Opinion ID: 199239
Heading Depth: 4
Heading Rank: 1

Heading: Rejection of Request for Rescission of

Text: Settlement Agreement/Relief from Judgment In its initial motion for contempt, AccuSoft requested that it: be excused from making any and all further payments to Defendants . . . as a result of their wilful and deliberate breach of the bargained for exchange of payments for confidentiality and protection of AccuSoft’s goodwill embodied in the Settlement Agreement. In an amended motion, submitted in September 1996, AccuSoft reframed this argument more broadly as a request for relief from judgment pursuant to Fed. R. Civ. P. 60(b)(6) and for rescission of the settlement agreement in its entirety. Citing our decision in United States v. Baus, 834 F.2d 1114 (1st Cir. 1981), AccuSoft argued that Snowbound’s contempt justified the master in “relieving AccuSoft of the terms of the Judgment and Settlement Agreement.” AccuSoft's rescission request, fleshed out in a “post-trial” brief submitted at the close of the hearings before the master, sought an order that would “rescind -53- the Settlement Agreement and require the parties to return all consideration received, thereby returning them to the status quo that existed prior to the entry of the Settlement Agreement.” As grounds for both forms of relief, AccuSoft argued that: (1) Snowbound had failed to honor “material and essential” terms of the settlement agreement; (2) AccuSoft's actual damages were “difficult or impossible to determine”; and (3) there was “no meeting of the minds and therefore no valid contract.” In his memorandum, the master rejected AccuSoft's claim for relief on two grounds. First, noting AccuSoft's delay in asserting its rescission claim until after the settlement agreement's August 31, 1996 cutoff had passed, the master found that AccuSoft's conduct constituted an election to continue to operate under the contract, thus precluding rescission. CanadaAtlantic & Plant S.S. Co., Ltd. v. Flanders, 165 F. 321, 323 (1st Cir. 1908). Furthermore, even if AccuSoft had not waived its right to such relief, the master found that Snowbound’s breaches of the settlement agreement were not “sufficiently material” to justify rescission of the contract or to excuse AccuSoft from its obligation to perform. Although the master acknowledged that the confidentiality provisions of the settlement agreement were “important” to the parties, the master held that they did not constitute an “essential and inducing -54- feature of the contract.” Lease-It, Inc. v. Mass. Port Auth., 600 N.E.2d 599, 602 (Mass. App. Ct. 1992) (discussing the standard of materiality for excusing a non-breaching party from performance). To the contrary, he concluded, “the most important features of the Settlement Agreement were those which permitted the parties to continue in business by releasing their claims to the other's software.” On appeal, AccuSoft's principal claim of error concerns the master's conclusion that Snowbound's breaches of the settlement agreement were not material. Accusoft contends that the master failed to appreciate that the confidentiality provisions were essential to the agreement because, in the small market the parties were competing in, revelations concerning the outcome of the litigation could severely impair AccuSoft's ability to continue to do business and to transition its current customers to the ImageGear software. In fact, AccuSoft argued, those provisions were the most important to AccuSoft because they protected its goodwill. Notably, and without explanation, AccuSoft does not address the master's alternative holding that AccuSoft is barred from relief by an implicit election to continue under the contract. As we proceed to the merits of AccuSoft's appeal on this issue, we first address the fact that, on appeal, AccuSoft -55- once again appears to recast the nature of the relief it seeks. AccuSoft's most recent complaint, as well as its argument before the master (and, subsequently, before Judge Gorton), asked for complete rescission of the settlement agreement and, by implication, complete relief from judgment pursuant to Rule 60(b)(6). In the briefs submitted to this court, however, AccuSoft reverts to the version of this count contained in the initial complaint, asking simply to be excused from paying royalties from the date that Snowbound first breached the agreement by announcing that it had “won” the litigation.21 AccuSoft also fails to press any specific argument for relief based on Rule 60(b)(6), although it could be concluded that AccuSoft's continuing references to our decision in Baus are intended to do so by implication. The significance of this shift in tactics is unclear. Arguably, although Snowbound has not so contended, AccuSoft's request on appeal for a more limited remedy is subject to dismissal because it was not properly raised in the forum below. However, Massachusetts caselaw is not entirely clear on whether the line of precedent excusing a party from performance based on another party's breach may be viewed as deriving from the same 21 Indeed, in its reply brief in this Court, AccuSoft states baldly it is “not seeking to rescind the Settlement Agreement.” -56- source as the precedent regarding rescission. See Lease-It, Inc., 600 N.E.2d at 601-02 (discussing the right to cease performance while referencing authority concerning rescission). If Massachusetts law would treat the difference as going to the extent, rather than the nature, of the relief, AccuSoft could be found to have adequately preserved its position. Because it does not affect the result we reach, we accept arguendo that the relief requested on appeal is properly before us and, furthermore, that an argument under Rule 60(b)(6) is also properly preserved. Turning to the substance of AccuSoft's appeal, we affirm the master's conclusion on the ground that AccuSoft, by electing to continue accepting benefits under the agreement, has lost any right it may have had to be excused from performance as a result of Snowbound's contempt.22 It is well established that conduct indicating a willingness to continue to honor a contract, despite knowledge that the other party has failed to perform, “operates as a promise to perform in spite of that non- 22 In so holding, we specifically do not decide whether the master was right to conclude that Snowbound's violations of the settlement agreement were not “sufficiently material” to justify rescission or to excuse AccuSoft from its duty to perform. Indeed, we find significant merit in AccuSoft's contention that the confidentiality requirements and related provisions related to publicity were critical components of the settlement agreement from AccuSoft's perspective. -57- occurrence.” Restatement (Second) of Contracts, § 246; see also Flanders, 165 F. at 321 (1st Cir. 1908) (holding that a breach by one party gives the other the right of election to continue under the contract or to sue for rescission); accord Apex Pool Equip. Corp. v. Lee, 419 F.2d 556, 561 (2d Cir. 1969) (“[T]he power to terminate a continuing contract because of a particular breach of that contract is a power of election.”). Here, AccuSoft plainly knew of Snowbound's breaches of the agreement within a short time of when they occurred, and, indeed, soon filed its first motion for contempt. Yet AccuSoft continued to accept the benefits of the settlement agreement and to act as if it were still in effect. It was not until several months later -- after August 31, 1996 -- that AccuSoft filed an amended pleading that made clear it sought rescission of the entire agreement. In the interim, AccuSoft availed itself of the ability to license the IFL in return for royalty payments, as well as the ability to sell ImageGear free from infringement claims. Indeed, by the time AccuSoft asserted its rescission claim, it had obtained all the benefits from the settlement agreement that it could. Under the circumstances, we agree with the master that AccuSoft was not entitled to cancel -- largely -58- retroactively -- its obligation to pay royalties.23 We therefore affirm the master's conclusion.