United States District Court, N.D. California, San Jose Division
ORDER GRANTING DEFENDANTS' MOTION FOR SUMMARY JUDGMENT [Re Docket No. 120]. [Consolidated
with Case No, C-13-02971 for trial of contract interpretation issue]
RONALD M. WHYTE, District Judge.
Defendants j2 Global, Inc. ("j2") and Advanced Messaging Technologies, Inc. (collectively "defendants") move for summary judgment as to all counts of plaintiff Integrated Global Concepts, Inc.'s ("IGC") complaint in Case No. 12-3434 and counts IV and V of IGC's counterclaims in Case No. 13-2971. All counts relate to IGC's position that defendants breached a release and covenant not to sue in a June 2000 Agreement of Understanding ("Agreement") between the parties. The court finds that defendants have not breached the Agreement, and grants summary adjudication on the contractual interpretation issue.
The Agreement of Understanding arose out of merger negotiations between eFax and j2. eFax, j2, and IGC are all involved in facsimile technologies, including "fax-to-email" systems. A fax-to-email system allows a user to receive faxes sent to a phone number as an email attachment. At the time j2 and eFax began negotiating, j2 was not aware that eFax relied on IGC to provide support for eFax's fax-to-email systems. eFax and IGC had some preexisting disputes related to IGC's support, including payments that IGC believed it was entitled to from eFax. When j2 discovered these disputes, and discovered that eFax did not own the software used to carry out its services, all three companies entered into an Agreement of Understanding in order to resolve any eFax-IGC disputes prior to the merger and to arrange for IGC to continue supporting the eFax customers while they were migrated onto j2's platform. Dkt. No. 120-3, Johnson Decl. Ex. 1 (Agreement of Understanding).
Later, IGC offered fax-to-email services to other customers. j2, then the owner of several patents on fax technology, sued IGC for patent infringement. IGC alleges that j2 released its patent infringement claims in the Agreement of Understanding. A more detailed discussion of the facts follows.
A. IGC Provides Support and Services to eFax
IGC is a Chicago-based business that began offering fax service to consumers around 1993. Dkt. No. 121-1, Johnson Decl. Ex. 4 (Decl. of John R. ["Jack"] Neurauter in support of Motion to Dismiss) at ¶ 2, 3. In September 1998, IGC was approached by JetFax, a former name of eFax,  to develop a fax-to-email service. Id. ¶ 4. IGC and eFax entered into two agreements, the Software Development Agreement and the Co-Location Agreement, to develop and run the fax-to-email service. Id. ¶ 8; See also Dkt. No. 121-3, Johnson Decl. Ex. 6 (Co-Location Agreement); Dkt. No. 121-4, Johnson Decl. Ex 7 (Software Development Agreement).
The Software Development Agreement provides that IGC will modify its own fax-to-email software and develop a custom interface for use with eFax's software and equipment in exchange for payment from eFax. Dkt. No. 121-4 at 1. The Co-Location Agreement provides that IGC "shall host the eFax.com Products on eFax.com equipment located at IGC's site (the Co-Location Services')" in exchange for payment from eFax. Dkt. No. 121-3 at 7. Both agreements were signed on February 16, 1999 by Jack Neurauter, CEO of IGC, and Edward Prince, CEO of eFax.
B. j2 and eFax Plan to Merge
In early 2000, eFax "was losing money" and began exploring a merger with j2. Dkt. No. 121-5, Johnson Decl. Ex. 8 (Kenck Depo.) at 59:17-21; Dkt. No. 121-7, Johnson Decl. Ex. 10 (Proxy Statement) at 75. At that time, both companies were offering fax-to-email services on a free and paid-subscription basis. Dkt. No. 122-1, Johnson Decl. Ex. 11 (j2 Board Notes June 9, 2000) at 2.The intent of the merger was for j2 to acquire eFax's customer base, and then work to convert eFax's free subscribers into paid subscribers. Id. When eFax and j2 were first discussing the possibility of a merger, j2 was unaware that IGC provided eFax with software or support. Proxy Statement at 77; j2 Board Notes June 9, 2000 at 1.
