Court Opinion

ID: 6495268
Source: CourtListenerOpinion
Date Created: 2022-06-27 13:00:44.188623+00
Date Added: 2024-06-11T15:54:23.799100
License: Public Domain

ARMED SERVICES BOARD OF CONTRACT APPEALS
 Appeal of -                                   )
                                               )
 CiyaSoft Corporation                          )     ASBCA No. 59913-QUAN
                                               )
 Under Contract No. W91B4L-10-P-1475           )

 APPEARANCES FOR THE APPELLANT:                      W. Jay DeVecchio, Esq.
                                                     R. Locke Bell, Esq.
                                                      Morrison & Foerster, LLC
                                                      Washington, DC

 APPEARANCES FOR THE GOVERNMENT:                     Scott N. Flesch, Esq.
                                                      Army Chief Trial Attorney
                                                     MAJ Weston E. Borkenhagen, JA
                                                     CPT Timothy M. McLister, JA
                                                     LTC Gregory T. O’Malley, JA
                                                      Trial Attorneys

OPINION BY ADMINISTRATIVE JUDGE MCNULTY ON APPELLANT’S MOTION
                FOR PARTIAL SUMMARY JUDGMENT

       Before us is CiyaSoft Corporation’s (CiyaSoft) motion for partial summary
judgment. CiyaSoft seeks summary judgment regarding two legal issues, which it
describes as follows (quoted verbatim):

      1. Did the parties’ contract for 20 single-user licenses limit use to 20 unique
         single users?

      2. Is the Army absolved from liability for its failure to maintain a list of registered
         users because, by requiring the Army to keep such a list rather than imposing
         some other means of protecting its software, appellant failed to mitigate its
         damages?

(App. mot. at 2)

We partially grant the motion.
           STATEMENT OF FACTS (SOF) FOR PURPOSES OF THE MOTION

        Familiarity with our previous decision in this appeal, CiyaSoft Corporation,
ASBCA Nos. 59519, 59913, 18-1 BCA ¶ 37,084, is presumed. The following findings of
facts from that decision are restated 1 for convenience.

       1. On August 18, 2010, appellant was notified via email that Contract
No. W91B4L-10-P-1475 had been awarded to it. CiyaSoft, 18-1 BCA ¶ 37,084
at 180,510 (finding 9).

       2. The contract had a single line item number (CLIN) which described the
supplies being purchased as:

                ENGLISH DARI SOFTWARE

                FFP

                SINGLE USER BI-DIRECTIONAL ENGLISH/DARI
                SOFTWARE LICENSES

                w/1 Year Support and Maintenance

                FOB: Destination

                PURCHASE REQUEST NUMBER: KAF0L3ECE03819

        The CLIN indicated the quantity to be purchased was 20 at a Unit Price of $4,840
for a total price of $96,800. Id. (finding 10).

       3. [Appellant’s witness] testified that appellant generally protects itself from
unauthorized use of its software by requiring online registration of the software and
activation during the installation, which permits appellant to ensure that the software is
used only in accordance with the terms of the license granted. This was discussed with
the contracting officer during a telephone call made by the contracting officer prior to
contract award. Id. at 180,511 (finding 15).

        4. The contracting officer confirmed that he had called appellant shortly before
awarding the contract to confirm the price appellant had quoted and to determine whether
appellant would be able to meet the government’s needs with respect to delivery. He
testified that he had no recollection of discussing software registration and activation.

1
    Statements of Fact 1-8 herein are verbatim quotes from our previous decision, with
         internal footnotes and record citations omitted.
                                              2
The contracting officer testified that he believed he was purchasing a commercially
available, off-the-shelf product and that the government did not have the right to copy or
reproduce the software. His testimony also indicated that he had no clear understanding
of what a single user software license might entail. Id. (finding 16).

        5. Online registration requires that the user’s computer connect with appellant’s
servers. When connected, the user, as part of the installation process, must enter a
product identification number provided by appellant. Appellant’s server, if it recognizes
the number entered, will transmit an activation code to the user’s computer that activates,
i.e., permits the user to use the software. During this registration process the
identification number of the computer the software is being installed on will be
transmitted to appellant’s server. In the case of a single use license, if someone attempts
to install, activate and register the software on a second computer, appellant’s server will
know that the software has been activated and registered previously and will not transmit
the information necessary to activate this second copy. Id. (finding 17).

        6. Appellant decided to delete the online only registration requirement and
modified the software before sending it to the government to permit it to be activated
without registration. Appellant decided to do this to facilitate the government’s use of
the software on the government’s secured computers, which do not connect to the internet
and because appellant understood the software also would be used on some computers in
the field, which might not have access to the internet and because [it was] believed that
connection to the internet in Afghanistan was often problematic for computers the
government did permit to access the internet. Online registration remained possible, but
was not required to use the software. Id. (finding 18).

