Intergraph Corp.. v. Bentley Sys. Inc.

• Decision Date: 10 September 2010
• Docket Number: 1080300 and 1080405.
• Citation: 58 So.3d 63
• Parties: INTERGRAPH CORPORATION et al.v.BENTLEY SYSTEMS INCORPORATED and Bentley Systems Europe B.V.Bentley Systems Incorporated and Bentley Systems Europe B.V.v.Intergraph Corporation et al.
• Court: Alabama Supreme Court

58 So.3d 63

INTERGRAPH CORPORATION et al.

v.BENTLEY SYSTEMS INCORPORATED and Bentley Systems Europe B.

v.Bentley Systems Incorporated and Bentley Systems Europe B.

v.v.Intergraph Corporation et al.

1080300 and 1080405.

Supreme Court of Alabama.

March 12, 2010.As Modified on Denial of Rehearing Sept. 10, 2010.

G. Bartley Loftin III, Walter A. Dodgen, and Christopher S. Kuffner of Maynard, Cooper & Gale, P.C., Huntsville; and David V. Lucas and Anthony P. Zana, Intergraph Corporation, Madison, for appellants/cross-appellees Intergraph Corporation et al.M. Christian King, William H. Brooks, and Ivan B. Cooper of Lightfoot, Franklin & White, L.L.C., Birmingham; and Barry L. Refsin of Hangley Aronchick Segal & Pudlin, Philadelphia, Pennsylvania, for appellees/cross-appellants Bentley Systems Inc., and Bentley Systems Europe B.V.MURDOCK, Justice.

Intergraph Corporation and its subsidiaries (“Intergraph”) appeal from a judgment of the Madison Circuit Court in its declaratory-judgment action against Bentley Systems Incorporated and Bentley Systems Europe B.V. (“Bentley”). Bentley cross-appeals from the Madison Circuit Court's disposition of its breach-of-contract counterclaim against Intergraph. In both the appeal and the cross-appeal, we affirm in part and reverse in part.

I. Facts and Procedural History

This is the second time this complex case has come before this Court for disposition. In the first appeal, Bentley Systems, Inc. v. Intergraph Corp., 922 So.2d 61 (Ala.2005) (“ Bentley I ”), we reversed the trial court's judgment and remanded the case, ordering that live testimony was required to resolve several disputed issues and suggesting that the trial court appoint a special master to preside over the new proceeding. Because a detailed summary of the background to this dispute was provided in Bentley I, we quote extensively from that opinion at the outset, and we use the terms defined therein as defined terms in this opinion:

“Bentley and Intergraph entered into an asset purchase agreement (‘the APA’) whereby Bentley purchased three software product lines from Intergraph. The product lines, known as the Civil, Raster, and Plotting (hereinafter referred to as ‘CRP’) products, are software applications used by architects and engineers to prepare documents such as diagrams and blueprints. In conjunction with the sale, Bentley executed a promissory note in favor of Intergraph that was subject to future adjustments based upon the amount of certain revenues generated from the CRP products.

“In addition to the CRP products, Intergraph transferred to Bentley a portfolio of maintenance agreements with its CRP customers and the exclusive right to convert those Intergraph agreements to maintenance agreements with Bentley. Maintenance agreements entitle users to product support and free upgrades. For products like the CRP products, which are geared to professionals, maintenance agreements represent an important recurring stream of revenue for software companies like Bentley and Intergraph.”

“ B. The Partners

“Bentley Systems is a Delaware corporation; its principal place of business is in Exton, Pennsylvania. It is the parent corporation of Bentley Systems Europe, a Netherlands corporation and the principal subsidiary through which Bentley does business in foreign countries. According to the facts stipulated to by the parties, ‘Bentley is a developer of professional software products that it licenses to architects and engineers to design buildings and other public projects.’ Bentley's principal product is MicroStation, a computer-aided design software program. Many of Bentley's other software products, including most of the CRP products acquired from Intergraph, require MicroStation in order to operate.

“Intergraph Corporation is a Delaware corporation; its principal place of business is in Huntsville, Alabama. Intergraph Corporation is the parent corporation of [several foreign subsidiaries]. According to the parties' stipulated facts, ‘Intergraph's business includes providing technical software products for process and power, utilities, communications, mapping and geographical information systems, photogrammetry, and public safety.’ In essence, Intergraph provides software for various technology-intensive industries.

