American Eagle Outfitters v. Lyle & Scott Ltd.

• Decision Date: 11 September 2009
• Docket Number: No. 08-4807.,08-4807.
• Citation: 584 F.3d 575
• Parties: AMERICAN EAGLE OUTFITTERS, Retail Royalty Company, Appellees, v. LYLE & SCOTT LIMITED; Harris Watson Investment Limited, Appellants.
• Court: U.S. Court of Appeals — Third Circuit

584 F.3d 575

AMERICAN EAGLE OUTFITTERS, Retail Royalty Company, Appellees, v. LYLE & SCOTT LIMITED; Harris Watson Investment Limited, Appellants.

No. 08-4807.

United States Court of Appeals, Third Circuit.

Argued May 21, 2009.

Opinion Filed: September 11, 2009.

Emily J. Barnhart, Esq., Dennis P. McCooe, Esq., Timothy D. Pecsenye, Esq., Laurence S. Shtasel, Esq., James T. Smith, Esq., Marc E. Weitzman, Esq., Blnk Rome, Philadelphia, PA, Susan B. Flohr, Esq., Blank Rome, Charles R. Wolfe, Esq., Blank Rome, Washington, DC, Robert L. Byer, Esq. [Argued], Susan G. Schwochau, Esq., Duane Morris, Pittsburgh, PA, for Appellants.

Clay P. Hughes, Esq., Cynthia E. Kernick, Esq., Walter T. McGough, Jr., Esq. [Argued], Kirsten R. Rydstrom, Esq., Richard T. Ting, Esq., Colin E. Wrabley, Esq., Reed Smith, Pittsburgh, PA, Theodore R. Remaklus, Esq., Wood, Herron & Evans, Cincinnati, OH, for Appellees.

Before: FUENTES, JORDAN, and NYGAARD, Circuit Judges.

OPINION OF THE COURT

FUENTES, Circuit Judge.

This is a contract case arising from the parties' efforts to resolve a dispute over their use of similar trademarks in their respective clothing lines. To work out an acceptable business arrangement, representatives of American Eagle Outfitters ("American Eagle" or "AE") and Lyle and Scott, Ltd. ("Lyle & Scott" or "LS") met in London in January 2006. During this meeting, the parties drew up an informal document (the "London Memorandum") memorializing the content of their discussion and their points of agreement. The dispute in this case centers on the significance of this London Memorandum. The Magistrate Judge¹ agreed with Plaintiff-Appellee American Eagle that the London Memorandum was a binding contract between the parties, and that its terms were not ambiguous, holding that no reasonable jury could find otherwise. Defendant-Appellant Lyle & Scott appeals, arguing that the parties did not intend to contract, and even if they did, the contract that resulted was too indefinite to be enforceable.

For the reasons outlined below, we agree with the Magistrate Judge that the parties formed an enforceable contract, but we disagree with her finding that all of its terms are unambiguous. Accordingly, we remand the case so that a jury may interpret the contract's more ambiguous terms.

I.

American Eagle is an American clothing retailer. It operates in all fifty states, the District of Columbia, and Puerto Rico, and has internet sales in twenty-four foreign countries. Lyle & Scott is a British sportswear manufacturer and is owned by Waterlinks Investment Ltd. At the start of this litigation, Waterlinks Investment Ltd. was known as Harris Watson Investments Limited ("HW") after its principals, John Harris and Sue Watson. Harris and Watson control Waterlinks Investment Ltd., as they did HW. For the purposes of this Opinion, the two companies can be used interchangeably.

The dispute at the center of this case began in September 2005. Benjamin Sharpe, the managing director of Lyle & Scott, wrote to American Eagle's CEO, James O'Donnell, stating that American Eagle's use of its eagle logo was uncomfortably close to Lyle & Scott's own "birdie" trademark. Sharpe opined that "there is a substantial risk of confusion as to the origin of your goods when offered for sale in Europe ... [and] we would undoubtedly succeed in infringement proceedings against you." (App.142-43.) Sharpe then invited American Eagle to respond with suggestions on how to move forward.

In December 2005, a few months after Sharpe sent the letter to American Eagle's CEO (and following some other correspondence between Lyle & Scott and American Eagle), Kimberly Strohm, the in-house counsel for American Eagle, wrote Dennis Hall, HW's corporate development director, proposing a face-to-face meeting to work out an acceptable business solution. Sharpe had previously asked Hall to handle the dispute with American Eagle. According to Sharpe's testimony, Hall was not directed to report back to Sharpe or anyone else, and appears to have been given wide latitude to resolve the situation. Sharpe had delegated other trademark matters to Hall in the past, with Hall signing documents on behalf of Lyle & Scott during those negotiations, although those matters were smaller and less complicated than the dispute with American Eagle.