       7. The license was provided in three different forms. The long form license was a
written document included in the box of CDs with the CiyaTran software shipped to the
government. It stated in pertinent part:

                                   CiyaTran 4.2 License

              CiyaSoft Corporation standard software license agreement
              does not apply to this agreement: Activation is not online and
              online registration is not required.

              This is an agreement between CiyaSoft Corporation and
              Licensee, who is being licensed to use CiyaTran. The
              Licensee is the US Government and this License Agreement
              is based on a contract. The contract number is W91B4L-10-P-
              1475.

                     ....

                                             3
          2. Each installation should be activated with respective
          product ID printed on the face of the CD case and Licensee
          agrees to provide CiyaSoft Corporation with a list of
          activations, along with name or initials or computer name or
          other information to uniquely identify each activation for
          those activations that do not go through normal registration
          due to security concerns. Each License permits Licensee to
          install the Software on only one computer system. Licensee
          will not make copies of the Software or allow copies of the
          Software to be made by others.

There was also a written, short form of the agreement included on a separate piece of
paper with each CD, inside the shrink wrap surrounding the case. The short form in
its entirety, stated:

          By breaking the seal, you accept the terms of the license
          agreement for contract W91B4L-10-P-1475, CiyaTran
          Version 4.2. This CD can be used for installation on one
          computer system only. Each installation should be activated
          with the respective product ID printed on the face of the CD
          case. This CD should not be copied into another CD, hard
          disk or any other storage device. If [t]his CD is defective,
          contact CiyaSoft Corporation for a replacement. We will pay
          for the cost of sending a replacement CD.

Appellant’s witness . . . described the shrinkwrap form of the license agreement as
being typical for software he has installed. Finally, the software installation wizard
used during the installation process included a clickwrap form of the license
agreement. During the installation process a window opened on the computer’s
screen in which the following appeared:

          License Agreement

          CiyaSoft Corporation Standard license agreement does not
          apply to this agreement.

          This is an agreement between CiyaSoft Corporation and
          Licensee, who is being licensed to use CiyaTran. The
          Licensee is the US Government and this License Agreement
          is based on a contract. The contract number is W91B4L-10-
          P-1475.

                                          4
The software could not be installed and used unless the user agreed to the licensing
agreement by clicking on the acceptance button and entered the correct product key
number that was unique to the copy of the software being used. What appeared in the
window however does not indicate what the terms of the license agreement are. Most
notably, it does not indicate that the license is a single use license. The record does not
indicate whether the terms of the agreement were accessible within the software itself by
clicking on another button during the installation process. Id. at 180,512 (finding 22).

        8. [A witness] testified that an employee from Mission Essential Personnel
(MEP), which provided translation services to the government in Afghanistan, installed
CiyaTran 4.2 software on his computer in 2012, while he was working for another
company, Worldwide Language Resources, providing translation/interpretation services
to the government. He observed the employee from MEP installing the software on
multiple MEP and Worldwide Language Resource employees’ laptops. He was certain
the installer was not a government employee, but rather was an employee of MEP. It was
not clear from his testimony whether it was the same copy of the software that he
witnessed being installed on multiple computers. Nor was it established from his
testimony how many copies were installed, particularly whether more than 17 copies
were involved. In response to a government interrogatory, appellant identified, by name,
five managers from the translation services contractors the witness had worked for in
Afghanistan that he claimed had copies of appellant’s software. Appellant elected not to
provide any testimony or other evidence from these individuals. Id. at 180,513-14
(finding 30).

                             POSITIONS OF THE PARTIES

        CiyaSoft argues the government is attempting to re-litigate an issue decided in our
previous decision, with respect to the meaning of “20 single-user” licenses as this term is
used in the contract. CiyaSoft argues we decided this means the license can only be
installed on a single computer for one specific individual and any other use is prohibited.
(App. mot. at 6-13) The government argues the term permits more than one individual to
use the license on a single computer, and that the license permits the government to
remove the software from one computer and to subsequently install it on another
computer, so long as a single copy of the software is installed on only one computer
at any one time (gov’t mot. at 10-13, 16-19).

       With respect to the second issue, CiyaSoft argues that there is no duty to foresee a
breach and take action to mitigate same prior to the occurrence of a breach (app. mot.
at 13-16). The government argues that the duty to mitigate damages extends to actions
taken before the contract is formed, so long as a breach is reasonably foreseeable (gov’t
mot. at 19-21).

