Vaulting & Cash Svc v. Diebold Inc

IN THE UNITED STATES COURT OF APPEALS FOR THE FIFTH CIRCUIT _______________

No. 99-30294 Summary Calendar _______________

VAULTING AND CASH SERVICES, INC., Plaintiff-Appellant,

VERSUS

DIEBOLD, INC., Defendant-Appellee. _________________________

Appeal from the United States District Court for the Eastern District of Louisiana (97-CV-3686-N) _________________________

October 22, 1999

Before SMITH, BARKSDALE, and Diebold is a major manufacturer of automated STEWART, Circuit Judges. teller machines (ATM’s); V&C is an armored car company that provides cash-handling and JERRY E. SMITH, Circuit Judge:* first-line services for ATM owners.1 In August 1995, Diebold signed a contract with Vaulting & Cash Services, Inc. (“V&C”), First National Bank of Commerce to provide appeals a summary judgment in favor of all-inclusive servicing of its ATM’s. The Diebold, Inc. (“Diebold”), in V&C’s suit contract required Diebold to provide the cash- against Diebold for breach of contract. V&C handling as well as first- and second-line contends that the district court erred in holding services on the bank’s ATM’s. Because that the contract barred V&C from recovering Diebold lacked the capability to provide cash- lost profits on showing breach of contract. handling services, it subcontracted them to Finding no error, we affirm. V&C.

I. 1 The suit arose from the termination of the There are three types of services performed on ATM Transit and Service Agreement (the ATM’s: cash-handling services; first-line services; “Agreement”) between V&C and Diebold. and second-line services. Cash-handling services consist of picking up deposits and replenishing the cash supply at the ATM’s. First-line servicing deals with paper shortages, paper jams, currency * Pursuant to 5TH CIR. R. 47.5, the court has jams, r ibbon shortages, and the like. Second-line determined that this opinion should not be servicing is generally provided by the manufacturer published and is not precedent except under the and consists of providing technical assistance and limited circumstances set forth in 5TH CIR. performing repairs that are beyond the capabilities R. 47.5.4. of the cash handlers or first-line servicers.

The Agreement specified a term of three II. years but provided that either party might V&C claims the court erred in holding terminate the contract for non-performance (1) that Clause Three unambiguously denied after thirty days’ notice. The Agreement any form of lost-profits measure of remedy; contained a “rider,” clause three of which (2) that the Agreement remained an (“Clause Three”) stated: enforceable contract, given the decision that Clause Three unambiguously denied a lost- Notwithstanding anything to the profits measure of remedy; and (3) that the contrary, in no event shall Diebold be unambiguous Clause Three should be honored liable to Subcontractor for indirect, without regard to parol evidence of the incidental, consequential or similar conditions surrounding its adoption. We damages, lost profits, [sic] lost business consider each contention in turn. opportunities, whether arising under contract, tort, strict liability or other A. form of action, even if Diebold has been V&C argues that Clause Three does not apprized of the possibility of such unambiguously deny all lost-profit measures of damages. remedy for breach of contract, and thus that parol evidence should be admitted to Diebold alleged that, from the beginning of determine the clause’s meaning. We agree the Agreement, V&C had failed to perform with the district court that this clause is not satisfactorily, and it claimed further that, from ambiguous. the first year of the Agreement, it had informed V&C of its displeasure with V&C’s The contract is not artfully drafted. quality of service without V&C’s acting to Nonetheless, the words “in no event shall remedy the situation. Finally, in October Diebold be liable to Subcontractor for . . . lost 1997, Diebold gave notice to V&C of its intent profits” establish that at least some form of to terminate the Agreement for non- lost profits are denied in a suit on contract. performance. V&C responded by suing for The only ambiguity that could possibly remain breach of contract, “bad-faith breach,” and for is whether the words “indirect, incidental, violations of the Louisiana Unfair Trade consequential or similar” modify only Practices Act (“LUTPA”). “damages,” or also “damages, lost profits, [or] lost business opportunities.” Diebold moved for summary judgment on all claims, or in the alternative on V&C’s Mere complexity of construction does not claims for lost profits and attorneys’ fees and justify a finding of ambiguity. See Ellsworth v. its claims under LUTPA. The court granted West, 668 So. 2d 402 (La. App. 4th Cir), writ this motion in part, ruling that Clause Three denied, 669 So. 2d 1212 (La. 1996). Neither unambiguously denied V&C the opportunity is a contractual provision ambiguous when to recover lost profits for breach of contract.2 two interpretations are technically possible, The court clarified that the denial of a lost- but only one is reasonable. See Texas E. profits measure of recovery applied to all lost Transmission Corp. v. Amerada Hess Corp., profits, whether “direct” or “indirect.” 145 F.3d 737 (5th Cir. 1998). Rather, a provision is considered ambiguous if susceptible to more than one reasonable meaning under the circumstance after 2 application of established rules of construction. The court denied summary judgment on the LUTPA claim and on V&C’s “bad-faith breach” See id.; see also Lloyds of London v. claim. By the terms of a partial settlement, Transcontinental Gas Pipe Line Corp., 101 however, V&C agreed to dismiss these claims with F.3d 425 (5th Cir. 1996). These established prejudice, and Diebold agreed similarly to dismiss rules of construction include the “ordinary its counterclaims. Thus, we consider only the meaning of words” and of the English breach of contract claim. language. See Slocum-Stevens Ins. Agency,

