Gte Wireless, Inc. v. Cellexis Intern., Inc.

• Citation: 341 F.3d 1
• Decision Date: 14 August 2003
• Docket Number: No. 02-2174.,02-2174.
• Parties: GTE WIRELESS, INC., f/k/a GTE Mobilnet Service Corp., a Delaware Corporation, Plaintiff, Appellant, v. CELLEXIS INTERNATIONAL, INC., an Arizona Corporation and FReedom Wireless, Inc., a Nevada Corporation, Defendants, Appellees, and Douglas V. Fougnies, Defendant.
• Court: United States Courts of Appeals. United States Court of Appeals (1st Circuit)

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341 F.3d 1

GTE WIRELESS, INC., f/k/a GTE Mobilnet Service Corp., a Delaware Corporation, Plaintiff, Appellant, v. CELLEXIS INTERNATIONAL, INC., an Arizona Corporation and FReedom Wireless, Inc., a Nevada Corporation, Defendants, Appellees, and Douglas V. Fougnies, Defendant.

No. 02-2174.

United States Court of Appeals, First Circuit.

Heard April 7, 2003.

Decided August 14, 2003.

Before TORRUELLA, Circuit Judge, BOWNES, Senior Circuit Judge, and LYNCH, Circuit Judge.

Scott G. Lindvall, with whom Patricia J. Clarke, Darby & Darby P.C., Douglas J. Kline, Jennifer L. Conrad, Testa, Hurwitz & Thibeault, LLP, were on brief, for appellant.

Shaun P. Martin, with whom A. William Urquhart, Marshall M. Searcy III, Quinn Emanuel Urquhart Oliver & Hedges, LLP, F. Dennis Saylor, IV, Cheryl R. Brunetti, and Goodwin Procter LLP, were on brief, for appellees.

TORRUELLA, Circuit Judge.

On behalf of its affiliate Cellco Partnership ("Cellco"), appellant GTE Wireless sought enforcement of a 1996 covenant not to sue that GTE Mobilnet Services Corporation and GTE Corporation (collectively "GTE")¹ made with appellee Cellexis International, Inc. ("Cellexis").² On cross-motions for summary judgment, the district court granted summary judgment for Cellexis, finding that the Settlement Agreement did not reach entities that became GTE affiliates after the execution of the 1996 Agreement. After extensive consideration, we reverse.

I. Background

A. Generation of Settlement Agreement

The history of the parties' litigation is complicated by several corporate transmutations. In April 1996, appellees Cellexis and Freedom Wireless, Inc., sued GTE in the United States District Court for the District of Arizona, claiming that GTE stole its trade secrets by using Cellexis's technology for prepaid cellular telephone service (the "1996 litigation").

Five weeks after filing suit, Cellexis settled with GTE (the "Settlement Agreement"). As part of the Settlement Agreement, Cellexis agreed to pay part of GTE's attorneys' fees and to publicly retract prior statements accusing GTE of uncompetitive behavior, theft, fraud, and malice. In return, GTE agreed to drop its claims against Cellexis for malicious prosecution, trade libel, and interference with contractual relations. The Settlement Agreement contained a covenant by Cellexis and its principals not to sue GTE and its affiliates, partnerships, joint ventures, and successors in the future over GTE's use of the same technology. When the Settlement Agreement was signed, Cellexis had a patent application pending with the U.S. Patent and Trademark Office ("Patent Office") for the technology at issue in the suit.

In September 1997, Cellexis sold its rights under the patent application to Freedom Wireless, Inc., ("Freedom") for $750,000. In February 1998, the Patent Office issued the first of two patents ("'067 patent") arising from the patent application, which Cellexis assigned to Freedom under the terms of the 1997 sale of rights. Four months later, in June 1998, Freedom sent a letter to GTE claiming that GTE was infringing the '067 patent. GTE responded that the Settlement Agreement barred any suit against GTE or its affiliates because the patent covered the technology at issue in the 1996 litigation.

On July 27, 1998, GTE Corporation and Bell Atlantic Corporation ("Bell Atlantic") entered into a merger agreement. On September 21, 1999, Bell Atlantic and Vodafone Airtouch PLC agreed to consolidate their operations. As part of the agreement, GTE Wireless's operations were assigned to Cellco (a Bell Atlantic subsidiary) at the closing of the GTE/Bell Atlantic merger. GTE Mobilnet was dissolved on June 21, 2000, and all its assets were distributed to its sole shareholder, GTE Wireless. The GTE/Bell Atlantic merger was completed July 10, 2000, and GTE Corporation became a wholly-owned subsidiary of Bell Atlantic (now Verizon Communications, Inc. ("Verizon")). GTE subsidiaries and affiliates together own 55% of Cellco. Verizon also has the contractual right to appoint a majority of Cellco's Board of Representatives.

