Emerson Radio Corp. v. Orion Sales

• Decision Date: 16 November 2000
• Docket Number: No. 00-1571,00-1571
• Citation: 253 F.3d 159
• Parties: (3rd Cir. 2001) EMERSON RADIO CORP., Appellant v. ORION SALES, INC.; OTAKE TRADING CO. LTD.; TECHNOS DEVELOPMENT LIMITED; SHIGEMASA OTAKE; JOHN RICHARD BOND
• Court: U.S. Court of Appeals — Third Circuit

Page 159

253 F.3d 159 (3rd Cir. 2001)

EMERSON RADIO CORP., Appellant v. ORION SALES, INC.; OTAKE TRADING CO. LTD.; TECHNOS DEVELOPMENT LIMITED; SHIGEMASA OTAKE; JOHN RICHARD BOND

No. 00-1571

UNITED STATES COURT OF APPEALS FOR THE THIRD CIRCUIT

Argued November 16, 2000

Filed: June 5, 2001

On Appeal from the United States District Court for the District of New Jersey (D.C. Civ. No. 95-CV-06455) District Judge: Hon. Alfred M. Wolin

[Copyrighted Material Omitted] David L. Harris (Argued) Lowenstein Sandler Roseland, N.J. 07068, Paul F. Carvelli Andrew E. Anselmi McCusker, Anselmi, Rosen, Carvelli & Walsh, Chatham, N.J. 07928, for Appellant.

Barry J. Bendes (Argued) Jeffrey W. Herrmann, Jeffrey H. Daichman Vedder, Price, Kaufman & Kammholz, New York, N.Y. 10022, for Appellees.

Before: SLOVITER, AMBRO, and GARTH, Circuit Judges

OPINION OF THE COURT

SLOVITER, Circuit Judge.

I. STATEMENT OF THE CASE

Plaintiff Emerson Radio Corp., a Delaware corporation with its principal place of business in New Jersey, began manufacturing consumer electronic products in the early 1900s. Emerson had stopped manufacturing its own products by 1994, and, instead, now licenses other manufacturers to produce and distribute goods bearing Emerson's trademark, which it claims as its greatest business asset.

Defendants, the Otake companies, consist of a group of affiliated companies, Orion Sales, Inc., an Illinois corporation, Otake Trading Co. Ltd., a Japanese corporation, and Technos Development Limited, a Hong Kong corporation, which Emerson alleges are owned and/or controlled by Shigemasa Otake, a citizen of Japan. The Otake companies are in the business of manufacturing and supplying to distributors worldwide consumer electronic products under various brand names, including their own "Orion" brand.

On February 22, 1995, Emerson entered into a License Agreement with Orion pursuant to which Emerson granted Orion a three-year "exclusive... non-transferable license to utilize and exploit" the Emerson trademark "in connection with the manufacturing, sale, marketing, and distribution" of certain specified video and television products under Emerson's trademark to Wal-Mart Stores, Inc., historically Emerson's largest customer. App. at 87. Emerson entered into a Supply Agreement with the Otake companies at the same time pursuant to which the Otake companies agreed to supply video products to Emerson for sale under the Emerson trademark to parties other than Wal-Mart. Both the License Agreement and Supply Agreement were set to run from April 1, 1995 to March 31, 1998. The relationship between the parties has been contentious from its inception, even before the negotiation and signing of the License Agreement, but we will confine ourselves in the text of this opinion to the issues directly relating to this appeal.

On December 20, 1995, Emerson filed suit in the United States District Court for the District of New Jersey on the basis of diversity jurisdiction against the three Otake companies, Mr. Otake, and John Richard Bond, a citizen of Kansas. Bond is a former Emerson executive who was Emerson's primary contact with Wal-Mart and was thereafter hired by Mr. Otake. The complaint alleged breach of contract, breach of the implied covenant of good faith and fair dealing, unfair competition, tortious interference with contractual relations, and conspiracy to interfere with and harm plaintiff's business relations.

Following discovery, the District Court, in a series of three opinions, granted summary judgment to the defendants on all but one of the issues. See Emerson Radio Corp. v. Orion Sales, Inc., 41 F. Supp. 2d 547 (D.N.J. 1999) (hereafter "Emerson I"); Emerson Radio Corp. v. Orion Sales, Inc., 2000 WL 49361 (D.N.J. 2000) (hereafter "Emerson II"); Emerson Radio Corp. v. Orion Sales, Inc., 80 F. Supp. 2d 307 (D.N.J. 2000) (hereafter "Emerson III"). The court permitted the jury to determine the remaining issue, which was the respective responsibility of Emerson and Orion for a three-month span of Emerson-brand product returns from Wal-Mart from June to August 1995. The jury found for Emerson in part and for Orion in part, and the District Court offset Emerson's damage award by the amount the jury awarded to Orion.

Emerson timely appeals the District Court's grant of summary judgment in favor of the defendants on Emerson's claims for breach of contract, breach of the implied covenant of good faith and fair dealing, and tortious interference. Emerson also appeals from the amount of damages in the District Court's final judgment. This court has jurisdiction pursuant to 28 U.S.C. S 1291.

