FILED U.S. COURT OF AP P EALS E LEV EN T HC IRC U IT APR 6, 2007 THOMAS K. KAH

N CLERK [ DO NO T P UB L I S H] I N THE UN I TE D STATE S C OU RT OF APPE ALS F O R T H E E L E V E N T H C IR C U IT

________________________ N o. 06- 12357 N on -A rgum entC al endar

________________________ D. C. Do c k e tNo . 0 4 - 6 1 1 2 7 - CV- J EM S Y S T E M S U N L I M I T E D , I N C ., aF lo r id ac o rp o r a tio n , P la in tif f - A p p e lla n t, v ersu s C I S C O S Y S T E M S , I N C ., aC a lif o rn iac o rp o r a tio n , C I S C O S Y S T E M S C A P I T A L C O R P O R A T I O N , aN e v a d ac o rp o r a tio n , C A P I T A L A C Q U I S I T I O N C O R P O R A T I O N , aD e la w a r e c o rp o r a tio n , A S S E T A C Q U I S I T I O N C O R P O R A T I O N , aD e la w a r e c o rp o r a tio n , D efen d an t s-A p p el l ees.

________________________ A pp ea l fr om the U ni t ed S t at es D i stri ctC ou rt f orthe S outhe rn D i s tr i c tof F l or i da

_________________________ ( A p r i l6, 2007)2

B efo re B L A C K , C A RN E S an d M A R C U S , C i rcu i tJu d g es. P E R C U R I A M: F ol l ow i ng the s e tt l e m e ntof adi s put e be tw e e n S y s t e m s U nl i m i t e d, I nc . a nd C i sc o S ys t em s, Inc. ov erthe ow ners hi p o f c ert ai n i nt el l ec tual prop erty, C i sc o a gr e e d t o c ove y the pr ope r ty t o S y s t e m s . I n the r e s ul t i ng bi l l of s a l e , C i s c o: g ran t ed , b arg ai n ed , so l d , tran sferred an d d el i v ered , an d b y th ese p re se n ts d o es g ra n t, b ar g ain , sell, tran sf eran d d eliv eru n to [S ys tem s], i t s s uc c e s s ora nd a s s i gns , the f ol l ow i ng: A n y an d al l o f [C i sco ] ’ s ri g h t , t i t l e an d i n t eresti n an y co p yri g h t s, pa t e nt s , tr a de m a rks , tr a de s e c r e t s a nd othe ri nt e l l e c tua l pr ope r ty of a ny ki nd a s s oc i a t e d w i th a ny s of tw a r e , c ode orda t a , i nc l udi ng w i thout l i m i t at i on ho stcontrol l ersoftw ar e a nd bi l l i ng softw ar e, w hether em b ed d ed o r i n an y o th er fo rm (i n cl u d i n g w i th o u tl i m i t at i o n s, d i sk s, C D s a nd m agnet i c t apes ), and i ncl ud i ng any a nd al l avai l abl e c op i es the r e of a nd a ny a nd a l l books a nd r e c or ds r e l a t e d the r e t o by [ C is c o ] . . . . ( R 1 :2 :C o m p l., E x .A .) C i sc o n everdel i vere d any of the softw ar e t o S ys t em s. A l l egi ng thati thad be e n da m a ge d by the non- de l i ve ry , S y s t e m s s ue d C i s c o f orbr e a c hi ng the bi l l of sa l e c on tra ctand for vi ol at i ng the att endantob l i gat i on s t o d el i ver the softw ar e un der the U ni form C om m er ci al C od e. O n N ov em ber 29, 20 05 , the part i es fi l ed cr oss- m ot i on s f or sum m ary j udgm e nt . T ha ts a m e da y , S y s t e m s m ove d f orl e a ve t o a m e nd i t s c om pl a i ntt o a dd cl ai m s f or fr aud, conv er si on and n egl i gence.3

T he di stri ctcourtdeni ed S ys t em s’ m ot i on for l ea ve t o am end. T he court al so deni ed S ys t em s’ m ot i on for s um m ary j ud gm ent , bu tgrant ed C i sc o’ s s um m ary j udgm e ntm ot i on. I n thi s appe a l S y s t e m s c ont e s t s both the de ni a l of i t s m ot i on f

or l e a ve t o a m e nd a nd the j udgm e nte nt e r e d f orC i s c o. I. S y s te m s c o n te n d s th a t th e d is tr ic t c o u r t ab u s e dits d is c r e tio n in d e n y in g its m o tio n f o rle a v e to a m e n d th e c o m p la in t. I t a r g u e s th a t le a v e s h o u ld b e f r e e ly g ran t ed b ecau se i td i d n o tseek l eav e i n b ad fai th o r fo r th e p u rp o se o f u n d u e d el ay, and C i sc o w ou l d n otbe prej ud i ce d. W e w i l l re vers e adi stri ctcourt ’ s deni al of a m ot i on t o a m e nd onl y w he r e i tha s c l e a r l y abus e d i t s di s c r e t i on. H e ns on v. C ol um bu s B ank & T rustC o. , 77 0 F . 2d 15 66 , 15 74 (11th C i r. 19 85 ). F e de r a l R ul e of

