L–7 Designs Inc. v. Old Navy Llc

• Citation: 647 F.3d 419
• Decision Date: 01 June 2011
• Docket Number: Docket No. 10–573–cv.
• Parties: L–7 DESIGNS, INC., Plaintiff–Appellant,v.OLD NAVY, LLC, Defendant–Appellee.
• Court: United States Courts of Appeals. United States Court of Appeals (2nd Circuit)

647 F.3d 419

L–7 DESIGNS, INC., Plaintiff–Appellant,

v.OLD NAVY, LLC, Defendant–Appellee.

Docket No. 10–573–cv.

United States Court of Appeals, Second Circuit.

Argued: Feb. 7, 2011.Decided: June 1, 2011.

Virginia R. Richard (Lori J. Van Auken on the briefs), Winston & Strawn LLP, New York, NY, for Plaintiff–Appellant.Bruce P. Keller (Shannon R. Selden on the brief), Debevoise & Plimpton LLP, New York, NY, for Defendant–Appellee.Before: DENNIS JACOBS, Chief Judge, PETER W. HALL, Circuit Judge, SHIRA A. SCHEINDLIN,^* District Judge.SHIRA A. SCHEINDLIN, District Court Judge:

Plaintiff–Appellant L–7 Designs (“L–7”) appeals from a judgment on the pleadings of the United States District Court for the Southern District of New York (Denny Chin, Judge ), entered on January 21, 2010, dismissing five counts asserted in L–7's Complaint (the “Complaint” or “Compl.”), each arising out of a Creative Services Agreement (the “Agreement”) entered into between L–7 and Defendant–Appellee Old Navy (“Old Navy”) in September of 2007. We conclude that the District Court erred in dismissing Count III against Old Navy for failure to negotiate in good faith an alleged agreement to develop and launch a TODD OLDHAM branded line of merchandise (the “Branded Line”) to be sold exclusively in Old Navy stores. The District Court also erred in dismissing Count I for declaratory judgment that Old Navy wrongfully terminated the parties' Agreement under which L–7's principal, Todd Oldham, was to provide design services to Old Navy. Accordingly, we affirm in part and vacate in part the District Court's judgment, and we remand for further proceedings; in so doing we reverse in part the order of the District Court that dismissed the Complaint and reinstate the Complaint to the extent provided in this Opinion.

BACKGROUND¹

I. Materials Properly Considered on a Motion for Judgment on the Pleadings

One of the critical issues in this appeal is whether the District Court properly considered not only the Complaint, Old Navy's Answer, and the written documents attached to the Complaint in deciding Old Navy's Rule 12(c) motion, but also five email exhibits to Old Navy's Counterclaims—exhibits that were “attached” to Old Navy's Answer only by virtue of the fact that its Answer and Counterclaims were filed in the same document. L–7 argues the District Court improperly considered the exhibits without converting Old Navy's 12(c) motion to one for summary judgment, as required by Rule 12(d).

On a 12(c) motion, the court considers “the complaint, the answer, any written documents attached to them, and any matter of which the court can take judicial notice for the factual background of the case.” Roberts v. Babkiewicz, 582 F.3d 418, 419 (2d Cir.2009). “A complaint is [also] deemed to include any written instrument attached to it as an exhibit, materials incorporated in it by reference, and documents that, although not incorporated by reference, are ‘integral’ to the complaint.” Sira v. Morton, 380 F.3d 57, 67 (2d Cir.2004) (citations omitted) (quoting Chambers v. Time Warner, Inc., 282 F.3d 147, 153 (2d Cir.2002)). There is no question that the email exhibits were “attached” to Old Navy's Answer, even if they were only “part of” Old Navy's Counterclaims. See Fed.R.Civ.P. 10(c) (“a copy of a written instrument that is an exhibit to a pleading is a part of the pleading for all purposes”) (emphasis added). Moreover, these emails—of which L–7 had notice well before Old Navy attached them to its Answer (because L–7 sent or received them)—were “integral” to the negotiation exchange that L–7 identified as the basis for its Complaint. See Sira, 380 F.3d at 67 (document not expressly cited in complaint was “incorporated into the pleading because [it] was integral to [plaintiff's] ability to pursue” his cause of action); Chambers, 282 F.3d at 153 (document “integral” to complaint where complaint “relie[d] heavily upon its terms and effect”) (quotation marks omitted); Cortec Indus., Inc. v. Sum Holding L.P., 949 F.2d 42, 48 (2d Cir.1991) (necessity of translating motion into one under Rule 56 “largely dissipated” where plaintiff had “actual notice” of information in documents and “relied upon [them] in framing the complaint”). “Plaintiffs' failure to include matters of which as pleaders they had notice and which were integral to their claim—and that they apparently most wanted to avoid—may not serve as a means of forestalling the district court's decision on [a 12(b)(6) ] motion.” Cortec, 949 F.2d at 44. For these reasons, in reviewing de novo Old Navy's motion for judgment on the pleadings, we draw all facts—which we assume to be true unless contradicted by more specific allegations or documentary evidence—from the Complaint and from the exhibits attached thereto,² and we also consider the emails attached to Old Navy's Counterclaims. See Blue Tree Hotels Inv. (Canada), Ltd. v. Starwood Hotels & Resorts Worldwide, Inc., 369 F.3d 212, 222 (2d Cir.2004) (discrediting allegation “belied” by letters attached to the complaint); Hirsch v. Arthur Andersen & Co., 72 F.3d 1085, 1092 (2d Cir.1995) (“General, conclusory allegations need not be credited ... when they are belied by more specific allegations of the complaint.”). The facts thus derived, viewed in the light most favorable to L–7, are as follows.

