          United States Court of Appeals
                      For the First Circuit

No. 12-1013

                  C. A. ACQUISITION NEWCO, LLC,

                       Plaintiff-Appellee,

                                v.

                     DHL EXPRESS (USA), INC.,

                       Defendant-Appellant.


          APPEAL FROM THE UNITED STATES DISTRICT COURT

                FOR THE DISTRICT OF MASSACHUSETTS

          [Hon. Michael A. Ponsor, U.S. District Judge]


                              Before

                   Boudin, Hawkins,* and Dyk,**
                         Circuit Judges.



     Anthony C. White, with whom O. Judson Scheaf, III, Philip B.
Sineneng, and Thompson Hine LLP were on brief, for defendant-
appellant DHL Express (USA), Inc.
     Jeffrey E. Poindexter, with whom Andrew Levchuk, Bulkley,
Richardson and Gelinas, LLP, Hari S. Nesathurai, and Nesathurai and
Luk LLP were on brief, for plaintiff-appellee C.A. Acquisition
Newco, LLC.



                         October 2, 2012


___________
  * Of the Ninth Circuit, sitting by designation.
  ** Of the Federal Circuit, sitting by designation.
            DYK, Circuit Judge.        In this breach-of-contract case,

defendant DHL Express (USA), Inc. (“DHL”) appeals from a judgment

on   the   pleadings    for   plaintiff     C.A.   Acquisition   Newco   LLC

(“Newco”).     The district court concluded that DHL had terminated

the contract and awarded the $50,000 per month provided for in the

contract in the event of a “termination.”             See C.A. Acquisition

Newco LLC v. DHL Express (USA), Inc., 795 F. Supp. 2d 140, 146 (D.

Mass. 2011).    Because we find the contract ambiguous as to whether

DHL’s actions constituted a termination under the contract, we

vacate and remand.

                                      I.

            DHL is the United States division of DHL International

GmBH, an international shipping company.           Until 2008, DHL provided

express pick-up and delivery of letters and packages throughout the

United States.       In 2006, with the objective of expanding its

customer     base,   DHL    decided   to    install   self-service   kiosks

(“Shipping Spots”) at various locations where DHL customers would

be able to use touch screens to pay for domestic shipping and print

shipping labels.       On August 1, 2006, DHL entered a contract with

software developer Cyphermint, Inc. (“Cyphermint”), predecessor in

interest to Newco.         Under the contract, which consisted of the

Master Services Agreement (“MSA”) and the Statement of Work,

Cyphermint agreed to provide software for the kiosks.            The initial

term of the contract was three years, ending July 31, 2009.


                                      -2-
           Under the contract’s Statement of Work, Cyphermint was

obligated to supply a software package, including advertising

software, which could then be installed on an indefinite number of

kiosks provided by DHL.      It appears that the software development

was to be completed before DHL began installation of the kiosks.

Cyphermint was to receive $0.35 per transaction and would share

advertising revenues with DHL flowing from advertisements displayed

at the kiosks.       Once Cyphermint developed that software, its

performance was essentially complete; it merely had to monitor the

use of that software at the shipping spots.                   Any subsequent

“[e]nhancements, improvements, [or] modifications” to the software

would be provided separately by Cyphermint at an $80 per hour rate.

J.A. 95.   The MSA also provided, in section 2.8, that “[n]othing in

this Agreement guarantees the number or placement of DHL Shipping

Spot(s)” and that the number of Shipping Spots “is solely within

the discretion      of   DHL.”    J.A.      60.    The   contract   does    not

explicitly require DHL to deal exclusively with Cyphermint, and it

appears to contemplate that DHL will only pay the $0.35 per

transaction   fee     at   “DHL   Shipping        Spot   fixtures   containing

Cyphermint software.”      J.A. 94.

           According to Newco’s amended complaint, but disputed in

DHL’s answer, 7,755 Shipping Spots were initially projected, and by

October 14, 2008, 5,415 Shipping Spots had been deployed.                  Id. at

30-31, 42.    In August 2008, following Cyphermint’s bankruptcy,


                                      -3-
Newco assumed Cyphermint’s obligations, rights, and liabilities

under    the     contract.      In    late       2008     (before    the    contract’s

expiration),       because    of     the    weak     economy,       DHL    decided   to

discontinue      all   domestic      shipping       within    the    United    States,

including the Shipping Spot project.

