Education Logistics, Inc. v. Laidlaw Transit, Inc.

FILED
NOT FOR PUBLICATION AUG 02 2010
MOLLY C. DWYER, CLERK
UNITED STATES COURT OF APPEALS U.S. COURT OF APPEALS
FOR THE NINTH CIRCUIT
EDUCATION LOGISTICS, INC., a No. 09-35601
Montana corporation; LOGISTICS
MANAGEMENT, INC., a Washington D.C. No. 9:07-cv-00006-DWM
corporation,
Plaintiffs - Appellants, MEMORANDUM*
v.
LAIDLAW TRANSIT, INC., a Delaware
corporation,
Defendant - Appellee.
Appeal from the United States District Court
for the District of Montana
Donald W. Molloy, District Judge, Presiding
Argued and Submitted June 7, 2010
Portland, Oregon
Before: HALL, FERNANDEZ and McKEOWN, Circuit Judges.
Education Logistics and Logistics Management, Inc. (“Edulog”) appeal from
the grant of summary judgment to Laidlaw Transit, Inc. in this action arising from
*
This disposition is not appropriate for publication and is not precedent
except as provided by 9th Cir. R. 36-3.
a claimed breach of a 1992 contract (“ the Agreement”) to license software for
routing student bus transportation services. Reviewing de novo, we affirm in part,
reverse in part, and remand for further proceedings.
The district court concluded that the parties’ duty to promote and facilitate
each other’s business, contained in Section 2.3.3 of the Agreement, did not survive
the termination of the exclusive license in 1997. The court based its conclusion
primarily on a specific reference within Section 2.2, the exclusive license
provision, subjecting it to Section 2.3, and the absence of such a reference in the
non-exclusive license provision, Section 2.1. Interpreting the agreement as a
matter of law, we conclude the promotion duty survives the exclusive license
period. Nothing in Section 2.3.3 explicitly or implicitly provides that the
promotion duty applies only to the exclusive license provision; correspondingly,
the non-exclusive license provision, Section 2.1, does not provide that it is exempt
from the promotion duty provision. See Mont. Code. Ann. § 28-3-303. When read
as a whole, the Agreement does not require a specific reference to another
provision in order for that provision to affect obligations within the provision being
interpreted. See Mont. Code Ann. § 28-3-202.
Further, while Section 2.3 includes the duty to promote under Section 2.3.3,
it also contains other duties, for example the “no contact” duty under Section 2.3.2
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and the “avoid conflicts” and “prevent breaches by agents” duties under Section
2.3.3. Common sense and a plain reading of the Agreement dictate that these core
duties—which are not provided for elsewhere in the Agreement—would continue
during the perpetual non-exclusive license period. Consequently, interpreting
Section 2.2 to require the termination of the Section 2.3.3 promotion duty would
force an unnatural reading of the remainder of Section 2.3. See Mont. Code Ann.
§ 28-3-307. We conclude that summary judgment in favor of Laidlaw is not
warranted on the basis articulated by the district court, namely that the promotion
duty claims accrued following the exclusive license period.
Section 23.0 provides that the Agreement “shall be governed by any
applicable provisions” of the Montana Uniform Commercial Code (“MUCC”)
“[e]xcept to the extent that the provisions of this Contract are clearly inconsistent”
with that application. We agree with the district court that the MUCC’s four-year
statute of limitations applies. See Mont. Code. Ann. § 30-2-725.
The parties’ intention that the MUCC governs whenever applicable is clear
from the language of the contract alone. See Mont. Code. Ann. § 28-3-303.
Additionally, the MUCC’s limitations provision governing contracts for sale serves
as a more specific provision than Montana’s eight-year limitations provision for
contracts generally. See Mont. Code. Ann. § 1-2-102; 27-2-202; 30-2-7205; see
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also, e.g., In re MSR Exploration Ltd., 147 B.R. 560, 568 (D.Mont. 1992). The
Section 23.0 language designating the MUCC as governing law is explicit, and
does not involve an absurdity. See Mont. Code. Ann. § 28-3-41; Ophus v. Fritz, 11
P.3d 1192, 1196 (Mont. 2000). Edulog’s claim that a substantive provision
offering relief under the MUCC must be identified before the MUCC’s statute of
limitations provision may be applied is unsupported. Application of the MUCC
limitations provision is not “clearly inconsistent” with the provisions of the
Agreement, and thus the MUCC four-year statute of limitations applies.
