Court Opinion

ID: 1027817
Source: CourtListenerOpinion
Date Created: 2013-07-05 07:30:12.789427+00
Date Added: 2024-06-11T12:29:48.070402
License: Public Domain

UNPUBLISHED

                    UNITED STATES COURT OF APPEALS
                        FOR THE FOURTH CIRCUIT

                               No. 07-1820

In Re:    BNX SYSTEMS CORPORATION,

                  Debtor.

-----------------------------------

BNX SYSTEMS CORPORATION,

                  Plaintiff – Appellee,

            v.

WORLDWIDE INVESTIGATIONS AND RESEARCH, INCORPORATED,

                  Defendant – Appellant,

            and

JOHN NARDOLILLI,

                  Defendant.

Appeal from the United States District Court for the Eastern
District of Virginia, at Alexandria.   Claude M. Hilton, Senior
District Judge.    (1:07-cv-00494-CMH; BK-05-15902-RGM; AP-06-
01141-RGM)

Argued:   December 3, 2008                   Decided:   February 3, 2009

Before WILKINSON, DUNCAN, and AGEE, Circuit Judges.

Affirmed by unpublished per curiam opinion.
ARGUED: Steven Ellison, BROAD & CASSEL, West Palm Beach,
Florida, for Appellant.    Kevin M. O’Donnell, HENRY, O’DONNELL,
DAHNKE & WALTHER, P.C., Fairfax, Virginia, for Appellee.      ON
BRIEF: Stephen C. Piepgrass, TROUTMAN & SANDERS, L.L.P.,
Richmond, Virginia, for Appellant.

Unpublished opinions are not binding precedent in this circuit.

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PER CURIAM:

        The issue in this case is whether parol evidence may be

offered to prove a term not expressly stated in an integrated

contract.       The bankruptcy court and district court declined to

admit the evidence.       We affirm.

                                        I.

        The parties in this case, BNX Systems Corporation (“BNX”)

and Worldwide Investigations and Research, Inc. (“Worldwide”),

jointly       submitted   two   proposals       to    provide         computer     based

authentication services to Citibank.                 While Citibank considered

their     proposals,      Worldwide      and        BNX    engaged         in     lengthy

negotiations       over   how   to    distribute          the    possible       Citibank

revenues amongst themselves.           During these discussions, on March

22,   2002,     they   signed   a    written    Memorandum           of   Understanding

(“MOU”)    which    provided    an    intended      distribution          of    estimated

software, services, training, and maintenance revenues.

        Months later, on December 10, 2002, Citibank accepted one

of    their    proposed   projects     and     agreed      to    purchase        software

licenses and services from BNX and Worldwide in the “Agreement

for Citipass.”         Soon thereafter, on December 26, 2002, BNX and

Worldwide      executed   the   contract       at    issue      in    this     case:   the

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Disbursal of Proceeds Agreement (“DPA”). *                     The DPA provided a

detailed “Split Schedule” allocating the estimated revenues from

the   Citipass     project,   and     it    expressly        superseded          BNX’s   and

Worldwide’s prior negotiations.

      BNX    and    Worldwide       each    provided        services        to    Citibank

pursuant to the Agreement for Citipass.                     They split the Citipass

revenues in accordance with the DPA: each party received its

percentage     of     software       revenues         and     was        paid     for    the

professional services that it individually provided to Citibank.

BNX, however, did not become profitable.                      On December 8, 2005,

BNX filed for protection under Chapter 11 of the Bankruptcy Code

in    the   U.S.    Bankruptcy      Court       for   the     Eastern       District      of

Virginia.

      During the course of the bankruptcy proceedings, Worldwide

filed various proofs of claim against BNX.                          At issue in this

appeal is proof of claim #17 where Worldwide claimed it was owed

$1,625,294.29 pursuant to an agreement between the parties that

Worldwide     would    receive      15%     of    all       fees    for     professional

services    rendered    by    BNX    as    a     commission        (or    override)      for

Worldwide’s role in securing the deal –- a sort of finder’s fee.

Worldwide    admitted    that       the    15%    override         was    not    expressly

       *
       The DPA states that it “is made as of this 13th day of
December, 2002,” but Worldwide’s CEO testified, and BNX agrees,
that it was not signed until December 26, 2002.

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stated in the DPA, but sought to prove that the parties had

agreed to the override by presenting the following extrinsic

evidence:    statements   made   by       BNX    officials,    various     email

exchanges between the parties, and the MOU which provided that

Worldwide’s professional services fees would equal 15% of BNX’s

fees.

     The bankruptcy court ruled that this extrinsic evidence was

inadmissible under the parol evidence rule because the terms of

the DPA were clear, they did not include a 15% override for

Worldwide, and the DPA was an integrated agreement.                 The court

therefore    granted   summary   judgment         to   BNX    on   claim    #17.

