SO DESIGNS USA, INC. v. Rollerblade, Inc.

• Decision Date: 12 December 2000
• Docket Number: No. C5-00-984.,C5-00-984.
• Citation: 620 N.W.2d 48
• Court: Minnesota Court of Appeals
• Parties: S O DESIGNS USA, INC., a Delaware corporation, et al., Respondents, v. ROLLERBLADE, INC., a Delaware corporation, et al., Appellants, Robert O. Naegele, Jr., Defendant.

620 N.W.2d 48

S O DESIGNS USA, INC., a Delaware corporation, et al., Respondents, v. ROLLERBLADE, INC., a Delaware corporation, et al., Appellants, Robert O. Naegele, Jr., Defendant.

No. C5-00-984.

Court of Appeals of Minnesota.

December 12, 2000.

Review Denied February 21, 2001.

Craig D. Greenberg, Huffman, Usem, Saboe, Crawford & Greenberg, P.A., Minneapolis, MN, for respondents.

Jerry W. Snider, Charles F. Webber, Deborah A. Ellingboe, Faegre & Benson LLP, Minneapolis, MN, for appellants.

Considered and decided by KLAPHAKE, Presiding Judge, HARTEN, Judge, and ANDERSON, Judge.

OPINION

KLAPHAKE, Judge

Appellants Rollerblade, Inc., Nordica, S.p.A. and Benetton Group S.p.A. challenge the summary judgment entered against them on four counts of breach of contract alleged in their complaint. Because there are no genuine issues of material fact and the district court did not err in its application of the law, we affirm.

FACTS

Scott Olson is the inventor or co-inventor of the in-line skate.¹ Around 1980, Olson began marketing a product under the Rollerblade trade name through a company called North American Sports Training Corporation (NAST). At some point in the 1980's, Robert Naegele, Jr., provided financing to NAST through a corporation he owned called Second Stage, Inc. In 1985, Olson, as seller, entered into a stock purchase agreement (1985 agreement) to sell the shares of NAST to Second Stage.

By terms of the 1985 agreement, Olson agreed to sell all his shares in NAST to Second Stage, but as part of the deal he received back 263 of his shares in NAST. The contract further stated:

To the extent [Olson] may have any possessory or equitable ownership interest or rights to the tradename or trademark "Rollerblades" or any intellectual property right or other interest in Rollerblades or the Subject Products, [Olson] hereby irrevocably assigns and transfers, and grants a perpetual, worldwide, exclusive license to [Second Stage] with respect to, any and all such interests or rights.

The 1985 agreement also gave Olson the right to certain royalties on sales of Rollerblade brand products, with different rates for different regions of the world. Royalties were to be paid on "Net Collected Funds," defined as the funds "actually received by [Second Stage] computed on a cash basis as a result of its sale of the Subject Products" less certain deductions. The royalty period ran from October 1, 1987, to September 30, 1997. In the case of sales in Europe, which are at issue here, Olson was to receive a royalty of one-half percent of "Net Collected Funds from sales of the Subject Products in Europe," up to $4 million, and two percent over $4 million. The 1985 agreement permitted reduction of these royalties by up to one-half if necessary to procure additional financing. The agreement also contained a non-assignment clause, prohibiting assignment of rights or obligations under the contract without the written consent of the other parties.

Shortly after entering into the 1985 agreement, Second Stage became Rollerblade, Inc., a Minnesota corporation. Olson's royalties were reduced by one-half by virtue of the contract clause permitting the reduction to obtain financing. Naegele had triggered the reduction by insisting upon a royalty reduction before investing further. This inspired litigation in 1988, which was settled by the 1991 Stock Purchase and Settlement Agreement (1991 agreement).

The 1991 agreement purports to be between Olson and Naegele as individuals, although the recitations to the contract state that its purpose is to settle the litigation between Olson and Rollerblade. While Naegele signed the document as an individual, he asserted that he had "full power and authority to enter into this Agreement, to purchase the Shares and to obtain the settlement of the Action and of the Claims hereunder." Olson agreed to sell his remaining stock to Naegele and to permanently reduce the royalty percentage. Section 4 of the 1985 agreement, which deals with royalty rights and the grant of the license, was incorporated into the 1991 agreement. Contemporaneously with the signing, Naegele agreed to deliver releases from both the Minnesota and Delaware Rollerblade firms² and Second Stage. The releases acknowledged Olson's right to continue receiving royalties, and included an opinion of counsel that Olson was entitled to continue receiving royalties as set forth in the 1985 agreement. The 1991 agreement also included a non-assignment clause, and a provision for the payment of attorney fees, costs and disbursements to the prevailing party in any action to enforce the agreement. Paragraph 10(b) includes the following integration clause: "[t]his Agreement and the exhibits [the releases] hereto contain the entire agreement of the parties hereto * * *."

