GTE WIRELESS, INC., f/k/a GTE MOBILNET SERVICE CORP., a Delaware Corporation v. CELLEXIS INTERNATIONAL, INC., an Arizona Corporation

United States Court of Appeals
For the First Circuit
No. 02-2174
GTE WIRELESS, INC., f/k/a
GTE MOBILNET SERVICE CORP., a Delaware Corporation,
Plaintiff, Appellant,
v.
CELLEXIS INTERNATIONAL, INC., an Arizona Corporation and
FREEDOM WIRELESS, INC., a Nevada Corporation,
Defendants, Appellees,
and
DOUGLAS V. FOUGNIES,
Defendant.
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MASSACHUSETTS
[Hon. Douglas P. Woodlock, U.S. District Judge]
Before
Torruella, Circuit Judge,
Bownes, Senior Circuit Judge,
and Lynch, Circuit Judge.
Scott G. Lindvall, with whom Patricia J. Clarke, Darby & Darby
P.C., Douglas J. Kline, Jennifer L. Conrad, Testa, Hurwitz &
Thibeault, LLP, were on brief, for appellant.
Shaun P. Martin, with whom A. William Urquhart, Marshall M.
Searcy III, Quinn Emanuel Urquhart Oliver & Hedges, LLP, F. Dennis
Saylor, IV, Cheryl R. Brunetti, and Goodwin Procter LLP, were on
brief, for appellees.
August 14, 2003

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1 GTE Wireless, Inc. is a wholly-owned subsidiary of GTE
Corporation; GTE Corporation, in turn, is a wholly-owned subsidiary
of Verizon Communications, Inc.
2 Cellexis International, Inc. is now known as Wireless Pathways,
Inc.
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TORRUELLA, Circuit Judge. On behalf of its affiliate
Cellco Partnership ("Cellco"), appellant GTE Wireless sought
enforcement of a 1996 covenant not to sue that GTE Mobilnet
Services Corporation and GTE Corporation (collectively "GTE")1 made
with appellee Cellexis International, Inc. ("Cellexis").2 On
cross-motions for summary judgment, the district court granted
summary judgment for Cellexis, finding that the Settlement
Agreement did not reach entities that became GTE affiliates after
the execution of the 1996 Agreement. After extensive
consideration, we reverse.
I. Background
A. Generation of Settlement Agreement
The history of the parties' litigation is complicated by
several corporate transmutations. In April 1996, appellees
Cellexis and Freedom Wireless, Inc., sued GTE in the United States
District Court for the District of Arizona, claiming that GTE stole
its trade secrets by using Cellexis's technology for prepaid
cellular telephone service (the "1996 litigation").
Five weeks after filing suit, Cellexis settled with GTE
(the "Settlement Agreement"). As part of the Settlement Agreement,

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Cellexis agreed to pay part of GTE's attorneys' fees and to
publicly retract prior statements accusing GTE of uncompetitive
behavior, theft, fraud, and malice. In return, GTE agreed to drop
its claims against Cellexis for malicious prosecution, trade libel,
and interference with contractual relations. The Settlement
Agreement contained a covenant by Cellexis and its principals not
to sue GTE and its affiliates, partnerships, joint ventures, and
successors in the future over GTE’s use of the same technology.
When the Settlement Agreement was signed, Cellexis had a patent
application pending with the U.S. Patent and Trademark Office
("Patent Office") for the technology at issue in the suit.
In September 1997, Cellexis sold its rights under the
patent application to Freedom Wireless, Inc., ("Freedom") for
$750,000. In February 1998, the Patent Office issued the first of
two patents ("'067 patent") arising from the patent application,
which Cellexis assigned to Freedom under the terms of the 1997 sale
of rights. Four months later, in June 1998, Freedom sent a letter
to GTE claiming that GTE was infringing the '067 patent. GTE
responded that the Settlement Agreement barred any suit against GTE
or its affiliates because the patent covered the technology at
issue in the 1996 litigation.
On July 27, 1998, GTE Corporation and Bell Atlantic
Corporation ("Bell Atlantic") entered into a merger agreement. On
September 21, 1999, Bell Atlantic and Vodafone Airtouch PLC agreed

