No. 94,950
IN THE COURT OF APPEALS OF THE STATE OF KANSAS
FLEETWOOD FOLDING TRAILERS, INC.,
Appellant,
v.
THE COLEMAN COMPANY, INC.,
Appellee.
SYLLABUS BY THE COURT
1. In deciding a motion for directed verdict, the trial court as well as the appellate court must resolve all facts and inferences reasonably drawn from the evidence in favor of the party against whom the ruling is sought and determine whether evidence exists in which a jury could find a verdict for that party. Therefore, a directed verdict must be denied when evidence exists upon which a jury could properly find a verdict for the nonmoving party. However, where the evidence is undisputed and the minds of reasonable persons may not draw differing inferences or arrive at opposing conclusions, the matter is a question of law for the trial court's determination.
2. The interpretation and legal effect of written instruments are matters of law, and an appellate court exercises unlimited review. Regardless of the construction given a written contract by the trial court, an appellate court may construe a written contract and determine its legal effect.
3. An interpretation of a contractual provision should not be reached merely by isolating one particular sentence or provision, but by construing and considering the entire instrument from its four corners. The law favors reasonable interpretations, and results which vitiate the purpose of the terms of the agreement to an absurdity should be avoided.
4. Where the language of the contract is clear and can be carried out as written, there is no room for construction or modification of the terms.
5. A jury instruction is clearly erroneous if the reviewing court reaches a firm conviction that if the error had not occurred, there was a real possibility that the jury would have returned a different verdict. If the instructions as a whole are substantially correct and the jury could not have been misled by them, the instructions will be approved on appeal.
6. The admission of evidence lies within the sound discretion of the trial court. An appellate court's standard of review regarding a trial court's admission of evidence is an abuse of discretion. An abuse of discretion must be shown by the party attacking the evidentiary ruling, and exists only when no reasonable person would take the view adopted by the district court.
7. Under the federal Lanham Act, an owner of a trademark that is registered in the Patent and Trademark Office may recover monetary remedies from any person who has violated its trademark.
8. Violation of a trademark occurs when any person shall, without the consent of the registrant, use in commerce any reproduction, counterfeit, copy, or colorable imitation of a registered mark in connection with the sale, offering for sale, distribution, or advertising of any goods or services on or in connection with which such use is likely to cause confusion, or to cause mistake, or to deceive.
9. It is a fundamental rule of statutory construction, to which all other rules are subordinate, that the intent of the legislature governs if that intent can be ascertained. The legislature is presumed to have expressed its intent through the language of the statutory scheme it enacted. When a statute is plain and unambiguous, the court must give effect to the intention of the legislature as expressed, rather than determine what the law should or should not be. Stated another way, when a statute is plain and unambiguous, the appellate courts will not speculate as to the legislative intent behind it and will not read such a statute so as to add something not readily found in the statute.
10. The Lanham Act clearly requires the district court to treble the profits award to a trademark owner and award attorneys fees if (1) the trademark violator's conduct meets the definition of a counterfeit mark, (2) the violator intentionally used the mark knowing it was counterfeit, and (3) the court fails to find any extenuating circumstances that would justify the violator's use of that counterfeit mark.
Appeal from Sedgwick District Court; TIMOTHY G. LAHEY, judge. Opinion filed June 29, 2007. Affirmed.
Eldon L. Boisseau, of Law Offices of Eldon L. Boisseau, L.L.C., of Wichita, and Jeffrey T. Thomas and J. Scot Kennedy, of Gibson, Dunn & Crutcher, LLP, of Irvine, California, for appellant.
James D. Oliver, of Foulston Siefkin LLP, of Overland Park, and Mikel L. Stoud and Todd N. Tedesco, of the same firm, of Wichita, for appellee.
Before HILL, P.J., MARQUARDT, J., and KNUDSON, S.J.
INTRODUCTION
HILL, J: We consider here a directed verdict in a case arising from the dissolution of a trademark contract that permitted the use of one corporation's trademark by another. Believing that Fleetwood Folding Trailers, Inc. (FFT) had failed to abide by their agreement, the Coleman Co., Inc. (Coleman) successfully sued FFT for lost royalties, profits, punitive damages, and attorneys fees. FFT appeals.