Worldwide appealed to the U.S. District Court for the Eastern

District of Virginia which affirmed “on the sound reasoning” of

the bankruptcy court.     JA 628.         Worldwide appeals the district

court’s decision, and we review the grant of summary judgment de

novo.   See In re French, 499 F.3d 345, 351 (4th Cir. 2007).

                                  II.

    Virginia law governs the DPA by express provision in the

agreement.    The Virginia Supreme Court has emphasized that the

parol evidence rule “has nowhere been more strictly adhered to

in its integrity than in Virginia.”             Jim Carpenter Co. v. Potts,

495 S.E.2d 828, 832 (Va. 1998) (quoting Pulaski Nat’l Bank v.

                                      5
Harrell, 123 S.E.2d 382, 387 (Va. 1962)).             In explaining the

parol evidence rule the court stated:

     In Virginia, no general rule seems to be better
     settled than that, in controversies between two
     parties to a contract, parol evidence of prior or
     contemporaneous oral negotiations or stipulations is
     inadmissible to vary, contradict, add to, or explain
     the terms of a complete, unambiguous, unconditional,
     written instrument.

Godwin v. Kerns, 17 S.E.2d 410, 412 (Va. 1941); see also Va.

Elec. and Power Co. v. N. Va. Reg’l Park Auth., 618 S.E.2d 323,

326-27 (Va. 2005) (quoting Godwin).

     This rule prohibits exactly what Worldwide attempts to do

here.   Worldwide seeks to admit evidence of negotiations that

took place prior to the execution of the DPA to prove that it is

entitled    to   15%   of   BNX’s   professional   services   fees   as    an

override.    This evidence is inadmissible.

     By its own terms, the DPA is a complete and integrated

written agreement: it “contains the entire agreement among the

Parties relating to the subject matter herein” and supersedes

prior negotiations “including without limitation the MOU.”                The

alleged 15% override is nowhere to be found in the DPA.                    As

BNX’s counsel put it, “[the DPA] does not make that specific

statement,” and “the document does not say on its face this

particular language.”       Supplemental JA 24.

     In fact, the alleged 15% override directly contradicts the

unambiguous terms of the DPA.         With respect to the allocation of

                                      6
professional services fees, the DPA provides that each party

will receive a “professional services prepayment” due when the

agreement is executed and states:

     Each Party will then have their professional services
     hours approved by Citibank. [BNX] will be the billing
     party and each Party will be compensated for approved
     hours at the actual amount billed, less a credit for
     their prepayment amount above, as follows: [lists
     daily rates for various professional services]

Worldwide’s claimed 15% override contradicts the clear statement

that “each party will be compensated for approved hours at the

actual amount billed.”

     Worldwide      argues       that     this    allocation    of    professional

services     fees      is     ambiguous    and    therefore    the    evidence    is

admissible to explain its meaning.               See, e.g., Prospect Dev. Co.

v. Bershader, 515 S.E.2d 291, 296 (Va. 1999) (an integration

clause does not bar parol evidence to explain ambiguities in a

contract).       This is simply an attempt to create ambiguity where

none exists.        The attempt fails because the provision has a

plain    meaning    and      “[p]arol     evidence   cannot    be   used   to   first

create an ambiguity and then remove it.”                Cohan v. Thurston, 292

S.E.2d 45, 46 (Va. 1982).            Moreover, Worldwide’s claim that this

contract term is ambiguous is belied by the fact that Worldwide

itself performed in accordance with the plain meaning of the

contract, rather than the meaning it now asserts.                          Worldwide

claims     the   MOU        represents    the    true   agreement     between    the

                                            7
parties, but Worldwide did not share its professional services

fees with BNX as it would have been required to do under the

distribution percentages embodied in the MOU.                                   The proffered

evidence      is    therefore       inadmissible              to   prove   the       claimed    15%

override because it contradicts the unambiguous terms of the

DPA.

       Worldwide argues that the evidence is admissible to explain

various other ambiguities that it identifies in the DPA.                                    These

arguments fail because even when a contract is ambiguous, parol

evidence is not admissible to “contradict or vary the terms” of

the written contract.               Prospect Dev. Co., 515 S.E.2d at 296.                        To

cover   its     bases,      Worldwide         also      argues      that   the       evidence   is

admissible         under    all     of     the     other       exceptions       to    the   parol

evidence      rule         listed        in    Shevel’s,           Inc.    v.     Southeastern

Associates, Inc., 320 S.E.2d 339, 343 (Va. 1984).                                These claims

also    fail.         First,        even      if       the    exceptions        for    partially

integrated         agreements        or       independent          collateral         agreements

applied,      the    evidence       would        not     be    admissible       because     these

exceptions do not allow parol evidence that is “inconsistent

with the written contract” or that would “contradict or vary”

the terms of the contract.                     Id.       Second, the evidence is not

admissible under the exceptions for fraud or mistake because

there is not sufficient evidence to support a finding of fraud

                                                   8
or mistake.   Moreover, Worldwide did not raise the issue of

fraud in its original proof of claim.

     For these reasons, the judgment of the district court is

                                                        AFFIRMED.

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