Opinion
Civ. File No. 02-4862 (PAM/RLE)
November 3, 2003
MEMORANDUM AND ORDER
This matter is before the Court on the parties' cross-Motions for Summary Judgment. Plaintiffs Motion seeks only partial summary judgment, asking the Court to dismiss all Defendant's counterclaims. Defendant seeks summary judgment as to all of Plaintiff's claims, as to liability on all of Defendant's counterclaims, and also asks the Court for an injunction against Plaintiffs alleged infringement of Defendant's trademarks. For the reason that follow, the Court grants Plaintiffs Motion and grants Defendant's Motion in part and denies it in part.
BACKGROUND
The dispute in this case centers on trademarks in the form of names of various chemicals for dairy sanitation and udder hygiene. Plaintiff AL Laboratories, Inc. ("AL") manufactures those chemicals. For a number of years, AL was the exclusive supplier of such products to DEC International ("DEC"), a distributor which re-sold AL's products to consumers. The specific portion of DEC's business that sold these products was known as the Bou-Matic division. The parties' latest agreement, the Global Purchase Agreement ("GPA"), was signed in June 2000. DEC declared bankruptcy in August 2001. In October 2001, during the pending bankruptcy proceeding, DEC and AL amended their agreement to allow AL to sell products directly to consumers.
In September 2002, Defendant Bou-Matic, LLC ("Bou-Matic") purchased the Bou-Matic portion of DEC's business. Several days later, DEC rejected the Amendment and the GPA, which it was entitled to do under the Bankruptcy Code. For several months, Bou-Matic and AL operated under the terms of the rejected GPA and Amendment. When the parties were unable to come to terms on a new contract, this litigation ensued.
Although less than one year old, this case has been before the Court on two dispositive Motions. In April 2003, Bou-Matic asked the Court to transfer the case to the Western District of Wisconsin and to dismiss several of AL's claims. The Court dismissed Count I of the Amended Complaint, but declined to dismiss any other claims and declined to transfer the case to Wisconsin. Bou-Matic's Wisconsin lawsuit against AL, its parent corporation, and two officers of that corporation was subsequently transferred to the undersigned. The parties stipulated to a dismissal of that action.
In July 2003, the parties each sought a preliminary injunction. In those Motions, each party claimed to be the owner of more than 60 trademarks in the names of products manufactured by AL and sold by DEC. The Court determined that the record was not sufficient to allow a determination of who owned the trademarks, and directed the parties to file summary judgment motions on an expedited schedule to resolve that issue. Those Summary Judgment Motions are now before the Court. AL seeks summary judgment on Bou-Matic's counterclaims. In its Motion, AL contends that, whoever owns the trademarks, AL has a license to use the trademarks until June 27, 2005, by virtue of a clause in the Amendment to the GPA. The main issues to be resolved in this Motion are whether DEC's rejection of the GPA constitutes a condition that gave rise to the license in the first instance and, if so, whether the purported license survived DEC's bankruptcy.
Bou-Matic also seeks summary judgment. It asks the Court to find that Bou-Matic owns the trademarks and that AL's use of the marks is infringement of those marks. It also seeks summary judgment on AL's claims for defamation and tortious interference with contract. In its response to Bou-Matic's Motion, AL argues that it owns the trademarks. AL does not mention this argument in its own Motion, but rather implies throughout that Motion that ? is no longer contesting that Bou-Matic owns the trademarks. In its opposition memorandum, AL argues that summary judgment on its claims is not appropriate because genuine issues of material fact exist as to who owns the trademarks.
DISCUSSION
A. Standard of Review
The parties move for summary judgment pursuant to Rule 56(c), which provides that such a motion shall be granted only if "there is no genuine issue as to any material fact and . . . the moving party is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(c). When considering a motion for summary judgment, the Court must view the evidence and the inferences that may be reasonably drawn from the evidence in the light most favorable to the non-moving party. Enter. Bank v. Magna Bank. 92 F.3d 743, 747 (8th Cir. 1996). The burden of demonstrating that there are no genuine issues of material fact rests on the moving party. Celotex Corp. v. Catrett. 477 U.S. 317, 323 (1986). If the moving party has carried its burden, the non-moving party must demonstrate the existence of specific facts in the record that create a genuine issue for trial.Anderson v. Liberty Lobby. Inc., 477 U.S. 242, 256 (1986);Krenik v. County of LeSueur, 47 F.3d 953, 957 (8th Cir. 1995).
