Matter of Sentry Data, Inc.

Decision Date11 May 1988
Docket NumberBankruptcy No. 84 B 08848,Adv. No. 87 A 01008.
Citation87 BR 943
PartiesIn the Matter of SENTRY DATA, INC., Debtor. SENTRY DATA, INC., Plaintiff, v. CONTROL DATA CORPORATION, Defendant.
CourtU.S. Bankruptcy Court — Northern District of Illinois

George A. Vinyard, Jeffrey A. Schumacher, Bruce W. Boyd, Sachnoff, Weaver & Rubenstein, Ltd., David N. Missner, Schwartz, Cooper, Kolb & Gaynor Chartered, Chicago, Ill., for plaintiff Sentry Data, Inc.

Robert A. Pond, Mark S. Lieberman, John S. Delnero, Rosenthal & Schanfield, P.C., Chicago, Ill., for defendant Control Data Corp.

MEMORANDUM OPINION

JOHN H. SQUIRES, Bankruptcy Judge.

This matter comes before the Court on cross motions for summary judgment filed by the debtor/plaintiff Sentry Data, Inc. ("Sentry") and by the defendant Control Data Corporation ("Control Data"). The issue is whether an agreement between the parties can be assigned by Control Data. The Court holds that the agreement can be assigned. For the reasons set forth herein, the Court, having considered all the pleadings, affidavits and exhibits filed, does hereby deny Sentry's motion for summary judgment and does hereby grant Control Data's motion for summary judgment.

I. JURISDICTION AND PROCEDURE

The Court has jurisdiction to entertain these motions pursuant to 28 U.S.C. § 1334 and General Orders of the United States District Court for the Northern District of Illinois. The motions are core proceedings under 28 U.S.C. § 157(b)(2)(A), (E), (N), (O).

II. FACTS AND BACKGROUND

Sentry filed this adversary proceeding against Control Data claiming that Control Data breached an agreement entered into between the two parties. Sentry seeks return of certain property from Control Data or alternatively the balance due under the agreement in order for title to the property to vest in Control Data.

The following is a statement of the material facts which are not in dispute: Sentry, the debtor-in-possession, filed a Chapter 11 petition on July 17, 1984. Sentry is in the business of creating and developing computerized hospital information and data processing systems ("Systems"), including a distributed data-based controller and various related software materials and programs which are designed to aid hospitals in patient registration, accounting and communication ("Proprietary Materials"). Sentry discussed with Control Data and others the possibility of licensing or selling the Systems and Proprietary Materials. On February 8, 1985, Sentry and Control Data entered into an "Agreement for License and Sale of Proprietary Materials" (the "Agreement"). The Court entered an Order approving the Agreement on February 15, 1985.1 The Order found that the Agreement was negotiated between the parties for the exclusive license and ultimate sale of the Systems and Proprietary Materials; that the consideration to be paid was fair and the terms and conditions of the Agreement were reasonable.

The Agreement granted to Control Data "an exclusive, unrestricted, worldwide right and license . . . to the Proprietary Materials. . . ."2 Pursuant to the Agreement, Control Data was to market the Systems to hospitals. Sentry was to receive a royalty for each System sold by Control Data. Title to the Systems and Proprietary Materials was to remain with Sentry until Control Data paid Sentry royalties in the aggregate amount of $4.25 million. Control Data paid to Sentry $1.5 million as a nonrefundable prepaid royalty. To date, Control Data has licensed only one System and has asserted that the Proprietary Materials are unmarketable.

Control Data seeks to assign the Agreement to the 3M Corporation ("3M"), to which Sentry has objected by filing this adversary proceeding.3 The Agreement is silent on the issue of assignability and makes no express reference to the word assign. Although the Agreement contains additional terms and conditions for termination and extension thereof, these are not in issue before the Court. Sentry alleges that the Agreement is not assignable, and therefore Control Data's contract to assign same to 3M constitutes a breach. Sentry seeks to have the Proprietary Materials returned, or in the alternative, prays that Control Data pay the balance of the $4.25 million so as to vest title with Control Data.4 Control Data, on the other hand, claims that it has not breached the Agreement because it is assignable in the absence of any term expressly or impliedly prohibiting its intended assignment to 3M.

III. STANDARD FOR SUMMARY JUDGMENT

In order to prevail on a motion for summary judgment, the movant must meet the statutory criteria set forth in Rule 56 of the Federal Rules of Civil Procedure, made applicable to adversary proceedings in the Bankruptcy Court by Federal Rule of Bankruptcy Procedure 7056. Rule 56(c) reads in part:

The judgment sought shall be rendered forthwith if 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.

Fed.R.Civ.P. 56.

