The opinion of the court was delivered by: CHIN
Eastern Airlines, Inc. ("Eastern"), by its trustee, Martin R. Shugrue, Jr., brings this action seeking a declaratory judgment that it is the owner and holder of rights in certain computer software used in the airline industry. Defendants Continental Airlines, Inc. ("Continental") and System One Information Management Corporation ("System One") maintain that Eastern has no rights in the software, and they have filed counterclaims against Eastern and the additional counterclaim defendants for damages.
Before the Court are four motions: (1) Eastern's motion to substitute Amadeus SA for Continental and System One; (2) Eastern's motion to disqualify counsel for Continental and System One; (3) defendants' motion for summary judgment dismissing the complaint; and (4) Eastern's motion to dismiss or, alternatively, for summary judgment dismissing the counterclaims.
For the reasons that follow, defendants' motion for summary judgment is granted and the complaint is dismissed. Likewise, plaintiff's motion to dismiss is granted and the counterclaims are dismissed. Accordingly, I do not reach the substitution or disqualification motions.
On July 1, 1986, Eastern established two wholly-owned subsidiaries -- System One Direct Access, Inc. ("SODA") and EAL Automation Systems, Inc. ("EASi") -- and transferred certain computer operations to them. Eastern executed a number of documents in connection with these transactions, including the July 1, 1986 Stock Subscription Agreement with EASi (the "EASi Stock Agreement"). One issue in dispute in this case is whether, as part of the EASi Stock Agreement, Eastern transferred the copyrights to its computerized reservations system software (the "CRS software") to EASi.
On March 15, 1987, Eastern sold all of the stock in SODA and EASi to System One Corporation ("SOC"), a subsidiary of Texas Air, for $ 100 million. (Def. Statement of Facts P 3.1; Pl. Counterstatement of Facts P 49).
Hence, whatever rights EASi had in the CRS software were acquired by SOC. SOC later merged with other companies to become System One, a defendant in this case.
From March 15, 1987 forward, SOC (and later System One) held itself out to the airline industry and the public as the owner of the CRS software. Indeed, after March 15, 1997 Eastern paid fees to System One for use of the CRS software.
On April 10, 1987, EASi, then owned by System One, entered into a Service Agreement (the "EASi Service Agreement") with Eastern by which System One agreed to provide computer services to Eastern using the CRS software and certain other software used for airline and business operations. This agreement is the source of the debate as to who retained licensing rights in the software. Section 10.03 of the EASi Service Agreement provides in pertinent part:
Upon termination of any Services provided under this Agreement resulting from a Default by EASi or from expiration of this Agreement, EASi will furnish Eastern, at Eastern's cost, duplicates of all programs and software and originals or copies of all magnetic tapes, print-outs, data base and other information used in connection with the service or services being terminated. In addition, upon a termination of this Agreement resulting from a Default by EASi or upon expiration of this Agreement, EASi shall at no additional charge grant to Eastern a perpetual, nonexclusive, nontransferable license to use and to allow other parties to use for its benefit all such programs and software, magnetic tapes, print-outs, data base and other information. . . .
The EASi Service Agreement provided that it was to expire on December 31, 1999.
Eastern contends that the EASi Service Agreement terminated as the result of several events in 1990 and 1991 and that, pursuant to section 10.03, it therefore acquired a license to use -- and to allow other parties to use -- the software, including the CRS software, that had been used to provide services under the agreement. Defendants argue that the EASi Service Agreement did not terminate in the manner required by section 10.03 and that, even if it did, the license was limited to use by Eastern for its own airlines operations.
Hence, Eastern claims rights to the CRS software in two respects: first, it contends that it retained ownership of the copyrights to the CRS software when it transferred its computer operations to EASi in 1986 under the EASI Stock Agreement, and second, it contends, alternatively, that it acquired a license to the CRS software when the EASi Service Agreement was terminated.
2. The Bankruptcy Proceedings
On March 9, 1989, Eastern filed for bankruptcy and was required to list all of its assets. The Bankruptcy Court appointed an Examiner to investigate certain intercorporate transactions between Eastern and its affiliates, including the sale by Eastern of SODA and EASi to System One.
In February 1990, the Bankruptcy Court terminated Continental's control over its former subsidiary, Eastern. In April 1990, the Bankruptcy Court appointed Martin R. Shugrue, Jr. as Eastern's Trustee. Continental and System One filed for bankruptcy in December 1990. On January 19, 1991, Eastern ceased all flight operations.
On July 2, 1992, Eastern and System One, together with Texas Air and Continental, entered into a settlement referred to as the "Global Settlement." In October 1992, this settlement was approved by the Bankruptcy Court in the Southern District of New York presiding over Eastern's bankruptcy proceedings as well as by the Bankruptcy Court in Delaware presiding over System One's and Continental's bankruptcy proceedings. In the settlement, the parties expressly released all claims among them relating to certain intercorporate transactions. Eastern's claim to copyrights to the CRS software apparently were not explicitly discussed during these negotiations.
On April 16, 1993, the Bankruptcy Court in Delaware confirmed the Continental and System One Plan of Reorganization. By its terms, this Plan extinguished all claims against Continental and System One.
In 1993 and 1994, Eastern purportedly began to try to market the CRS software to customers of System One. When Eastern filed its proposed Plan of Reorganization in Bankruptcy Court in September 1994, Eastern asserted a copyright interest in the CRS software. Continental, System One, and EDS filed objections to the assertion by Eastern of rights in the software.
3. The Assignment to Amadeus SA
On October 25, 1994, Continental and System One commenced an adversary proceeding in the Bankruptcy Court in Delaware to determine whether prior orders of that court entered in connection with the Continental bankruptcy were dispositive of Eastern's claims. On the same day, Eastern filed a complaint with the Bankruptcy Court in the Southern District of New York seeking a declaratory judgment that it had rights in the CRS and ADS software. The case came to this Court on a motion to withdraw the reference by EDS on December 1, 1994.
In September 1995, Continental and System One filed counterclaims based on Eastern's assertions that it had licensing and copyrights in the CRS software. Continental and System One argue that these assertions damaged System One's reputation and goodwill for stability and ...