Opinion ID: 4076467
Heading Depth: 3
Heading Rank: 2

Heading: Customer Contract Interpretation

Text: In granting judgment as a matter of law to TLI on Avaya’s common law claims, the District Court largely relied on its ruling that Avaya’s contracts with its equipment customers entitled those customers to give TLI access to their systems to perform maintenance. The District Court ruled that, as a matter of law, “Avaya failed to prove the software 36 licensing agreements entered into by TLI’s 470 customers upon purchasing their PBXs prohibited them from allowing TLI[] to access the ODMCs on their systems.” (J.A. 201.) Because that threshold legal determination was so central to the rest of the District Court’s analysis, we turn to considering whether it was correct. There is no dispute that New Jersey law governs this issue, according to the choice of law provision in the customer contracts, and under New Jersey law, “discerning contractual intent is a question of fact unless the provisions of a contract are wholly unambiguous.” Jaasma v. Shell Oil Co., 412 F.3d 501, 507 (3d Cir. 2005) (interpreting New Jersey law) (internal quotation marks and modifications omitted) (quoting In re Barclay Indus., Inc., 736 F.2d 75, 78 n.3 (3d Cir. 1984)). “An ambiguity in a contract exists if the terms of the contract are susceptible to at least two reasonable alternative interpretations.” M.J. Paquet, Inc. v. N.J. Dep’t of Transp., 794 A.2d 141, 152 (N.J. 2002) (quoting Nester v. O’Donnell, 693 A.2d 1214, 1220 (N.J. Super. Ct. App. Div. 1997)). When that is so, it is permissible to look to evidence outside the contract “as an aid to interpretation.” Chubb Custom Ins. Co. v. Prudential Ins. Co. of Am., 948 A.2d 1285, 1289 (N.J. 2008) (citation omitted). Two sets of license agreements are in dispute, those before and those after 2007. Each is the subject of a distinct question. For the pre-2007 agreements, the question is whether it was ambiguous that they permitted licensees – i.e., Avaya customers – to provide access to ISPs. The post-2007 agreements unambiguously barred giving such access, but it is disputed whether Avaya’s customers actually entered into those agreements. We conclude that, for both sets of 37 agreements, Avaya presented sufficient evidence to at least create disputes of material fact, so that those questions should have been answered by the jury, not the Court. In ruling that PBX license agreements unambiguously gave purchasers a right to use maintenance commands and to provide access to third parties, the District Court relied on language from the “Purchase/Service Agreement.” The Court’s conclusion was based on a provision in “[l]icensing agreements used from 1990 to 2003,” which “granted the purchaser ‘a personal, non-transferable and non-exclusive right to use ... all software and related documentation furnished under this agreement.’” (J.A. 204 (quoting license agreement, an example of which is at J.A. 5856).) In the District Court’s reading, that language gave Avaya PBX customers a “personal ... right” to use MSPs, which the Court viewed as “software ... furnished under this agreement.” In the Court’s view, that right to use MSPs extended to the customer’s maintenance provider, whether an employee or an independent contractor such as TLI.22 22 In 2003, Avaya updated the agreements. It left the quoted language in place but added a new clause stating that the “[c]ustomer will make the Software available only to employees, contractors, or consultants with a need to know, who are obligated to comply with all license restrictions contained in the Agreement and to maintain the secrecy of the Software.” (E.g., J.A. 5241.) The District Court interpreted the language about “contractors[] or consultants” to be “consistent with the ... construction of licensing agreements that allow third-party use for the licensee’s benefit.” (J.A. 205 n.26.) It therefore considered that contract term to be evidence that PBX owners were permitted to use independent 38 Avaya challenges the District Court’s interpretation of those agreements, arguing that the MSPs required to perform maintenance were not in fact “furnished under” the Purchase/Service Agreement, so that customers did not have a “right to use” them. (Opening Br. at 30.) Instead, MSPs were “licensed separately through an MSP Addendum ... or Maintenance Assist agreement.” (Id.) “Avaya delivered new equipment with MSPs turned off, enabled them only if customers signed a separate ... agreement, and disabled them if that agreement expired.” (Id.) Although customers could maintain their PBX systems without MSPs, it was “just not as efficient” to do so without the remote access that MSPs allowed (J.A. 1995) – hence the value of executing an agreement to activate MSPs. We do not need to answer who has the better reading of the contracts because, at a minimum, they are ambiguous, and the District Court erred in ruling that Avaya’s reading is untenable. MSPs may have been embedded in the software given to customers, but customers’ ability to access them required a separate purchase from Avaya. If the District Court’s interpretation were correct, then any time a customer downloaded a piece of software that had components requiring additional payment and permissions, courts would treat the entire software and all its components as having been “furnished” to the customer in the original purchase. That is questionable, and the contrary interpretation is, at the very least, plausible. Moreover, given that Avaya’s business model was dependent on selling base equipment and then licensing and enabling additional features such as MSPs, the contractors for maintenance and to provide them with system access. 