Key Points

  • The Alabama Supreme Court held that the termination-for-convenience clause in the 2008 LG-Velaro software-licensing contract, as amended in 2022, was unambiguous as to LG's payment obligations after early termination.
  • LG owes only for services Velaro provided through the July 15, 2022, effective termination date, not for the remaining 17 months of the two-year term.
  • Because the clause was unambiguous, the trial court should not have relied on parol evidence such as witness testimony and emails.
  • No late-payment charge applied, because Velaro's invoice was not a quarterly license-fee invoice and LG had disputed it.
  • The court reversed the $159,355.19 award of attorneys' fees and expenses; Justice Sellers concurred in the result, criticizing the majority's reliance on semantic canons.

The Alabama Supreme Court on Nov. 6 threw out a judgment that required LG Electronics Alabama Inc. to pay a software vendor for 17 months of service it never received. The court held that a contract clause letting either side walk away "without penalty" obligated LG to pay only for services delivered before the contract ended.

Justice Cook wrote for the court, which reversed a Madison Circuit Court judgment awarding Velaro Inc. $205,270.20 for the rest of a two-year term plus $107,151 in late-payment charges. In a companion appeal, the court also reversed a $159,355.19 award of attorneys' fees and expenses to Velaro. Chief Justice Stewart and Justices Wise, Bryan, McCool and Parker joined the opinion in full. Justices Sellers and Mendheim concurred in the result, and Justice Shaw recused himself.

The case turned on a termination-for-convenience clause. The trial court had found the clause ambiguous and filled the gap with emails and testimony about what the parties intended. The Supreme Court held that the clause had only one reasonable meaning, so that outside evidence should not have been considered. Under the ruling, LG owes only what remains unpaid for services Velaro provided through July 15, 2022, the date the termination took effect.

LG first agreed in 2008 to buy licenses for Velaro's live-chat and visitor-monitoring software for LG-branded consumer products. The contract renewed every year. In February 2022 the parties signed "Amendment No. 7," which extended the term to two years and added a provision awarding costs and fees to the prevailing party in a dispute. The amendment left the termination clause unchanged.

On June 15, 2022, about seven months into the new term, an LG employee emailed Velaro that LG wanted to "discontinue all services … going forward." Velaro answered with an invoice for $205,270.20, covering June 6, 2022, through Dec. 5, 2023. Hwan Hur, LG's vice president of customer care, replied that LG owed only for the 30-day notice period, or $8,552.93. Velaro sued for breach of contract in April 2023.

The clause lets either party terminate "without penalty upon not less than thirty (30) days prior written notice." Its next sentence says LG "is required to pay all undisputed remaining monies owed for entire period of contract hereunder prior to the date of termination." After a bench trial in June 2025, the trial court found it unclear whether "prior to the date of termination" told LG when to pay or limited what LG had to pay for. It then turned to parol evidence, meaning evidence outside the written contract.

That evidence included testimony from Alex Bloom, Velaro's principal, and a 2013 email in which Bloom told LG it could cancel at any time but would need to "make a final payment of the sum of the year" if it was not at the end of the year. The trial court relied heavily on Bloom's account and ordered LG to pay the full balance.

The Supreme Court held that Velaro's reading was unreasonable for several reasons. Because either party could terminate, Velaro's reading would let Velaro sign the contract, end it at once, and still collect the full 24 months from LG. Velaro's brief conceded that its readings "admittedly would ignore some language in Section 9(a)." Cook wrote that "Velaro's admission is fatal to its proposed interpretation," adding that the court "cannot and will not adopt a reading that admittedly ignores express contractual language and effectively rewrites the parties' contract."

The court also held that Velaro's reading would make the clause pointless. Early termination would force LG to pay the remaining balance within 30 days while losing the software. "In other words, considering the present value of funds, it would cost LG more to exercise a contract right to terminate for convenience than to simply continue the contract," Cook wrote. "Terminating pursuant to this clause is not a breach; it is a contractual right." A footnote rejected Velaro's comparison to rent-acceleration clauses, noting that a tenant who leaves early breaches the lease.

The majority then applied several canons of construction, the interpretive rules courts use to read legal text. Under the doctrine of last antecedent, which attaches a qualifying phrase to the words nearest it, "prior to the date of termination" limits the "entire period" LG must pay for. The court found that the contract used "term" for its full length and "period" for shorter stretches of time. It added that Velaro's reading would leave the phrase "immediately due and payable" with no work to do.

The court also reversed the late charge, for two reasons. The contract allowed the 1.5 percent monthly charge only on unpaid invoices for "quarterly set license fees." Velaro's invoice, Cook wrote, showed that "the amount due was not for a quarterly period" and instead covered the rest of the full contract term. The charge also applied only to undisputed invoices, and the court found that LG had disputed this one in Hur's July 28, 2022, email. The fee award fell as a result of the court's ruling on the contract.

Sellers agreed with the outcome but objected to the majority's method. "When the ordinary meaning of contractual language is unambiguous," Sellers wrote, meaning plain from the words read in context, "resorting to and applying an elaborate assortment of semantic canons does not make the interpretation more persuasive." The concurrence said the approach "exalts a demonstration of interpretive machinery over explaining what the parties unambiguously actually agreed to."

Read naturally, Sellers wrote, the clause establishes "a right to discontinue the contractual relationship while preserving the obligation to pay amounts already earned. It is as simple as that." Velaro's reading, the concurrence said, "completely undermines the express right of termination without penalty and imposes an accelerated-payment obligation for services never to be furnished." Sellers joined the reversal of the fee award in full.

The court remanded both appeals to the Madison Circuit Court for proceedings consistent with its opinion. It declined to address the parties' remaining arguments. The opinion is subject to formal revision before publication in the Southern Reporter.