The court directed a verdict on two key points. First, FFT had breached their contract by using Coleman's trademarks outside FFT's authorized territory. Second, FFT's continued use of Coleman's trademarks breached their agreement, infringed upon Coleman's federal and state common-law trademark rights, and violated federal law by creating a false designation of origin.
Resolving all facts and inferences reasonably drawn from the evidence in favor of FFT, we find that a directed verdict was properly granted to Coleman. Accordingly, we affirm.
FACTS AND PRIOR PROCEEDINGS
FFT manufactured folding camping trailers and, with permission, placed Coleman's trademarks on them. Their business relationship began in 1989 with their first trademark license agreement. They renewed their agreement in 1994 and 2000.
In September 2002, Coleman conducted an audit of FFT. Based on that audit, Coleman told FFT that it had not fully complied with the agreement on unreported sales and advertising minimums. Over the next 6 months after the audit, Coleman advised FFT that it continued to misuse Coleman's trademarks. Finally, on April 11, 2003, Coleman sent written notification to FFT that FFT had breached the 2000 Trademark License Agreement.
Coleman alleged four general breaches of the agreement by FFT:
FFT failed to submit details about five new models of trailers and obtain Coleman's approval to use its logo on them.
FFT continuously failed to submit parts, catalogs, brochures, and other advertising materials for Coleman's approval as required by the contract.
FFT failed to submit additional materials about its new Caravan trailer and continued to use inaccurate trademarks on the products.
FFT sold trailers in Spain, Turkey, the Netherlands, Taiwan, and Norway without Coleman's approval.
FFT replied to Coleman's accusations. FFT thought that Coleman would support FFT's development of new products since Coleman would receive royalties from the sales. FFT denied failing to comply with the contract's approval procedures, stating that it had appreciated the informal relationship between the two companies that had developed over the years. FFT also contended that since it had submitted photos of the Caravan to Coleman and, in FFT's opinion, "if you've seen one Caravan, you've seen them all," no further information was necessary. FFT admitted it had sold trailers in five countries without Coleman's permission, but FFT claimed it was an oversight.
In May 2003, Coleman informed FFT, in writing, that FFT had failed to remedy the breaches. Accordingly, under paragraph 12.2 of the 2000 Trademark License Agreement, Coleman ended its relationship with FFT. Coleman advised FFT that, in accordance with paragraph 12.3, FFT was required to immediately cease all use of Coleman's licensed trademarks on all its materials and products.
In response, FFT filed a lawsuit against Coleman, seeking declaratory judgment on Coleman's unlawful termination of the agreement and also sought a temporary restraining order against Coleman from licensing its trademarks to other recreational vehicle manufacturers. Coleman counterclaimed, alleging that FFT's conduct constituted trademark infringement and FFT's unauthorized use of Coleman's trademarks entitled Coleman to punitive damages. Coleman also requested a preliminary injunction to prevent FFT from continuing to use its trademarks.
While considering both parties' requests for preliminary injunctions, the district court ruled that, based upon the 1989 and 2000 agreements of the parties, Coleman had a right to restrict the use of its name and trademarks and FFT had failed to establish any right to continue the use of Coleman's name and trademarks after Coleman's termination of the agreement. The court did not grant Coleman's injunction at that time because the request required a determination of the ultimate issues in the case.
Soon afterwards, Coleman moved for reconsideration, asserting that FFT was still using Coleman's name and trademarks. In response, FFT argued that because the district court had yet to decide whether Coleman lawfully terminated the 2000 Trademark License Agreement, it was still authorized under that agreement to use Coleman's trademarks. In compliance with the agreement, FFT proffered royalty payments to Coleman for the continued use of Coleman's trademarks.
On August 18, 2003, the district court granted Coleman's motion for a temporary injunction and enjoined FFT and its affiliates from using Coleman's trademarks. Its order stated again that FFT did not have any right to use the Coleman name and trademarks.