B. License
The parties signed the Amendment to the GPA on October 23, 2001, several months after DEC declared bankruptcy. In paragraph 9, the Amendment provides,
If, after the effective date of this Amendment and before June 27, 2005, DEC commits a new and material breach of the [GPA] which remains uncured fourteen (14) days after DEC has received written notice of the breach (? being understood that DEC's continuing nonpayment of its prepetition indebtedness does not constitute a material breach under this paragraph), . . . [AL] . . . will be entitled to continue to use the trade names and product names associated with th[e] Chemicals and Supplies, but excluding the trade name "BOU MATIC."
Pochard Aff. Ex. C at ¶ 9. On September 4, 2002, the day that Bou-Matic acquired the Bou-Matic division of DEC, DEC rejected the GPA. AL contends that this rejection constituted a "new and material breach" of the GPA which gave rise to a license on behalf of AL to use the trademarks.
AL relied heavily on an "advice of counsel" theory when pressing its arguments. AL did not claim the advice of counsel defense in its answers to Bou-Matic's counterclaims. In any event, however, the advice of counsel is irrelevant to evaluating the language and interpretation of the Amendment, at least at this stage of the litigation.
The Bankruptcy Code provides that "the rejection of an executory contract or unexpired lease of the debtor constitutes a breach of such contract or lease." 11 U.S.C. § 365(g)(1). AL argues that, because the rejection occurred well after the Amendment was signed, the rejection is "new" and because the rejection relieved DEC of the obligation to pay AL $2.6 million in pre-petition indebtedness, it was clearly material. Thus, DEC's rejection of the GPA constituted a "new and material breach" of the GPA.
Bou-Matic raises several arguments against AL's position. First, Bou-Matic contends that the "which remains uncured fourteen (14) days after DEC has received written notice of the breach" language means that the only relevant breaches for the purpose of paragraph 9 are breaches that can be cured. Because a rejection under the Bankruptcy Code cannot be cured, a rejection is therefore not a new and material breach under paragraph 9. This argument posits an interpretation of the Amendment that is not warranted. The purpose of the "cure" language is to prevent the license from arising in the case of any breach, even an unintentional breach. DEC could prevent the license from arising if DEC cured the breach. The "cure" language does not automatically exclude breaches that cannot be cured, such as a rejection.
Next, Bou-Matic contends that, under the Bankruptcy Code, the rejection of the GPA actually took place more than a year before the Amendment was signed. Section 1165(g)(1) provides that a rejection is deemed to have occurred "immediately before the date of the filing of the petition." 11 U.S.C. § 1165(g)(1). However, as AL points out, this section of the Bankruptcy Code is intended to determine the priority of claims in a bankruptcy petition, "not to alter the passage of time." (PL's Reply Mem. at 4.) Bou-Matic's argument on this point is contrary to logic. Bou-Matic also asserts that rejection is not a "material" breach under the terms of the Amendment. According to Bou-Matic, AL's only argument that the rejection was material is that the rejection relieved DEC of the obligation to pay AL $2.6 million. Because the Amendment specifically provides that DEC's "nonpayment of prepetition indebtedness does not constitute a material breach," the fact that rejection allowed DEC to avoid this indebtedness cannot be a material breach. However, Bou-Matic does not offer any support for the theory that a total repudiation of a contract is not a material breach of that contract. Bou-Matic's argument on this point has no merit.
Finally, Bou-Matic contends that rejection is not a new and material breach because the Amendment addresses AL's rights in the event of a rejection. In paragraph 10, the Amendment provides that, on a rejection of the GPA, AL can make an administrative claim in the bankruptcy proceeding. (Pochard Aff. Ex. C at ¶ 10.) Essentially, Bou-Matic claims that paragraph 10 is AL's sole remedy in the event of rejection. There is no support for this in the Amendment, however. Paragraph 10 does not state that it is AL's exclusive remedy, nor is there any language to the effect that the remedies in paragraphs 9 and 10 are mutually exclusive. This argument also has no merit.
DEC's rejection of the GPA gave rise to a license on the part of AL to use the trademarks until June 27, 2005. The next issue to be determined is whether that license survived DEC's bankruptcy.
B. DEC's Bankruptcy's Effect on the License
Bou-Matic contends that a trademark license does not survive rejection in bankruptcy. (See Defs.' Opp'n Mem. at 3.) According to Bou-Matic, AL's only remedy after DEC rejected the license by rejecting the GPA was to file a claim for damages under 11 U.S.C. § 365(g). Therefore, after the rejection, AL was not entitled to continue to use the trademarks. AL responds that the instant case does not fall within the usual scenario whereby a trademark licensor files bankruptcy and rejects a previously existing trademark license. In that situation, the licensee is basically out of luck. In this situation, by contrast, the license did not exist until DEC rejected the GPA, and thus there was no license to extinguish when DEC rejected the GPA.
