Contract: Termination for convenience clause dooms breach claim

Where a party could terminate a services agreement for convenience without being obligated to continue payments, and it did so, it prevailed on the breach of contract claim.

Background

First Bank of Chicago, or FBC, as an assignee, seeks to recover unpaid funds from

American Electric Power Service Corporation, or AEPSC, pursuant to a hell-or-high-water clause in a Payment Agreement. AEPSC and IronNet executed a Master Agreement in which IronNet agreed to carry out a cybersecurity defense program in exchange for payment. AEPSC separately entered into the Payment Agreement with Asset Finance Group Inc., or AFG, promising to make payments to them pursuant to a specified schedule.

Meanwhile AFG provided IronNet with funds up front, a discounted amount of the total payments AEPSC owed to AFG under the Payment Agreement. AFG assigned the Payment Agreement to ePlus Group Inc., which then sold it to FBC. Subsequently, AEPSC terminated the Master Agreement, and it ceased making payments. FBC claims to have been unaware of the Master Agreement that was executed between AEPSC and IronNet, which allowed AEPSC to terminate IronNet’s services if certain conditions were met. Before the court are cross motions for summary judgment.

Analysis

AEPSC argues that the “Payment Agreement must be interpreted together with the Master Agreement, SOW, and Change Order because these agreements are all part of the same transaction.” The Supreme Court of Virginia considers five factors to determine if multiple agreements should be construed together. These factors all favor construing the Payment Agreement together with the Master Agreement, SOW and Change Order.

When considering these documents together, it becomes as clear as it is logical that AEPSC does not have to make payments for services it declined pursuant to the agreement between the parties. First, the Master Agreement expressly states that “certain payments and other obligations may be triggered only upon delivery and/or satisfactory completion of milestones as specified in the SOW.”

In a provision incorporated by reference in the Change Order, the initial SOW states that “[AEPSC] may withhold all or part of payment where permitted by this SOW or the Agreement.” And the Change Order states that “[e]xcept as modified by this Change Order and prior Change Orders, all other provisions of the original SOW remain in full force and effect as originally written and constitute the legal, valid, binding, enforceable obligation of Supplier to Company.”

Second, AEPSC had the right to terminate the Master Agreement and Change Order for its convenience without being obligated to continue payments. Third, another provision incorporated in the Change Order from the initial SOW states that “[i]f a conflict arises between the [Master] Agreement and this SOW, the terms and conditions of the [Master] Agreement will govern.” As an attachment to the Change Order, the Payment Agreement was a component of the Change Order, and if the terms conflicted, the Master Agreement would therefore govern.

The specific rights afforded by the Master Agreement, SOW, and Change Order, which uses tailored language to discuss each of the party’s expectations and obligations therefore supersede the general obligations set forth in what seems to be boilerplate language in the Payment Agreement. Putting this all together, when reading the Payment Agreement in conjunction with the Master Agreement, SOW, and Change Order, it becomes clear that AEPSC’s payment obligations were subject to the condition precedent that the Master Agreement and Change Order had not been terminated.

After AEPSC terminated the Master Agreement and Change Order, it was no longer obligated to make payments pursuant to the Payment Agreement. And this condition precedent remained following the assignment of the Payment Agreement to FBC because “Virginia law makes clear that an assignee of rights under a contract stands in the shoes of the assignor and can have no greater rights than the assignor would have had.”

Plaintiff’s motion for summary judgment denied. Defendant’s motion for summary judgment granted.

First Bank Chicago v. American Electric Power Service Corporation, Case No. 1:23-cv-00643, May 8, 2024. EDVA at Alexandria (Nachmanoff). VLW 024-3-269. 15 pp.