914 F.2d 900 (7th Cir. 1990), 89-2089, La Preferida, Inc. v. Cerveceria Modelo, S.A. de C.V.

Docket Nº:89-2089.
Citation:914 F.2d 900
Party Name:LA PREFERIDA, INC., an Illinois Corporation, Plaintiff-Appellant, v. CERVECERIA MODELO, S.A. de C.V., a Mexican Corporation, Defendant-Appellee.
Case Date:September 27, 1990
Court:United States Courts of Appeals, Court of Appeals for the Seventh Circuit

Page 900

914 F.2d 900 (7th Cir. 1990)

LA PREFERIDA, INC., an Illinois Corporation, Plaintiff-Appellant,


CERVECERIA MODELO, S.A. de C.V., a Mexican Corporation,


No. 89-2089.

United States Court of Appeals, Seventh Circuit

September 27, 1990

Argued Jan. 17, 1990.

Rehearing Denied Dec. 7, 1990.

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Kevin M. Forde, Richard J. Prendergast, Joseph E. Tighe, Mary Anne Mason, James Van Dieren; Mark R. Valley, Cannizzaro, Ballard & Valley, Chicago, Ill., for plaintiff-appellant.

Ronald R. Peterson, Catherine Steege, Marshall J. Schmitt, Jenner & Block, Michael J. Rovell, Chicago, Ill., for defendant-appellee.

Before POSNER, FLAUM and RIPPLE, Circuit Judges.

RIPPLE, Circuit Judge.

La Preferida brought two separate actions against Cerveceria Modelo (Modelo) concerning the distribution rights of beverages manufactured under the "Corona" trademark. The district court entered summary judgment in favor of Modelo in both cases. La Preferida appeals these judgments. We affirm in part and reverse in part.



  1. The Underlying Transaction

    La Preferida is a Chicago-based distributor of nonalcoholic and alcoholic beverages. Cerveceria Corona, Inc. (Corona), which is not a party to these proceedings, operated a brewery in Puerto Rico until December 1986. Corona was the initial owner of the "Corona" trademark, under which it brewed "Corona Cerveza" beer and "Malta Corona," a nonalcoholic drink. The company began selling beer in the United States under its "Corona" trademark in July 1957. On September 10, 1976, La Preferida and Corona entered into an exclusive distribution agreement. Pursuant to this agreement, the plaintiff received the exclusive right to sell and distribute in the United States products manufactured under the "Corona" trademark. The duration of the agreement was indefinite, although Corona had the power to terminate it for cause. Following execution of the agreement, La Preferida sold the following quantities of Corona's beer: none in 1976; 1750 cases in 1977; 4685 cases in 1978; none after 1978.

    Modelo, a Mexican corporation, also brews, manufactures, and distributes beer in parts of the United States. Between

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    1964 and 1977, Modelo registered trademarks in six states for its "Corona" and "Corona Extra" brands. In 1981, La Preferida, which wanted to expand its distribution of products under the "Corona" name, attempted to negotiate an agreement whereby Corona would allow Modelo to use the "Corona" trademark for its beer sold in the United States; La Preferida would act as Modelo's distributor. No agreement was reached, although Modelo continued to sell its "Corona" and "Corona Extra" beer in the United States. On August 11, 1982, La Preferida's counsel wrote to Modelo asserting Corona's trademark rights against Modelo.

    On August 25, 1982, Corona terminated the 1976 distribution agreement. The reason given by Corona was dissatisfaction with La Preferida's distribution of "Malta Corona." 1 The termination also was based, according to Corona, on La Preferida's August 11 letter to Modelo, which had not been authorized by Corona and thus violated the 1976 agreement. More than a year after terminating its agreement with La Preferida, Corona entered into several "concurrent use" agreements with Modelo whereby Modelo acquired the right to distribute products under the "Corona" name in thirty-seven states.

  2. The Bankruptcy Proceedings

    On September 18, 1984, Corona filed for bankruptcy, pursuant to Chapter 11, in the United States Bankruptcy Court for the District of Puerto Rico. La Preferida filed a proof of claim in the bankruptcy court alleging that Corona had breached the 1976 distribution agreement and claiming damages in the amount of $4,000,000. In its objection to La Preferida's proof of claim, Corona alleged that it had terminated the 1976 agreement and that the agreement therefore was not part of the bankruptcy estate. Corona also moved to reject that agreement if the court concluded that it had not been terminated.

