waiver of breach-of-contract
remedies, but was not adopted and applied as
V&C indicates.
The Gulf American court held that “[f]or a
waiver of recoverable damages to be effective
. . . it must be 1) written in clear and
unambiguous terms; 2) contained in the
contract; 3) brought to the attention of the
parties against whom it is to be enforced.”
Gulf American, 573 So. 2d at 489 (emphasis
added). The immediately preceding sentence,
however, explains that when a contract
contemplates merely “a limitation on
recoverable damages, . . . such an agreement
must clearly indicate the intentions of the
parties.” Id. (emphasis added). As we have
said, Clause Three limits, rather than waives
entirely, available damage remedies. Thus, the
latter “clarity” standard, not the former
“brought to the attention” standard, is relevant
to this case.
AFFIRMED.
5