RSA 1 Ltd. Partnership v. Paramount Software Associates, Inc.
793 F.3d 903
8th Cir.2015Background
- In March 2009 Paramount (billing-services company) contracted with two Iowa cellular providers (RSA 1 and Iowa RSA 2) to process customer billing data at $1.05 per customer per month.
- Contract term: initial 36 months, automatic renewal for successive 24-month terms unless six months' notice; Section 12 provided for early termination and liquidated damages (greater of six months' fees or projected monthly fees for remaining months).
- Contract did not promise a minimum number of customer records nor exclusivity.
- RSAs notified Paramount they were switching vendors, asked Paramount to assist with conversion, later sent notice to shut down, and ceased using Paramount during a renewed 2-year term with over a year remaining.
- Paramount sued for breach and sought liquidated damages (~$260,000); RSAs sought declaratory judgment. District court granted summary judgment to Paramount; RSAs appealed.
Issues
| Issue | RSAs' Argument | Paramount's Argument | Held |
|---|---|---|---|
| Whether RSAs terminated the contract | RSAs say they merely stopped using services; no termination because contract did not obligate use | RSAs' communications (switch notice, shutdown request, thanks) manifested termination | Court: RSAs’ acts and communications amounted to termination |
| Whether Section 12 applied after renewal | Section 12 applies only to initial 36-month term | Section 12 governs early termination generally, including renewed term | Court: Section 12 applies during renewed term; "subject to" language does not limit it to initial term |
| Enforceability of liquidated-damages provision | Revenue-based formula (projected fees) is not a reasonable forecast of lost profit; thus penalty | Liquidated damages reasonable: harm hard to estimate; incremental cost near zero for data processing; revenue can approximate lost profit | Court: Provision enforceable under Texas law (two-prong test) — no genuine issue of fact that it reasonably forecasts just compensation |
| Proper calculation of damages | Projected monthly fees are zero because RSAs could have just stopped using services | Provision requires projection based on remaining term; damages are not automatically zero | Court: Rejected RSAs’ $0 argument; affirmed ~$260,000 award |
Key Cases Cited
- Celotex Corp. v. Catrett, 477 U.S. 317 (summary-judgment evidentiary framework)
- Torgerson v. City of Rochester, 643 F.3d 1031 (8th Cir. 2011) (summary-judgment standard)
- United Fire & Cas. Co. v. Titan Contractors Serv., Inc., 751 F.3d 880 (8th Cir. 2014) (appellate review of cross-summary-judgment rulings)
- Balandran v. Safeco Ins. Co. of Am., 972 S.W.2d 738 (Tex. 1998) (contract construction: give meaning to all provisions)
- Phillips v. Phillips, 820 S.W.2d 785 (Tex. 1991) (liquidated-damages enforceability as question of law)
- FPL Energy, LLC v. TXU Portfolio Mgmt. Co., L.P., 426 S.W.3d 59 (Tex. 2014) (two-prong test for liquidated damages: difficulty estimating harm and reasonable forecast)
- Henshaw v. Kroenecke, 656 S.W.2d 416 (Tex. 1983) (upholding revenue-based liquidated damages)