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When You Permanently Reduced the Shipping Spots to Zero, You "Terminated" the Contract, Silly
C.A. Acquisition Newco LLC is a successor in interest to Cyphermint, Inc. (or "CI"), a New York corporation specializing in software development for self-service kiosks. DHL Express (USA), Inc., is an Ohio corporation with a principal place of business in Florida. It is a division of DHL International GmBH, a Deutsche Post Company and express carrier of documents and freight. Until 2008, DHL provided express pick-up and delivery, including same-day air delivery of letters and packages throughout the United States.
DHL entered into an agreement with Cyphermint, hoping to expand its customer base by offering domestic shipping services in retail locations, such as Walgreens and OfficeMax, via kiosks, or "Shipping Spots." Customers were able to use the kiosks' touch screen to pay for shipping costs and print shipping labels. The contract provided for an initial three-year term (August 1, 2006, through July 31, 2009) that automatically renewed for two more years unless either party gave notice of its election not to renew 90 days before the end of the initial contract. Under the contract, Cyphermint agreed to provide interactive software enabling customers to use DHL's services from the shipping spots. Section 10.5 of the contract governs termination fees:
There shall be no termination fees for any termination by either party, irrespective of the reason for such termination, except for a "Material Breach" or as provided pursuant to the "Statement of Work" (SOW).
The SOW contains the following provision concerning termination fees:
Should DHL terminate this agreement for any reason other than a material breach by Cyphermint before its termination date DHL agrees to compensate CI in the amount of $50,000 per month for each month remaining in the initial term.
In November 2008, DHL decided to end all domestic delivery service within the United States. CI requested early termination fees under Section 10.5 of the contract of $413,333.33. DHL refused to pay, contending that Section 2.8 of the contract gave DHL the discretion to control the number and placement of the shipping spots, and when it ended U.S. domestic operations, it exercised its discretion to reduce shipping spots to zero.
PONSOR, J.... Plaintiff argues that Defendant breached the Contract by ceasing all shipments under the Contract prior to its expiration and failing to pay the resultant termination fees pursuant to Section 10.5. Under Section 10.5, termination fees only arise in case of "a 'Material Breach' or as provided pursuant to the 'Statement of Work.'" The SOW states, "[s]hould DHL terminate this agreement for any reason other than a material breach by Cyphermint before its termination date DHL agrees to compensate Cyphermint in the amount of $50,000 per month for each month remaining in the initial term." Given Defendant's concession that it did not terminate the agreement as a result of a material breach by Cyphermint, Plaintiff reasons that Defendant was obligated to pay Plaintiff $50,000 per month for the remainder of the initial term.
Defendant responds that it never "terminated" the agreement and that, rather, it merely reduced the number of shipping spots pursuant to express language in the Contract. Defendant points to Section 2.8 of the MSA:
Limitations on Scope of Obligations. Nothing in this Agreement guarantees the number or placement of DHL Shipping Spot(s). DHL hereby acknowledges that the number of DHL Shipping Spots, [and] the placement, movement, and/or access of such units is solely within the discretion of DHL....
Accordingly, Defendant argues that "[w]hen DHL made the global decision to cease its entire United States operations, it exercised its contractual discretion to limit its business with Newco to zero."
Plaintiff has the stronger argument. Contrary to Defendant's interpretation, finding that Defendant terminated the agreement by ending its support for the shipping spot project does not render meaningless Section 2.8. Section 2.8 vests Defendant with the discretion to control the number and placement of the shipping spots, but it does not, as Defendant suggests, permit Defendant to stop performing altogether for any reason or no reason, with no consequences. Such a construction is strained on its face and, when placed in context, is obviously contrary to the Contract's intent. It is also contrary to good sense. The proposition that reducing the shipping posts to zero is not the same as "termination" is Looking-Glass logic, recalling Humpty Dumpty's remark that "When I use a word ... it means just what I choose it to mean—neither more nor less." Lewis Carroll [Charles L. Dodgson], Through the Looking-Glass 72 (1872).
As noted, Section 10 of the Contract—the termination provision itself—incorporates by reference clear language in the SOW declaring that Defendant may not terminate the agreement except in the case of a material breach by Plaintiff. Thus, viewing the document as a whole—i.e., from the perspective the court is obliged to take—disposes of Defendant's over-labored interpretation. In reviewing a document, a court must consider the document as a whole, rather than attempting to isolate certain portions of it.
Notably, even if the court were to accept Defendant's argument that Section 2.8 gave Defendant blanket authority to reduce or even eliminate the shipping spot project altogether, the outcome would remain the same. The relevant provision in the SOW provides for termination fees without regard to whether the termination was authorized. The only restriction placed on the recovery of such fees is that they will not be available in the case of a material breach by Cyphermint ("Should DHL terminate this agreement for any reason other than a material breach by Cyphermint....") (emphasis added)....
Regardless of the label Defendant uses, the undeniable effect of its actions was to bring the parties' performance to an immediate and permanent halt. A termination by any other name would end the contract just the same.
In sum, Defendant's termination of the Contract manifestly triggered Plaintiffs termination rights, including termination fees of $50,000 per month for the remaining term. The failure to pay such fees constitutes a breach of contract as a matter of law. Accordingly, Plaintiffs motion will be allowed, and Defendant's motion will be denied....
Judgment for the plaintiff.
State the Cyphermint view of what was owed to it under the contract with DHL upon its ceasing U.S. domestic operations.
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