BSG, LLC v. Check Velocity, Inc.

IN THE SUPREME COURT OF TENNESSEE
AT NASHVILLE
June 13, 2012 Session
BSG, LLC v. CHECK VELOCITY, INC.
Appeal by Permission from the Court of Appeals, Middle Section
Chancery Court for Davidson County
No. 09-2113-II Carol L. McCoy, Chancellor
No. M2011-00355-SC-R11-CV - Filed November 20, 2012
A contract required payment of “fee residuals” from customers referred by BSG, LLC to
Check Velocity, a company providing check re-presentment services. The contract provided
that payment of fee residuals survived the termination of the agreement between the parties
and continued until the “expiration of the Customer agreements as they may be renewed.”
Two agreements were executed between a referred customer and Check Velocity. The first
agreement, which expired by its own terms, provided for check re-presentment services. The
second agreement continued the re-presentment services required by the first agreement and
added additional services. In addition, other terms of the first agreement were changed,
including a choice of law provision. We hold that the second agreement with additional
services and changed terms was not a renewal of the first agreement. Accordingly, we
reverse the Court of Appeals and affirm the trial court’s grant of summary judgment in favor
of Check Velocity.
Tenn. R. App. P. 11 Appeal by Permission;
Judgment of the Trial Court Affirmed
J ANICE M. H OLDER, delivered the opinion of the Court, in which G ARY R. W ADE, C.J., and
C ORNELIA A. C LARK, W ILLIAM C. K OCH, J R., and S HARON G. L EE, JJ., joined.
David O. Huff (at oral argument) and Nick Shelton, Nashville, Tennessee, for the appellant,
Check Velocity, Inc.
Alvin Scott Derrick, Nashville, Tennessee, for the appellee, BSG, LLC
OPINION
I. Facts and Procedural History
BSG, LLC (“BSG”) and Check Velocity, Inc. (“Check Velocity”) entered into a two-
year contract on February 23, 2004. Pursuant to this contract, BSG agreed to market Check
Velocity’s “Re$ubmitIt” program and refer customers to Check Velocity for check collection
and processing. In return, Check Velocity provided BSG with periodic compensation or “fee
residuals” payable from the fees Check Velocity collected. The contract terminated on
February 23, 2006. On February 24, 2006, BSG and Check Velocity executed a similar
contract that terminated on February 24, 2009. No further contracts were executed between
BSG and Check Velocity.
While the first contract between BSG and Check Velocity was in effect, BSG referred
Weight Watchers International, Inc. (“Weight Watchers”) to Check Velocity for check
collection and processing. Weight Watchers and Check Velocity entered into an “Electronic
Check Recovery Agreement” (“ECR Agreement”) effective June 29, 2005. When checks
were returned for insufficient funds, the ECR Agreement required Weight Watchers to refer
those checks to Check Velocity for electronic re-presentment. Electronic re-presentment is
a third-party collection service by which a check that has been returned for insufficient funds
is re-presented in electronic form. Check Velocity was required to complete the re-
presentment process within ninety days from the date of receipt of each returned check.
Assignment of the ECR Agreement was prohibited, and the agreement was governed by
Tennessee law. Although the ECR Agreement expired on June 29, 2007, Check Velocity
continued to provide Weight Watchers with re-presentment services and continued to pay fee
residuals to BSG.
On August 13, 2008, Check Velocity and Weight Watchers entered into a “Collection
Services Agreement.” Pursuant to the Collection Services Agreement, Check Velocity
continued to provide electronic re-presentment services to Weight Watchers. The Collection
Services Agreement included new terms requiring Check Velocity to “[c]arry out reasonable
collection efforts for credit card decline accounts.” The Collection Services Agreement also
changed several provisions in the prior agreement. Check Velocity was required to re-
present returned checks within twenty days instead of the ninety days required by the ECR
Agreement. Assignment of the contract, which was prohibited by the ECR Agreement, was
permitted by the Collection Services Agreement. Additionally, the Collection Services
Agreement was governed by the laws of New York rather than the laws of Tennessee.
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Check Velocity continued to pay fee residuals to BSG until September 15, 2008, after
which it made no further payments.1 BSG filed a complaint in the Chancery Court for
Davidson County alleging that Check Velocity’s failure to pay fee residuals on the Weight
Watchers contract after September 15, 2008, constituted a breach of the 2006 contract
between BSG and Check Velocity. Check Velocity denied that it owed any further fee
residuals to BSG. Check Velocity filed a motion for summary judgment asserting that there
were no genuine issues of material fact because the Collection Services Agreement between
Weight Watchers and Check Velocity constituted a new agreement and therefore no fee
residuals were owed to BSG. The trial court agreed and awarded summary judgment in favor
of Check Velocity.