The precedent on which the parties rely is not on point. AL is correct that the instant situation is very different from the typical situation in which the license pre-dated the bankruptcy. The timing of the events in this case, namely the fact that the license did not arise until after DEC rejected the GPA, leads the Court to conclude that DEC's rejection could not simultaneously extinguish and create the license. The Court has determined that DEC's rejection of the GPA created a trademark license. That license was not extinguished by the same event that created it, and thus the license survived DEC's rejection of the GPA.
Bou-Matic also argues that because the Bankruptcy Court conveyed DEC's assets to Bou-Matic free and clear of all liens, claims, encumbrances, and interests, any purported license to AL was extinguished by that conveyance. AL responds that, because the Bankruptcy Court approved the Amendment, the license in that Amendment could only be changed or extinguished by a specific order of the Bankruptcy Court. Neither DEC nor Bou-Matic requested that the Bankruptcy Court change or extinguish the license and thus, according to AL, that license survived the asset sale.
Again, the cases cited by the parties are not particularly helpful to resolve what appears to be a rather novel issue of law. Bou-Matic places great reliance on FutureSource LLC v. Reuters Ltd., 312 F.3d 281 (7th Cir. 2002). In that case, Judge Posner of the Seventh Circuit Court of Appeals found that a bankruptcy asset sale, free and clear of all liens, claims, interests, and encumbrances, extinguished the plaintiffs right to the license for certain intellectual property.Id. at 285. However, in that case, the license pre-dated the bankruptcy of the licensor by more than two years. Moreover, the asset purchase agreement specified that the subject intellectual property was one of the assets that was to be sold to the defendant.Id. at 284.
Here, the license actually arose after DEC and Bou-Matic signed the asset purchase agreement, because DEC did not reject the GPA until after Bou-Matic had agreed to buy DEC. More to the point, however, the asset purchase agreement is silent as to whether Bou-Matic was purchasing the specific trademarks at issue here. As the Court noted in a previous Order in this matter, "the list of trademarks attached to the assignment [attached to the asset purchase agreement] does not contain any of the trademarks at issue here." AL Labs., Inc. v. Bou-Matic. LLC., Civ. No. 02-4862, slip op. at 5 (D. Minn. July 21, 2003). Thus, the asset purchase agreement does not support Bou-Matic's argument.
The Court concludes that AL's license to use the trademarks survived DEC's bankruptcy and the subsequent sale of DEC's assets to Bou-Matic. Bou-Matic is not without recourse to challenge this finding, because Bou-Matic presumably can still ask the Bankruptcy Court to change or modify the Amendment with respect to AL's license. However, as the matter currently stands, AL has a license to use the disputed trademarks until June 27, 2005, subject to reasonable license fees and royalties.
D. Trademark Ownership
Apparently in the alternative to the license argument discussed above, AL contends that, as the manufacturer of the underlying chemicals, it owns the trademarks of the product names. AL also argues for the first time that it owns several of the marks because it used those marks before ? did business with DEC. (PL's Opp'n Mem. at 18.) According to AL, there is a genuine issue of material fact as to trademark ownership and thus AL's claim for a declaratory judgment of trademark ownership cannot be dismissed on summary judgment.
Bou-Matic claims that the parties' agreements unambiguously provide that DEC, not AL, owned the trademarks. As authority for this proposition, Bou-Matic points to paragraph 9 of the Amendment, which gives AL a license to use the trademarks on the occurrence of certain events (discussed in more detail above). Bou-Matic argues that a trademark owner would not license the marks if it already owned the marks. Indeed, a representative of AL testified that, without the Amendment, AL did not believe that it had the right to use the marks. (Defs.' Reply Mem. at 4 (citing Ex A at 261).)
AL's alternative arguments are fundamentally inconsistent. If AL had a license, and worked to ensure that the license would survive DEC's rejection of the GPA, then AL clearly did not own the trademarks. AL has failed to show that genuine issues of material fact exist on the question of trademark ownership. The Court has determined that the Amendment was intended to give AL a license to use the trademarks. This determination necessarily means that AL does not own the trademarks. AL's request for a declaratory judgment of trademark ownership will be granted, but the Court will declare that Bou-Matic, not AL, owns the trademarks.
E. Defamation
Bou-Matic contends that AL's claims for defamation and tortious interference must be dismissed. Bou-Matic argues that AL has come forward with no evidence that Bou-Matic's alleged defamatory statements were false, that they harmed AL's reputation, or that they were made with actual malice. See Michaelis v. CBS. Inc., 119 F.3d 697, 700-01 (8th Cir. 1997) (setting forth the elements of claim of business defamation under Minnesota law). The statements about which AL complains include alleged statements by Bou-Matic that AL refused to enter into a contract with Bou-Matic and did not negotiate a new contract in good faith. According to Bou-Matic, these statements are statements of opinion that cannot be proved true or false and that, in any event, AL has failed to show any harm as a result of the statements.