C i vi l P r oc e dur e 15( a ) pr ovi de s tha t , a f t e rar e s pons i ve p le a d in g h a s b e e n s e rv e d , ap a r ty m a y a m e n d its c o m p la in t o n ly b y le a v e o f c o u r t. F ed. R . C i v. P . 15 (a ). T he rul e a l so prov i des that“ l ea ve shal l be fr ee l y gi ven w hen j ust i ce so re qu i re s. ” I d. T he S up re m e C ou rtsa i d thatthe “ fr ee l y gi ven” st andard m ean s: If the un derl yi ng fa ct s or c i rc um st ance s r el i ed up on by a pl ai nt i ff m ay b e ap r o p e rs u b

je c t o f r e lie f , h e o u g h t to b e a f

f o r d e d a n o p p o r tu n ity to t e s thi s c l a i m on the m e r i t s . I n the abs e nc e of a ny appa r e ntor de c l a r e d r e a s on— s uc h a s undue de l a y , ba d f a i th ordi l a t ory m ot i ve on the pa r tof

the m ova nt , r e pe a t e d f

a i l ur e t o c ur e de f

i c i e nc i e s by a m e ndm e nt s pr e vi ous l y a l l ow e d, undue pr e j udi c e t o the oppos i ng4

p a r ty b y v ir tu e o f

a llo w a n c e o f

th e a m e n d m e n t, f

u tility o f a m e n d m e n t, e tc .— th e le a v e s o u g h t s h o u ld , a s th e ru le s r e q u ir e , b e “f r e e ly g iv e n .” F om an v. D avi s, 37 1 U . S . 17 8, 18 2, 83 S . C t . 22 7, 23 0 (19 62 ). H e r e , th e d is tr ic t c o u r t f o u n d th a t S y s te m s h a d u n d u ly d e la y e d a m e n d in g its c om pl a i nta f

t e rde f i c i e nc i e s ha d be e n poi nt e d outby the c our t . I n a n A pr i l 7, 2005 hear i ng before the di stri ctcourton S ys t em s’ m ot i on t o com pel , the di stri ctcourt s a id to S y s te m s ’ c o u n s e l:

I ts e e m s t o m e tha ti f

y ou w a ntt o s om e how orothe re xpa nd y ourc l a i m t o i nc l ude the A M C i t e m s , tha ty ou ha ve gott o a m e nd y o u rp le a d in g . Y o u h a v e g o t to , a n d I d o n ’t k n o w w h a t k in d o f c la im you w antt o m ake; w hether or notyou w anta c l ai m of fr aud, m utual m is ta k e , o rw h a te v e r. . . . [ I ] tm a y ge ty ou by am ot i on t o di s m i s s , buti f the y ne ve rgot a ny thi ng, the n I don’ tknow w he r e y ou a r e goi ng w i th thi s , ba s e d on y o u rp l e a d i n g s a n d th e a g r e e m e n t s a s th e y a r e r i g h tn o w. T hati s w hy I s ai d you m ayhave t o am end, bu tI guess you can w a i tunt i l the di s tr i c tc our trul e s on the m ot i on a s t o w he the rornot y o u h a v e s t a t e d ac l a i m. ( R 4: 32: 34, 46. ) T he di s tr i c tc our tde ni e d C i s c o’ s m ot i on t o di s m i s s on A ugus t25, 2 0 0 5 . S y s te m s ’ w a ite d m o r e th a n s e v e n m o n th s a f te rth e c o u r t p o in te d o u t th a t its com pl ai ntw as m i ss i ng se vera l causes of ac t i on , and m ore than three m on ths af t er th e m o tio n to d is m is s w a s d e n ie d , to a m e n d its c o m p la in t. T h e m o tio n f o rle a v e to am en d w as fi l ed th e d ay th e su m m ary j u d g m en tm o t i o n s w ere d u e an d tw o d ays be f or e the di s c ove ry de a dl i ne w a s t o l aps e . U nde rs i m i l a rc i r c um s t a nc e s , w e ha ve5