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                                        DECISION

Standard of Review For Summary Judgment

        The standard of review for summary judgment is well established, having been
stated many times. We grant summary judgment only if there is no genuine issue as to
any material fact, and the moving party is entitled to judgment as a matter of law. Aegis
Defense Services, LLC d/b/a Garda World Federal Services, ASBCA No. 62442 et al.,
22-1 BCA ¶ 38,099 at 185,026 (citing Celotex Corp. v. Catrett, 477 U.S. 317, 322
(1986)). A material fact is one that may affect the outcome of the decision. Id. (citing
Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986)). The moving party bears the
burden of establishing the absence of any genuine issue of material fact, and all
significant doubt over factual issues must be resolved in favor of the party opposing
summary judgment. Id. (citing Mingus Constructors, Inc. v. United States, 812 F.2d
1387, 1390 (Fed. Cir. 1987)). “Once the moving party has met its burden of establishing
the absence of disputed material facts, the non-moving party must set forth specific facts,
not conclusory statements or bare assertions, to defeat the motion.” Id. (citing Pure Gold,
Inc. v. Syntex (U.S.A.), Inc., 739 F.2d 624, 626-27 (Fed. Cir. 1984)). “A genuine issue of
material fact arises when the nonmovant presents sufficient evidence upon which a
reasonable fact finder, drawing the requisite inferences and applying the applicable
evidentiary standard, could decide the issue in favor of the nonmovant.” Id. (quoting
C. Sanchez and Son, Inc. v. United States, 6 F.3d 1539, 1541 (Fed. Cir. 1993)).

The Contract Interpretation Issue

       It is true that in our previous decision we determined that the contract between the
parties was for 20 single user licenses (SOF ¶ 2). We did not make any further
determination regarding what this term means. We made no findings that determine
which of the parties’ interpretations of this term is the right one. In order for collateral
estoppel to be applicable to the quantum portion of an appeal, four elements must be
present: (1) an issue is identical to one decided during entitlement; (2) the issue was
actually litigated; (3) the determination of the issue was necessary to the entitlement
decision and (4) the party had a full and fair opportunity to litigate the issue. ADT
Constr. Grp., Inc.by Timothy Cory, Chapter 7 Trustee, ASBCA No. 57322, 15-1 BCA ¶
35,893 at 175,471 (citing Laguna Hermosa Corp. v. United States, 671 F.3d 1284, 1288
(Fed. Cir. 2012)); Jet, Inc. v. Sewage Aeration Sys., 223 F.3d 1360, 1366 (Fed. Cir.
2000). The government’s argument that it is not collaterally estopped from contesting
CiyaSoft’s interpretation of the term “single user” is correct because the second and third
elements are not present (gov’t mot. at 13-16). The appeal has been bifurcated, so we
only considered entitlement initially. It was not necessary to decide what the specific
meaning, or limitations of “single user” were as used in the license, which has significant
ramifications with respect to quantum, but little with regard to entitlement. Accordingly,
CiyaSoft’s argument that this issue has been litigated and decided is incorrect.
                                             6
        In support of its argument regarding how this term is to be interpreted, the
government contends it has evidence, which directly refutes CiyaSoft’s arguments (id.
at 2). In this regard, the government notes that “single user” is not defined in the contract
(id. at 4). Attached to the government’s opposition is a declaration from an expert
witness, who states the term “single user” license as used in the software industry does
not restrict the use of a copy of software to only a single specific user. Instead he
proffers the term is akin to a library book, which permits many people, but only one
person at a time, to use it. (Id. at ex. 1 ¶¶ 3-4). The government argues that the evidence
offered by its expert in the form of the declaration it attached as an exhibit to its response
to CiyaSoft’s motion raises issues of material fact that precludes the granting of summary
judgment on this issue. (Id. at 10-13). We agree. We find that this evidence, if we were
to find it credible and persuasive, contradicts CiyaSoft’s interpretation of the contract.
Drawing the inferences we are required to draw in favor of the government, as the non-
movant, we find that a dispute over a material fact exists with respect to the interpretation
to be given to the contract’s “single user” term. Accordingly, we deny CiyaSoft’s motion
with respect to this issue. Having decided a dispute exists regarding a material fact
relating to the interpretation of this contract term, we need not and do not consider the
government’s other arguments relating to this issue. (Id. at 17-18)