               The crux of this dispute is whether DHL “terminated” the

contract when it totally eliminated all Shipping Spots.                        The MSA

incorporated various provisions concerning early termination of the

contract.       Section 10.2 stated that termination for cause could

occur after a material breach.              The contract is reasonably clear

that no termination compensation would be payable in the event of

a DHL termination flowing from a material breach by Cyphermint, but

that    termination       compensation      would    be    payable    if    Cyphermint

terminated the contract as the result of a material breach by DHL.

There is no contention that either party materially breached the

agreement       (except    insofar     as    Cyphermint       contends      that     DHL

improperly failed to pay termination compensation), or that DHL

terminated the agreement for cause.

               Cyphermint points out that the agreement provided for

termination fees in the event that the agreement was terminated by

DHL without material breach by Cyphermint.                   The Statement of Work

provided that “[s]hould DHL terminate this agreement for any reason

other than a material breach by Cyphermint before its termination

date DHL agrees to compensate [Cyphermint] in the amount of $50,000


                                           -4-
per month for each month remaining in the initial term.”         J.A. 95.

Section 10.5 also stated that “[t]here shall be no termination fees

for any termination by either party, irrespective of the reason for

such termination, except for a ‘Material Breach’ or as provided

pursuant to the ‘Statement of Work’ [set forth above].”          J.A. 69.

Finally, section 10.3 stated that “[i]n addition to the other

termination rights set forth in this Section 10, [Cyphermint] may

terminate [its] Services in the event that DHL elects to cease

supporting the DHL Shipping Spot Project.”        J.A. 69.

           There is no dispute that the termination fees are payable

here if DHL did “terminate” the agreement. The question is whether

DHL’s actions amounted to a termination.          On November 12, 2008,

after   learning    of   DHL’s   decision,   Newco’s   counsel   requested

confirmation “that DHL intends to terminate the agreement” on

November 21.    C.A. Acquisition Newco, 795 F. Supp. 2d at 143.       DHL

responded on November 16 simply that “shipping will cease on

November 21.”      Id.

           On December 8, Newco requested early termination fees of

$413,333.33 ($50,000 per month until July 31, 2009). After DHL

refused to pay, Newco sued for breach of contract and other claims.

The case was removed from the Superior Court of the Commonwealth of

Massachusetts to federal court. The federal district court granted

Newco’s motion for judgment on the pleadings on its breach-of-

contract claim, concluding that DHL “fail[ed] to explain how


                                    -5-
reducing the [number of] shipping spots to zero is in any way

different from terminating the Contract.” Id. at 146. The parties

stipulated to dismissal of Newco’s other claims and to the amount

of damages, and the district court entered final judgment for Newco

of $413,333.33 plus interest.          DHL timely appealed from this

judgment, and we have jurisdiction pursuant to 28 U.S.C. §§ 1291

and 1294(1).

                                    II.

             We review the grant of a judgment on the pleadings under

Fed. R. Civ. P. 12(c) de novo, “view[ing] the facts contained in

the pleadings in the light most favorable to the nonmovant and

draw[ing] all reasonable inferences therefrom.”            Perez-Acevedo v.

Rivero-Cubano, 520 F.3d 26, 29 (1st Cir. 2008) (quoting R.G. Fin.

Corp.   v.   Vergara–Nunez,   446   F.3d    178,   182    (1st   Cir.   2006))

(internal quotation marks omitted). “Contract interpretation, when

based on contractual language without resort to extrinsic evidence,

is a ‘question of law’ that is reviewed de novo.”           OfficeMax, Inc.

v. Levesque, 658 F.3d 94, 97 (1st Cir. 2011) (citing Principal Mut.

Life Ins. Co. v. Racal-Datacom, Inc., 233 F.3d 1, 3 (1st Cir.

2000)).      The contract states that it “shall be governed by and

construed in accordance with the laws of the State of Florida,”

DHL’s principal place of business.         J.A. 197.     “Under Florida law,

courts must give effect to the plain language of contracts when

that language     is   clear and    unambiguous.       Whether    a   contract


                                    -6-
provision is ambiguous is a question for the court.”     Arriaga v.