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to consolidate their operations. As part of the agreement, GTE
Wireless's operations were assigned to Cellco (a Bell Atlantic
subsidiary) at the closing of the GTE/Bell Atlantic merger. GTE
Mobilnet was dissolved on June 21, 2000, and all its assets were
distributed to its sole shareholder, GTE Wireless. The GTE/Bell
Atlantic merger was completed July 10, 2000, and GTE Corporation
became a wholly-owned subsidiary of Bell Atlantic (now Verizon
Communications, Inc. ("Verizon")). GTE subsidiaries and affiliates
together own 55% of Cellco. Verizon also has the contractual right
to appoint a majority of Cellco's Board of Representatives.
B. District Court Proceedings
On March 29, 2000, Freedom filed suit in the United
States District Court for the Northern District of California
accusing several companies, including Bell Atlantic and AirTouch,
of infringing Freedom's patent. The patent action was transferred
to Massachusetts federal court. In December 2000, the Patent
Office issued the second patent ("'823 patent") arising from the
patent application assigned to Freedom. Freedom filed an amended
complaint in the patent action adding infringement of the '823
patent and naming Cellco as a defendant.
As Cellco answered Freedom's complaint, GTE Mobilnet
filed suit against Cellexis, Freedom, and one of Freedom's officers
in the United States District Court for the District of Arizona,
contending that AirTouch and Bell Atlantic fell under the

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definition of GTE Partnerships in paragraph 1.4 of the Settlement
Agreement; thus, Freedom could not bring a claim of patent
infringement against them. Six days after bringing suit in
Arizona, GTE Mobilnet dissolved. GTE Mobilnet attempted to
substitute Cellco as plaintiff, stating that Cellco was a successor
to GTE Mobilnet and seeking to preliminarily enjoin Freedom from
pursuing its patent case against Cellco. The Arizona court denied
the motion to substitute and transferred the case to Massachusetts
because of its relatedness to the pending patent action.
After transfer to Massachusetts, the district court
allowed GTE Mobilnet's motion to substitute GTE Wireless as
plaintiff. In its supplemental complaint, GTE Wireless claimed
that defendants were in breach of the Settlement Agreement by
continuing to pursue Freedom's patent suit against Cellco. GTE
Wireless argued that the interest that GTE Wireless took in Cellco
in July 2000 made Cellco a GTE Partnership and an intended
beneficiary of the Settlement Agreement and that Cellco fell within
the definition of GTE as an affiliate. Cellexis argued, inter
alia, that the definition of GTE in the Settlement Agreement only
included affiliates that were in existence at the time the
agreement was executed.
The parties filed cross-motions for summary judgment.
Applying Arizona law as the parties contracted, the Massachusetts
court denied GTE's proffer of extrinsic evidence and granted

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Cellexis's motion for summary judgment, concluding that the
Settlement Agreement does not reach entities that became GTE
affiliates after May 15, 1996. GTE Wireless appeals.
II. Standard of Review
We review summary judgment decisions de novo, viewing the
facts in the light most favorable to the nonmoving party. Ruiz-
Sulsona v. Univ. of P. R., __ F.3d __ (1st Cir. 2003). Summary
judgment is inappropriate if there is a genuine issue as to any
material fact. Id.
It is undisputed that Arizona law controls. In Arizona,
contract interpretation involves matters of law, and we are not
bound by the trial court's interpretation of the language. See
Andrews v. Blake, 69 P.3d 7, 11 (Ariz. 2003). "A district court's
application of the parol evidence rule, an issue of state law, is
reviewed under the same de novo standard applied to decisions
concerning federal law." Jinro Am., Inc. v. JR Int'l Corp., 266
F.3d 993, 998-99 (9th Cir. 2001) (applying Arizona law to a
contract dispute). Where a contract is reasonably susceptible to
more than one meaning and evidence exists to support the reading
advocated by the nonmovant, an issue of fact is presented that
cannot be resolved on summary judgment. See Taylor v. State Farm
Mut. Auto Ins. Co., 854 P.2d 1134, 1144-45 (Ariz. 1993) (en banc).

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3 Paragraph 1.4 states, "'GTE Partnerships' means and includes all
partnerships engaged in the provision of wireless communication
services, including but not limited to wireless communication
carriers, of which GTE Corporation or any of its subsidiaries or
affiliates are a partner or have an ownership or other financial
interest."
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III. Discussion
GTE wishes to enforce Paragraph 7.1 of the Covenant Not
to Sue which states:
Cellexis and the Cellexis Principals hereby
covenant and agree that they shall not now or
at any time in the future bring any Claims
against GTE, the GTE Partnerships,3 their
predecessors, their successors, and each of
their present and former attorneys, officers,
agents, heirs, assigns, owners, servants,
directors, employees, and all other
representatives involving alleged Intellectual
Property as defined in paragraph 1.7.
Our task is to determine whether the district court
correctly resolved on summary judgment that the language in the
Settlement Agreement was "so one-sided that no reasonable person
could decide" that the definition of "GTE" in the Settlement
Agreement included Cellco, a current GTE affiliate that was not an
affiliate at the time the Settlement Agreement was executed. See
Lohnes v. Level 3 Communs., Inc., 272 F.3d 49, 53 (1st Cir. 2001)
(citation omitted).
We begin our analysis by scrutinizing the contract
language for the parties' intent. The definition of "GTE" provided
in Paragraph 1.3 of the Settlement Agreement states that "'GTE'
means and includes GTE Corporation, all of its subsidiaries, joint