The Failure To Mitigate Damages Issue

       Failure to mitigate damages is an affirmative defense that should be pleaded in an
answer or risks being waived. Shell Oil Co. v. United States, 896 F.3d 1299, 1315-16
(Fed. Cir. 2018). See also Michael, Inc., ASBCA No. 35653, 92-1 BCA ¶ 24,412
at 121,863 (government waived affirmative defense of lack of notice by not raising it
until post-hearing brief); Northrop Worldwide Aircraft Servs., Inc., ASBCA Nos. 45216,
45877, 96-2 BCA ¶ 28,574 at 142,630-31 (failure to timely raise affirmative defense may
waive it); Board Rule 6(b) (requiring government to include in its answer any affirmative
defense). The government did not plead this affirmative defense in its answer, but this
does not conclude our analysis. The Federal Circuit has stated that failure to plead an
affirmative defense does not always result in waiver. Ultra-Precision Mfg., Ltd. v. Ford
Motor Co., 411 F.3d 1369, 1376 (Fed. Cir. 2005). Noting that the purpose of Federal
Rules of Civil Procedure, Rule 8(c), which deals with pleading affirmative defenses, is to
give an opposing party notice of the defense and a chance to respond, the court found that
the district court in the decision it was reviewing had not committed error by permitting
an unpled affirmative defense to be asserted in a motion for summary judgment because
the opposing party had had the opportunity to respond and brief the issues and there was
no unfair prejudice. Id. at 1376-77. The circumstances in that case appear to be virtually
identical to those of this appeal, where the defense was unpled, raised in response to
CiyaSoft’s motion for partial summary judgment, but CiyaSoft has had the opportunity to
respond and brief the issue in its reply. Moreover, CiyaSoft has identified no unfair
prejudice from allowing this defense now. Accordingly, we find the defense has not been
waived and consider the government’s arguments.

                                              7
        The government argues CiyaSoft is obligated to take action to mitigate damages
prior to any breach, which it failed to do when it deleted the online registration
requirement from its software; “[t]he decision by appellant to eliminate the best method
of mitigating damages in the event of a breach cannot be now held against the Army.
Similarly, the appellant’s unilateral removal of the online registration requirement cannot
equate to ‘reasonable efforts’ to mitigate damages” (id. at 20). The government relies on
VICI Racing, LLC v. T-Mobile USA, Inc., 763 F.3d 273 (3rd Cir. 2014) and 11 Corbin on
Contracts §57.11 in support of its argument. Neither supports the government’s
argument and we are not aware of any authority that requires a party to foresee the
possibility that a breach may occur and to take steps to mitigate its potential resulting
damages before a breach has actually occurred. In VICI Racing, the court ruled the
defendant had waived the defense of failure to mitigate damages by failing to plead it in
its answer. 763 F.3d at 301-02. Accordingly, the court neither considered whether the
duty to mitigate damages extends to action required prior to a breach, nor made any such
ruling. Similarly, the section of Corbin on Contracts cited by the government includes no
language supportive of the government’s argument. The RESTATEMENT (SECOND) OF
CONTRACTS indicates the duty to mitigate damages arises only upon the occurrence of
the breach, or when circumstances indicate that a breach is forthcoming; “[o]nce a party
has reason to know that performance by the other party will not be forthcoming . . . . he
is expected to take such affirmative steps as are appropriate in the circumstances to avoid
loss by making substitute arrangements or otherwise.” RESTATEMENT (SECOND) OF
CONTRACTS §350 cmt. b (1981) (emphasis added). The government has failed to point to
any circumstances existing at the time CiyaSoft elected to remove the online registration
requirement from its software that would have indicated that the government’s adherence
to the licensing agreement would not be forthcoming, which would have triggered the
duty to mitigate its potential damages.

       We find the government’s arguments unpersuasive. We agree with CiyaSoft that
the law imposes no duty to foresee a breach and to take action to mitigate any damages
that may result before performance of a contract has even begun. Accordingly, we grant
CiyaSoft’s motion with regard to this issue.

                                            8
                                    CONCLUSION

      CiyaSoft’s motion is partially denied and partially granted as set forth above.

      Dated: June 1, 2022

                                                  CHRISTOPHER M. MCNULTY
                                                  Administrative Judge
                                                  Armed Services Board
                                                  of Contract Appeals

 I concur                                          I concur

 RICHARD SHACKLEFORD                               J. REID PROUTY
 Administrative Judge                              Administrative Judge
 Acting Chairman                                   Vice Chairman
 Armed Services Board                              Armed Services Board
 of Contract Appeals                               of Contract Appeals

      I certify that the foregoing is a true copy of the Opinion and Decision of the
Armed Services Board of Contract Appeals in ASBCA No. 59913-QUAN, Appeal of
CiyaSoft Corporation, rendered in conformance with the Board’s Charter.

      Dated: June 3, 2022

                                                PAULLA K. GATES-LEWIS
                                                Recorder, Armed Services
                                                Board of Contract Appeals

                                            9