The case was submitted to a jury in December 2004. At the conclusion of FFT's presentation of evidence, Coleman moved for a directed verdict on two grounds: (1) on FFT's breach of contract claim, and (2) for FFT's posttermination breach of contract and trademark infringement. After reviewing the undisputed facts, the district court decided that (1) FFT's sales of trailers outside its authorized territory violated the territorial provision of the contract; (2) FFT had failed to follow Coleman's approval process; (3) FFT's use of Coleman's trademarks exceeded the scope of the license; and (4) FFT had not cured its contract breaches. Accordingly, the district court granted Coleman's motion and directed a verdict.
The court submitted all remaining questions to the jury. The jury unanimously found (1) reasonable royalties in this case were $508,137; (2) FFT's post-contract termination conduct in using the trademark was willful or in bad faith; (3) FFT earned $4,665,735 in profits during the period of May 12 to August 20, 2003; (4) Coleman should be awarded punitive damages; and (5) FFT failed to prove that it reasonably relied on competent legal advice when it infringed on Coleman's trademarks.
Based on the jury's findings, Coleman moved to treble the award of profits and attorneys fees, alleging that FFT's unauthorized trademark was a "counterfeit mark" according to the Lanham (Trademark) Act, 15 U.S.C. §1051 (2000) et seq. Under that Act, Coleman asserted that the district court was required to award to Coleman three times the profits made by FFT and award Coleman its attorneys fees and costs. The district court concluded that the evidence clearly showed that FFT's conduct, combined with the jury's findings, satisfied the Lanham Act's definition of a counterfeit mark. Therefore, the court granted Coleman's motion.
In its final judgment, the court made three rulings pertinent to this appeal. First, it held that Coleman did not breach the 2000 Trademark License Agreement when it terminated its relationship with FFT. Second, because FFT's continued use of Coleman's trademarks breached the agreement, infringed upon Coleman's trademarks, and constituted a false designation of origin in violation of federal law, the district court decided that FFT owed Coleman reasonable royalties. Third, based on the jury's determination that FFT's infringement of Coleman's trademarks was willful, the district court ruled that Coleman was entitled to FFT's profits received during the period of infringement. Furthermore, since FFT's conduct constituted counterfeiting under the Lanham Act, the district court trebled the profits award and, in addition, awarded Coleman its attorneys fees and litigation expenses. But, because of this enhanced award, the district court denied an additional award for punitive damages.
In this appeal, FFT raises five general issues. (1) Improper grant of directed verdict. In a two-fold argument, FFT contends that the question of what is a material breach of the agreement is a question of fact which should be decided by the jury and not the court; secondly, with the evidence submitted in its case, the question of whether FFT had cured any breach of the agreement is also an issue of fact for the jury and not an issue for the court. (2) Improper jury instruction about profits. FFT argues that there was insufficient evidence to prove that it had willfully infringed upon Coleman's trademark rights to support giving an instruction that the jury had to award Coleman all of FFT's profits. Also the court's instruction erroneously told the jury it must award profits to Coleman if FFT had misused the trademarks. And, finally, the instruction should have informed the jury that the only profits it was to consider were those attributable to any unlawful use of the trademark, not all of FFT's profits. (3) Erroneous exclusion of evidence about a covenant not to compete in original contract. Here, FFT contends that the jury awarded a windfall to Coleman because it was not told that Coleman could not have licenced its trademark with any other company in the RV industry. A covenant not to compete in the original agreement between Coleman and the parent company of FFT allowed only FFT to use the trademarks. FFT thinks the jury would have reacted differently had it known. (4) Lanham Act misinterpretation. According to FFT, the court erred when it concluded FFT had engaged in counterfeiting of Coleman's trademarks. (5) No need for punitive damage instruction. For guidance in any future retrial of this matter, FFT argues that the Lanham Act precludes any award for punitive damages that might have been granted in this case. Therefore, FFT argues, with no possibility of a punitive damage award, there is no need for such an instruction.
ANALYSIS
We begin first with some general rules concerning directed verdicts and how we review them. From there, we deal with the issues in the order set out above. We will incorporate additional facts into this opinion, especially provisions of the contract, as needed.
In deciding a motion for directed verdict, the trial court as well as the appellate court must resolve all facts and inferences reasonably drawn from the evidence in favor of the party against whom the ruling is sought and determine whether evidence exists in which a jury could find a verdict for that party. Therefore, a directed verdict must be denied when evidence exists upon which a jury could properly find a verdict for the nonmoving party. However, where the evidence is undisputed and the minds of reasonable persons may not draw differing inferences or arrive at opposing conclusions, the matter is a question of law for the trial court's determination. Brown v. United Methodist Homes for the Aged, 249 Kan. 124, 126-27, 815 P.2d 72 (1991).