he l d tha tthe di s tr i c tc our tdi d notabus e i t s di s c r e t i on i n de ny i ng the m ot i on f or l e a ve t o a m e nd. S e e M a y na r d v. B d. of R e ge nt s e x r e l . U ni v. of S . F l a . , 342 F . 3d 1 2 8 1 , 1 2 8 7 ( 1 1 th C ir . 2 0 0 3 ) ( “B e c a u s e w e c o n c lu d e th a t M a y n a r d h a s f a ile d to show go od cause f

or the el eventh h ou r a m endm ent , w e f i nd thatthe di stri ctcourt di d n otabuse i t s di sc re t i on by enforc i ng i t s t i m et abl e f or di sposi t i on of the ca se . ”) . S ys t em s a rgues thati thad g oo d cause for the l at e a m endm entsi nce C i sc o w i thhe l d ac ruc i a l pi e c e of di s c ove ry r e l a t e d t o the f r a ud unt i l onl y af

e w w e e ks b e f o r e th e s u m m a ry ju d g m e n t m o tio n s w e r e d u e in N o v e m b e r . T h is s u g g e s tio n is pr obl e m a t i c gi ve n the di s tr i c tc our t ’ s c om m e nt s i n A pr i l tha tS y s t e m s ha d a po t ent i al fr aud cl ai m . T he di stri ctcourtfoun d thatthe fa ct s und er l yi ng the al l eged f r a ud w e r e “ notne w l y di s c ove r e d butr a the rw e r e know n t o [ S y s t e m s ] a nd ha ve been ref er ence d b y [ S ys t em s] i n p re vi ou s pl ea di ng s” (R 3: 13 3: 1), and S ys t em s has n o tsh o w n th atth i s fi n d i n g i s cl earl y erro n eo u s. T h e d is tr ic t c o u r t a ls o f

o u n d th a t C is c o w o u ld b e u n d u ly p r e ju d ic e d if S y s te m s w e r e g iv e n le a v e to a m e n d its c o m p la in t b e c a u s e d is c o v e ry w a s s e t to cl ose a nd sum m ary j ud gm entm ot i on s had al re ady bee n fi l ed. A dd i ng three m ore c a us e s of a c t i on t o the c om pl a i ntw oul d r e qui r e a ddi t i ona l t i m e a nd e xpe ns e f or d i sco v ery an d an ad d i t i o n al ro u n d o f su m m ary j u d g m en tm o t i o n s. S ys t em s a rgues thatthe di stri ctcourtcoul d h ave l i m i t ed any a dd i t i on al6

d is c o v e ry to r e d u c e e x p e n s e . H o w e v e r , ad is tr ic t c o u r t h a s w id e la titu d e in refereeing d i sco v ery, an d w e w i l l n o tq u est i o n th e l i m i t s setb y th e co u rtu n l ess the y a r e c l e a r l y e rr one ous ornotr a t i ona l l y s uppor t e d by the e vi de nc e . M oor e v. A rm ou r P harm . C o. , 92 7 F . 2d 11 94 , 11 97 (11th C i r. 19 91 ) ( “ T he tri al court. . . has w i de di s c r e t i on i n s e tt i ng the l i m i t s of di s c ove ry , a nd i t s de c i s i ons w i l l notbe re vers ed un l es s acl ea rl y e rr on eous pri nci pl e of l aw i s app l i ed, or no evi dence r a t i ona l l y s uppor t s the de c i s i on. ” ) . S y s t e m s ha s notm a de tha ts how i ng. B ec ause S ys t em s und ul y del ay ed addi ng coun t s t o i t s c om pl ai ntand C i sc o w o u l d b e p rej u d i ced b y th e l at e am en d m en t , th e d i stri ctco u rtd i d n o tcl earl y ab u se i t s di s c r e t i on i n de ny i ng S y s t e m s ’ m ot i on t o a m e nd. II. S ys t em s a l so cont ends thatthe di stri ctcourterre d i n g ra nt i ng sum m ary ju d g m e n t in f

a v o ro f C is c o b e c a u s e : ( 1 ) th e p la in la n g u a g e o f th e b ill o f

s a le r e qui r e d C i s c o t o de l i ve rthe s of tw a r e ; ( 2) the bi l l of

s a l e , w he n r e a d i n c onj unc t i on w i th o th e rc o n t e mp o r a n e o u s a g r e e me n t s , r e q u i r e d d e l i v e ry ; a n d ( 3 ) th e U CC, w h ic h g o v e rn s th e b ill o f s a le , r e q u ir e s th a t a ll g o o d s b e d e liv e r e d a t ar e a s o n ab le tim e . S y s te m s is w r o n g o n e a c h p o in t. Th e b i l l o f