    Shortly after La Preferida filed its proof of claim, Corona requested permission of the bankruptcy court to sell its trademark rights to Modelo. La Preferida objected to the proposed sale, based on its alleged interest in the trademarks under the 1976 agreement, but later withdrew voluntarily the objection. The bankruptcy court then approved the sale of Corona's trademark rights to Modelo for $1,800,000. In the August 27, 1985, order approving the sale, the bankruptcy court provided that the trademarks were to be sold to Modelo "free and clear of all liens, claims and encumbrances." 86R.77 Ex.H at 2. The court also ordered that "[t]he liens and claims, if any, of La Preferida, Inc. ... shall attach to the cash proceeds of the sale." Id. at 3. Finally, the sale order provided that Modelo would acquire the trademarks pursuant to the terms of a May 1985 concurrent use agreement, which was attached to and explicitly ratified by the sale order. That agreement provided that Corona would indemnify Modelo for losses arising from claims "to distribution rights for CORONA by any distributor ... asserting such rights because of any alleged agreement or arrangement with Cerveceria Corona." Id. at Ex.B, p. 11. La Preferida did not appeal this order, but informed the bankruptcy court, during a hearing convened before theorder was entered, that it was reserving its right to sue Modelo. Specifically, counsel for La Preferida made the following remarks:

    We are the, in our opinion, exclusive transferee of the Corona Malta and beer rights in the United States pursuant to an agreement dated September 10, 1976....

    It's our intention to proceed with our money damage claim and any other

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    claims that we might have against Modelo ... but for the purposes of allowing the Debtor to proceed with its reorganization we will withdraw our formal opposition.

    86R.101 Ex. 20 at 45.

    Approximately eight months after the sale order, La Preferida decided to withdraw its proof of claim. 2 Because Corona had filed an objection to the proof of claim, La Preferida was required to seek leave of court to withdraw it. 3 On June 12, 1986, the bankruptcy court granted La Preferida's request and entered an order allowing La Preferida to withdraw its claim with prejudice. This consent judgment reflected an agreement between Corona and La Preferida:

    [S]aid claim [that Corona had breached the distribution agreement] is disallowed on the merits as not owed by debtor, debtor's objection to the claim [Corona's allegation that it properly terminated the 1976 agreement] is sustained and debtor's motion for leave to withdraw its request for sanctions against claimant is granted. Debtor's motion to reject a certain distribution contract between debtor and claimant is rendered moot thereby.

    86R.77 Ex.J at 2-3.

    The bankruptcy court subsequently entered a final order confirming Corona's plan of liquidation. The order was entered on July 28, 1987, and provided that all of Corona's executory contracts, including distribution agreements, were deemed rejected or of no force and effect.

  3. The District Court Proceedings

    Following the bankruptcy proceedings, La Preferida filed two actions against Modelo, both of which arose out of the same factual allegations contained in La Preferida's proof of claim. In each case, La Preferida sought vindication of its purported rights under the distribution agreement with Corona. In No. 86 C 2647 (the 1986 case), La Preferida claimed that Modelo tortiously induced Corona to breach the distribution agreement. In No. 87 C 4081 (the 1987 case), La Preferida sought a declaration that its agreement with Corona was valid and enforceable against Modelo.

    Modelo moved for summary judgment in the 1986 case and moved to dismiss the 1987 case. La Preferida, in turn, opposed the summary judgment motion and moved to strike Modelo's motion to dismiss.

    1. The magistrate's report

    The district court referred these motions to a magistrate, who recommended that all motions be denied.

    With respect to the basic issue in the 1986 suit--whether Modelo tortiously had induced Corona to breach its agreement with La Preferida--the magistrate determined that there were disputed fact issues regarding Corona's reasons for terminating the agreement. Next, focusing on the bankruptcy court's sale of Corona's trademarks to Modelo, the magistrate was of the view that, with respect to trademark rights in the thirteen states that were not subject to any prebankruptcy agreements between Modelo and Corona, the sale order barred any further claim against Modelo. However, with respect to the remaining thirty-seven states that were the subject of prebankruptcy concurrent use agreements, the magistrate determined that there existed factual issues that precluded summary judgment. Under those agreements, reported the magistrate, it was not clear whether Corona owned the trademark rights at the time it filed for bankruptcy. Consequently, it was not clear that the bankruptcy court had authority to treat

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    them as part of Corona's bankruptcy estate and to enter a sale order with respect to them. If Corona in fact had sold its trademark rights prior to filing the Chapter 11 petition, the sale order could not adjudicate their status. Consequently, even though La Preferida, Corona, and Modelo were all parties to the sale order, it could not bar the present action on the ground of res judicata.

    In the magistrate's view, the bankruptcy court's later order approving the withdrawal of La Preferida's claim did not preclude this subsequent suit on the ground of collateral estoppel. He noted:

    The order disallowing [La] Preferida's claim was a consent judgment. As to the merits of the claim, there was no evidentiary hearing or ruling on a dispositive motion and the court did not make any findings of fact or enter any conclusions of law. The claim was...

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