Florida Pac. Farms, L.L.C., 305 F.3d 1228, 1246 (11th Cir. 2002)

(citation omitted).

           On appeal each side argues that its construction of the

contract is mandated by the contract’s plain language –- Cyphermint

that DHL’s actions clearly amounted to a termination, and DHL that

its actions were clearly not a termination.   We conclude that both

sides are mistaken.

           DHL invokes two contractual provisions to support its

argument that ending the Shipping Spot Project is not a termination

of the contract.      First, it argues that MSA section 2.8, which

states that the “number . . . of DHL Shipping Spot(s)” is not

guaranteed and “is solely within the discretion of DHL,” J.A. 60,

gives it the right to reduce the number of shipping spots to zero,

and that such action cannot be a termination.    Second, DHL argues

that MSA section 10.3, which states that “[i]n addition to [its]

other termination rights . . . [Cyphermint] may terminate [its]

Services in the event that DHL elects to cease supporting the DHL

Shipping Spot Project,” would make no sense if the contract were

automatically terminated by DHL’s cessation of the Shipping Spot

Project.

           The district court concluded, and Newco argues on appeal,

that these two provisions did not create ambiguity.       While MSA

section 2.8 grants DHL discretion over the number of Shipping


                                 -7-
Spots, the district court concluded that “it does not . . . permit

[DHL] to stop performing altogether for any reason or no reason.”

C.A. Acquisition Newco, 795 F. Supp. 2d at 144.                The court also

concluded that MSA section 10.3 “merely identifies one possible

remedy available to [Cyphermint] upon notification that [DHL]

intends to terminate the agreement,” and that the reference to

“other termination rights” triggered by DHL’s cessation of the

project supports Newco’s view.           Id. at 145.

           We    agree    that     the     contract    might   reasonably    be

interpreted as the district court and Newco suggest, as requiring

DHL to pay the $50,000 per month termination fee if it ceases all

shipping so that Cyphermint (now Newco) is not receiving any $0.35

per transaction     payments.       As     the   district court   noted,     the

cessation of shipping (which ends the Shipping Spot Project) seems

to fall within the ordinary meaning of “terminate.”                   See Mac’s

Shell Serv., Inc. v. Shell Oil Prods. Co., 130 S. Ct. 1251, 1257

(2010) (“The word ‘terminate’ ordinarily means ‘put an end to.’”

(quoting   Webster’s     New   International      Dictionary   2605    (2d   ed.

1957))).   However, we think DHL’s interpretation might also be

reasonable based on the language of the contract: termination of

the   Shipping   Spot    Project    is     not   necessarily   equivalent    to

termination of the agreement, particularly in light of MSA section

2.8, giving DHL “sole[] . . . discretion” over the number of

Shipping Spots.     The parties might have intended the termination


                                         -8-
fees to apply if DHL elected to continue the project with a

different software supplier but not if economic conditions led to

a cancellation of the Shipping Spot project entirely.                We thus

conclude that the contract is ambiguous as to whether DHL’s actions

constituted a termination.

            “When a contract is ambiguous, Florida law provides rules

of construction to infer the meaning.”        Arriaga, 305 F.3d at 1246-

47.     For example, “courts may receive evidence extrinsic to the

contract for the purpose of determining the intent of the parties

at the time of the contract” and may also consider factors such as

the “circumstances surrounding the parties at the time the contract

was made,” “custom and usage” of ambiguous terms, and “certain

public policy concerns.”          Id. at 1247 (citations and internal

quotation marks omitted).           It is also well established that a

contract should be interpreted to be reasonable.                See Excelsior

Ins. Co. v. Pomona Park Bar & Package Store, 369 So. 2d 938, 941

(Fla.    1979)     (“A   reasonable   interpretation   of   a    contract   is

preferred to an unreasonable one.”) (citing James v. Gulf Life Ins.

Co., 66 So. 2d 62 (Fla. 1953)).        In the commercial context, courts

should     avoid     interpreting     contracts   to   be       “commercially

unreasonable.” See John Hancock Life Ins. Co. v. Abbott Labs., 478

F.3d 1, 8 (1st Cir. 2006); see also XCO Int’l Inc. v. Pac.