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4 The district court points to the use of the phrase "arising out
of" in Paragraph 1.7 ("'Intellectual Property' means rights,
including but not limited to patents, copyrights, or trade secrets,
involving or arising out of wireless communication technology
. . . .) and the explicit use of the term "successor" in Paragraph
7.1 to reach the conclusion that the drafters used the future tense
when they intended to cover future events and entities.
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ventures, and affiliates and every GTE entity which is licensed to
provide wireless communications services, including but not limited
to GTE Mobilnet Service Corporation."
GTE contends that Paragraph 1.3 does not contain a
temporal limitation. In support of its position, GTE attempted to
introduce into evidence the deposition of GTE general counsel,
Richard Stimson, who testified that he and Cellexis's attorney had
agreed not to include a list of GTE entities because the entities
were always changing as GTE attempted to establish itself as a
national cellular carrier. The district court denied admission of
the extrinsic evidence and found that other provisions of the
Settlement Agreement contain language in the future tense,
indicating that the drafters of the contract would have used a
future tense if they intended to include future affiliates.4 The
district court concluded that where the contract did not explicitly
use future language, the court will "presume that the parties
intended the Agreement to cover only those entities that existed at
the time of the Agreement's execution." GTE Wireless, 2002 U.S.
Dist. LEXIS, at *14.

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We find that the district court erred in its approach to
interpreting the contract. The district court believed that it was
required to interpret the Agreement narrowly, and that this narrow
construction could not be broadened by any extrinsic evidence, even
if that evidence compelled a broader interpretation. See id. at
*16. However, this is not Arizona law. When the extrinsic
evidence supports GTE's proffered and reasonable interpretation, a
triable issue of fact is created that cannot be resolved by a court
on summary judgment.
In Arizona, "[w]hen interpreting a contract, a court must
determine and effectuate the intent of the parties." Ahwatukee
Custom Estates Mgmt. Assoc., Inc. v. Bach, 973 P.2d 106, 109 (Ariz.
1999). To ascertain intent, Arizona has adopted the Corbin
approach to the admission of extrinsic evidence. Taylor, 854 P.2d
at 1138. Under this approach, the trial judge is not required to
make a finding of ambiguity; the court considers all extrinsic
evidence offered by a party to "illuminate the meaning of the
contract language, or demonstrate the parties' intent." Id. at
1139. The district court erred, then, in holding that GTE's
proffered interpretation needed to rest on some "ambiguity as to
the temporal limitations in the Agreement." GTE Wireless, 2002
U.S. Dist. LEXIS 16203, at *16. At the interpretation stage, a
court may only disregard that evidence that is wholly without

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probative value in determining that intent. Taylor, 854 P.2d at
1139.
In Arizona, "a court may consider surrounding
circumstances, including negotiation, prior understandings, and
subsequent conduct." Id. After considering all proffered evidence
and arriving at an interpretation of the disputed terms, the court
excludes from the fact-finder's consideration only the evidence
that contradicts or varies the meaning of the agreement. See id.
(stating that the judge may not consider the offered evidence
where "the asserted meaning of the contract language is so
unreasonable or extraordinary that it is improbable that the
parties actually subscribed to the interpretation asserted by the
proponent of the extrinsic evidence"). Thus, if the trial court
finds the contract language is "reasonably susceptible" to the
proponent's interpretation, the extrinsic evidence is admissible to
determine the parties' intended meaning. Id.; Maxwell v. Fid. Fin.
Servs., 907 P.2d 51, 61 (Ariz. 1995) (en banc).
After correctly reciting Arizona law regarding the
admission of extrinsic evidence, the district court overstated
Arizona law by asserting it "requires that a release of liability
be construed narrowly against coverage of non-parties, unless
expressly named or otherwise identified." GTE Wireless, 2002 U.S.
Dist. LEXIS 16203, at *11 (citing Spain v. Gen. Motors Corp., 829
P.2d. 1272, 1273 (Ariz. App. Div. 2 1992)). Spain actually uses