BSG filed a timely notice of appeal, and the Court of Appeals reversed the trial court.
The Court of Appeals held that the 2008 Collection Services Agreement between Weight
Watchers and Check Velocity was a renewal of the 2005 ECR Agreement. BSG, LLC v.
Check Velocity, Inc., No. M2011-00355-COA-R3-CV, 2011 WL 3558208, at *3 (Tenn. Ct.
App. Aug. 11, 2011). As a renewal, Check Velocity was required to continue to pay fee
residuals to BSG. BSG, 2011 WL 3558208, at *3. We granted Check Velocity permission
to appeal.
II. Analysis
This case requires us to interpret the 2006 contract2 between BSG and Check Velocity
to determine whether Check Velocity continues to owe fee residuals to BSG for the
electronic re-presentment services to Weight Watchers. The interpretation of a written
contract is a question of law, which we review de novo. 84 Lumber Co. v. Smith, 356
S.W.3d 380, 383 (Tenn. 2011). Our interpretation of a contract requires us to ascertain and
give effect to the parties’ intent. Allstate Ins. Co. v. Watson, 195 S.W.3d 609, 611 (Tenn.
2006).
The language at issue in this case is the termination clause in the 2006 contract
between BSG and Check Velocity. The contract between BSG and Check Velocity provides:
1
The contract between BSG and Check Velocity provides that the net fee residuals would be “paid
monthly . . . within 15 days following the previous month.”
2
Although Weight Watchers and Check Velocity entered into the ECR Agreement at the time the
2004 contract between BSG and Check Velocity was in force, the parties agree that the language of the 2006
contract between BSG and Check Velocity governs this dispute.
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This Agreement may be terminated by either party upon a default by the other
party continuing after thirty (30) days notice to the other of the default;
provided, however, that CheckVelocity’s liability for any CheckVelocity Net
Fee Residuals payable under Section 2 of this Agreement (and BSG’s Audit
Rights in connection with its residual payments) shall survive the termination
of this Agreement and continue until the expiration of the Customer
agreements as they may be renewed under which such CheckVelocity Net Fee
Residuals are payable.
The parties do not dispute that the contract requires Check Velocity to continue to pay fee
residuals to BSG from customer agreements so long as those customer agreements are
renewed. Check Velocity is bound by this provision even after the expiration of the
agreement between BSG and Check Velocity. Before this Court, the parties have defined the
issue as whether the Collection Services Agreement with Weight Watchers is a renewal of
the ECR Agreement or whether the Collection Services Agreement is an entirely new
contract that supplants the ECR Agreement.
Initially, we must determine whether the contract language at issue is ambiguous. See
Maggart v. Almany Realtors, Inc., 259 S.W.3d 700, 704 (Tenn. 2008). If the contract
language is found to be clear and unambiguous, the contract language is interpreted
according to its plain terms and ordinary meaning. Maggart, 259 S.W.3d at 704. Contract
language will be deemed ambiguous when it can “be understood in more ways than one.”
Allstate Ins. Co., 195 S.W.3d at 611 (quoting Farmers-Peoples Bank v. Clemmer, 519
S.W.2d 801, 805 (Tenn. 1975)) (internal quotation marks omitted). Contract language will
not be considered ambiguous, however, merely because the parties differ as to their
interpretation of the language. Johnson v. Johnson, 37 S.W.3d 892, 896 (Tenn. 2001)
(quoting Cookeville Gynecology & Obstetrics, P.C. v. Se. Data Sys., Inc., 884 S.W.2d 458,
462 (Tenn. Ct. App. 1994)).
The parties have not defined the term “renew” in their agreement. The term “renewal”
has multiple meanings. A renewal is “[t]he re-creation of a legal relationship or the
replacement of an old contract with a new contract, as opposed to the mere extension of a
previous relationship or contract.” Black’s Law Dictionary 1410 (9th ed. 2009). This
definition of renewal includes an entirely new contract. This Court has noted, however, that
renewal “is frequently used as synonymous with extension.” Womble v. Walker, 181 S.W.2d
5, 8 (Tenn. 1944) (internal quotation marks omitted). When used in the sense of a contract
extension, a renewal is a contract for an additional period of time with the same terms and
obligations as a prior contract and does not confer new obligations or rights. Cf. Womble,
181 S.W.2d at 8 (discussing renewal of a lease); Brewer v. Vanguard Ins. Co., 614 S.W.2d
360, 363 (Tenn. Ct. App. 1980) (discussing renewal of an insurance contract). Considered
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in isolation, the meaning of the phrase “as they may be renewed” could be ambiguous
because it may be understood to include an entirely new contract as well as a contract
extension. See Allstate Ins. Co., 195 S.W.3d at 611.