Scientific Co., 369 F.3d 998, 1005 (7th Cir. 2004) (“Contract

interpretations that produce commercially unreasonable results are


                                      -9-
disfavored . . . because they are implausible to impute to the

parties.”).

            The pleadings do not establish the facts necessary to

resolve the ambiguity.        It follows that judgment on the pleadings

(which requires that there be no relevant factual dispute) was

inappropriate. At this stage of the proceedings it is not possible

to anticipate precisely what extrinsic evidence might resolve the

ambiguity, but there are several possibilities.

            For example, evidence related to the purpose of the early

termination fee provision is likely relevant in determining whether

DHL’s actions constitute a termination.       In the amended complaint,

Newco alleged that the parties were originally considering a fee

structure     under   which    Cyphermint   would   have   received   over

$6,000,000 in development and licensing fees, and that the early

termination fee was inserted after the parties switched to the

transaction-based payment structure, with the understanding that it

would allow Cyphermint to recover its initial investment if DHL

terminated the contract early.        DHL disputes this version of the

negotiating history. Evidence as to the negotiating history of the

contract may well be helpful in resolving the ambiguity.         Needless

to   say,     although   each     party’s   uncommunicated     subjective

understanding of the agreement during negotiations is generally

irrelevant, statements of subjective intent are relevant when

contrary to the party’s own interests.        See Gendzier v. Bielecki,


                                    -10-
97 So. 2d 604, 609 (Fla. 1957) (“[E]vidence of the unilateral

secret intent of a party to a written instrument is in and of

itself   immaterial    to   the   actual   creation   of   a   contract.”)

(citations omitted); 5 Corbin on Contracts § 24.10 (Matthew Bender

& Co. 2012) (“A party will not be permitted to build up an argument

by means of self-serving statements. Such statements should be

admissible against that party, however, as admissions against that

party's interest.”).    The district court should also consider any

relevant industry practices.

           Extrinsic evidence would also be useful in determining

whether the parties’ differing interpretations are commercially

reasonable.   On this issue it will be necessary to determine what

consideration supported DHL’s initial promise if DHL in fact had

unbridled discretion to have zero Shipping Spots.          DHL’s theory –-

that it had no obligation to install any kiosks –- might render the

contract commercially unreasonable absent some meaningful promise

in return.1

           Under Newco’s interpretation, the only consideration

provided by DHL (in the case of a DHL decision to never create any

Shipping Spots) is the termination fee, which would be triggered if



     1
        While the parties appear to agree that the contract is not
illusory, they have not clearly identified the consideration given
by DHL to Cyphermint that renders the contract not illusory at the
time of execution. “It is a fundamental principle that a contract
is to be construed as meaningful and not illusory.”      Cofman v.
Acton Corp., 958 F.2d 494, 497 (1st Cir. 1992).

                                   -11-
DHL elected to have zero Shipping Spots from the beginning of the

contract.    But there are also other constructions that might be

given to the contract to render it commercially reasonable at the

time of contracting.    For example, while DHL does not appear to

explicitly agree in the contract not to use software provided by

others (and the $0.35 per transaction payments apparently only

apply to kiosks using Cyphermint software), if the contract were

construed to require DHL to deal exclusively with Cyphermint and to

use best efforts to advance the project, that promise could serve

as consideration. See U.C.C. § 2-306(2) (“A lawful agreement . . .

for exclusive dealing . . . imposes unless otherwise agreed an

obligation by the seller to use best efforts to supply the goods

and by the buyer to use best efforts to promote their sale.”); Fla.

Stat. § 672.306(2) (adopting U.C.C. rule); 2 Corbin on Contracts

§ 6.5.   But the question exists whether such promises would be

sufficient to render it commercially reasonable.

            We do not intend the above to be an exhaustive list of

the evidence or factors that might be pertinent in resolving the

ambiguity in the contract language; rather, we simply note them to

confirm that the language of the contract itself –- while pertinent

to resolving the ambiguity –- is not the only source of relevant

evidence.

            Vacated and Remanded.   Costs to appellant.




                                -12-