In 1993, in order to increase otherwise sluggish sales in Europe, Rollerblade entered into a license agreement with Nordica to both market and manufacture Rollerblade products in Europe. Nordica agreed to pay a royalty of between three and four percent of European sales to Rollerblade. Rollerblade retained the right to manufacture and sell Rollerblade products in the European market. This licensing agreement was made without the knowledge or consent of Olson. Rollerblade paid Olson his royalty only on the sales that Rollerblade made in Europe and not on sales made by Nordica or on the royalties paid by Nordica to Rollerblade.

In 1996, Rollerblade entered into a license agreement with a subsidiary of Benetton,³ giving Benetton the right to manufacture and sell certain clothing items with the Rollerblade trademark. This licensing agreement was also made without the knowledge or consent of Olson. Rollerblade received royalties from Benetton, but again paid no royalties to Olson on sales by Benetton or on the royalties it received from Benetton.

In 1997, Olson discovered that sales of Rollerblade products, accessories and clothing were much greater than Rollerblade had disclosed, based on Rollerblade's licensing agreements with Nordica and Benetton. He sued Rollerblade, Nordica and Benetton for unpaid royalties.

On cross motions for summary judgment, the district court granted judgment to Olson for his four breach of contract counts, and on a stipulated damages count. In order to facilitate this appeal, the parties stipulated to damages. The stipulation provides for a damages formula to be applied if this court affirms the district court's "liability and damages determination."

Summary judgment was granted in favor of Olson on the following counts: count one alleges that Rollerblade breached the 1985 and 1991 agreements by failing to make royalty payments for sales made under the Nordica/Rollerblade license agreement for the years 1993-97; count two alleges that Rollerblade failed to make royalty payments on Black Hole products, a Rollerblade accessory brand, during 1994-97; count nine alleges that Rollerblade and Benetton owe royalties for the sale of Rollerblade brand or related brand clothing; and count ten alleges that Rollerblade, Nordica, and Benetton failed to make final royalty payments on sales of subject products that occurred prior to the September 30, 1997, conclusion of the royalty period, but payment for which was received after September 30. Appellants also challenge the award of damages and attorney fees.

ISSUES

1. Did the district court err in granting summary judgment against Rollerblade on the issue of royalty payments made under the 1991 agreement?

2. Did the district court err in granting summary judgment against Rollerblade under the non-assignment clause of the 1991 agreement for sales of Black Hole products?

3. Did the district court err in granting summary judgment against Rollerblade and Benetton under the non-assignment clause of the 1991 agreement for sales of Rollerblade and related-brand clothing? 4. Did the district court err in granting summary judgment against Rollerblade, Nordica and Benetton on the issue of final royalty payments for sales made during the royalty period but not collected until after the end of the royalty period?

5. Did the district court err in its calculation of damages?

ANALYSIS

"On an appeal from summary judgment, we must examine two questions, whether there are any genuine issues of material fact and whether the lower courts erred in their application of the law." Cummings v. Koehnen, 568 N.W.2d 418, 420 (Minn.1997) (citation omitted). "A reviewing court must view evidence in the light most favorable to the party against whom summary judgment was granted." Vetter v. Security Continental Ins. Co., 567 N.W.2d 516, 520 (Minn.1997) (citation omitted).

Where there are no genuine issues of material fact, the appellate court reviews the district court decision de novo to ascertain whether it erred in its application of the law. Art Goebel, Inc. v. North Suburban Agencies, 567 N.W.2d 511, 515 (Minn.1997). The purpose of construction of an otherwise unambiguous contract is to "give effect to the intention of the parties as expressed in the language they used in drafting the whole contract." Id.

Language in a contract should be given its "plain and ordinary meaning." Turner v. Alpha Phi Sorority House, 276 N.W.2d 63, 67 (Minn.1979) (citations omitted). Contract terms should be "read in the context of the entire contract." Kauffman Stewart v. Weinbrenner Shoe Co., 589 N.W.2d 499, 502 (Minn.App.1999) (citations omitted). If the wording of the contract is clear and unambiguous, the reviewing court cannot go beyond the language of the contract in interpreting it. Id.

I. Construction of the 1991 Agreement

Central to the issues in this case is the interpretation of the 1991 agreement. Rollerblade has argued on several grounds that it is not a party to the contract or that various terms of the contract do not apply to it, and, by extension, to Nordica and Benetton. We are not persuaded by these arguments.

The 1991...