Edulog filed this suit on January 11, 2007. Following summary judgment on
the promotion duty, the district court concluded that all of Edulog’s remaining
claims accrued before January 11, 2003, and granted summary judgment to
Laidlaw on statute of limitations grounds. We agree that the record is replete with
evidence that a number of alleged breaches of the Agreement occurred well before
January 2003. Although discovery is not required to trigger the MUCC limitations
period, it bears noting that there is also ample evidence Edulog was aware of these
potential breaches long before January 2003. See Mont. Code. Ann. § 30-2-
725(2). However, the district court does not appear to have considered whether
new breaches for which Edulog may recover may have occurred within the
limitations period. The Agreement is properly characterized as a contract with
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continuing obligations capable of distinct and separate breaches. See Minidoka
Irrigation Dist. v. Dep’t of Interior, 154 F.3d 924, 926 (9th Cir. 1998). For
example, Laidlaw’s duty to pay royalties arises whenever a “New Bus” enters
service. Laidlaw, which has continued to perform under the Agreement, has not
demonstrated a total repudiation of the Agreement. Edulog, on the other hand, has
submitted evidence raising a genuine issue of material fact whether Laidlaw has
engaged in new breaches of the contract since January 11, 2003. Summary
judgment was not appropriate for breaches Edulog alleges occurred since that date.
See Sands v. Nestegard, 646 P.2d 1189, 1193 (Mont. 1982). We affirm the grant
of summary judgment as to all claims accruing prior to January 11, 2003, including
promotion duty claims, and reverse and remand for further proceedings as to
claims accruing on or following that date.
AFFIRMED IN PART, REVERSED IN PART, AND REMANDED. Each
party shall pay its own costs on appeal.
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FILED
Education Logistics Inc v Laidlaw Transit Inc 09-35601 AUG 02 2010
MOLLY C. DWYER, CLERK
Hall, J., concurring in part and dissenting in part U.S. COURT OF APPEALS
I agree with the majority that the Montana UCC’s four-year statute of
limitations applies and that the district court improperly granted summary
judgment as to breach of contract claims accruing on or after January 11, 2003. I
do not agree, however, that Laidlaw’s duty to promote and facilitate Edulog’s
business under Section 2.3.3 of the Agreement survived the expiration of the
exclusive license.
Section 2.2 of the Agreement explicitly conditions Laidlaw’s exclusive
license on the terms of Section 2.3 of the Agreement, which includes the duty to
promote Edulog’s software. Section 2.1 of the Agreement places no limitations on
Laidlaw’s perpetual non-exclusive license. If Section 2.3 of the Agreement were
to apply to both the non-exclusive license and the exclusive license, there would be
no need to include the express limitation in Section 2.2. It seems unlikely that the
parties would draft two adjacent provisions, include an express limitation in just
one provision, yet intend that that limitation would apply to both provisions. It
also seems unlikely that the parties would see the need to expressly cross-reference
a duty to promote in the context of a five-year exclusive license but would omit
such a reference in the context of creating the same duty in perpetuity.
All of the provisions of Section 2.3 appear compatible only with an
exclusive arrangement between Edulog and Laidlaw. Section 2.3.1 refers to
“Retention of Rights by LMI During the Currency of Exclusive License” and
refers only to Section 2.2 of the Agreement. Section 2.3.2 (the “no contact” duty
referenced by the majority) provides Laidlaw the exclusive right to market to its
own customers and limits Edulog’s ability to contact Laidlaw’s customers directly.
This provision only makes sense if Laidlaw has an exclusive license to market
Edulog’s software. Once the exclusive license expires, Edulog is free to provide
its software to competing school bus providers, who in turn would be free to
contact Laidlaw’s customer base.
The mutual promotion and facilitation duties in Section 2.3.3 itself make
little sense if, under the perpetual non-exclusive license, Edulog may freely license
its software to Laidlaw’s competitors. Section 2.3.3 obligates (1) Edulog and
Laidlaw to work together to minimize potential conflicts and define respective
markets; (2) Edulog to use its best efforts to promote Laidlaw bus services; (3)
Laidlaw to use its best efforts to promote Edulog software; and (4) both parties to
ensure that employees and contractors do not contravene the Agreement. Once
Edulog begins serving Laidlaw’s competitiors—who presumably would attempt to
infiltrate Laidlaw’s market—Edulog loses any real ability to insulate Laidlaw from
competition. If Edulog is unable to meaningfully fulfill the obligations set forth in
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2.3.3 upon the expiration of the exclusive license, it seems unlikely that the parties
would have intended for Laidlaw to actively promote Edulog software in
perpetuity.
The most reasonable interpretation of the Agreement is that the duty to
promote in Section 2.3.3 only applies for the duration of the exclusive license set
forth in Section 2.2. I therefore dissent in part.
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