Inc. v. International Risk Consultants, Inc., reading posited by Diebold and endorsed by 666 So. 2d 352 (La. App. 2d Cir. 1995), writ the district court is applied, then Clause Three denied, 669 So. 2d 399 (La. 1996). excludes as possible items of recovery for claims on the contract all indirect, incidental, The common usages of the English and consequential (“indirect”) damages and all language render Clause Three susceptible to lost profits and all damages arising from claims one primary interpretation. As a rule, a of lost business opportunity. Under this nominative adjective modifies the noun that interpretation, each of the phrases in the clause most closely follows it; the lack of a comma carries independent meaning. between the final adjective of a series and the noun following that series indicates that the If, on the other hand, V&C’s interpretation series mo difies the noun immediately is followed, then the phrases “lost profits” and following.3 When a writer intends an “lost business opportunities” become adjectiveSSand especially an adjectival surplusage, because, if modified by “indirect” seriesSSto modify a series of nouns following to mean “indirect lost profits” and “indirect the adjective(s), he so signals by insertion of a business opportunities,” then each is wholly colon or other separator between the adjectival subsumed in the already stated universe of and nominative series to indicate the unusual “indirect damages.” Moreover, by V&C’s usage.4 Lacking such a signal, the Third own admission, the phrase “indirect lost Clause should be subjected to the primary, profits” is doubly meaningless because, as a common-usage reading: that the adjectival matter of law, lost profits are always series “indirect, incidental, consequential or considered direct damages in breach-of- similar” modifies “damages” merely, and not contract actions; thus a contract provision the entire series of nouns following the forbidding recovery of “indirect lost profits” adjectives. would forbid recovery of, by legal definition, a null set.6 Reason thus seconds better Largely because the clause is poorly grammar, supporting Diebold’s and the district drafted, however, we do not rest our decision court’s reading of Clause Three: “[I]ndirect, merely on a grammatical parsing.5 Rather, we incidental, consequential or similar” modifies look also to the reasonableness of the “damages” alone, and thus the Clause denies interpretation advanced by each party. If the recovery of all lost profits.

B. 3 See BRYAN A. GARNER, T HE ELEMENTS OF V&C contends, in the alternative to its LEGAL STYLE 22 (1991); RUTH PARLE CRAIG & interpretation of Clause Three, that should the VINCENT F. HOPPER, 1001 PITFALLS IN ENGLISH district court’s interpretation be adopted, then GRAMMAR 1 (3d ed. 1986); cf. THEODORE M. the Agreement cannot be considered an BERNSTEIN, THE CAREFUL WRITER: A MODERN enforceable contract against Diebold, because GUIDE TO ENGLISH USAGE 20 (1965) (stating that it allows V&C no remedy should Diebold “intimate . . . is the relationship of an adjective to breach its obligations. We find no merit in this the noun it modifies”). contention. 4 EUGENE EHRLICH, THE BANTAM CONCISE As noted above, the district court’s HANDBOOK OF ENGLISH 166-67 (1986). interpretation of Clause Three effectively 5 denies V&C recovery of all indirect damages, Had the drafters of Clause Three followed the conventions of the English language with exactitude, they not only would have included an 6 “or” after “lost profits” but also would have See Moore v. Boating Indus. Ass’ns, 754 F.2d separated “damages, lost profits, [or] lost business 698, 717 (7th Cir. 1985), vacated on other opportunities” with semi-colons rather than grounds, 474 U.S. 895 (holding that “[l]ost profits commas. See id. at 166; BERNSTEIN, supra n.3, at are considered to be general or direct damages in a 362, 373. breach of contract case”).

