SIMANDLE, District Judge.
This matter comes before the Court on plaintiff's motion for partial summary judgment as against the defendants' second counterclaim, pursuant to Rule 56(c), Fed.R.Civ.P. With this counterclaim, defendants have asserted that plaintiff is liable for breach of its duties under a primary agreement signed July 11, 1995, in which the parties agreed to use their "best efforts" to negotiate a secondary agreement — a software development contract — within 15 days. The parties did not negotiate the anticipated agreement within 15 days. Defendants contend that this failure to reach an agreement is due to the plaintiff's failure to use its best efforts to negotiate.
The present Opinion does not address or affect the parties' cross-motions for summary judgment filed June 23, 2000. (Docket Entry Nos. 60 61.)
Plaintiff's present motion calls upon the Court to decide whether an agreement between the parties to use their "best efforts" to reach within 15 days a further agreement concerning the development of so-called "enhanced software" is enforceable where the development agreement contains only a sparse description of the subject of the proposed negotiation. For reasons discussed herein, the Court finds that although the parties did agree to negotiate, this agreement is unenforceable because it is impossible to predict the probable outcome of future negotiations, had they occurred. Accordingly, plaintiff's summary judgment motion will be granted, and defendants' second counterclaim will be dismissed.
Although defendants' brief characterizes the second counterclaim as stating a claim for breach of the development agreement itself ( see Def. Br. at 6), the Court finds that the wording of defendants' second counterclaim ("[plaintiff] breached its obligations by its failure and refusal to take any steps to negotiate the Development Agreement") clearly states a claim for failure to negotiate a development agreement.
BACKGROUND
This diverse contract and copyright infringement case arises from a dispute over a software purchase and licensing agreement negotiated between Data Systems Analysts, Inc. ("DSA"), a software development firm, and CompLink, now known as The NetPlex Group ("NetPlex"). In the early 1990s, DSA began a working relationship with, Technology Development Systems, Inc. ("TDS"), which subsequently was acquired by CompLink in December of 1993. Due to a reverse merger between CompLink and NetPlex in June 1996, TDS then became a subsidiary of NetPlex.
On July 11, 1995, DSA purchased from CompLink all rights, title and interest in the copyright known as "NetSwitch", a communications software package having remote access, store-and-forward and disparate e-mail capability, "together with all documentation, revisions, trade secrets, works in progress, support software, software tools and all rights associated therewith" for the sum of $500,000.00 (See DSA-CompLink July 1995 Agreement (hereinafter the "Prime Agreement") at 1 and 5, Pl. Ex. A.)
In the Prime Agreement, CompLink and TDS were "granted back" a limited license to use the NetSwitch software and documentation in future third party transactions. (Id. at ¶ 1.4.) This license was governed by provisions within the Prime Agreement limiting the modification and use of the software, and provided that CompLink would pay DSA 10% of the gross licensing fees received from the sale or installation of the software. (Id. at ¶ 5.4.)
Once the Prime Agreement was executed, the NetSwitch software was transferred by CompLink to DSA, with the understanding DSA would thereafter begin an analysis of the software under the thirty-day "Acceptance Testing Period", defined in Article V of the Prime Agreement. Apparently, this period was intended for DSA to test NetSwitch to see if it conformed to the specifications in the Prime Agreement. During this period, CompLink was to provide support for DSA. (Id. at 9-10.) According to the Prime Agreement, if DSA found non-conformities in the software during this period, CompLink would assist in their correction. (Id. at ¶¶ 5.2 and 5.3.)
Plaintiff filed suit in this Court in 1997, alleging that beginning in August 1995, one month after entering into the Prime Agreement, TDS began modifying DSA-owned software and licensing it to customers without notifying or compensating DSA. DSA alleges that TDS renamed the NetSwitch program "WorldLink", but that the WorldLink program was essentially made up of DSA's NetSwitch source code. DSA alleges that in December 1996, NetPlex sold the TDS WorldLink asset, with all its unauthorized enhancements and modifications to DSA's copyrighted code, to XcelleNet for $3,000,000.00. Plaintiff alleges that NetPlex's CEO, Gene Zaino, attempted to work out an eleventh hour purchase of DSA's rights in the software being delivered to XcelleNet, but ultimately chose to retain the entire $3 million paid for the so-called WorldLink software. (Pl. Br. at 4.) Plaintiff alleges that the above detailed conduct constitutes, inter alia, copyright infringement, breach of contract, and fraud. (See Am. Compl. ¶¶ 29-45.)
In response to DSA's lawsuit, defendants filed two contract counterclaims, the second of which asserts that DSA breached its obligations under the Prime Agreement when it failed to use its best efforts to negotiate a subsequent development agreement. (Answer Counterclaim II at ¶¶ 57-59.) This counterclaim is based on the parties' agreement to try to reach a secondary agreement within 15 days, whereby DSA would pay CompLink up to $300,000.00 for helping to develop NetSwitch into an "Enhanced Software Product". DSA was to be the sole owner of this new software product. (Prime Agreement at 1-2.) Notably, neither the purpose nor the capabilities of the anticipated enhanced software are described in the Prime Agreement.
