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FedEx Ground Package System, Inc. v. Applications International Corp.

September 12, 2008

FEDEX GROUND PACKAGE SYSTEM, INC. PLAINTIFF/COUNTER-DEFENDANT
v.
APPLICATIONS INTERNATIONAL CORPORATION DEFENDANT/COUNTER-PLAINTIFF
v.
COMPUTER AID, INC.; FEDEX SUPPLY CHAINS SERVICES, INC.; FEDEX GROUND PACKAGE SYSTEM LTD., COUNTER-DEFENDANTS



The opinion of the court was delivered by: Gary L. Lancaster, District Judge.

MEMORANDUM and ORDER

This dispute stems from a contract between plaintiff, FedEx Ground Package System, Inc., ("FedEx" or "FXG") and defendant, Applications International Corporation ("AIC"). FedEx alleges that AIC breached a contract to develop and maintain a computer software program. FedEx also asserts claims for unjust enrichment, conversion, and declaratory judgment. In short, FedEx alleges that AIC never provided FedEx with the computer program it promised. FedEx seeks monetary, equitable, and declaratory relief.

AIC responded to FedEx's complaint by filing counterclaims against FedEx and a third party complaint against Computer Aid, Inc., ("Computer Aid"), FedEx Supply Chain Services, Inc., ("FXSCS"), and FedEx Ground Package System Ltd. ("FXG LTD") based on the same operative facts. Specifically, AIC asserts claims for copyright infringement, misappropriation of trade secrets and proprietary information, breach of contract, conversion, unjust enrichment, and declaratory judgment. In short, AIC accuses FedEx of failing to pay AIC for its work, and of later providing AIC's computer programs to another vendor without permission. AIC also seeks monetary, equitable, and declaratory relief.

As summarized below, the parties have filed six motions for partial summary judgment with respect to various claims and counterclaims. We are able to dispose of some of AIC's state law claims on legal grounds. However, due to the prevalence of disputed factual issues in this case, for the most part these motions will be denied. This matter must be submitted to a fact finder for final determination.

I. SUMMARY OF PENDING MOTIONS

First, the parties have filed cross-motions for partial summary judgment [Doc. Nos. 145 and 144] on their respective breach of contract claims. At their heart, these motions seek a determination as to which party committed the first material breach of the contract. However, because of the factual disputes surrounding this issue, and the difficulty in deciding such issues on summary judgment, both motions are denied.

AIC has also filed two other motions for partial summary judgment. AIC seeks partial summary judgment [Doc. No. 141] that the contract did not require AIC to provide a "Data Mart." AIC also seeks partial summary judgment [Doc. No. 150] that certain provisions of the contract limit AIC's liability in the event it is found to have breached the contract. Again, factual disputes prevent resolution of these issues on summary judgment.

With respect to each of AIC's counterclaims, FedEx and counterclaim defendants have filed a motion for partial summary judgment [Doc. No. 137] arguing that each counterclaim is preempted, or otherwise barred. We agree that some of the state law counterclaims are barred as a matter of law.

Finally, FedEx and counterclaim defendants have moved for partial summary judgment [Doc. No. 120] arguing that AIC's claim for attorneys' fees and/or statutory damages fails under the Copyright Act. We find that genuine issues of fact preclude entry of summary judgment on this matter.

II. BACKGROUND

Unless otherwise specifically indicated, the following material facts are undisputed. Some additional material facts are also discussed in context.

A. The Parties

FedEx is a Delaware corporation and motor carrier which provides small package pick-up and delivery services world-wide. FXSCS and FXG LTD are Ohio and Wyoming corporations, respectively. AIC is a California corporation that develops web-based enterprise and database compliance, management, and reporting systems. In addition, AIC provides project management services to implement these systems. Computer Aid is a Pennsylvania corporation that also develops computer software.

B. The Contract

In July of 2002, FedEx and AIC entered into a contract whereby AIC, in exchange for $390,000, agreed to develop and maintain a software and database product known as the Safety Compliance Management System ("SCMS"). The SCMS was intended to automate certain reporting functions of FedEx's human resources department.

The issues raised in the pending motions primarily involve the following subjects and relevant contract provisions: (1) the transfer of historical data and Invoice No. 1077; (2) the development of a "Data Mart"; and (3) confidential and proprietary information.

1. Transfer of Historical Data & Invoice No. 1077

A central controversy in this case involves the transfer of historical data and an invoice that AIC submitted to FedEx for such services. It is undisputed that AIC performed certain work to facilitate the transfer of FedEx's historical data into the SCMS by developing external interfaces and data feeds. However, as set forth below, the parties dispute the parties' responsibilities to perform such work, and the terms of payment.

The contract provides that the scope of services "is for the design, development and implementation of the [SCMS] and its software." AIC's Proposal (Exhibit A to the contract) and the FXG-High Level Requirements Document (Appendix A to the Proposal), further define the scope of the contract and refer specifically to the transfer of historical data, as does the Requirements Specification. However, none of these documents specify the roles or responsibilities of either FedEx or AIC in facilitating the transfer of historical data.

Just as the contract fails to assign the task of transferring historical data to one party, it also does not include details regarding the payment for such work. Although the contract sets forth a fixed price for "Development Work and Professional Services and Administration," it also mentions certain "discounted rates" for time associated with developing the external interfaces and facilitating the transfer of historical data. The parties never agreed on the amount of any "discounted rates" for such time.