AL responds that the allegedly defamatory statements were false and were proved to be false by discovery. AL also contends that the statements were not intended to be statements of opinion, but rather were intended to inform Bou-Matic's dealers about why negotiations between AL and Bou-Matic failed. Finally, AL contends that because the allegedly defamatory statements disparaged AL's "credit, property, or operation," 4 Minn. Prac. CIVJIG 40.10 (4th ed.), damages are presumed.
AL's defamation claim fails as a matter of law. The statements about which AL complains are simply not statements that rise to the level of defamatory. Even if the statements were defamatory, however, those statements did not "harm [AL's] reputation and lower [AL] in the estimation of the community." Michaelis. 119 F.3d at 700. Although AL may be correct that damages can be presumed if Bou-Matic's statements disparaged its credit, property, or operation, in this instance the challenged statements did not so disparage AL. Moreover, there is a difference between what sort of damages are available for defamation and the injury a party claiming defamation must prove in the first instance. AL has failed to show that the statements were defamatory or that the statements caused any harm to AL. Bou-Matic's Motion must be granted as to the defamation claim
E. Tortious Interference
AL seeks an injunction against Bou-Matic's attempted hiring of four AL employees who signed non-competition agreements with AL. Bou-Matic first contends that this claim should be dismissed because Bou-Matic was not successful in hiring away those employees. However, the Court previously rejected this argument in the Motion to Dismiss, because a cause of action lies whether or not the tortious interference is successful. Next, Bou-Matic argues that the requested injunction is too broad and does not give Bou-Matic notice of what conduct is prohibited. As AL notes, the requested injunction seeks to prohibit Bou-Matic from soliciting four specific employees, and thus provides sufficient notice to Bou-Matic and is not overly broad. Finally, Bou-Matic makes the rather curious argument that the injunction infringes on Bou-Matic's free-speech rights. Bou-Matic offers no support for its position that an injunction against the tortious interference with the contracts of a competitor's employees is an invalid prior restraint.
The injunction AL seeks appears to be narrowly tailored and appropriate to address Bou-Matic's alleged conduct. On appropriate Motion, the Court will consider AL's requested injunction against the alleged toitious interference in light of the factors outlined by the Eighth Circuit Court of Appeals. Dataphase Sys., Inc. v. C L Sys., Inc., 640 F.2d 109, 113 (8th Cir. 1981).
CONCLUSION
There is no genuine issue of material fact as to the ownership of the trademarks or as to AL's license to use those trademarks. Similarly, there is no genuine issue of fact on AL's defamation claim. The only claim remaining for resolution is AL's request for an injunction against Bou-Matic's alleged tortious interference with AL's employees.
Accordingly, for the foregoing reasons, and upon all of the files, records, and proceedings herein, IT IS HEREBY ORDERED that:
1. AL's Motion for Partial Summary Judgment (Clerk Doc. No. 72) is GRANTED and Bou-Matic's counterclaims are DISMISSED; and
2. Bou-Matic's Motion for Summary Judgment (Clerk Doc. No. 87) is GRANTED in part and DENIED in part as follows:
a. AL's claim for defamation is DISMISSED;
b. Bou-Matic's request for a declaration of infringement is DENIED;
c. The Court DECLARES that Bou-Matic is the rightful owner of the following trademarks: ACID 3X, ACID 40, ALOE SOFT, AWAY ACID, BOVI-KOTE, BOVI-KOTE 5, BOVISOFT, DERMA-FOAM, DERMA-GUIDE, EXCEL PLUS, EXTRA-GUARD, GLO ACID, GUARD, GUARD 100, GUARD 200, IO-BLEND, IO-WASH, KLEEN-DRI, KLEENLINE, MAXIKLEEN, MAXISOFT PLUS, MICRO-WASH, NOVA BLEND VI, NOVA BLEND 10, NOVA BLEND 125, PARLOR XF, PC ACID, POWERLINE, PREMIUM ACID, SPRAYABLE SUPER DIP, SPRAYABLE SUPREME, SUPER DIP, SUPER DIP LV, SUPREME DIP, TANK SHINE, UDDERDINE 5, UDDERDINE 10, UDDERDINE 12, UDDERDINE 15, UDDERDINE 502, and WINDIP;
d. The Court further DECLARES that AL has a valid license to use any and all of the above trademarks until June 27, 2005, subject to reasonable license fees and royalties.