We do not, however, read provisions of a contract in isolation. Maggart, 259 S.W.3d
at 705. In construing a contract, “one clause may modify, limit or illuminate another.”
Maggart, 259 S.W.3d at 704 (quoting Cocke Cnty. Bd. of Highway Comm’rs v. Newport
Utils. Bd., 690 S.W.2d 231, 237 (Tenn. 1985)). The 2006 contract between BSG and Check
Velocity also states that “[t]he initial term of this Agreement shall be three (3) years
commencing on its date of execution, and shall be renewable for successive terms of one (1)
year upon the expiration of the initial term upon mutual consent.” (Emphasis added). This
provision reflects the parties’ understanding that a renewal of the contract between BSG and
Check Velocity is an extension of the initial term of the contract for an additional period of
time with the same terms. Absent a contrary indication, a word will generally be given the
same meaning throughout a contract. 11 Richard A. Lord, Williston on Contracts § 32:6 (4th
ed. 2012). We therefore hold that the meaning of “renew” within the contract between BSG
and Check Velocity is a contract extension for an additional period of time with the same
terms and conditions of the original contract.
The course of conduct of Check Velocity supports the interpretation that the parties
intended a renewal to be a contract extension. Pinson Assoc. Ins. Agency, Inc. v. Kreal, 800
S.W.2d 486, 487 (Tenn. Ct. App. 1990). Weight Watchers and Check Velocity continued
to perform the ECR Agreement after it terminated by its own terms on June 29, 2007. This
Court has held that when parties continue to perform the same services after a contract for
a definite term has expired, it is presumed that they are operating under a “new contract
having the same terms and conditions as the original one.” Cf. Delzell v. Pope, 294 S.W.2d
690, 694 (Tenn. 1956) (internal quotation marks omitted) (stating the general rule in the
context of employment contracts). By continuing to operate under the terms of the ECR
Agreement, Check Velocity and Weight Watchers implicitly renewed the ECR Agreement
with the same terms. Consistent with this interpretation, Check Velocity paid BSG fee
residuals after the termination of the ECR Agreement until the execution of the Collection
Services Agreement on August 13, 2008.
When Check Velocity and Weight Watchers executed the Collection Services
Agreement, however, Check Velocity and Weight Watchers ceased operating under the terms
of the ECR Agreement. Comparing the ECR Agreement to the Collection Services
Agreement, we observe that the two agreements had substantially different terms. Check
Velocity and Weight Watchers added an entirely new obligation in the Collection Services
Agreement in the form of credit card collection services. The right to assign contractual
rights was also altered. Unlike the ECR Agreement, which prohibited assignment, the
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Collection Services Agreement permitted either party to assign its rights under the contract.
Although Check Velocity continued to perform electronic re-presentment services pursuant
to the Collection Services Agreement, the terms of the re-presentment services were altered.
The Collection Services Agreement decreased the time in which Check Velocity was
required to re-present returned checks, requiring Check Velocity to re-present within twenty
days in contrast to the ninety days permitted in the ECR Agreement. The Collection Services
Agreement also changed the choice of law provision from Tennessee to New York.
The substantial changes reflected in the Collection Services Agreement made that
agreement inconsistent with the terms of the ECR Agreement. We therefore conclude that
the Collection Services Agreement was not a renewal of the ECR Agreement between Check
Velocity and Weight Watchers as that term is used in the 2006 contract between BSG and
Check Velocity.
Because we conclude that the Collection Services Agreement between Weight
Watchers and Check Velocity was not a renewal of the ECR Agreement, Check Velocity
does not continue to owe fee residuals to BSG pursuant to the 2006 agreement between BSG
and Check Velocity. Check Velocity is therefore entitled to summary judgment as a matter
of law. 84 Lumber Co., 356 S.W.3d at 383-84.
III. Conclusion
The Weight Watchers Collection Services Agreement contained terms and obligations
not present in the ECR Agreement and was not a renewal of the ECR Agreement. We affirm
the judgment of the trial court awarding summary judgment in favor of Check Velocity.
Costs of this appeal are taxed to BSG, LLC, and its surety, for which execution may issue
if necessary.
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JANICE M. HOLDER, JUSTICE
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