The primary purpose for granting a summary judgment motion is to avoid unnecessary trials when no genuine issue of material fact is in dispute. Farries v. Stanadyne/Chicago Div., 832 F.2d 374, 378 (7th Cir.1987). The burden is on the moving party to show that no genuine issue of material fact is in dispute. Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S.Ct. 2548, 2552, 91 L.Ed.2d 265 (1986); Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 256, 106 S.Ct. 2505, 2514, 91 L.Ed.2d 202 (1986); Matsushita Elec. Indus. Co. v. Zenith Radio, 475 U.S. 574, 585-86, 106 S.Ct. 1348, 1355-56, 89 L.Ed.2d 538 (1986). Moreover, all reasonable inferences to be drawn from the underlying facts must be viewed in a light most favorable to the party opposing the motion. Marine Bank, Nat. Ass'n v. Meat Counter, Inc., 826 F.2d 1577, 1579 (7th Cir.1987); DeValk Lincoln Mercury, Inc. v. Ford Motor Co., 811 F.2d 326, 329 (7th Cir.1987); Bartman v. Allis-Chalmers Corp., 799 F.2d 311, 312 (7th Cir.1986), cert. denied, 479 U.S. 1092, 107 S.Ct. 1304, 94 L.Ed.2d 160 (1987). On cross motions for summary judgment, the Court must rule on each party's motion individually, denying both motions if a genuine issue of material fact exists. ITT Indus. Credit Co. v. D.S. America, Inc., 674 F.Supp. 1330, 1331 (N.D.Ill.1987); Wausaw Ins. Co. v. Valspar Corp., 594 F.Supp. 269, 270 (N.D.Ill.1984).

The Court has reviewed all pleadings, both affidavits and the exhibits submitted and hereby finds that no genuine issue of material fact exists and that Control Data is entitled to summary judgment as a matter of law. The parties have filed pleadings in compliance with Rule 12 of the General Rules of the United States District Court for the Northern District of Illinois. The only contested fact is whether Control Data agreed to use its best efforts to market, sell and license the Systems and Proprietary Materials. Pursuant to the standard provided in Rule 56(c), the mere existence of an alleged factual dispute will not defeat an otherwise properly supported motion for summary judgment; the requirement is that there be no genuine issue of material fact. Anderson, 477 U.S. at 248, 106 S.Ct. at 2510. This disputed fact is not outcome determinative on the assignability issue. Hence, the factual dispute is not "material" thereby precluding the entry of summary judgment. Anderson, 477 U.S. at 248, 106 S.Ct. at 2510.

IV. CHOICE OF LAW

Paragraph sixteen of the Agreement provides that it is to be "governed by the laws of Minnesota."5 Generally, parties may agree that the construction and validity of a contract may be governed by the law agreed upon by them. Wabash, Inc. v. Avnet, Inc., 516 F.Supp. 995, 998 (N.D.Ill.1981); Jones & McKnight Corp. v. Birdsboro Corporation, 320 F.Supp. 39, 42 n. 3 (N.D.Ill.1970). Minnesota law also allows parties to a contract to control the choice of law by express contractual provision. See Milliken and Co. v. Eagle Packaging Co., 295 N.W.2d 377, 380 (Minn. 1980). Therefore, based on the express provision in the Agreement and the controlling authority, the Court must look to the substantive law of Minnesota in determining the issue of assignability.

V. SUMMARY OF THE ARGUMENTS

Sentry sets forth several arguments to support its claim that the Agreement may not be assigned. Sentry's principal arguments raised in its motion for summary judgment and memorandum in support of its motion thereof are:

(1) Control Data may not assign its obligations under the Agreement without Sentry\'s consent;
(2) The Agreement itself does not expressly permit an assignment by Control Data of its interests therein;
(3) Control Data may not delegate its duties under the Agreement because its acts or qualities formed a material part of the Agreement which makes it a personal services contract;
(4) Control Data\'s separate contract with 3M constitutes a breach of the Agreement thereby entitling Control Data to recover the Proprietary Materials; and
(5) Control Data has failed to use its best efforts to market, sell and license the Systems and Proprietary Materials.

Control Data's main arguments raised in its cross motion for summary judgment and memorandum in support thereof are:

(1) The Agreement contains no clause requiring Control Data to use its best efforts to market, sell or license the Systems and Proprietary Materials;
(2) The Agreement is silent on the assignability thereof, is not a personal services contract nor does it involve a special or fiduciary relationship between the parties and therefore is assignable in the absence of a term prohibiting the intended assignment;
(3) Control Data\'s separate contract with 3M is conditional upon court approval and prospective and therefore does not constitute a breach of the Agreement with Sentry; and
(4) Control Data has paid or has been credited over $1.5 million
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