North Carolina Farm Bureau Mutual Insurance Co. v. Clear Technology, Inc.; Versata Enterprises, Inc.

UNPUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
No. 13-2274
NORTH CAROLINA FARM BUREAU MUTUAL INSURANCE CO.,
Plaintiff – Appellee,
v.
CLEAR TECHNOLOGY, INC.; VERSATA ENTERPRISES, INC.,
Defendants – Appellants.
Appeal from the United States District Court for the Eastern
District of North Carolina, at Raleigh. Terrence W. Boyle,
District Judge. (5:12-cv-00111-BO)
Argued: October 28, 2014 Decided: February 4, 2015
Before TRAXLER, Chief Judge, DIAZ, Circuit Judge, and DAVIS,
Senior Circuit Judge.
Vacated and remanded by unpublished opinion. Judge Diaz wrote
the opinion, in which Chief Judge Traxler and Senior Judge Davis
joined.
ARGUED: Matthew Nis Leerberg, SMITH MOORE LEATHERWOOD LLP,
Raleigh, North Carolina, for Appellants. Walter E. Brock, Jr.,
YOUNG, MOORE & HENDERSON, PA, Raleigh, North Carolina, for
Appellee. ON BRIEF: Bradley M. Risinger, SMITH MOORE
LEATHERWOOD LLP, Raleigh, North Carolina, for Appellants.
Robert Cowan deRosset, IV, YOUNG, MOORE & HENDERSON, PA,
Raleigh, North Carolina, for Appellee.

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Unpublished opinions are not binding precedent in this circuit.

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DIAZ, Circuit Judge:
This appeal arises out of a dispute over the provisions of
a software licensing contract between North Carolina Farm Bureau
Insurance Company (“NCFB”) and software company Clear
Technology, Inc. (“Clear Tech”). The parties disagree over the
meaning of a $20,000 monthly fee term in an order form, which
led to the filing of this lawsuit. Both parties filed motions
for summary judgment and the district court granted NCFB’s
motion, finding that no reasonable jury could find that Clear
Tech’s interpretation of the fee term was what the parties
intended. We disagree and therefore vacate the district court’s
grant of summary judgment and remand for trial.
I.
In March 2003, NCFB and Clear Tech entered into a software
license and maintenance agreement (the “Master Agreement”) under
which NCFB was to use Clear Tech’s Tranzax software in its
insurance policy processing business. The Master Agreement
specified that NCFB would pay a $75,000 license fee to use the
software, along with a $20,000 annual maintenance fee. Under
the terms of the Master Agreement, the NCFB could decline to pay
the annual maintenance fee, thereby forgoing maintenance,
software updates, and support services.

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By entering into the Master Agreement, NCFB was granted a
“perpetual, nonexclusive, nontransferable right to use the
Tranzax software . . . in accordance with and subject to the
terms and conditions of [the] Agreement.” J.A. 55. The parties
agreed that if NCFB breached the Agreement, Clear Tech could
cancel it and NCFB would be required to stop using the software.
The parties also agreed that NCFB might order additional modules
of the software for other areas of its business, and that the
terms of future orders would be subject to and incorporated into
the Master Agreement.
In August 2004, the parties executed three new order forms,
through which NCFB purchased additional units of Tranzax
software for its Policy Processing and Underwriting businesses,
as well as a Developer Version License for Tranzax. At issue in
this case is Order No. 2, which we reproduce in full below.

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In Order No. 2, NCFB contracted to use the Tranzax software
in its underwriting business. Unlike the Master Agreement,

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which explicitly incorporates a separate annual maintenance fee,
Order No. 2 does not include such a fee. Rather, maintenance is
listed as “Included” in the middle column of the order form. On
the far left side of the order form, two fees are listed under
the heading “License Fee”: $300,000 on invoice, and $20,000 per
month in advance (on invoice).
Order No. 2 was signed by Clear Tech’s Chief Financial
Officer Chris Kendall and NCFB’s Senior Executive Linda Squires
(after review by NCFB’s counsel). NCFB paid the $300,000
license fee, began using Tranzax software in its underwriting
business, and started making recurring payments of $20,000 per
month.
In 2008, Versata Enterprises, Inc. acquired Clear Tech. In
the years following the acquisition, NCFB became dissatisfied
with the service and support it was receiving from Clear Tech.
Specifically, Clear Tech stopped providing support for an older
version of the Tranzax software used heavily by NCFB, and NCFB
was redirected from its primary support contact to overseas
support services. In response to NCFB’s complaints, Clear Tech
sent NCFB a new maintenance and support proposal in April 2011.
NCFB, however, rejected it.
After receiving its annual service and support renewal
notice from Clear Tech on June 15, 2011, NCFB informed Clear
Tech that NCFB did not wish to continue receiving maintenance