B. District Court Proceedings

On March 29, 2000, Freedom filed suit in the United States District Court for the Northern District of California accusing several companies, including Bell Atlantic and AirTouch, of infringing Freedom's patent. The patent action was transferred to Massachusetts federal court. In December 2000, the Patent Office issued the second patent ("'823 patent") arising from the patent application assigned to Freedom. Freedom filed an amended complaint in the patent action adding infringement of the '823 patent and naming Cellco as a defendant.

As Cellco answered Freedom's complaint, GTE Mobilnet filed suit against Cellexis, Freedom, and one of Freedom's officers in the United States District Court for the District of Arizona, contending that AirTouch and Bell Atlantic fell under the definition of GTE Partnerships in paragraph 1.4 of the Settlement Agreement; thus, Freedom could not bring a claim of patent infringement against them. Six days after bringing suit in Arizona, GTE Mobilnet dissolved. GTE Mobilnet attempted to substitute Cellco as plaintiff, stating that Cellco was a successor to GTE Mobilnet and seeking to preliminarily enjoin Freedom from pursuing its patent case against Cellco. The Arizona court denied the motion to substitute and transferred the case to Massachusetts because of its relatedness to the pending patent action.

After transfer to Massachusetts, the district court allowed GTE Mobilnet's motion to substitute GTE Wireless as plaintiff. In its supplemental complaint, GTE Wireless claimed that defendants were in breach of the Settlement Agreement by continuing to pursue Freedom's patent suit against Cellco. GTE Wireless argued that the interest that GTE Wireless took in Cellco in July 2000 made Cellco a GTE Partnership and an intended beneficiary of the Settlement Agreement and that Cellco fell within the definition of GTE as an affiliate. Cellexis argued, inter alia, that the definition of GTE in the Settlement Agreement only included affiliates that were in existence at the time the agreement was executed.

The parties filed cross-motions for summary judgment. Applying Arizona law as the parties contracted, the Massachusetts court denied GTE's proffer of extrinsic evidence and granted Cellexis's motion for summary judgment, concluding that the Settlement Agreement does not reach entities that became GTE affiliates after May 15, 1996. GTE Wireless appeals.

II. Standard of Review

We review summary judgment decisions de novo, viewing the facts in the light most favorable to the nonmoving party. Ruiz-Sulsona v. Univ. of P. R., 334 F.3d 157 (1st Cir.2003). Summary judgment is inappropriate if there is a genuine issue as to any material fact. Id.

It is undisputed that Arizona law controls. In Arizona, contract interpretation involves matters of law, and we are not bound by the trial court's interpretation of the language. See Andrews v. Blake, 205 Ariz. 236, 69 P.3d 7, 11 (2003). "A district court's application of the parol evidence rule, an issue of state law, is reviewed under the same de novo standard applied to decisions concerning federal law." Jinro Am., Inc. v. Secure Investments, Inc., 266 F.3d 993, 998-99 (9th Cir.2001) (applying Arizona law to a contract dispute). Where a contract is reasonably susceptible to more than one meaning and evidence exists to support the reading advocated by the nonmovant, an issue of fact is presented that cannot be resolved on summary judgment. See Taylor v. State Farm Mut. Auto. Ins. Co., 175 Ariz. 148, 854 P.2d 1134, 1144-45 (1993) (en banc).

III. Discussion

GTE wishes to enforce Paragraph 7.1 of the Covenant Not to Sue which states:

Cellexis and the Cellexis Principals hereby covenant and agree that they shall not now or at any time in the future bring any Claims against GTE, the GTE Partnerships,³ their predecessors, their successors, and each of their present and former attorneys, officers, agents, heirs, assigns, owners, servants, directors, employees, and all other representatives involving alleged Intellectual Property as defined in paragraph 1.7.

Our task is to determine whether the district court correctly resolved on summary judgment that the language in the Settlement Agreement was "so one-sided that no reasonable person could decide" that the definition of "GTE" in the Settlement Agreement included Cellco, a current GTE affiliate that was not an affiliate at the time the Settlement Agreement was executed. See Lohnes v. Level 3 Communs., Inc., 272 F.3d 49, 53 (1st Cir.2001) (citation omitted).

We begin our analysis by scrutinizing the contract language for the parties' intent. The definition of "GTE" provided in Paragraph 1.3 of the Settlement Agreement states that "`GTE' means and includes GTE Corporation, all of its subsidiaries, joint ventures, and affiliates and every GTE entity which is licensed to provide wireless communications services, including but not limited to GTE Mobilnet Service Corporation."

GTE contends that Paragraph 1.3 does not contain a temporal limitation. In support of its position, GTE attempted to introduce into evidence the deposition of GTE general counsel, Richard Stimson, who testified that he and Cellexis's attorney had agreed not to include a list of GTE entities because the entities were always changing as GTE attempted to establish itself as a national cellular carrier. The district court denied admission of the extrinsic evidence and found that other provisions of the Settlement Agreement contain language in the future tense, indicating that the drafters of the contract would have used a future tense if they intended to include future affiliates.⁴ The district court concluded that where the contract did not explicitly use future language, the court will "presume that the parties intended the Agreement to cover only those entities that...