Court Opinion

ID: 68669
Source: CourtListenerOpinion
Date Created: 2010-04-26 06:35:58+00
Date Added: 2024-06-11T17:21:07.511627
License: Public Domain

IN THE UNITED STATES COURT OF APPEALS
                    FOR THE FIFTH CIRCUIT  United States Court of Appeals
                                                    Fifth Circuit

                                                 FILED
                                                                           October 1, 2009

                                       No. 08-11123                    Charles R. Fulbruge III
                                                                               Clerk

XTRIA LLC

                                                   Plaintiff - Appellant
v.

TRACKING SYSTEMS INC

                                                   Defendant - Appellee

                   Appeal from the United States District Court
                        for the Northern District of Texas

Before JOLLY, DeMOSS, and PRADO, Circuit Judges.
DeMOSS, Circuit Judge:*
       This contract case, governed by Texas law, requires the Court to determine
whether a settlement agreement between Xtria LLC (“Xtria”) and Tracking
Systems, Inc. (“Tracking Systems”) is ambiguous. Because the district court
erroneously concluded that the agreement is ambiguous, we reverse and remand.
                                              I.
       Tracking Systems sold Xtria a data management system known as the
eLiens Notification System. As part of their sales agreement, Xtria agreed to

       *
         Pursuant to 5TH CIR . R. 47.5, the court has determined that this opinion should not
be published and is not precedent except under the limited circumstances set forth in 5TH CIR .
R. 47.5.4.
                                  No. 08-11123

pay Tracking Systems a portion of any profit Xtria received if it resold the eLiens
system. Later, in an effort to market the eLiens system, Xtria entered into a
sales representation agreement with Tracking Systems’ affiliate International
Insurance Alliance, Inc. (“IIAI”). Pursuant to their agreement, IIAI was to act
as Xtria’s non-exclusive sales agent in exchange for commissions.
      In 2005, Xtria sold the eLiens system, triggering Xtria’s obligation to pay
Tracking Systems a portion of the profits. A dispute soon arose between the
parties as to the amount Xtria owed pursuant to their sales agreement. After
mediation, the parties entered into a “Settlement Agreement and Release” (the
“Settlement Agreement”). That agreement is the subject of this dispute.
      Under the Settlement Agreement, “TSI” released, covenanted not to sue
and forever discharged Xtria “from and against all manner of action . . . relating
to or arising from (i) the TSI-Xtria Agreement, and/or (ii) any oral or other
written agreement between TSI and Xtria entered into prior to the Effective
Date.” TSI was defined under the agreement to include Tracking Systems and
its affiliates. However, only Tracking Systems and Xtria were parties to the
agreement.
      After the effective date of the Settlement Agreement, IIAI filed an
arbitration proceeding against Xtria alleging that Xtria breached their sales
representative agreement. Xtria demanded that Tracking Systems cause IIAI
to dismiss the arbitration pursuant to the Settlement Agreement. Tracking
Systems refused. Consequently, Xtria sued Tracking Systems for breach of the
Settlement Agreement.
      In its complaint, Xtria reasoned that because IIAI was an affiliate of
Tracking Systems, the Settlement Agreement released Xtria from all liabilities
arising from the agreement between Xtria and IIAI and provided a covenant that
IIAI would not sue Xtria. Xtria alleged that Tracking Systems breached the
Settlement Agreement by allowing IIAI to initiate and maintain the arbitration

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proceeding against Xtria. Tracking Systems moved to dismiss alleging that
Xtria stated a claim against IIAI but had failed to state a claim for breach of
contract against Tracking Systems. Tracking Systems surmised that it had no
duty under the contract to prevent IIAI from initiating a suit against Xtria. In
deciding the motion to dismiss, the district court determined that the Settlement
Agreement was ambiguous. The court found that the Settlement Agreement
could be construed to impose an obligation on Tracking Systems to prevent IIAI
from initiating or maintaining an arbitration proceeding. But, the agreement
could also be construed to provide a defense for Xtria against any claim by IIAI,
rather than an affirmative obligation on Tracking Systems to control its affiliate.
      The matter proceeded to a bench trial to determine whether the parties
intended for Tracking Systems to prevent its affiliates from initiating, or to
cause its affiliates to dismiss, a suit against Xtria. The district court found that
Xtria failed to prove that the parties intended for Tracking Systems to control
IIAI and thus, failed to prove breach of the Settlement Agreement.            Xtria
appealed the district court’s judgment in favor of Tracking Systems.
                                        II.
      The question before the Court is whether the Settlement Agreement
between Xtria and Tracking Systems is ambiguous. “Whether a contract is
ambiguous is a question of law for the court to decide.” Barnard Constr. Co. v.
City of Lubbock, 457 F.3d 425, 428 (5th Cir. 2007) (citing Coker v. Coker, 650
S.W.2d 391, 394 (Tex. 1983)). Accordingly, we review the question of whether
the contract is ambiguous de novo. Id. at 427.
      Settlement agreements are subject to the general principles of contract
construction. See Texas v. Am. Tobacco Co., 463 F.3d 399, 407 (5th Cir. 2006).
In interpreting a contract, a court’s primary concern is ascertaining the parties’
intent. Nat’l Union Fire Ins. Co. v. CBI Indus., Inc., 907 S.W.2d 517, 520 (Tex.
1995). If a contract “is so worded that it can be given a certain or definite legal