39 conclusion that those features were unambiguously meant to be “furnished” in the base purchase is far from clear. As Avaya points out, “[h]undreds of self-maintenance customers paid Avaya for ... access commands,” which would “make no sense if the Purchase/Service Agreements already entitled customers” to them. (Opening Br. at 32.) Avaya, its customers, and even TLI did not read the agreements that way before the lawsuit, and the District Court erred in declaring that the terms were unambiguously contrary to all the parties’ understandings. Avaya also notes that in 1999, the agreements were modified to include a provision that a customer “will not enable or attempt to permit any third party to enable software features or capacity (e.g. additional storage hours, ports, or mailboxes) which Avaya licenses as separate products without Avaya’s prior written consent.” (J.A. 205 n.24.) Based on that language, Avaya argues that customers were barred from allowing an ISP to enable features, such as MSPs, without Avaya’s consent. The District Court, however, did not consider that provision to apply to MSPs. It read the list of enumerated examples – “storage hours, ports ..., and voice mailboxes” – to be “clearly incongruous” with MSPs. (Id.) Accordingly, the Court ruled that MSPs were unambiguously not a “feature[] or capacity” subject to the provision’s restrictions. For much the same reasons that we disagree with the District Court’s construction of the “furnished under” language, we also conclude that it was improper to determine that terms “features or capacit[ies]” were unambiguous and did not apply to MSPs. Storage hours, additional ports, and mailboxes are some examples of the add-ons that Avaya 40 licensed separately, but MSPs and ODMCs that provided remote maintenance access might rationally be viewed by a jury as being just as much “features” that enhance a customer’s use of a PBX system.23 Not only did customers’ behavior provide some corroboration of Avaya’s interpretation of the contract, TLI’s did as well. If the agreements unambiguously permitted customers to give TLI access to MSPs, there would have been little reason for its secretive efforts to gain maintenance access. Indeed, Scott Graham was asked at trial whether he “knew that MSPs were not part of the original sale of the PBX to the customers,” and he responded: “Yes, and that was one of the big problems.” (J.A. 2303.) In light of the imprecision of the words “features” and “capacity” and the extrinsic evidence 23 TLI argues that, in Avaya’s “detailed ‘feature’ manuals,” Avaya “did not once identify MSPs as a ‘feature.’” (Answering Br. at 84 (citing J.A. 2407).) We agree that testimony about those features manuals, and the absence of any mention of MSPs in them, would be relevant for the jury to consider in interpreting the meaning of the 1999 modifications. But, as an Avaya system engineer put it at trial, the PBX software is “able to do a vast number of things,” and customers could pick and choose which “aspects of the software” to purchase. (J.A. 1886.) That Avaya chose to highlight more glamorous capacities in its features manuals – instead of intermediate commands and functions that allowed remote-access maintenance – does not foreclose a jury determination that such access was indeed a feature of the product. Given that so few customers performed their own maintenance, that lack of emphasis may make perfect sense to a jury. 41 supporting Avaya’s interpretation of the contract, we conclude that the District Court erred in ruling as a matter of law that the 1999 additions to Avaya’s PBX contracts unambiguously did not apply to MSPs. Having resolved that the District Court erred in construing the pre-2007 customer contracts to be unambiguously contrary to Avaya’s interpretation, we turn to the post-2007 agreements.24 The District Court acknowledged that the 2007 version of the licensing agreement clearly “obligated the purchaser to refrain from using a third-party maintenance provider,”25 but it ruled that “Avaya did not introduce any evidence indicating that [TLI’s] 24 The District Court made note of the fact that only “eight out of [TLI’s] 470 customers purchased their PBXs in 2007 or after,” and that the 2007 contract modification “came into existence well after Avaya initiated the instant suit in June of 2006.” (J.A. 206-07 n.27.) Although allegedly unlawful access to post-2007 systems may not have been a large contributor of TLI’s business or the motivation for Avaya’s suit, that goes to the question of damages, not liability. 25 The agreement provided that the “[c]ustomer agrees not to ... allow any service provider or third party, with the exception of Avaya’s authorized channel resellers and their designated employees ... to use or execute any software commands that cause the software to perform functions that facilitate the maintenance or repair of any Product except that a service provider ... may execute those software commands that ... would operate if ... [MSPs] were not enabled or activated.” (J.A. 7283.) 42 customers signed such a licensing agreement, and consequently this iteration of the agreement cannot be used to prove that [TLI’s] customers were prohibited from granting TLI[] access to the ODMCs on their PBXs.” (J.A. 206.) Again, the Court was wrong. Avaya did present sufficient evidence to establish a dispute of material fact, which should have gone to the jury. The form agreement itself was in evidence, and an Avaya employee testified that the standard form agreements as of 2008 included the specific reference restricting use of MSPs. That employee also explained that the forms were crafted by a “forms committee” that ensured that uniform terms and conditions were “incorporated into the templates,” which were then incorporated into “procedures under which [Avaya] used form agreement[s]” for PBX equipment, software, and maintenance sales. (J.A. 2615.) Given the evidence of Avaya’s centralized form-drafting procedure, an example of an actual prototypical form, and examples of earlier generations of forms that were in fact signed by customers, a jury could have reasonably found that the post-2007 form agreements were in fact reflective of PBX purchasers’ license obligations. It was thus improper for the District Court to resolve the question as a matter of law rather than leave it to the jury. 43