II. The Parties

L–7's principal, Todd Oldham, is a world famous artist, fashion and graphic designer, photographer, writer, and television personality. He formed L–7 in 1989 to manage his design services and intellectual property rights, including eight U.S. federal registrations for the mark TODD OLDHAM. “[A] luminary in the fashion and design industry for over twenty years,” Oldham is “considered one of the most important designers of fashion and home furnishings working today” and “the singular talent behind the internationally famous TODD OLDHAM brand.” Compl. ¶ 8. For more than a decade, Oldham and L–7 have collaborated on a variety of TODD OLDHAM branded merchandise.³

Old Navy, a subsidiary of Gap Inc., operates a chain of retail apparel stores, with more than a thousand stores throughout the United States and Canada. For at least the last five years, Old Navy has been suffering declining sales. One of its strategies for increasing sales has been to increase its appeal to younger consumers.

III. The Agreement

In the spring of 2007, L–7 approached Old Navy to discuss the possibility of entering into a relationship with L–7, and Old Navy, “enthusiastic about this possibility,” ultimately requested that Oldham become the company's new Design Creative Director. Id. ¶ 26. In order to induce Oldham to join Old Navy's design team, Old Navy proposed to introduce a TODD OLDHAM branded line of clothing, and to pay royalties to L–7 in the form of five percent of the Branded Line's sales. Faced with continuing declining sales, Old Navy pushed Oldham to enter into an agreement quickly so that it could publicly announce both Oldham's appointment as Old Navy's Design Creative Director and also the launching of the Branded Line.

On September 21, 2007, the parties entered into the Agreement,⁴ under which L–7 was to perform certain “Services” and provide certain “Deliverables,” as set forth in a “Scope of Work” (the “SOW”) attached to the Agreement. Agreement § 1. Under the SOW, Oldham would provide design services for Old Navy for three years in exchange for an annual “fee” of $2 million; in addition, Oldham would receive a guaranteed bonus of $0.5 million in year one and, in years two and three, 1.25 percent of the year's incremental sales (not to exceed $6 million). SOW §§ 1, 2. Section 5 provided that during the term of the Agreement, “either party may terminate this Agreement, effective immediately upon notice thereof, in the event of a material breach of this Agreement that remains uncured after thirty (30) days written notice of the breach to the other party.”

IV. The Licensing Agreement

Section 5 of the SOW, entitled “Todd Oldham Branded Line,” provided as follows:

a. In September 2007, the parties will announce publicly that Todd Oldham/[L–7] shall be serving as Design Creative Director of Old Navy and that it is the intent of the parties to develop and launch a line of products that will bear TODD OLDHAM Marks to be sold exclusively at Old Navy stores at a future time.

b. [L–7] and Old Navy acknowledge and agree that the specific terms and conditions related to this proposed line of products bearing TODD OLDHAM Marks are to be negotiated and agreed upon by the parties in a separate agreement. The parties plan to enter into a separate agreement related to these products by October 1, 2008.

c. The parties agree that this separate agreement will contain at least the following: (1) royalty fees paid to [L–7] of 5% of Old Navy's retail sales for this particular line only (not all Old Navy products) and (2) agreement and final approval by both Old Navy and [L–7] as to the collections and products to be sold by Old Navy.

On September 21, 2007, Old Navy announced via a press release that it intended to launch the Branded Line. On October 3, 2007, Monika Fahlbusch (the Old Navy executive assigned to the Branded Line) emailed Vital Vayness (L–7's representative) to “recommend we plan to begin [discussion on the license agreement for the Branded Line] in our new fiscal year—say in April? We have until October so there is no rush....” Ex. 19. Thereafter, L–7 and Oldham performed their obligations under the Agreement, and Old Navy executives publicly and privately praised Oldham's performance as Design Creative Director.

V. April–October 2008 Negotiations

On April 2, 2008, L–7 (Vayness) “initiated negotiations to finalize” the licensing agreement for the Branded Line by emailing Fahlbusch (Old Navy) L–7's standard form license agreement and a term sheet that outlined a three-year initial term and annual guaranteed minimum royalties (the “April Proposal”). Compl. ¶ 44. The...