This article provided, in relevant part, that
[w]ithin 15 days of the effective date of this Agreement, the parties will use their best efforts to negotiate and enter into Development Agreement for the development of the Enhanced Software, involving expected fees of up to $300,000.00. Nothing in this paragraph shall abrogate or otherwise invalidate any other provision of this Agreement.
(Prime Agreement ¶ 8.1.)
According to the defendants, once the NetSwitch software had been transferred to DSA, and the parties had entered into the 30 day testing period described above, DSA inappropriately expanded the scope of the assistance it required of CompLink. CompLink's CEO became convinced that the assistance demanded during this period was really consulting work compensable under the then-unwritten Enhanced Software Development Agreement rather than generalized troubleshooting as provided for in the Prime Agreement. Defendants theorize that DSA was attempting to disingenuously extend the testing period so that it could receive at no cost consulting services that it would have to pay for after the finalization of the Enhanced Software Development agreement detailed above. (Dep. of CompLink CEO Gene Zaino at 331-335, Def. Ex. A.)
DISCUSSION
A. Summary Judgment Standard
The standard for granting summary judgment is a stringent one. A court may grant summary judgment only when the materials of record "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). In deciding whether there is a disputed issue of material fact the court must view the evidence in favor of the non-moving party by extending any reasonable favorable inference to that party. See Aman v. Cort Furniture Rental Corp., 85 F.3d 1074, 1080-81 (3d Cir. 1996); Kowalski v. L F Prods., 82 F.3d 1283, 1288 (3d Cir. 1996); Meyer v. Riegel Prods. Corp., 720 F.2d 303, 307 n. 2 (3d Cir. 1983), cert. denied, 465 U.S. 1091 (1984). The threshold inquiry is whether there are "any genuine factual issues that properly can be resolved only by a finder of fact because they may reasonably be resolved in favor of either party." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 250 (1986).
Supreme Court decisions mandate that: "[w]hen the nonmoving party bears the burden of persuasion at trial, the moving party may meet its burden on summary judgment by showing that the nonmoving party's evidence is insufficient to carry its burden of persuasion at trial." Brewer v. Quaker State Oil Refining Corp., 72 F.3d 326, 329-330 (3d Cir. 1995) (citing Celotex Corp. v. Catrett, 477 U.S. 317, 322-23 (1987)). However, "the nonmoving party creates a genuine issue of material fact if it provides sufficient evidence to allow a reasonable jury to find for him at trial." Brewer, 72 F.3d at 330 (citing Anderson, 477 U.S. at 248). Once the moving party has carried its burden of establishing the absence of a genuine issue of material fact, "its opponent must do more than simply show that there is some metaphysical doubt as to material facts."Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586 (1986). Thus, if the non-movant's evidence is merely "colorable" or is "not significantly probative," the court may grant summary judgment.Anderson, 477 U.S. at 249-50.
B. The Parties' Agreement to Negotiate
Plaintiff argues that defendants' second counterclaim should be dismissed because (1) the parties' agreement to negotiate is unenforceable, and (2) even assuming that the clause is enforceable, defendants have failed to present any evidence that DSA failed to use its best efforts to negotiate a software development agreement. Because the Court now finds that the agreement to negotiate lacks sufficient detail to be enforceable, the Court does not reach plaintiff's second argument.
The Court first considers whether the best efforts clause here is enforceable as a matter of law. As detailed above, paragraph 8.1 of the Prime Agreement described the parties' agreement that they would use their best efforts to negotiate a subsequent contract. Specifically, the Prime Agreement provides that the parties would use their best efforts to within 15 days reach an agreement concerning the development of so-called "enhanced software". Enhanced software is defined in the Prime Agreement as "computer programs" which have been "upgraded" and "enhanced" pursuant to the fulfillment of the development agreement. (Prime Agreement at 3, Pl. Ex. A.)
Plaintiff argues that the issue here is cut and dried: paragraph 8.1 was only an agreement to negotiate, and agreements to negotiate are not enforceable as a matter of contract and public policy. (Pl. Br. at 6 (citing Honolulu Waterfront Limited Partnership v. Aloha Tower Development Corp., 692 F. Supp. 1230, 1235 (D. Ha. 1998) ("the overwhelming weight of authority holds that courts will not enforce an agreement to negotiate").) Defendants counter that paragraph 8.1 is still binding even it does not explicitly describe the goals of the future negotiation. (Def. Br. at 6-7 (citing Berg Agency v. Sleepworld-Willingboro, Inc., 136 N.J. Super. 369, 376-377 (App.Div. 197 5.))