In the Spring of 2000, eFax informed IGC that it was discussing a merger with j2. Dkt. No. 120-5, Johnson Decl. Ex. 3 (Neurauter Depo.) at 47:15-21. IGC in turn informed eFax that IGC believed it had performed work beyond the scope of the parties' agreements, for which eFax was obligated to pay. Id. at 52:10-14, 23-25. Unsurprisingly, eFax did not agree that it owed IGC additional money. Id. at 54:3-5.
j2 also learned that IGC believed it owned the software used to run eFax's system, pursuant to the Software Development Agreement, and that eFax might not be able to continue running its system after the merger. j2 Board Notes June 9, 2000 at 1-2; Kenck Depo. at 45:8-20, 71:20-23. j2 understood that these outstanding issues would cause significant problems with the merger because j2 would need time to transition eFax's customers onto j2's systems, and would need IGC's assistance to carry out the transition. Dkt. No. 121-6, Johnson Decl. Ex. 9 (Hamerslag Depo.) at 37:12-38:7.
Between April and May 2000, IGC and eFax discussed (1) obtaining IGC's assistance in transitioning customers from the eFax system to j2's system; (2) eFax obtaining a license to the software that IGC developed for eFax; and (3) IGC "relinquishing any claim which it might have against [eFax] for past services provided by [IGC] to [eFax]." Proxy Statement at 76. j2 informed eFax "that the merger agreement could not be executed until [eFax] reached an agreement with [IGC] on those issues." Id.
C. IGC, j2, and eFax Enter Into the Agreement of Understanding on June 30, 2000
In order to address the concerns mentioned above, all three companies entered into an Agreement of Understanding ("Agreement") on June 30, 2000. The Agreement was first set out in a Letter of Understanding sent from eFax to IGC on May 30, 2000. Dkt. No. 120-4, Johnson Decl. Ex. 2 (Letter). The Letter included a release covering "all past claims which they [i.e. IGC and eFax] may have against each other in connection with any oral or written agreements." Id.
The final Agreement provided that (1) j2 would deliver 2 million shares of j2 common stock to IGC; (2) IGC would grant j2 and eFax a non-exclusive license to its source code and related materials though the of the this "transition period"; (3) IGC would assist in transitioning eFax's customers to the j2 platform for additional consideration; and (4) the parties would release each other from any claims related to past services. See Agreement, Dkt. No. 120-3, §§ (5) and (6). The mutual releases are the focus of the dispute here. The court refers to Section 5 as the "Merger Party Claims waiver" and Section 6 as the "1542 waiver."
The Merger Party Claims waiver provides:
Section 5(a): Release of Rights by [j2] and eFax.
... [E]ach of [j2] and eFax effective as of the Closing Date, on behalf of itself and each of the Merger Parties, will release and fully discharge each of the IGC Parties, from any and all claims, demands and liabilities of whatever kind, whether presently known or unknown, suspected or alleged, and whether for damages or for equitable relief, including injunctive relief, corrective action, closure or remedial action, arising from or related to any past services, equipment software or other assets provided by IGC to the Merger Parties whether pursuant to the Development Agreement, the Co-Location Agreement or any other agreement or understanding, whether written or oral (the "Merger Party Claims").
The 1542 waiver provides:
Section 6: Nature of Releases.
... Each of IGC, eFax and [j2] waives all rights and benefits which it now has or in the future may have under and by virtue of the provisions of California Civil Code Section 1542, with the purpose and intent that the releases contained herein shall be construed as general and unqualified releases pursuant to the terms hereof. Each of IGC, eFax and [j2] understands and acknowledges that Sections 4 and 5 apply not only to all claims which are presently known, anticipated or disclosed, but also to those which are presently unknown, unanticipated or undisclosed. Each of IGC, eFax and [j2] acknowledges and agrees that the waivers set forth in Sections 4 and 5 are essential and material terms of this Agreement, without which the consideration relating hereto would not have been delivered.
On July 13, 2000, j2 and eFax finalized their Merger Agreement. See Proxy Statement. The transaction closed in November 2000. Dkt. No. 122-2, Johnson Decl. Ex. 12 (Morosoff Depo.) at 115:4-7. Pursuant to the Agreement, IGC assisted j2 in transitioning eFax's customers to j2. After ...