Issue 1: Improper grant of directed verdict
While granting Coleman's motion for directed verdict, the court found that the undisputed evidence demonstrated that (1) FFT had breached the agreement when it sold trailers outside the authorized territory and did not comply with Coleman's approval process in its use of Coleman's trademarks, and (2) FFT had failed to cure these errors. We examine these two findings.
Breach
FFT argues that triable issues of material fact remain regarding whether FFT's breaches were material to the agreement. Since the agreement did not define "cure," FFT alleges it cured the agreement when it ceased breaching the contract 30 days after receiving the written notice from Coleman. In FFT's opinion, whether it did so cease, was a question of fact for the jury.
Paragraph 12.2 of the agreement states that Coleman may terminate the agreement if all three of the following events occur: (1) FFT must fail to perform or fulfill any term or obligation of the agreement; (2) Coleman must provide "written notice" to FFT of those defaults; and (3) after receipt of written notice, such default continues for 30 days.
Several facts about this are not disputed. Larry Marsh, general manager and vice president of FFT, testified that FFT received written notification that FFT had breached the sales territory and approval process provisions in the agreement. In response, on April 17, 2003, FFT instructed its production line to stop placing videotapes disapproved by Coleman in its trailers on May 10, 2003. Furthermore, on April 22, 2003, FFT admitted to Coleman that it had distributed its trailers outside the authorized territory but promised to fully comply "from this point forward." Contrary to that assertion, on May 7, 2003, FFT shipped 16 trailers to Norway, an unauthorized territory. As a result, on May 12, 2003, Coleman terminated the 2000 Trademark License Agreement, claiming that FFT had failed to demonstrate that it had remedied the breaches that were cited in the written notice.
Fundamentally in their argument, FFT relies upon the district court's finding that paragraph 12.2 of the agreement requires a "material" breach to occur before Coleman may terminate the agreement. FFT argues that it did not materially breach the agreement because (1) its noncompliance with the territorial provision was a technical, not material, breach and (2) the evidence proved that FFT substantially complied with Coleman's approval process.
In contrast, Coleman challenges this ruling. Coleman argues that paragraph 12.2 does not require a breach to be material in order to trigger Coleman's option to terminate. Nonetheless, Coleman additionally argues that FFT's breaches were material to the agreement because those breaches threatened Coleman's ability to control its license, which was the essential purpose of the agreement.
We think the district court was incorrect here. The court interpreted the termination provision to implicitly require FFT's breaches to be material in order to terminate, while paragraph 12.2 does not include the word "material" in its language. But a separate paragraph of the agreement, paragraph 4.2, concerning royalties, specifies that FFT's failure to deliver the required royalty reports and payments shall constitute a material breach.
It has been said many times, the interpretation and legal effect of written instruments are matters of law, and an appellate court exercises unlimited review. Regardless of the construction given a written contract by the trial court, an appellate court may construe a written contract and determine its legal effect. See Unrau v. Kidron Bethel Retirement Services, Inc., 271 Kan. 743, 763, 27 P.3d 1 (2001). When making such a determination, we take a large view:
"An interpretation of a contractual provision should not be reached merely by isolating one particular sentence or provision, but by construing and considering the entire instrument from its four corners. The law favors reasonable interpretations, and results which vitiate the purpose of the terms of the agreement to an absurdity should be avoided. [Citation omitted.]" Johnson County Bank v. Ross, 28 Kan. App. 2d 8, 10-11, 13 P.3d 351 (2000).
Moreover, where the language of the contract is clear and can be carried out as written, there is no room for construction or modification of the terms. Metropolitan Life Ins. Co. v. Strnad, 255 Kan. 657, 671, 876 P.2d 1362 (1994).