Turning to discuss whether the instant agreement to negotiate an enhanced software development agreement is enforceable, the Court first considers the Third Circuit's holding that such agreements are enforceable under Pennsylvania law, albeit under certain limited circumstances. In Channel Home Centers, the parties had executed a detailed letter of intent to enter into a contract for the lease of certain commercial property. Channel Home Centers v. Grossman, 795 F.2d 291 (3d Cir. 1986) (Becker, J.). The letter contained an unequivocal promise to withdraw the property from the rental market so that the parties could negotiate the lease. Id. at 300. The property owner breached his promise to negotiate a lease, and the prospective lessor sued. Id. at 296. Now-Chief Judge Becker began by noting that, under Pennsylvania law, evidence of preliminary negotiations, or an agreement to enter into a binding contract in the future, does not alone constitute a contract.Id. at 298. Nevertheless, the court held that the parties' detailed letter of intent "had sufficient specificity to make it an enforceable contract". Id. at 300. Under Pennsylvania law, therefore, the determination of whether an agreement to negotiate is actionable is a fact-sensitive one, and the court must examine whether the preliminary agreement contained enough detail to show an intent to be bound by the agreement to negotiate in good faith. See USA Machinery Corp. v. CSC, Ltd., 184 F.3d 257, 264 (3d Cir. 1999) (distinguishing Channel Home Centers, supra.) While the Supreme Court of New Jersey has not yet directly addressed the issue of whether an promise to use best efforts to negotiate is enforceable, this Court is satisfied that it would follow the reasoning of the Channel Home Centers court, and hold that, given the right circumstances, an agreement to negotiate is enforceable so long as the parties have clearly defined the goals of the negotiation and evinced an intent to be bound by their promise.
As a preliminary matter, the Court finds that the parties' use of the phrase "best efforts" is meaningful. The Third Circuit recently has defined best efforts to mean something other than the generalized duty to negotiate in good faith: "The duty of best efforts `has diligence as its essence' and is `more exacting' than the usual contractual duty of good faith." National Payment Data Systems, Inc. v. Meridian Bank , 212 F.3d 849, 854 (3d Cir. 2000) (citing 2 E. Allan Farnsworth, Farnsworth on Contracts , 383-84 (2d ed. 1998)). Thus, the parties' use of the phrase "best efforts" can be interpreted to mean that they agreed to use "good faith plus diligence" in negotiating the enhanced software development agreement.
In this case, a review of paragraph 8.1 shows that it is too indefinite to be enforceable. While it may be presumed from the context of the agreement that the proposed enhanced software would be an improved commercial version of the NetSwitch software that DSA was purchasing from CompLink, the Prime Agreement does not provide any further description of the enhanced software. The Prime Agreement does not describe the purpose of designing the proposed enhanced software, nor does paragraph 8.1 describe the anticipated capabilities, performance features, appearance or retail cost of such computer programs. Additionally, the cost of developing the enhanced software was left unclear, with paragraph 8.1 providing only that CompLink would be paid fees up to $300,000.00.
The Court finds that paragraph 8.1 by its own terms is incomplete; it provides that the parties' would try to reach an subsequent agreement to develop improved software, the capabilities of which would be defined by the subsequent agreement. Because the exact nature of the enhanced software is not defined within the Prime Agreement, its physical design, as well as the financial terms of its development, had yet to be negotiated at the time the parties signed the Prime Agreement. Because of the inchoate nature of the parties' promise to negotiate, the Court is unable to determine what the result would have been had the parties engaged in negotiation. Furthermore, the Court would be unable to fashion a remedy for violation of this agreement, because the value and cost of developing the software was left open.
In sum, the Court finds that the terms of paragraph 8.1 do not show that the parties intended to be bound without a further manifestation of assent. Simply because the parties stated a willingness to enter into a future bargain, this does not mean that the parties intended to be bound without additional detail conclude the negotiation. See Restatement (Second) Contracts § 26. This is not a case like Channel Home Centers where the outcome of the future negotiation was predictable, the probable outcome reduced to a letter of intent, and the damages clearly ascertainable. Here, because the agreement to negotiate expressed in paragraph 8.1 is devoid of the factual detail necessary to show that the parties understood the parameters of the enhanced software, and because of the paragraph's open-ended financial terms, the parties' agreement to negotiate a putative software development agreement is unenforceable.
CONCLUSION
For the reasons discussed above, plaintiff's motion for partial summary judgment will be granted, and defendants' second counterclaim will be dismissed. The accompanying Order is entered.
O R D E R
THIS MATTER having come before the Court on plaintiff's motion for partial summary judgment as against defendants' second counterclaim pursuant to Rule 56, Fed.R.Civ.P. (Docket Entry No. 57), and the Court having considered the parties' submissions;
IT IS this day of August, 2000
ORDERED that plaintiff's motion be, and hereby is
GRANTED ; and it is further
ORDERED that defendants' second counterclaim be, and hereby is,
DISMISSED .