In January 2006, Strohm met with Hall in London, and brought along Christopher Fiore, American Eagle's senior VP in charge of "International." Strohm told Hall in a December 21, 2005, email that she would be attending the meeting as part of the management team, and that the meeting would be "business person to business person," although outside legal counsel would be available if necessary. (App.162.) Strohm made explicit her understanding that Lyle & Scott's attorneys would play a similar role — they would be on hand if necessary, but not in the negotiating room. The emails exchanged between Hall and Strohm outlining these parameters contained the language "without prejudice," and Strohm proposed that the meeting be conducted "without prejudice."

The meeting stretched over a morning and an afternoon session. During the morning session, Hall pushed Strohm to abandon American Eagle's use of the logo, but Strohm resisted. She instead proposed a coexistence agreement whereby both companies would use the logo along with safeguards to avoid customer confusion. During the break between sessions, Hall telephoned Harris, one of the HW principals, and discussed the available options, all the while recording notes of Harris's preferences. Hall and Strohm then reconvened for the afternoon session.

At the end of the afternoon session, Strohm and Hall drew up an informal document memorializing the points upon which the two parties had agreed (the aforementioned London Memorandum). The memorandum read:

AE to pay $1,000,000 (US) to Lyle & Scott.

Parties agree as follows:

• AE to use its current eagle on American Eagle branded merchandise, products must also bear American Eagle or American Eagle Outfitters on the label;

• AE to sell products in AE stores, stores within stores or AE website;

• LS to use its eagle designs on Lyle & Scott branded merchandise, products must also bear Lyle & Scott on the label;

• Perpetual and worldwide pertaining to goods of LS registrations

• AE shall have the right of first refusal to purchase LS eagle(s) or business

• Each party shall consent to the registration of the other's eagles and AE shall withdraw its opposition against LS application in the US

• Each side to bear their own government taxes

• AE to pay the reasonable and customary atty fees of LS

• AE will not launch or offer a specific range targeted at the golf market

• AE will discuss with LS [sourcing of] garments

(App. 170-71.) Hall acknowledged that it was he who suggested the list should be put in writing.² Hall then asked Strohm if they should both sign the document, but Strohm replied that signing would not be necessary.³ Strohm and Hall each left the meeting with copies of the London Memorandum and Strohm agreed to turn it into a formal document. The London Memorandum, unlike the emails exchanged between Strohm and Hall, did not contain the "without prejudice" language.

On January 23, 2006, two weeks after the London meeting, Strohm sent Hall a "draft of the co-existence agreement" ("draft agreement"). Hall responded three days later with an edited version. Hall stated that his edits were generally "simple tidying." There was one portion, however, where Hall acknowledged he was making a substantive edit. Section 3(a)(iv) had stated "AEO can register its AEO Eagle Design marks for goods and services throughout the world." Hall deleted "throughout the world" and substituted "in the U.S." The accompanying email stated the following:

I believe my comments are simple tidying other than clause 3(a)(iv) — we do not want to allow you to register outside your core market, naturally we will not object to your internet selling activities and we will defend our mark (and by similarity, your mark) in these other territories. This allows you to trade unfettered whilst not diminishing our prior rights in these other territories.

(App. 184.) The portions of the London Memorandum that generated this disagreement, clauses four and six, read as follows:

Perpetual and worldwide pertaining to goods of LS registrations

. . .

Each party shall consent to the registration of the other's eagles and AE shall withdraw its opposition against LS application in the US.

(App.170.)

On January 31, 2006, Hall and Strohm exchanged emails discussing Strohm's concern over Hall's statement that Lyle & Scott did not want to let American Eagle register outside American Eagle's core market. They agreed to hold a conference call the next morning. Shortly before the call, however, Hall emailed Strohm to flag another problem. The email stated:

I need to clarify one issue ahead of our conversation. ... As a result you may well think I am moving our position! After discussions on our licensee relationships, we now have significant issues in allowing you to trade into territories outside America. This is particularly important in Europe and the Far East where we have clearly established marks and prior rights.

(App.196.) Hall then proposed "two measures": that American Eagle change the colors/embroidery of its logos and that American Eagle pay Lyle & Scott a royalty fee of five percent on sales made in territories where Lyle & Scott had established its marks. (App.196) In flagging this problem and proposing solutions, Hall noted that he understood that this "contradict[ed] the worldwide basis [American Eagle] sought to achieve at [the] meeting." This proposal also contradicted Hall's January 26 email, in which he stated that Lyle & Scott would not seek to restrict American Eagle from selling over the internet. (See App. 184 ("[N]aturally we will not object to your internet selling activities.").) More...