Richard Raysman and Peter Brown

Construing an unambiguous and overarching contract memorialized in multiple writings executed contemporaneously is often a largely straightforward exercise. For one, if the contracts are unambiguous, the court in virtually all circumstances must read the agreements together and adopt the “definite or certain” meaning evident by the language of the agreements. Doing so eliminates superfluity and irreconcilable, conflicting interpretations.

One recent example is a Texas appellate court's decision in Polaris Guidance Systems v. EOG Resources, wherein a software licensor was permitted to terminate a license that the licensee alleged continued in “perpetuity” on grounds that the merger clause in the license did not supersede a related master services agreement. Rather, the merger clause in the license applied to prior, conflicting agreements that pertained to subjects other than the licensing of the software, to which the MSA undoubtedly applied. Consequently, the trial court granted summary judgment to the licensor, which was upheld on appeal. A full discussion of the facts, procedural history and legal analysis follows.

Facts and Procedural History

Defendant-appellee EOG Resources (EOG) is an offshore energy exploration company. Plaintiff-appellant Polaris Guidance Systems (Polaris) develops software for companies such as EOG (the software). Polaris also provides maintenance related to the software. EOG wished to license the software to monitor its oil and gas wells, and in 2014, the parties executed a Master Service Agreement (the MSA). The MSA governed provision of “Services” performed by Polaris, defined as “software development and product sales of same and any ancillary functions related thereto.” The MSA did not obligate EOG to purchase Services.

A month later, the parties signed the Polaris/EOG License Agreement (the license) wherein Polaris granted EOG a perpetual and non-transferable license to the software. In connection with the license, EOG purchased Polaris's maintenance services annually. The same day, the parties executed a “Polaris Quote,” which provided that “this transaction will be governed by the Polaris License Agreement and the Master Service Agreement by and between Polaris Guidance Systems, LLC and EOG Resources, Inc.”

Both parties performed their obligations for roughly two years. In 2016, EOG changed its monitoring systems, which necessitated a reduction in services provided by Polaris. EOG notified Polaris of the same. Polaris responded that EOG was “locked into a perpetual services agreement and could never terminate the services and related annual payment obligations … .” Polaris also demanded an accelerated payment equivalent to performance of the contract for a decade. EOG responded with a termination notice of Polaris's services.

Polaris sued EOG, alleging causes of action for breach of contract and promissory estoppel. It also sought injunctive relief in the form of a temporary injunction. Polaris alleged that EOG breached the license by terminating. EOG answered and counterclaimed seeking a declaratory judgment that EOG had the contractual right under the MSA to terminate Polaris's services provided pursuant to the license. EOG eventually filed a motion for summary judgment seeking the same relief.

The trial court granted EOG's motion for summary judgment in holding that “EOG has the right to terminate its agreement with Polaris and that EOG exercised such authority and terminated the agreement and paid all sums due and owing to Polaris.”

Legal Analysis and Conclusions

The Texas Court of Appeals, Fourteenth District (Houston), upheld the trial court's grant of summary judgment to EOG. First, it found that Polaris had not shown an ambiguity, which would have precluded a grant of summary judgment in EOG's favor. Rather, the MSA and the license “can be given a certain and definite meaning.” As such, the trial court did not err on threshold grounds in granting the summary judgment motion.

Polaris argued first that the merger clause in the license agreement superseded the provision of the MSA that made EOG's purchase of the Services discretionary. Polaris also argued that construing the license and MSA together would render the license “meaningless.”

The court rejected both arguments. First, the court held that, since the parties executed the MSA first and within it stated that the MSA “shall control and govern all services performed by [Polaris] for [EOG],” it obviously contemplated the execution of additional germane documents. One such document was the Polaris Quote, which unequivocally states that it was to be governed by both the MSA and the license. Consequently, the parties demonstrated a “clear intent” that their software transaction was to be governed by the MSA, license and Polaris Quote,” which required the court to construe them together.

As a result, the court concluded that the license did not supersede the MSA, but rather supplemented the termination provisions of the MSA. Moreover, interpreting the agreements as a whole did not render the merger clause meaningless since the merger clause stated that there were no other agreements pertinent to “the subject matter hereof,” that is, the licensing of the software. The merger clause could thus be applied to prior agreements that conflicted with the MSA, license and Polaris Quote.

The court likewise rejected Polaris's argument that the trial court erred in granting EOG summary judgment on the 30-day written notice of termination provision in the MSA, which EOG had unquestionably satisfied. Since the MSA had not been superseded by the license, EOG could invoke the termination provision of the MSA, which it had lawfully done.

Richard Raysman is a partner at Holland & Knight and Peter Brown is the principal at Peter Brown & Associates. They are co-authors of “Computer Law: Drafting and Negotiating Forms and Agreements” (Law Journal Press).