ikon GmbH v. Enterasys Networks CV-02-98-B 03/05/03

UNITED STATES DISTRICT COURT FOR THE DISTRICT OF NEW HAMPSHIRE

Ikon GmbH and TEWS Technologies GmbH

v. Civil No. 02-98-B Opinion No.

Enterasvs Networks, Inc.

MEMORANDUM AND ORDER

Enterasys Networks, Inc. entered into an agreement to pay

ikon GmbH to design and develop circuit boards and software.

Under the agreement, ikon's development of the products were

scheduled to begin on the date Enterasys remitted an initial

payment egualing 35% of the total cost of ikon's services.

Although Enterasys never remitted the initial payment, ikon and

its subcontractor, TEWS Technologies GmbH, began working on the

design and development of the circuit boards and software. Ikon

and TEWS have sued Enterasys for breach of contract, seeking to

recover all costs associated with the work it performed under the

agreement. Enterasys moves for summary judgment, alleging that

the initial payment was a condition precedent to ikon's performance under the agreement, and that since it never remitted

the payment a contract was never formed.

I. STANDARD OF REVIEW

Summary judgment is appropriate only "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 judgment as a matter of law." Fed. R. Civ. P.

56(c). A genuine issue is one "that properly can be resolved

only by a finder of fact because [it] may reasonably be resolved

in favor of either party." Anderson v. Liberty Lobby, Inc.,

(1986). A material fact is one that affects the

outcome of the suit. See

.

In ruling upon a motion for summary judgment, I must

construe the evidence in the light most favorable to the non­

movant. See Navarro v. Pfizer Corp.,

(1st Cir.

2001). The party moving for summary judgment, however, "bears

the initial responsibility of informing the district court of the

basis for its motion, and identifying those portions of [the

- 2 - record] which it believes demonstrate the absence of a genuine

issue of material fact." Celotex Corp. v. Catrett,

(1986). Once the moving party has properly supported its

motion, the burden shifts to the nonmoving party to "produce

evidence on which a reasonable finder of fact, under the

appropriate proof burden, could base a verdict for it; if that

party cannot produce such evidence, the motion must be granted."

Ayala-Gerena v. Bristol Myers-Sguibb Co.,

(1st

Cir. 1996) (citing Celotex,

; Anderson,

). Neither conclusory allegations, improbable inferences,

or unsupported speculation are sufficient to defeat summary

judgment. See Carroll v. Xerox Corp.,

(1st

Cir. 2 002).

II. BACKGROUND

According to the agreement, ikon was "to design, have

designed, develop, or have developed" circuit board assemblies

and software. Def's Mem. in support of Mot. for Summ. J., Ex. 1

at 5 2.0 ("Agreement"). In exchange, Entrasys agreed to

compensate ikon for the project according to a payment schedule.

- 3 - Development of the circuit boards and software was scheduled to

start upon the date the first payment of 35% of the total project

costs was made by Enterasys. Agreement at Ex A, n.23(a).

According to Enterasys' director of hardware development, ikon

"would not consider Enterasys to be 'serious' about the

Agreement" until the first payment was received. Hirani Aff. at

5 3. Furthermore, ikon apparently insisted that it would not

begin the project until it received the first payment.

at 5

7.

About a month after entering the agreement, Enterasys

concluded that ikon would not be able to complete the project

according to the delivery schedule in the agreement.

Subseguently, Enterasys notified ikon that it would not remit the

first payment and, therefore, it considered the agreement void.

Although it did not receive the first payment, ikon had

already begun designing and developing the circuit boards and

software. Further, it had sought and received approval from

Enterasys to hire TEWS as a subcontractor. After Enterasys

notified ikon that it would not remit the initial payment and

considered the contract void, ikon and TEWS initiated this action

- 4 - seeking to recover damages for the work they had completed.

III. DISCUSSION

A. The initial payment

Enterasys argues that ikon's promise to perform under the

Agreement was conditioned upon the receipt of Enterasys' initial

payment. Enterasys concludes that since it did not remit the

payment, this condition precedent was not satisfied and an

agreement was never formed.

The interpretation of contracts is a guestion of law for the

court to decide. Strafford Tech., Inc. v. Camcar,

,

(2001). When interpreting a written contract, I must "read the

document as a whole and give its terms their reasonable meaning."