s a l e i s i n t e rp r e t e d i n a c c o r d w i th i t s p l a i n l a n g u a g e ab s e n ts o me a m b ig u ity . S e e C a l. C iv . C o d e § 1 6 3 8 ( “T h e la n g u a g e o f ac o n tr a c t is to g o v e rn itsThe district cour t did not decide whether the bill of salewas g overne d by Florida or 1 California law , and wewon’t either since it doesn’t matter

to the outcome of thecase . 7 i nt erpret at i on , i f the l angu age i s c l ea r a nd expl i ci t , and d oes noti nv ol ve an abs ur di ty . ” ) ; W hi t l e y v. R oy a l T r a i l s P r op. O w ne r s ’ A s s ’ n, I nc . , 910 S o. 2d 381, 383 ( F l a . 5th D C A 2005) ( “ T he pa r t i e s ’ i nt e nt i on gove rns c ontr a c tc ons truc t i on and i nt erpret at i on ; the bestevi dence of i nt enti s the contra ct ’ s pl ai n l angu age. ”) . 1 H ere, th e p art i es ag ree th atth e b i l l o f sal e i s cl ear an d u n am b i g u o u s. T he bi l l of

s a l e pr ovi de s tha tC i s c o w i l l “ gr a nt , ba r ga i n, s e l l , tr a ns f e ra nd de l i ve runt o [ S y s t e m s ] . . . [ a ] ny a nd a l l of [ C i s c o] ’ s r i ght , t i t l e a nd i nt e r e s ti n a ny copyri gh t s, pat ent s, tra dem arks, tra de se cr et s a nd other i nt el l ec tual prop erty of a ki nd a s s oc i a t e d w i th a ny s of tw a r e , c ode orda t a . ” ( R 1: 2: C om pl . , E x. A . ) A s the di stri ctcourtexpl ai ned, thi s l angu age unam bi gu ou sl y m ea ns thatC i sc o w as re qu i re d b y the bi l l of sa l e t o tra nsfe r t o S ys t em s a l l of i t s r i gh t s i n i nt el l ec tual pr ope r ty a s s oc i a t e d w i th c e r t a i n s of tw a r e a nd da t a . T he r e i s no m e nt i on i n the pl ai n l angu age of the contra cti t se l f of C i sc o b ei ng ob l i gat ed t o tra nsfe r the ac tual s of tw a r e , a nd w e w i l l noti m pl y a ny s uc h obl i ga t i on abs e nts om e good r e a s on u n d e rl a w. S y s te m s s a y s th e r e a r e tw o g o o d r e a s o n s to im p ly a n o b lig a tio n b y C is c o to tra nsfe r the softw ar e. F i rs t , S ys t em s a rgues thatthe bi l l of sa l e m ustbe i nt erpret ed i n con j un ct i on w i th the se tt l em entagre em entbetw ee n S ys t em s a nd C i sc o and other8

d o c u me n t s r e l a t i n g t o th e i n t e l l e c tu a l p r o p e r ty . Th e s e o th e ra g r e e me n t s , Sy s t e ms cl ai m s, i ncl ud e a n o bl i gat i on by C i sc o t o d el i ver the softw ar e w i th any conv ey ance o f i n t el l ectu al p ro p erty. A s s um i ng w i thoutde c i di ng tha tthe othe ra gr e e m e nt s i nc l ude l a ngua ge r e q u i r i n g Ci s c o t o d e l i v e rth e s o f tw a r e , th e y a r e n o tr e l e v a n th e r e b e c a u s e Sy s t e ms ha s ne ve ra l l e ge d C i s c o vi ol a t e d the s e othe ra gr e e m e nt s . S y s t e m s ’ c om pl a i nt al l eges on l y avi ol at i on of the bi l l of sa l e c on tra ct , and there i s no o bl i gat i on i n that c o n tr a c t to d e liv e rth e s o f tw a r e . T h e b ill o f

s a le d o e s n o t r e f

e r e n c e o rin c o rp o r a te a n y o th e ra g r e e m e n t. C f . W illia m s C o n s tr . C o . v . S ta n d a r d - P a c . C o rp ., 6 1 C a l. R ptr . 912, 920 ( C t . A pp. 1967) ( “ F orthe t e rm s of a nothe rdoc um e ntt o be i ncorpo ra t ed i nt o the do cum entexec ut ed by the part i es the re fe re nce m ustbe cl ea r a nd une qui voc a l , the r e f e r e nc e m us tbe c a l l e d t o the a tt e nt i on of the othe rpa r ty a nd he m us tc ons e ntthe r e t o, a nd the t e rm s of the i nc orpor a t e d doc um e ntm us tbe know n ore a s i l y a va i l abl e t o the c ontr a c t i ng pa r t i e s . ” ( quot a t i on om i tt e d) ) ; C ol l i ns e x r e l . D i xi e P l y w ood C o. of T a m pav. N a t ’ l F i r e I ns . C o. of H a r t f or d, 105 S o. 2d 1 9 0 , 1 9 4 ( F la . 2 d D C A 1 9 5 8 ) ( “W h e r e aw r itte n c o n tr a c t r e f e r s to a n d s u f