lost profits, and damages for lost business its miscalculation of contractual risk opportunities. Conceptually, these denials obligation. leave, as a remedy, all direct damages that are not characterized as lost-profits damages or C. lost-business-opportuni ty damages, e.g., V&C contends that the summary judgment restitutory and recissionary measures of on the breach-of-contract question is error damages. By the language of Clause Three, because a material dispute arises with regard then, breach-of-contract damages are merely to the parol evidence surrounding the limited, not wholly denied. circumstances of the interpretation and adoption of the contract, particularly Clause V&C nevertheless argues that Louisiana Three. The parol evidence is inadmissible, law permits, as breach-of-contract recovery, however. only the damage remedies that Clause Three eliminates, thereby rendering its retained Louisiana law bars parol evidence to damage remedies nugatory. V&C contends evaluate contractual intent “[w]hen the words that LA. CIV. CODE art. 1995 indicates that of a contract are clear and explicit and lead to “the only damage for breach of this contract is no absurd consequences.”8 LA. CIV. CODE lost profits.” This, however, represents an art. 2046. Because, as we have noted, Clause unrealistic misreading of a one-sentence code Three is not ambiguous, parol evidence is not provision that reads in full: “Damages are admissible to determine intent.9 measured by the loss sustained by the obligee and the profit of which he has been deprived.” V&C contends, however, that in Louisiana, Id. (emphasis added). Thus, the code did not parol evidence must be considered because, in deny V&C the restitutory and recissionary V&C’s words, “[f]or a waiver of recoverable remedies permitted by Clause Three and did damages to be effective it must be (1) written not leave V&C without remedy.7 in clear and unambiguous terms; (2) contained in the contract; and (3) brought to the The Civil Code defines a contract as “an attention of and explained to the parties agreement between two or more parties against whom it is to be enforced” (citing whereby obligations are created, modified, or Fontenot v. F. Hollier & Sons, 478 So. 2d extinguished,” LA. CIV. CODE art. 1906, and 1379, 1386 (La. App. 3d Cir. 1985), affirmed an onerous contract (as opposed to a as amended, 491 So. 2d 624 (La. 1986); Gulf gratuitous one) as one by which “each of the parties obtains an advantage in exchange for his obligation,” id. art. 1909. The Agreement, 8 V&C contends that an “absurd consequence” then, Clause Three inclusive, does remain a as per the terms of this article would be reached by contract. Duties applied to both parties under a contract in which one party was left by the terms the Agreement, and remedies for breach of of the contract with no damage remedy in the case duty remained to each party. If V&C chose to of the other party’s breach. Because, as we have characterize its damages claims in a manner discussed above, the Agreement does not foreclose denied by the terms of the contract, or if it had all damage measures, we need not address this no damages claims other than those it agreed contention. to forego under the terms of the contract, it 9 shall not complain of its error in pleading or of V&C correctly notes that Louisiana does allow parol evidence to determine a claim of fraud against a partner in contract. See LA. CIV. CODE ANN. art. 1848; see also Harnischfeger Sale Corp. 7 See, e.g., Southwestern Eng’g Co. v. Cajun v. Sternberg Co., 154 So. 10 (1934); Broussard v. Elec. Power Co-op, Inc., 915 F.2d 972 (5th Cir. Sudrique, 4 La. 347 (1832). V&C overlooks, 1990) (allowing recovery of “unabsorbed however, that it has, by consent, dismissed all its overhead” by a company following breach of claims against Diebold except the breach-of- contract by the other contracting party that resulted contract claim, so it is not availed by this exception in the idling of the company’s plant). to the parol evidence rule.

Am. Indus. v. Airco Indus. Gases, 573 So. 2d 481, 573 (La. App. 5th Cir. 1990)). We first note that Fontenot deals not with a contractual waiver of remedies, but with a waiver of warranties by a “poorly educated” farmer. See Fontenot, 478 So. 2d at 1386. The holding of Fontenot was part ially adopted by the Gulf American court and applied, as modified, to cases of waiver of breach-of-contract remedies, but was not adopted and applied as V&C indicates.

The Gulf American court held that “[f]or a waiver of recoverable damages to be effective . . . it must be 1) written in clear and unambiguous terms; 2) contained in the contract; 3) brought to the attention of the parties against whom it is to be enforced.” Gulf American, 573 So. 2d at 489 (emphasis added). The immediately preceding sentence, however, explains that when a contract contemplates merely “a limitation on recoverable damages, . . . such an agreement must clearly indicate the intentions of the parties.” Id. (emphasis added). As we have said, Clause Three limits, rather than waives entirely, available damage remedies. Thus, the latter “clarity” standard, not the former “brought to the attention” standard, is relevant to this case.

AFFIRMED.