Here, the language of paragraph 12.2 is clear and can be carried out as written. Paragraph 12.2 states that before Coleman has the option to terminate the contract, FFT must fail "to perform or fulfill any term or obligation" of the 2000 Trademark License Agreement. The term "any" means "one or some, regardless of sort, quantity, or number." Webster's II New College Dictionary 51 (1st ed. 1995). The parties' inclusion of "any" suggests that the provision breached may be one or more of the provisions in the agreement, not that the provision breached must be material to the agreement. As a result, the district court erred when it modified the phrase "any term or obligation" to include "material."
Going further, the uncontested evidence clearly demonstrates that FFT not only violated paragraph 2.2 of the agreement dealing with trade territory limits, but also paragraph 6.4 concerning Coleman's approval of materials. FFT conceded that it sold licensed products to countries outside the defined territory (found in paragraph 1.3). Furthermore, FFT admitted that its conduct was an oversight by "not keeping Coleman abreast of the new distribution points." Additionally, it is uncontested that FFT never requested Coleman's consent to sell to those countries. Therefore, it is undisputed that FFT breached paragraph 2.2(i) when it failed to limit its use of Coleman's trademarks to the territories specified in paragraph 1.3 and failed to amend the territory definition, as required under 2.2(ii), to include those additional countries.
Coleman's approval process is located in paragraph 6.4 of the agreement. It states that FFT must obtain Coleman's written approval by first submitting two samples of the product prior to the manufacture, sale, and distribution of its trailers or marketing materials. At issue is whether FFT failed to comply with the Coleman's approval process for FFT's trailers and FFT's marketing materials.
Approval of Trailers
Regarding FFT's trailers, Marsh testified that David Mitchell (the former head of Coleman's licensing department) verbally approved the Caravan trailer. After Mitchell's approval, Marsh stated that FFT created additional trailers that were not named Caravan, but the only difference between these trailers and the approved Caravan was the floor plan. Marsh testified that instead of numbering the models of the Caravan trailer, FFT personalized each model with a name. Therefore, Marsh believed it was unnecessary to obtain additional approvals since these trailers were all models of the Caravan. FFT additionally claimed that it believed providing Coleman access to visit its facility to view its trailers substituted for the requirement of shipping samples to Coleman.
On appeal, this court is required to resolve all facts and inferences reasonably drawn from the evidence in favor of FFT. Therefore, assuming that the other trailers used the same Caravan structure and that Coleman verbally approved of the Caravan trailer, a jury determination is necessary to determine if FFT complied with paragraph 6.4 for its trailers. We agree with FFT on this point, but this does not save FFT.
Approval of Marketing Materials
Coleman's approval of FFT's marketing materials is a different story. It is clear that FFT repeatedly violated Coleman's approval process under paragraph 6.4. In 2001, FFT requested approval for its 2002 folding trailer brochure. Specifically, FFT had created an anniversary logo, which included both Coleman and FFT's trademarks. Eventually, Coleman approved FFT's brochure but denied FFT's request to use Coleman's trademarks in combination with FFT's anniversary logo. FFT's representatives admitted that it went ahead and published the brochure with the anniversary logo that included Coleman's trademarks.
Then, in 2002, FFT submitted two posters to Coleman that used the Coleman name improperly. Coleman advised FFT of its error and approved the posters so long as FFT made the requested changes. The record on appeal reveals that FFT did not make the requested changes and published the posters with the misuse of "Coleman."
In March 2003, Coleman notified FFT that the packaging for FFT's videotapes was using an "odd" Coleman parallelogram without the standard lantern logo and provided them with Coleman's current logos. Nonetheless, FFT continued to place these improperly packaged videotapes into its trailers without updating the Coleman logo until May 10, 2003. Additionally, FFT failed to send a press release to Coleman for approval, which prompted Coleman to alert FFT of this error in January 2003.
Thus, the evidence FFT presented at trial undisputably showed that FFT failed to comply with paragraphs 2.2 and 6.4 of the agreement. There is simply no evidence on which the jury could have ruled in favor of FFT. The district court properly determined, as a matter of law, that FFT's actions constituted breaches under paragraph 12.2 of the agreement.
Cure
We turn now to the question of whether FFT cured its contract violations. If a contract default continued for 30 days after written notice, paragraph 12.2 allows Coleman to terminate the agreement. Therefore, on appeal, the parties contest whether FFT cured its violations sufficiently to prevent Coleman from terminating the license agreement.