f ic ie n tly de s c r i be s a nothe rdoc um e nt , tha tothe rdoc um e ntors o m uc h of i ta s i s r e f

e rr e d t o, m a y b e r e g a r d e d a s ap a r t o f th e c o n tr a c t a n d th e r e f

o r e is p r o p e r ly c o n s id e r e d in its i nt erpret at i on . ”) .9

T o ge ta r ound thi s poi nt , S y s t e m s a r gue s tha t“ w he n i ns trum e nt s r e l a t e t o the s a m e m a tt e r s , a r e be tw e e n the s a m e pa r t i e s , a nd m a de pa rtof s ubs t a nt i a l l y one tr a ns a c t i on, the y a r e t o be t a ke n t oge the r . ” ( B l ue B r . 22. ) I ti s true tha tthi s i s one of the ca no ns for c on strui ng a c on tra ctun der C al i forni a l aw . S ee C al . C i v. C od e § 1 6 4 2 (“ S ev eral co n tract s rel at i n g t o th e sam e m att ers, b etw een th e sam e p art i es, a nd m a de a s pa r t s of

s ubs t a nt i a l l y one tr a ns a c t i on, a r e t o be t a ke n t oge the r . ” ) . B ut i ti s a l so true thatthi s c anon , as w i th m ostothers , i s i napp l i cabl e w here the contra ct th ati s al l eg ed t o h av e b een b reach ed i s u n am b i g u o u s. S o n o m a F al l s D ev el o p ers, L L C v. N e v. G ol d & C a s i nos , I nc . , 272 F . S upp. 2d 919, 924 ( N . D . C a l . 2003) ( s e c t i on 1642 “ i s appl i c abl e onl y i f the r e i s a m bi gui ty c onc e rni ng the i nt e rpr e t a t i on of a c on tra ct ”) . H er e, the l angu age of the bi l l of sa l e i s unam bi gu ou s. T hu s, there i s no ne e d t o appl y a ny c a nons of c ons truc t i on, i nc l udi ng pa r t i c ul a r l y s e c t i on 1642. S y s t e m s a l s o a r gue s tha tthe U C C i m pos e s aduty on C i s c o t o de l i ve rthe s o f tw a r e . W e w ill a s s u m e w ith o u t d e c id in g th a t S y s te m s ’ r e a d in g o f th e U C C is corr ec t . E ven so, the prov i si on s of the U C C on l y app l y t o con tra ct s thatdeal p r e d o m in a te ly w ith “tr a n s a c tio n s in g o o d s .” C a l. C o m . C o d e § 2 1 0 2 ; F la . S ta t. § 6 7 2 .1 0 2 . T h e s a le o f

in te lle c tu a l p r o p e r ty , w h ic h is w h a t is in v o lv e d h e r e , is n o t a tra nsac t i on i n g oo ds. S ee L am l e v. M att el , Inc. , 39 4 F . 3d 13 55 , 13 59 n. 2 (F ed. C i r. 2 0 0 5 ) ( ap p ly in g C a lif

o rn iala w ) ( “a lic e n s e f

o rin te lle c tu a l p r o p e r ty . . . is n o t as a le10

of go od s” ); se e genera l l y D ani el R . C ahoy, O as i s or M i ra ge? : E ff i ci entB re ac h as aR e l i e f t o the B ur de n of

C ontr a c tua l R e c aptur e of P a t e nta nd C opy r i ght L i m i t a t i ons , 17 H a rv. J . L . & T e c h. 135, 163 ( F a l l 2003) ( “ i nt e l l e c tua l pr ope r ty or o th e ri n f o rma t i o n c a n n o tb e a‘ g o o d ’ a s d e f i n e d b y th e U CC” ) . Th u s , th e U CC do es no tappl y. A cc ordi ng l y, the pl ai n l angu age of the bi l l of sa l e gov erns and, as the di s tr i c tc our the l d, i tdoe s noti nc l ude apr ovi s i on r e qui r i ng C i s c o t o de l i ve ra ny softw ar e. A F F I R M E D .