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and would allow its service and support contract to expire on
August 13, 2011. Clear Tech in turn told NCFB that failure to
continue to pay the $20,000 “monthly license fees” under Order
No. 2 would constitute a material breach of the parties’
agreement, resulting in revocation of NCFB’s license to use the
software. NCFB responded that it did not intend to stop using
the Tranzax software and that it viewed the $20,000 monthly fee
as one for optional maintenance, rather than a fee to maintain
the license. Clear Tech confirmed that it saw Order No. 2
differently, viewing the $20,000 fee as a monthly license fee.
NCFB allowed its service and support contract to lapse on August
13, 2011, but it continued to pay the $20,000 monthly fee (under
protest) in order to keep using Clear Tech’s software in its
underwriting business.
NCFB filed suit in state court, seeking (1) a declaratory
judgment allowing it to continue using the Tranzax software
without paying the $20,000 monthly fee, and (2) the return of
all payments made under protest. Clear Tech removed the case to
the district court and filed an answer and counterclaim, seeking
a declaratory judgment that the $20,000 monthly fee was a
mandatory license fee.
On cross-motions for summary judgment, the district court
granted NCFB’s motion and denied Clear Tech’s motion. Finding
that the interplay between Order No. 2 and the Master Agreement

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was ambiguous, the district court considered extrinsic evidence
of the parties’ original intent, including emails and the
testimony of the signatories to Order No. 2. The court held
that because extrinsic evidence conclusively demonstrated that
NCFB had “no obligation to continue paying $20,000 per month in
order to preserve its license,” J.A. 690, summary judgment in
favor of NCFB was proper. This appeal followed.
II.
We address two issues on appeal. First, we consider
whether the district court erred in finding that the terms of
Order No. 2 are ambiguous, and therefore in admitting extrinsic
evidence of the parties’ intent. Second, if the district court
properly admitted extrinsic evidence, we must decide whether it
erred in concluding that NCFB’s interpretation of Order No. 2 is
correct as a matter of law. The ambiguity of a contract and the
district court’s grant of summary judgment are each questions of
law that we review de novo. Moore Bros. Co. v. Brown & Root,
Inc., 207 F.3d 717, 726 (4th Cir. 2000); Pleasant Valley Hosp.,
Inc. v. Shalala, 32 F.3d 67, 69 (4th Cir. 1994).
A.
The Master Agreement specifies, and the parties agree, that
Colorado substantive law governs this contractual dispute.
Under Colorado law, the goal of contract interpretation is to

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give effect to the parties’ intention, as determined “primarily
from the language of the instrument itself.” USI Props. E.,
Inc. v. Simpson, 938 P.2d 168, 173 (Colo. 1997). Colorado
courts interpret contract terms not in isolation, but by reading
them as a whole and attempting “to harmonize and to give effect
to all provisions so that none will be rendered meaningless.”
Fed. Deposit Ins. Corp. v. Fisher, 292 P.3d 934, 937 (Colo.
2013) (internal quotation mark omitted). Initial review of a
contract is typically limited to the document itself; only if
that examination reveals that the contractual language is
ambiguous will Colorado courts refer to extrinsic evidence to
help glean the parties’ intent. Simpson, 938 P.2d at 173.
The mere existence of a disagreement between two parties
does not in itself create an ambiguity. Rather, a contract is
ambiguous only when its language is “fairly susceptible to more
than one interpretation.” Fibreglas Fabricators, Inc. v.
Kylberg, 799 P.2d 371, 374 (Colo. 1990). In determining whether
a contract is ambiguous, Colorado law instructs that we
initially assume the generally accepted meaning of the terms
used. Cheyenne Mtn. Sch. Dist. No. 12 v. Thompson, 861 P.2d
711, 715 (Colo. 1993).
Unlike many jurisdictions, Colorado does not apply a strict
“four corners” rule to the initial determination of ambiguity.
See Ad Two, Inc. v. City & Cnty. of Denver ex rel. Manager of

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Aviation, 9 P.3d 373, 380 (Colo. 2000) (Hobbs, J., dissenting)
(observing that “a steadily increasing number of courts have
disavowed the plain meaning rule and have recognized the
necessity of viewing extrinsic evidence,” and stating that “[i]n
Colorado, we have adopted this more flexible approach”)
(internal quotation marks omitted). Under Colorado law, the
court may conditionally admit evidence “bearing upon the meaning
of written terms, such as evidence of local usage and of the
circumstances surrounding the making of the contract” to help
determine whether the contractual language is susceptible to
more than one meaning. Thompson, 861 P.2d at 715. But “the
court may not consider the parties’ own extrinsic expressions of
intent.” Id. (internal quotation mark omitted).
In this case, the district court found that, although the
disputed $20,000 fee is conspicuously listed under the heading
“License Fee” in Order No. 2, its meaning is ambiguous because
“it is not clear, when looking at Order No. 2 and the Master
Agreement together, whether the monthly $20,000 fee is meant to
be a recurring license fee, or a fee for maintenance and support
services” that NCFB was free to decline. J.A. 686. In reaching
this conclusion, the district court conditionally considered a