This remains true for contractual terms that establish

conditions precedent. However, "[a]s a general rule, conditions

precedent are not favored, and [I] will not so construe such

conditions unless reguired by the plain language of the

agreement." In re Estate of Kelly,

(1988).

Conditions precedent "'are those facts and events, occurring

subseguently to the making of a valid contract, that must . . .

- 5 - occur before there is a right to . . . performance.'"

at 781

(quoting 3A A. Corbin, Corbin on Contracts 628, at 16 (I960)).

"As a rule of thumb, provisions which commence with words such as

'if,' 'on condition that,' 'subject to' and 'provided' create

conditions precedent." Holden Engineering and Surveying, Inc. v.

Pembroke Road Realty Trust,

(1993). When the

parties expressly condition their performance upon the occurrence

or non-occurrence of an event, "rather than simply including the

event as one of the general terms of the contract, the parties'

bargained-for expectation of strict compliance should be given

effect." Renovest Co. v. Hodges Dev. Corp.,

(1991)

I conclude that the initial payment provision was not a

condition precedent to ikon's promise to perform under the

agreement. Ikon promised to design and develop certain items and

to deliver these items to Enterasys according to a set schedule.

The performance of this promise was not conditioned upon the

receipt of Enterasys' initial payment. See Agreement at 5 2.0.

Indeed, none of the common terms that trigger a condition

precedent are present in the contract language that established

either the parties responsibilities under the Agreement or the

- 6 - schedule for the development and delivery of the circuit boards

and software. See id.; c f. Holden Engineering and Surveying,

Inc.,

.

Furthermore, the language of the agreement's delivery

schedule referred to in paragraph 2.0 of the agreement merely

establishes the date ikon was to receive Enterasys' initial

payment as the starting date of development. See Agreement at

Ex. A, n.23(a). This starting date may have been critical to the

agreed upon schedule for delivery of services, but it was not a

condition precedent to ikon's actual promise to perform. In

other words, the terms of the contract regarding the starting

date of development are more akin to general contract terms

regarding the delivery of services, rather than express terms

conditioning performance on the occurrence or non-occurrence of

an event. See Renovest,

. In short, ikon's

promise to perform was not expressly subject to the receipt of

the initial payment. Therefore, according to the plain language

of the agreement, I cannot conclude that the initial payment

provision was a fact or event that had to occur before triggering

ikon's duty to perform under the agreement.

- 7 - B. Third Party Beneficiary Status of TEWS

Enterasys also moves for summary judgement as to TEWS' claim

that it is a third-party beneficiary to the agreement between

Enterasys and Ikon. Enterasys argues that TEWS was a

subcontractor hired by ikon, not a third party beneficiary to the

agreement between ikon and Enterasys. As such, Enterasys

concludes that TEWS has no cause of action directly against

Enterasys, and must pursue any alleged claim against ikon. Ikon

counters that ikon and TEWS entered into a "joint venture" with

Enterasys, and that Enterasys expressly granted ikon permission

to hire TEWS as a subcontractor, as called for under the

agreement. As such, TEWS was a third-party beneficiary entitled

to maintain a cause of action directly against Enterasys.

A third-party beneficiary relationship exists if (1) the

contract reguires the promisor to satisfy an obligation owed by

the promisor to a third party; or (2) the contract gives the

promisor reason to know that the promisee has entered into the

agreement, at least in part, in order to benefit a third party.

Arlington Trust Co. v. Estate of Wood,

(1983). In either event, the parties must contract with an intent to confer rights upon the third party. Tamposi Assocs.,

Inc. v. Star Market Co., Inc.,

(1979).

The agreement in this case was solely between ikon and

Enterasys. Nothing in the agreement indicates that TEWS was

intended as a third-party beneficiary to the agreement. Thus, it

is clear that the parties did not intend to confer a benefit upon

TEWS. See Hrushka v. State of N.H.,

(1977);

Tamposi,

. TEWS cannot sustain a claim against

Enterasys as a third-party beneficiary.

IV. CONCLUSION

For the foregoing reasons, I deny Enterasys summary judgment

motion (Doc. No. 9) as it pertains to ikon, and grant Enterasys

motion as it pertains to TEWS.

SO ORDERED.

Paul Barbadoro Chief Judge

March 5, 2003

cc: Russell Hilliard, Esg. Charles Szypszak, Esg.

- 9 -