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the language relied upon by the district court to discuss the rule
other jurisdictions have applied to the rights on non-parties under
release contracts. 829 P.2d at 1273. The correct rule to be
gleaned from Spain is that others are "released only if that was
the intended result or the release expressly provided." Id.
(emphasis added).
Independently of its error about the extrinsic evidence,
the district court erred in ruling that the language of the
Agreement alone was not reasonably susceptible to different
interpretations. We think the Agreement offers ample room for
different interpretations, including the one offered by GTE. We
think the most natural reading of Paragraph 1.3 is that it contains
no temporal limitations, encompassing at any given time those
entities of which GTE consists or is affiliated with through
partnership or other agreements. Another reading, focused on the
use of the present tense in the term "is licensed to provide,"
suggests that the covenant is limited to those entities as of the
date of the covenant, the time of execution, or both.
As the district court noted, GTE's extrinsic evidence
supported a reasonable belief that GTE wanted to prevent Cellexis
from harassing it again with frivolous lawsuits over the claimed
intellectual property. That testimony apparently formed the basis
for the district court's conclusion that there was "no doubt that
GTE desired a broadly worded agreement to protect its interests to

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5 "To afford protection under the Settlement Agreement to any
entity that at some point qualifies as a GTE affiliate, joint
venture, partnership, or other protected entity, would essentially
give the plaintiff a right to infringe Freedom's patent in
perpetuity . . . render[ing] the Agreement tantamount to a freely
assignable license to Freedom's intellectual property. . . . Absent
any evidence showing that the parties agreed to this result, I am
disinclined to grant the plaintiff such a broad, and potentially
lucrative, construction of the Agreement." GTE Wireless, Inc.,
2002 U.S. Dist. LEXIS 16203, at *16-17.
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the greatest degree possible." See 2002 U.S. Dist. LEXIS 16203, at
*16. Since we cannot find where Cellexis has ever directly
rebutted this testimony or offered evidence to the contrary, we do
not see how GTE's "asserted meaning of the contract language is so
unreasonable or extraordinary that it is improbable that the
parties actually subscribed to the interpretation asserted by the
proponent of the extrinsic evidence." Taylor, 854 P.2d at 1139.
Although ostensibly grounded in Federal patent policy,
the district court also erred when it rejected GTE's interpretation
(and consequently GTE's extrinsic evidence) because GTE's
construction of the agreement would be against public policy as an
unreasonable expansion of the protections afforded by the
Settlement Agreement.5 GTE Wireless, 2002 U.S. Dist. LEXIS, at
*16-17. The trial court's concern about potential abuse is
misplaced; the paramount purpose of contract interpretation under
Arizona law is to effectuate the parties' intent. Taylor, 854 P.2d
at 1139; see also Stephen F. Ross and Daniel Tranen, The Modern
Parol Evidence Rule and Its Implications for New Textualist

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Statutory Interpretation, 87 Geo. L.J. 195, 203-04 (1998) (stating
that "because [extrinsic] evidence more accurately reflects the
parties' manifest intent than the judge's 'objective' review,"
Corbin's approach promotes the integrity of the contract as a means
of allowing parties the freedom to effectuate their economic
goals). The district court misapplied Arizona law when it
substituted its views as to what constitutes an improvident
contract for that of the contract drafters. As the Arizona Supreme
Court has stated, "[t]he judge . . . must avoid the often
irresistible temptation to automatically interpret contract
language as he or she would understand the words. This natural
tendency is sometimes disguised in the judge's ruling that contract
language is 'unambiguous.'" Taylor, 854 P.2d at 1139.
In Arizona, extrinsic evidence is not barred even where
the trial court believes the contract language is express. Taylor,
854 P.2d at 1139 (stating that "a court is obligated to enforce the
agreement according to the parties' intent, even if the language
ordinarily might mean something different"). Even a document that
may appear plain on its face, "may not appear nearly so plain once
the judge considers the [extrinsic] evidence." Id. at 1140. Thus,
if the terms of the Settlement Agreement can be reasonably
construed in more than one manner, then the terms are "subject to
a determination by the trier of fact about the intent of the
parties based on extrinsic evidence." Leo Eisenberg & Co. v.

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Payson, 785 P.2d 49, 52 (Ariz. 1989) (en banc). As the district
court stated, it is beyond doubt that GTE desired a broadly worded
agreement. GTE wished to be released from substantial potential
liability. The district court erred by not considering Stimson's
testimony and admitting it for consideration by the fact-finder.
The imprecise contract language defining GTE in Paragraph 1.3 is
reasonably susceptible to GTE's interpretation that the parties
intended the Settlement Agreement to cover future affiliates. A
perusal of the recitation of facts in this case supports the
assertion that the composition of companies in this industry is
constantly changing.
Based on the procedural history and extrinsic evidence
there are conflicting reasonable interpretations of the contract
language. These conflicting interpretations create a triable issue
of fact that requires the fact-finder to determine whether the
parties intended to include future affiliates within the definition
of GTE.
IV. Conclusion
Consequently, we reverse the trial court's grant of
summary judgment and remand this case for further proceedings
consistent with this opinion.
Reversed and Remanded.

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