Opinion ID: 36872
Heading Depth: 2
Heading Rank: 2

Heading: the district court's exclusion of parol evidence

Text: 29 In determining whether the district court committed reversible error by prohibiting Rodriguez from introducing parol evidence to explain the meaning of the Sole Discretion Clause of the Separation Agreement, we encounter two separate standards. On the one hand, interpretations of a contract and determinations of ambiguity are questions of law, which we review de novo. This includes a review of the district court's determination whether the contract is ambiguous. 12 On the other hand, a district court's evidentiary ruling is generally reviewed for abuse of discretion, and we reverse only when the evidentiary ruling affects a party's substantial rights. 13 As we here conclude that the district court's evidentiary ruling was predicated on, and a corollary of, its construction of the contract as unambiguous, we review this decision de novo. If we conclude de novo that the district court erred as a matter of law in ruling that the Sole Discretion clause is not ambiguous, it will follow that the district court's subsequent grant of Dell's motion in limine must necessarily be an abuse of discretion. 14 30
31 Section B(3)(ii) of the Separation Agreement, called the Sole Discretion Clause by the parties, allows Dell to terminate these Transition Agreements with immediate effect if Dell has determined, in Dell's sole discretion, that [Rodriguez's] conduct is creating, or has created, a negative impact on Dell or on Dell's reputation in the Spanish market and Dell has provided [Rodriguez] with written notice of such negative impact (emphasis added). In ruling on Dell's motion for partial summary judgment, the district court stated: 32 Rodriguez argues that the Separation Agreement's sole discretion clause only applies to his performance as a consultant and not his previous conduct as a Dell employee. Unfortunately for Rodriguez, this theory contradicts the plain language of the agreement. The Separation Agreement covers past behavior when it states that if Rodriguez' conduct is creating, or has created, a negative impact on Dell, Dell may terminate the agreement and withhold any stock that was going to be released pursuant to the agreement. Rodriguez attempts to overcome the plain language of the Separation Agreement by offering parol evidence including deposition testimony and email correspondence. The Court, however, cannot look to parol evidence for the purpose of creating ambiguity.... The Court, therefore, finds that the plain language of the contract allowed Dell to look to Rodriguez' past conduct as a Dell employee in determining whether he had created a negative impact on Dell. 33 (emphasis added). The district court subsequently granted Dell's motion in limine, prohibiting Rodriguez from introducing any parol evidence to interpret the Separation Agreement. 34 On appeal, Rodriguez's first contention is that the district court erred in ruling that the Separation Agreement's Sole Discretion clause unambiguously permitted Dell to terminate Rodriguez's severance rights based on conduct that occurred either (1) before execution of the Separation Agreement (while Rodriguez was employed as Dell's managing director) or (2) after its execution (while Rodriguez would be serving as a consultant to Dell). It is evident from the above-quoted ruling that the district court placed dispositive importance on the presence of the words has created in the Sole Discretion clause. 35 Rodriguez maintains that the Sole Discretion clause only refers to Dell's right to terminate these Transition Arrangements, which addresses his future role as consultant. Rodriguez further contends that the Separation Agreement provides for the structured, periodic release of stock options, with the release of the shares corresponding to Rodriguez's two different roles. He insists that this further supports his interpretation of the Sole Discretion clause as applicable only to his conduct as consultant on a going-forward basis. 36 Rodriguez thus argues that the district court's ruling — that the Sole Discretion clause was unambiguous as a matter of law — was error. He charges that the term has created covers only those circumstances in which Dell learns of prior actionable conduct taken after Rodriguez signed the Separation Agreement. Rodriguez insists that, as the subject clause is susceptible to two reasonable but different interpretations — the one ascribed to it by the district court and the one he advances — the clause is ambiguous, entitling him to introduce parol evidence to support his interpretation. In addition to his own testimony, the key parol evidence that Rodriguez claims was improperly excluded includes (1) deposition testimony of Eric Meurice, the Dell employee who negotiated the Separation Agreement, indicating that the Sole Discretion clause was forward-looking only, and (2) an e-mail written by Nicholas Taylor (the Taylor Memo), the lawyer for Dell who drafted the Separation Agreement, noting only some penny stock as held back on good conduct conditions. 15
37 Despite the district court's clear ruling on Dell's summary judgment motion and its grant of Dell's motion in limine, Dell asserts that [n]o ruling by the trial court prevented Rodriguez from offering evidence regarding the interpretation and termination provision of the Separation Agreement. Dell's contention is constructed on four elements. 38 First, Dell argues that because the ruling (that the plain language of the contract allowed Dell to look to Rodriguez' past conduct as a Dell employee in determining whether he had created a negative impact on Dell) was in the context of a denial of Dell's motion for partial summary judgment, that ruling was merely dicta and therefore had no effect on the district court's decision, which was based on other grounds. Thus, argues Dell, the summary judgment ruling did not preclude Rodriguez from introducing parol evidence at trial to explain the Separation Agreement. 39 This contention is incorrect. The district court granted Dell's motion in limine, which was expressly predicated on the court's earlier determination that the Sole Discretion clause was unambiguous and clearly prevented Rodriguez from introducing the parol evidence in question at trial. 40 Second, Dell continues to urge that the district court's grant of Dell's motion in limine did not prevent Rodriguez from introducing parol evidence at trial, citing several examples of Rodriguez's purported introduction of extrinsic evidence regarding the interpretation of the Separation Agreement. But these cited instances do not address evidence concerning the Sole Discretion clause. In fact, a pre-trial discussion between the court and counsel confirms that both the court and Rodriguez's counsel understood that parol evidence concerning whether the Separation Agreement was exclusively forward-looking could not be presented at trial: 16 41 MR. HANTZES [Rodriguez's counsel]: We put before the court the proposition that the agreement was exclusively forward-looking and the Court rejected that after announcement [sic] of the contract and found that it was unambiguous in that regard. . . There will be other issues in that document that we intend to raise at some point that are ambiguous, so that — I understand that the Court does not want parole evidence on the issue of whether it's forward-looking versus backward-looking. But there are other issues in that document, Your Honor, which are ambiguous in my analysis of the document. 42 THE COURT: Who do you propose to ask about that? 43 MR. HANTZES: Mr. Taylor . . . 44 THE COURT: Well, I suppose that the attorneys that represent the plaintiff and counter-defendant have sufficient experience that they know how to jump up and say, `I object' if you start asking a question that they think is not calling for admissible testimony. 45 Rodriguez absolutely was prevented from introducing parol evidence during trial regarding whether the contract was exclusively forward-looking. He was not permitted to introduce the Taylor Memo: When Rodriguez tried to do so, the district court sustained Dell's objection. 46 The third element that Dell advances is that Rodriguez made no offer of proof at trial regarding the parol evidence that he sought to introduce. It is true that Rodriguez did not make an offer of proof for Meurice's deposition testimony; Rodriguez is relying on evidence he put forth in opposing Dell's summary judgment motion. Insofar as the Taylor Memo is concerned, though, Rodriguez unmistakably made an offer of proof at trial when he tried unsuccessfully to introduce the memo to impeach Taylor on the stand. 47 As explained in Mathis v. Exxon Corp. , a pre-trial objection is sufficient to preserve the error for appellate review. 17 A renewed objection at trial is no longer required to preserve error. 18 Furthermore, we have recognized that excluded evidence is sufficiently preserved for review when the trial court has been informed as to what counsel intends to show by the evidence and why it should be admitted, and this court has a record upon which we may adequately examine the propriety and harmfulness of the ruling. 19 Rodriguez explained his argument concerning the backward-looking clause in the Separation Agreement in his opposition to summary judgment, and he attached excerpts of the testimonial evidence that he proposed to introduce. His actions were sufficient to inform the trial court of the substance of his evidence and to create an adequate record for our review. 48 Dell's last element in support of its contention is that Rodriguez failed to preserve error because he failed to seek a jury instruction regarding the district court's interpretation of the termination provision. Dell contends that if Rodriguez believed that the Sole Discretion clause was ambiguous, he should have objected and requested a jury instruction asking the jury to interpret the clause. But the question [w]hether a contract is ambiguous is a question of law for the courts to decide by looking at the contract as a whole in light of the circumstances present at the time the contract was executed. 20 Only when a contract is first determined to be ambiguous may the courts consider the parties' interpretation and admit extrinsic evidence to determine the true meaning of the instrument. 21 As the district court ruled that the Sole Discretion clause was unambiguous as a matter of law, Dell's appellate contention that Rodriguez was required to seek a jury instruction on this issue to preserve error is feckless. It was the district court's ruling on Dell's motion in limine that kept the jury from hearing Rodriguez's evidence on this issue. The question whether the Separation Agreement was ambiguous is properly before us on appeal. 49