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number of emails exchanged between the parties in mid-2011. 1
The district court observed that in those emails, there appeared
to be some confusion regarding the significance of NCFB’s
decision to discontinue its service and support relationship
with Clear Tech. For example, in one message, Clear Tech told
NCFB that if it stopped paying the $20,000 fee, NCFB would be
required to “immediately cease use of the . . . software,” J.A.
158, while in a subsequent email it merely warned NCFB that it
would be “operating [the software] in an unsupported
environment,” J.A. 178.
Although the emails suggest the possibility of confusion
between the parties, they do not, standing alone, demand the
conclusion that the written terms of Order No. 2 are ambiguous.2
Nonetheless, we agree with the district court that the $20,000
1 Because contemporaneous emails are evidence of “the
circumstances surrounding the making of the contract” and are
not post hoc expressions of the parties’ intent, the district
court properly considered them in making the initial ambiguity
determination. Thompson, 861 P.2d at 715.
2 It appears that NCFB may have combined its annual
maintenance payment under the Master Agreement with a
consolidated payment of the entire year’s $20,000 monthly fees
under Order No. 2. If so, Clear Tech’s inconsistent messages
may be explained by the fact that some of the emails
(specifically those referring to operating in an unsupported
environment) refer to NCFB’s decision to stop paying the annual
maintenance fee under the Master Agreement, while others (those
directing NCFB to discontinue use of the software) refer to the
discontinuation of the $20,000 monthly fee payment under Order
No. 2 that Clear Tech maintains was for the license.

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monthly fee in Order No. 2 is ambiguous when viewed in
conjunction with the Master Agreement and in the context of the
emails exchanged between the parties at the time the agreement
was formed.
Viewed in isolation, Order No. 2 is relatively
straightforward. The $20,000 fee is conspicuously placed under
the heading “License Fee,” which divides the fee into two
components: a one-time $300,000 payment and a $20,000 monthly
payment to be paid in advance on invoice. The word “Included”
appears under the heading “Annual Maintenance Fee,” which
suggests that the $20,000 fee is not an annual maintenance fee.
However, because Order No. 2, “is subject to and incorporates”
the terms of the Master Agreement, we may not view it in
isolation and instead must construe it with reference to the
Master Agreement.
The Master Agreement makes no mention of recurring license
fees. Instead, it refers exclusively to “the License Fee,” J.A.
55 (emphasis added), and it does not appear that Clear Tech
charged a monthly license fee for any other product purchased by
NCFB. The agreement provides that “Annual Maintenance Fees will
be invoiced yearly,” id., but says nothing of invoices for
recurring license fees. Thus, only two categories of fees were
explicitly contemplated at the time the parties executed the

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Master Agreement: (1) one-time license fees, and (2) annual
maintenance fees.
However, the Master Agreement also provides that NCFB’s
license to use Tranzax will be “perpetual . . . subject to the
terms and conditions of [the] Agreement.” Id. The disputed
term in this case appears on its face to be a recurring license
fee, and it therefore does not fit neatly into either of the fee
categories set out in the Master Agreement. Although the Master
Agreement makes clear that “the agreement” between the parties
includes “any subsequent order form,” J.A. 54, the inconsistency
between the fees described in the Master Agreement and those
contained in Order No. 2 renders the $20,000 fee term
susceptible to more than one interpretation.
The ambiguity as to this term is compounded by an email
sent by Clear Tech immediately before the parties signed Order
No. 2. In July 2004, Clear Tech’s Chief Executive Officer John
Kendall wrote the following to NCFB’s Linda Squires summarizing
Order No. 2:
License Fees: We agreed that we will structure a
License Agreement based on each area that Tranzax will
be deployed as a specific“module” [sic]. So for
example we will charge $300k, plus $20k per month (for
maintenance) for the License to use Tranzax in the
Underwriting area/s at NCFB.
J.A. 87 (emphasis added). Clear Tech’s characterization in this
email of the $20,000 monthly fee as both “for maintenance” and