“ C. The APA

“In November 1999, Intergraph and Bentley first discussed the sale of Intergraph's CRP products to Bentley. Because most of Intergraph's CRP products run on Bentley's MicroStation, the majority of Intergraph's CRP users were also existing Bentley customers, and the parties were confident that Bentley would be able to acquire substantially all of the CRP maintenance income stream within the year following the closing on the sale.

“After signing a letter of intent on April 20, 2000, negotiating the terms of the contract for several months, and postponing the closing several times, the parties closed Bentley's purchase of the CRP products and maintenance agreements from Intergraph with the execution of the APA on December 26, 2000. Intergraph represented in the APA that of the $34 million in total revenue from its CRP products in 1999, $20 million was derived from maintenance on the products. The purchase price for the CRP products consisted of (1) a cash payment by Bentley in the amount of $13,462,728; and (2) a promissory note executed by Bentley dated as of December 1, 2000. The amount of the cash payment is not at issue in this case. The note was given a preliminary value of $11,087,112 at the time of the closing and was to be adjusted based upon Bentley's success in transitioning the Intergraph maintenance agreements to Bentley's maintenance program called SELECT.

“At the closing, Intergraph transferred all of its property rights in the CRP products to Bentley. All authority to sell new licenses for CRP products and to enter into new maintenance agreements on CRP products belonged solely to Bentley. Bentley hired 88 Intergraph employees, who were principally dedicated to the CRP products. Under the APA, Bentley actually provided the services under the maintenance agreements Intergraph had with the customer until each agreement expired or was due to be renewed. The APA was structured to provide for an orderly transition of the maintenance agreements on the CRP products from Intergraph to Bentley as the agreements expired or came up for renewal during the one-year period following December 1, 2000 (‘the APA year’). The maintenance agreements for the CRP products were scheduled to expire in increments during each month of the APA year. After the closing, the APA required the parties to act jointly to solicit and encourage customers to renew their maintenance agreements solely with Bentley. The APA also required Intergraph to provide Bentley with detailed data regarding the maintenance agreements and to update that data at certain specific intervals.

“Almost immediately after the closing, however, difficulties in complying with the provisions of the APA became apparent. Intergraph had difficulty compiling the data it had committed to provide to Bentley. Bentley discovered that much of the data Intergraph provided it was incomplete and/or inaccurate, a problem compounded when the data in the various updates furnished by Intergraph changed from submission to submission. In fact, the changes were so extensive that Intergraph never complied with a requirement in the APA that all changes in the updated data submissions be clearly marked. Furthermore, after the closing date, Intergraph, for its own account, continued to renew maintenance agreements on CRP products in the United States and in Europe. During 2001, Intergraph provided Bentley with lists of contracts Intergraph had renewed in the United States during the year, and paid Bentley 100% of the revenues it had collected on certain of those contracts that renewed during 2001. In April 2001, Bentley organized a CRP task force to address some of the foregoing problems. The goal of the CRP task force was to significantly increase the amount of new and renewed SELECT subscriptions for CRP products.

“ D. The Promissory Note

“The gravamen of this dispute is the calculation of the amount due under the promissory note. The value of the note as adjusted depended upon the calculation of what the APA refers to as transferred maintenance revenues (‘TMR’) and renewed maintenance revenues (‘RMR’). Both TMR and RMR are defined terms under the APA, together with the corresponding note adjustments called for by the APA. TMR represented the revenues accruing [during the APA year] from the maintenance agreements while those agreements were still in Intergraph's name. RMR represented the revenues accruing from the maintenance agreements [during the APA year] after those agreements were renewed by Bentley.

“The calculation of TMR, according to section 7.1 of the APA, was based upon a schedule of transferred CRP maintenance agreements (‘the TM schedule’) furnished by Intergraph at the time of closing. The TM schedule Intergraph furnished when the APA was executed purported to provide Bentley with a list of all CRP maintenance agreements in effect in the United States as of October 31, 2000, and outside the United States as of July 31, 2000, ‘specifying without limitation, the products covered thereunder, the remaining terms thereof and the Maintenance Agreements that are scheduled to expire on or before the MCO Date.’ The TM schedule contained a projection of anticipated revenue for the 12 months following the closing. Multiplying this amount times 1.5 established the preliminary value of the note at closing at $11,087,112. Bentley began making monthly payments to Intergraph based upon that preliminary value.

“After the closing, the APA required Intergraph to update the TM schedule to list all maintenance agreements in effect as of December 1, 2000, the maintenance cutoff date (‘the MCO date’). This update was to occur in two steps, the first...