50 As stated above, if the district court erred as a matter of law in ruling that the Sole Discretion clause is unambiguous, a ruling that we review de novo, then of necessity that court's subsequent grant of Dell's motion in limine constitutes an abuse of discretion. 22
51 Texas law on contract construction and the admission of parol evidence is well-settled: 52 The primary concern of a court in construing a written contract is to ascertain the true intent of the parties as expressed in the instrument. If a written contract is so worded that it can be given a definite or certain legal meaning, then it is not ambiguous. Parol evidence is not admissible for the purpose of creating an ambiguity. 53 If, however, the language of a policy or contract is subject to two or more reasonable interpretations, it is ambiguous. Whether a contract is ambiguous is a question of law for the court to decide by looking at the contract as a whole in light of the circumstances present when the contract was entered. Only where a contract is first determined to be ambiguous may the courts consider the parties' interpretation, and admit extraneous evidence to determine the true meaning of the instrument. 54 An ambiguity in a contract may be said to be patent or latent. A patent ambiguity is evident on the face of the contract. A latent ambiguity arises when a contract which is unambiguous on its face is applied to the subject matter with which it deals and an ambiguity appears by reason of some collateral matter. 23 55 Applying these principles to the Separation Agreement and the facts of this case, Rodriguez makes a compelling argument that the Sole Discretion clause contains a latent ambiguity. 24 It is anything but pellucid whether the or has created language in the clause — which permits Dell to terminate Rodriguez if he is creating, or has created, a negative impact on Dell or on Dell's reputation in the Spanish market — is only prospective or is both retrospective and prospective. It is susceptible of either reading, both of which are reasonable. As this is the very definition of ambiguity, the district court's grant of summary judgment in Dell's favor on this point was reversible error. Rodriguez should have been allowed to submit parol evidence to the jury in an effort to convince it that his interpretation of this ambiguous clause of the contract was correct. 25 We therefore reverse the district court's ruling that the Sole Discretion clause was unambiguous and remand for further proceedings on this issue.