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“for the License” further supports the conclusion that the
$20,000 fee term in Order No. 2 is ambiguous.
B.
Because the terms of Order No. 2 are ambiguous, we (like
the district court) may consider extrinsic evidence bearing on
the parties’ mutual intent at the time they entered into the
contract. Thompson, 861 P.2d at 715. And because Clear Tech
drafted the Master Agreement and Order No. 2, we construe those
documents against Clear Tech. Id. at 716.
The district court found that because Clear Tech “offered
no material evidence” to dispute NCFB’s interpretation of the
$20,000 fee, there was no genuine issue of material of fact
surrounding the meaning of the $20,000 fee term and summary
judgment in favor of NCFB was appropriate. We disagree.
To be sure, the record contains considerable evidence
supporting NCFB’s view that the parties intended the $20,000
monthly fee to be for maintenance and not for the license. As
previously discussed, the Master Agreement does not contemplate
any monthly license fees. The only recurring fees found in the
Master Agreement are annual maintenance fees, which were
optional and not linked in any way to NCFB’s licenses to use the
software. In addition, Clear Tech’s then-CEO John Kendall
described the $20,000 fee as “for maintenance” in his email to
Linda Squires as the two were discussing Order No. 2.

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The deposition testimony of John and Chris Kendall and
Linda Squires also weighs in favor of NCFB’s interpretation of
Order No. 2. Although John Kendall mentioned both the $300,000
fee and the recurring $20,000 fee when asked “what the license
fee was,” he then clarified that the $20,000 fee was for
maintenance and support and was not a license fee. J.A. 257.
When asked what portion of the $20,000 fee was for the license
(as opposed to maintenance and support), Chris Kendall
testified, “My recollection is zero.” J.A. 268. And Linda
Squires stated that it was “clearly communicated” that the
$20,000 fee was for maintenance. J.A. 284.
However, the record also contains evidence from which a
reasonable jury could side with Clear Tech. For one, the
placement of the $20,000 monthly fee under the heading “License
Fee” (and the notation that Annual Maintenance was “Included”)
on the parties’ contract, which was reviewed by NCFB’s counsel
before it was executed, weighs in favor of Clear Tech’s
interpretation. A jury might also conclude that John Kendall’s
July 2004 email listing the $20,000 monthly fee under the
heading “License Fees” (plural) and describing the fee as “for
the License” indicates that it was intended to be a mandatory
license fee.
Clear Tech also introduced uncontroverted testimony from an
expert on software contracts, who opined that mandatory

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recurring license fees (even in conjunction with up front, one-
time license fees) are typical in the industry and are often
structured to include maintenance. He also contrasted the
“perpetual” license in the parties’ Master Agreement with an
“irrevocable” license, and clarified that the former is subject
to the terms and conditions of the parties’ agreement, which
included NCFB’s continued payment of license fees. J.A. 436.3
Clear Tech’s argument finds further support in the
testimony of its then-Vice President of Sales and Marketing
Geoff Smyth, who stated that in 2004, Clear Tech “was actively
seeking to increase the amount of recurring license revenue it
received as opposed to the amount of recurring maintenance
revenue it received.” J.A. 635. According to Smyth, Clear Tech
sought to accomplish this by “negotiat[ing] agreements with its
customers whereby customers licensed Clear’s technology on a
subscription basis” with maintenance “included in the
subscription license price.” Id. A jury might choose to credit
Smyth’s testimony over that of John and Chris Kendall, who no
longer worked for Clear Tech and were testifying over eight
years after Order No. 2 was signed.
3 In contrast, Clear Tech’s expert explained, an
“irrevocable” license “continue[s] forever no matter what--even
if the licensee breaches the license agreement." J.A. 436
(emphasis added and internal quotation marks omitted).

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Indeed, nothing in the Master Agreement precludes a finding
that, for purposes of Order No. 2, NCFB agreed to pay a monthly
license fee that also included non-cancellable maintenance.
Although the Master Agreement permits NCFB to opt out of the
"Annual Maintenance Fee," it does not bar the parties from
contracting for a mandatory monthly fee, whether for the license
or for maintenance. Thus, even if NCFB were able to demonstrate
that the $20,000 monthly fee was intended to cover maintenance,
it would not necessarily follow that it was optional. We also
note that the first Order No. 2 invoice that Clear Tech sent to
NCFB, which NCFB paid, lists the $20,000 fee as a “Monthly
License and Maintenance Fee.” J.A. 291. In light of this
evidence, a reasonable jury could conclude that the $20,000
monthly fee was intended to be a mandatory recurring license or
maintenance fee.
In sum, on this record, the district court erred in
deciding that there was no genuine issue for trial.
III.
For the foregoing reasons, we vacate the district court’s
order granting NCFB’s motion for summary judgment and remand
this case for trial.
VACATED AND REMANDED

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