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                                  No. 08-11123

meaning or interpretation, then it is not ambiguous and the court will construe
the contract as a matter of law.” Coker, 650 S.W.2d at 393. However, when the
language in the contract is “susceptible to two or more reasonable
interpretations” an ambiguity exists. Enter. Leasing Co. of Houston v. Barrios,
156 S.W.3d 547, 549 (Tex. 2004) (citing Am. Mfrs. Mut. Ins. Co. v. Schaefer, 124
S.W.3d 154, 157 (Tex. 2003)). Only when an ambiguity exists may the court
consider parol evidence to determine the parties’ true intent. Nat’l Union Fire
Ins., 907 S.W.2d at 520.
      An ambiguity in a contract can be either “patent” or “latent.” A
      patent ambiguity is evident on the face of the contract while 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. If a latent
      ambiguity arises, parol evidence is admissible for ascertaining the
      true intentions of the parties as expressed in the agreement. The
      classic example of a latent ambiguity cited by a variety of
      authorities is a contract that calls for goods to be delivered to the
      “green house on Pecan Street” when there are, in fact, two or more
      green houses on Pecan Street.

Am. Tobacco Co., 463 F.3d at 409 (internal citations and quotations omitted).
                                       III.
      In the instant case, the district court in essence held that a latent
ambiguity existed as to what obligations Tracking Systems assumed under the
Settlement Agreement.      Specifically, the court found that when applied to
Tracking Systems’ affiliates the agreement could be read to either (1) obligate
Tracking Systems to control its affiliates or (2) provide a defense in the event
that an affiliate sued Xtria.
      The pertinent langauge is as follows:

      1.3  Tracking Systems, Inc.: The term “TSI” means the Nevada
      Corporation, . . . its past, present and future affiliates and their
      predecessors and successors . . . and any companies, affiliates,

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                                 No. 08-11123

      corporations, entities or associations that it does or may hereafter
      own, control, operate, manage or direct.

      3.1   Release by TSI:

      3.1.1 TSI does hereby release, remise, covenant not to sue and
      forever discharge: (a) Xtria . . . as follows: from and against all
      manner of action . . . relating to or arising from (i) the TSI-Xtria
      Agreement, and/or (ii) any oral or other written agreement between
      TSI and Xtria entered into prior to the Effective Date.

      Having reviewed the Settlement Agreement as a whole, we believe that
the Settlement Agreement is not latently ambiguous. Tracking Systems and
Xtria are the only parties to the agreement. Under the agreement, Xtria agreed,
among other things, to pay Tracking Systems in exchange for Tracking Systems’
assurance that “TSI” would release and covenant not to sue Xtria. Tracking
Systems made an unqualified, unconditional promise that its affiliates would
release Xtria and not sue relating to any previous agreement made between
Xtria and Tracking Systems’ affiliates. Although the agreement is silent as to
how Tracking Systems might fulfill its commitment (e.g. control its affiliates)
or how a breach of the agreement may be remedied (e.g. an affirmative defense
may be raised in response to an affiliate’s suit, or indemnification by Tracking
Systems), the agreement is not ambiguous as a result of the silence. Imprecision
is not tantamount to ambiguity. See Landry’s Seafood Rests., Inc. v. Waterfront
Cafe, Inc., 49 S.W.3d 544, 549 (Tex. App.—Austin 2001, pet. dism’d). Whether
the parties intended a certain course of performance or remedy for breach is
irrelevant because the promise by Tracking Systems can be fulfilled without
further clarification. Accordingly, the agreement is not latently ambiguous. See
Ludwig v. Encore Med., L.P., 191 S.W.3d 285, 290 (Tex. App.—Austin 2006, pet.
denied) (a latent ambiguity exists “when the contract appears to convey a

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                                     No. 08-11123

sensible meaning on its face, but it cannot be carried out without further
clarification”).
       Tracking Systems urges us to hold that either Tracking Systems did not
assume an obligation under the Settlement Agreement to control its affiliates or
the agreement is ambiguous as to whether Tracking Systems assumed such an
obligation. To support its argument, Tracking Systems points to the lack of an
explicit provision obligating Tracking Systems to control its affiliates or any
provision indicating that Tracking Systems was acting on behalf of its affiliates.
Tracking Systems further argues that it “would not make sense” that Tracking
Systems would obligate itself to control affiliates whose activities it could not
direct.
       Tracking Systems’ arguments are unavailing. We do not hold that the
Settlement Agreement explicitly obligated Tracking Systems to control its
affiliates.   Rather, we conclude that Tracking Systems promised that its
affiliates would not sue Xtria. One who promises to “produce a result for which
it is necessary to obtain the co-operation of third persons” generally assumes the
risk that the third party may not comply.                 Toyo Cotton Co. v. Cotton
Concentration Co., 461 S.W.2d 116, 118 (Tex. 1971) (quoting 6 C ORBIN ON
C ONTRACTS § 1340 (1962)). Although it may be unwise to covenant on behalf of
an entity one cannot actually control, an agreement should be enforced as
written, “without regard to whether [the parties] contracted wisely.” CMS
Partners,     Ltd.   v.   Plumrose   USA,       Inc.,   101 S.W.3d 730,   733   (Tex.
App.—Texarkana 2003, no pet.).
                                         IV.
       For the reasons set forth above, we reverse the district court’s
determination of ambiguity and remand to the district court for further
proceedings on the issues of breach and damages.
       REVERSED AND REMANDED.

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