II. GRANT OF SUMMARY JUDGMENT

Summary judgment is appropriate where "there is no genuine issue as to any material fact and... the moving party is entitled to a judgment as a matter of law." Fed. R. Civ. P. 56(c). In considering a motion for summary judgment, a court must draw all reasonable inferences from the underlying facts in the light most favorable to the non- moving party. See Battaglia v. McKendry, 233 F.3d 720, 722 (3d Cir. 2000). We have plenary review over a district court's grant of summary judgment. See Pittston Co. Ultramar Am. Ltd. v. Allianz Ins. Co., 124 F.3d 508, 515 (3d Cir. 1997). Similarly, we have plenary review over the District Court's interpretation of state law, see id., and in this case, it is undisputed that we must apply the substantive law of New Jersey.

A. BREACH OF CONTRACT

Emerson's principal claim on appeal is that Orion breached its contractual obligation in the License Agreement to sell Emerson-brand video products to Wal-Mart. Emerson proffers two legal theories in support of its breach of contract claim: one is based on the express language of the License Agreement; the other is based on an obligation implied in that contract. The theories as set forth on appeal are alternate routes to the same goal -- an opportunity to present the breach of contract claim to a jury. The District Court rejected both as a matter of law and we consider each in turn.

1.

Express Obligation to "Utilize and Exploit"

Emerson's claim that Orion breached the express contract is based on P2.1 of the License Agreement, which provides, "[Emerson] grants to [Orion] an exclusive... non-transferable license to utilize and exploit the Licensed Marks solely upon and in connection with the manufacturing, sale, marketing, distribution and after sales service of the Goods [defined to include video cassette recorders, video cassette players, televisions, etc.]" to Wal-Mart. App. at 87 (emphasis added). Emerson contends that this provision in effect imposed on Orion an express contractual obligation to use "reasonable efforts" or "due diligence" in selling and marketing Emerson-brand products to Wal-Mart.¹

Emerson alleges that rather than exploiting the Emerson trademark on the Emerson products, Orion had a plan to displace the Emerson-brand products in Wal-Mart stores with Orion-brand products. Emerson argues that sales records show that the sales of Emerson-brand goods in Wal-Mart stores markedly decreased during the period of the license, from 1995 to 1998, while sales of the Orion brand increased. Further, as evidence of a secret Orion "bait and switch" intent to displace the Emerson brand, Emerson produced numerous Orion inter office memoranda, including the following memorandum from Bond to Mr. Otake that read, inter alia:

Therefore, my personal opinion is to not alert Emerson people to our intentions but to let them think we have decided to help them - actually we are just buying 1 and 1/2 years to be free of Emerson.

App. at 1503.

In awarding summary judgment to Orion on Emerson's breach of contract claim, the District Court did not consider whether this evidence raised a material issue of fact as to whether Orion breached its contract. Instead, the District Court construed the word "exploit" as used in the phrase "utilize and exploit" to be subject to two possible meanings. It stated that the term "exploit" "could as easily be interpreted as granting Orion authority to act in its own self-interest as imposing a duty to act in Emerson's best interests." Emerson I, 41 F. Supp. 2d at 549. The meaning of the term "exploit" is, according to the District Court, "inconclusive." Id. at 550. The District Court therefore declined to "interpret the use of that word as the imposition of an express duty on the part of Orion to exert some minimum level of effort or performance under the license," id., and, in a brief discussion, it rejected Emerson's claim that Orion had express sales obligations under the license.

It is hornbook law that if the relevant terms in a contract are ambiguous, the issue must go to a jury. See, e.g., Sanford Inv. Co., Inc. v. Ahlstrom Mach. Holdings, Inc., 198 F.3d 415, 421 (3d Cir. 1999). The court can grant summary judgment on an issue of contract interpretation if the contractual language being interpreted "is subject to only one reasonable interpretation." Arnold M. Diamond, Inc. v. Gulf Coast Trailing Co., 180 F.3d 518, 521 (3d Cir. 1999). To state the converse, an agreement is ambiguous if it is "susceptible of more than one meaning." Sumitomo Mach. Corp. of Am., Inc. v. AlliedSignal, Inc., 81 F.3d 328, 332 (3d Cir. 1996) (quotation omitted). Therefore, if the District Court was correct in determining that "exploit" as used in the license was ambiguous, we must reverse its order granting summary judgment on this claim.

The determination whether a contract term is ambiguous is a question of law that requires a court to " `hear the proffer of the parties and determine if there [are] objective indicia that, from the linguistic reference point of the parties, the terms of the contract are susceptible of different meanings.' " Sheet Metal Workers, Local 19 v. 2300 Group, Inc., 949 F.2d 1274, 1284 (3d Cir. 1991) (brackets in original) (quoting Mellon Bank, N.A. v. Aetna Bus. Credit, Inc., 619 F.2d 1001, 1011 (3d...