In addition, the parties dispute when payment on invoices, and in particular Invoice No. 1077, was due. On July 1, 2003, AIC submitted Invoice No. 1077 to FedEx in the amount of $79,556.40. The invoice indicated that it was "due on receipt." The services described in the invoice were for 451 hours of "[p]rofessional services as per SCMS contract" and related to the development of external interfaces and data feeds to transfer FedEx's historical data into the SCMS. FedEx objected to the "due upon receipt" term, stating that it was unreasonable, and also claimed that such services were included within the fixed contract price of $390,000.

When FedEx failed to immediately pay Invoice No. 1077, AIC sent written notice to FedEx that it was in material breach of the contract. Despite FedEx's communications with AIC in response to that notice, on July 25, 2003, AIC purportedly terminated the contract because FedEx failed to cure the purported breach within fifteen (15) days of receiving notice of a material breach. FedEx responded to the purported termination, stating that it still viewed the contract as "remaining in force." FedEx indicated it was reviewing the documentation to support Invoice No. 1077 and expressed its desire for the parties to "complete the SCMS as soon as possible in accordance with the contract."

Despite AIC's purported termination of the contract, FedEx and AIC exchanged email communications in August of 2003 regarding payment of Invoice No. 1077. The parties do not dispute that FedEx paid Invoice No. 1077 in full in September of 2003 and that AIC accepted this payment.

2. Development of a Data Mart

After FedEx paid Invoice No. 1077 in September of 2003, another disagreement regarding the scope of the contract emerged when the parties began discussing the remaining requirements to complete the SCMS project. Specifically, FedEx contended that AIC had to develop a Data Mart. Again, in various email communications, the parties disputed whether a Data Mart was within the scope of the contract. The dispute here arises because the parties do not agree on which, if any version, of the Requirements Specification, which refers to the Data Mart, controls. One version states specifically that "the Data Mart will be developed by AIC," while another version omits the "will be developed by AIC" language. Both versions state that the Data Mart is "out of the scope of the SCMS project." Each party attempts to prove that its version of the Requirements Specification was controlling by submitting emails and deposition testimony.

3. Confidential and Proprietary Information

Finally, the parties disagree as to whether FedEx breached various provisions of the contract related to confidentiality and disclosure of proprietary information. The contract includes provisions that limit the disclosure of the subject matter in the contract, provide that all software furnished to FedEx is on a "licensed basis," and characterize the software as proprietary to AIC. The contract restricts FedEx from "distributing, transferring possession of or otherwise making available copies of the Licensed Product to any person other than FXG employees and contractors engaged in safety-related work matters, and other authorized users."

However, because FedEx did not have a functional SCMS, sometime after October 3, 2003, FedEx contacted Computer Aid to assist in completing the SCMS. FedEx permitted Computer Aid to access some portions of the SCMS. As discussed more fully in context, the parties, however, dispute the extent of this disclosure, and whether it violated the confidentiality provisions of the contract.

C. The Claims

On October 7, 2003, FedEx filed this action. FedEx has amended its complaint to allege claims for breach of contract (Count I), unjust enrichment (Count II), conversion (Count III), and declaratory judgment (Count IV). FedEx alleges that AIC is liable for, inter alia, failing to meet the agreed upon deliverables for the SCMS project, failing to complete a fully functioning SCMS or a Data Mart, and failing to support or maintain the SCMS.

In response, AIC brought claims against FedEx, and Computer Aid, Inc. AIC's Fourth Amended Counterclaim asserts the following: copyright infringement against all counterclaim defendants (Count I); misappropriation of trade secrets and proprietary information against all counterclaim defendants (Count II); breach of contract against FedEx only (Count III); conversion against all counterclaim defendants (Count IV); unjust enrichment against all counterclaim defendants (Count V); and declaratory judgment against all counterclaim defendants (Count VI).

III. STANDARD OF REVIEW

Fed.R.Civ.P. 56(c) provides that summary judgment may be granted if, drawing all inferences in favor of the non-moving party, "the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247(1986) (internal quotation marks omitted).

The mere existence of some factual dispute between the parties will not defeat an otherwise properly supported motion for summary judgment. Id. at 247-48. A dispute over those facts that might affect the outcome of the suit under the governing substantive law, i.e., the material facts, however, will preclude the entry of summary judgment. Id. at 248. Similarly, summary judgment is improper so long as the dispute over the material facts is genuine. In determining whether the dispute is genuine, the court's function is not to weigh the evidence or to determine the truth of the matter, but only to determine whether the evidence of record is such that a reasonable jury could return a verdict for the nonmoving party. Id. It is on this standard that the court has reviewed the parties' motions and responses.

IV. DISCUSSION

A. Cross-Motions for Partial Summary Judgment

- Non-Payment of Invoice No. 1077 Both parties have moved for partial summary judgment on their respective breach of contract claims. AIC has moved for summary judgment [Doc. No. 145] on the ground that FedEx's breach of contract claim fails because no contract was in effect at the time FedEx alleges that AIC breached the contract. AIC argues that FedEx materially breached the contract in July of 2003 when it failed to pay Invoice No. 1077 upon receipt, which resulted in the contract terminating at that time. According to AIC, it could not have breached the contract after July of 2003, as FedEx contends, because there was no longer a contract in effect for AIC to breach.*fn1 AIC further contends that because FedEx materially breached the contract first, AIC was not required to fulfill its duties under the contract, and no breach could result therefrom.

In response, FedEx argues that it did not materially breach the contract in July of 2003 and therefore, AIC's purported termination of the contract is of no force or effect. FedEx argues that it could not have materially breached the contract for two reasons: (1) because the contract provides that invoices must be paid within 30 days; and (2) because the charges reflected in the invoice were not incurred pursuant to the contract. Assuming that it did breach the contract by failing to pay Invoice No. 1077 upon ...


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