Paragraph 12.2 of the agreement provides:
"12.2 Other Events of Termination. This Agreement may be terminated at COLEMAN'S option upon the occurrence of any of the following events; (i) [FFT] fails to perform or fulfill any term or obligation of this Agreement in the time and manner provided, and if such default shall continue for thirty (30) days after written notice thereof." (Emphasis added.)
FFT disagrees with the district court's interpretation of paragraph 12.2. FFT thinks that provision only requires FFT to stop breaching the agreement 30 days after it receives the written notice. Based on that interpretation, FFT argues that it was neither required to repair the past harm that had occurred from its breaches, nor was it required to stop breaching the agreement within that 30-day period. As a result, FFT alleges that triable issues of fact existed to warrant a jury determination on the matter. Opposing this, Coleman asks us to adopt the district court's definition of "cure," which is to remedy any existing breaches and return the parties to their predefault conditions within the 30-day period.
Under its interpretation of paragraph 12.2, FFT cites Anacapa Technology v. ADC Telecommunications, 241 F. Supp. 2d 1016 (D. Minn. 2002), for support that it was not required to remedy any harm that stemmed from its breaches. In Anacapa Technology, Anacapa licensed its technology to ADC in exchange for royalties. ADC also agreed to protect Anacapa's confidential information. ADC then subcontracted the manufacturing of its licensed technology to a third party. When the third party began incorporating Anacapa's licensed technology into its own products, Anacapa notified ADC that it had materially breached the agreement by failing to ensure that its sub-licensed third party treated as confidential the Anacapa confidential information identified in the Anacapa/ADC licensing agreement.
The issue before the Anacapa Technology court was the definition of cure in a noncommercial setting. Anacapa argued that to "cure a material breach under Minnesota law, [a licensee] must stop the offending conduct and repair the harm done by the breach." The court, however, decided that definition was in error, and held: "Instead, cure requires substantial performance or performance without a material failure." (Emphasis added.) 241 F. Supp. 2d at 1020-21.
Using that interpretation, the court stated that the evidence showed that ADC undertook affirmative steps to cure its breach, such as obtaining an injunction against the third party to comply with the licensor's restrictions, requiring the third party through severe restrictions in the settlement agreement to treat as confidential Anacapa's confidential information, and mandating the third party to assign ADC ownership of the third party's patent that had incorporated Anacapa's technology. The district court also noted that ADC had implemented procedures to prevent the unauthorized disclosure of Anacapa's confidential information by securing audit rights over the third party and control over the third party's future development efforts. Because of ADC's efforts, the district court held that ADC had cured its breach. 241 F. Supp. 2d at 1025.
Even if we adopted this foreign definition of "cure," the trouble is, unlike ADC, FFT has failed to prove that it substantially performed under the agreement after it was notified of its breaches. First, FFT informed its product line to continue placing the videotapes with the disapproved packaging into its trailers until May 10, 2003, which would have been the day of termination. Second, after FFT represented to Coleman that it would "be in full compliance on [the territorial provision] from this point forward," 2 weeks later FFT breached that provision when it shipped its trailers to Norway. FFT's efforts simply fail to meet the level of substantial performance described in Anacapa Technology.
Furthermore, FFT misconstrues the purpose behind the 30-day remedial time period. The 30 days were not intended to give breaching parties an extended time period to commit new breaches. See 2 Farnsworth on Contracts §8.18, p. 525 (3d ed. 2004) ["Fairness ordinarily dictates that the party in breach be allowed a period of time -- even if only a short one -- to cure the breach if it can."] Therefore, analyzing the facts in this case under FFT's proposed cure definition, the undisputed evidence shows that FFT did not substantially perform the agreement once notified of its breaches. Accordingly, the district court was proper in determining, as a matter of law, that FFT failed to cure the breaches under paragraph 12.2.
Issue 2: Improper jury instruction about profits
FFT claims that the jury's award of profits was misguided for three reasons. First, there was insufficient evidence to find that FFT's trademark infringement was willful. Second, if the jury determined FFT's infringement was willful, the court erroneously instructed the jury that it must award Coleman all of FFT's profits. Third, FFT asserts that the district court should have limited Coleman's receipt of FFT's profits to those prof