World-Wide Rights Ltd. Partnership v. Combe Inc.

Citation955 F.2d 242
Decision Date29 January 1992
Docket NumberWORLD-WIDE,No. 91-1050,91-1050
PartiesRIGHTS LIMITED PARTNERSHIP, Plaintiff-Appellant, v. COMBE INCORPORATED; Combe Puerto Rico, Incorporated, a Delaware corporation, Defendants-Appellees.
CourtUnited States Courts of Appeals. United States Court of Appeals (4th Circuit)

Lawrence Stephen Greenwald, Gordon, Feinblatt Rothman, Hoffberger & Hollander, Baltimore, Md., argued (Jeffrey Schwaber, on brief), for plaintiff-appellant.

Charles Joseph Yast, Jr., Lord, Bissell & Brook, Chicago, Ill., argued (R.R. McMahan, Chicago, Ill., Robert B. Green, Irwin, Kerr, Green, McDonald & Dexter, Baltimore, Md., on brief), for defendants-appellees.

Before POWELL, Associate Justice (Retired), United States Supreme Court, sitting by designation, and PHILLIPS and NIEMEYER, Circuit Judges.

OPINION

PHILLIPS, Circuit Judge:

World-Wide Rights Limited Partnership (World) brought a declaratory judgment action in diversity, seeking to establish its right to royalty payments under a 1961 licensing agreement (the Agreement) with Combe Incorporated (Combe). On the parties' cross-motions for summary judgment, the district court concluded as a matter of law that the critical language of the Agreement was unambiguous and did not require Combe to pay royalties to World. On that basis the court granted summary judgment to Combe. Because we conclude that the critical language of the Agreement is ambiguous, making judgment for either party as a matter of law on the summary judgment record improper, we vacate the judgment and remand for further proceedings.

I

World developed a chemical process and formula for a product that turned gray hair to a natural-looking color. The product was marketed under its trademark name, "Grecian Formula 16." Under their Agreement, World granted Combe an exclusive long-term license to manufacture, use and sell the Grecian Formula 16 product in the United States and Canada. In exchange, Combe agreed to pay royalties based on a percentage of sales of the product.

The Agreement also granted Combe a limited right to use the Grecian Formula 16 chemical process, the trademark and the trade name for other hair products. If these other products utilized the trade name, but neither employed the chemical process, nor competed with the Grecian Formula 16 product, they were exempted from royalty payments. At issue in this appeal is whether Combe must pay royalties where it sells a product that uses neither the chemical process, nor the trade name, but does compete directly with the Grecian Formula 16 product.

The product for which World demanded royalty payments is Just For Men, which Combe developed and marketed completely independent of the Grecian Formula 16 line of products. In developing Just For Men, Combe neither utilized the Grecian Formula 16 chemical process, nor the Grecian Formula 16 name. As a product meant to change men's hair color from gray to a natural-looking color, Just For Men competes directly with Grecian Formula 16.

World has contended throughout that the Agreement requires Combe to pay royalties on sales of Just For Men, because Just For Men competes with Grecian Formula 16. To support its claim, World has relied on p 3(c)(iv)(B) of the Agreement, which states in its entirety that:

If Combe develops any new product for the hair using or based upon the active ingredients in the process or which competes with the [Grecian Formula 16] product but which is substantially different, no royalties shall be payable by Combe hereunder on the first $50,000 of net sales of any such other product in any fiscal year, unless the net sales of such other product equal or exceed $100,000 for any such fiscal year in which case all net sales of such other product in such fiscal year will be included with the sales of the [Grecian Formula 16] product in computing percentage royalties hereunder.

World's contention has been that by the plain meaning of this provision, Just For Men falls within its scope: it is a hair product that "competes with the Grecian Formula 16 product," but is "substantially different" in that it uses a different chemical process. World claimed that, because Just For Men accounts for net sales that "equal or exceed $100,000" per fiscal year, Combe must pay royalties.

Combe has contended to the contrary that, if p 3(c)(iv)(B) is read in the context of the entire Agreement, it is clear that World may demand royalty payments only for net sales over $100,000 of products that utilize the Grecian Formula 16 trade name. Because Just For Men does not employ the Grecian Formula 16 trade name, Combe has maintained that by terms of the Agreement, it owed no royalties on sales of the product.

As indicated, the district court, considering the matter on the parties' cross-motions for summary judgment, 1 concluded that as a matter of law the Agreement did not require Combe to pay royalties to World, and gave summary judgment accordingly.

This appeal by World followed.

II

A district court may grant a motion for summary judgment only where it finds "that there is no genuine issue as to any material fact." Fed.R.Civ.P. 56(c). Not only must the historic facts be not in genuine issue, so must there be no genuine issue as to the inferences to be drawn from them. Where as here, both parties have moved for summary judgment, it does not "establish that there is no issue of fact and require that summary judgment be granted to one side or another." American Fidelity & Casualty Co. v. London & Edinburgh Ins. Co., 354 F.2d 214 (4th Cir.1965).

We review the grant of summary judgment de novo. Higgins v. E.I. DuPont de Nemours & Co., 863 F.2d 1162 (4th Cir.1988).

A court faces a conceptually difficult task in deciding whether to grant summary judgment on a matter of contract interpretation. Only an unambiguous writing justifies summary judgment without resort to extrinsic evidence, and no writing is unambiguous if "susceptible of two reasonable interpretations." American Fidelity & Casualty, 354 F.2d at 216. The first step for a court asked to grant summary judgment based on a contract's interpretation is, therefore, to determine whether, as a matter of law, the contract is ambiguous or unambiguous on its face. If a court properly determines that the contract is unambiguous on the dispositive issue, it may then properly interpret the contract as a matter of law and grant summary judgment because no interpretive facts are in genuine issue. Even where a court, however, determines as a matter of law that the contract is ambiguous, it may yet examine evidence extrinsic to the contract that is included in the summary judgment materials, and, if that evidence is, as a matter of law, dispositive of the interpretive issue, grant summary judgment on that basis. See Jaftex Corp. v. Aetna Casualty and Surety Co., 617 F.2d 1062, 1063 (4th Cir.1980). If, however, resort to extrinsic evidence in the summary judgment materials leaves genuine issues of fact respecting the contract's proper interpretation, summary judgment must of course be refused and interpretation left to the trier of fact.

In this case, the district court expressly stated that it made its determination based only upon the unambiguous writing contained within the four corners of the Agreement.

In so holding, the court erred.

III

Although there is no dispute as to the actual words of p 3(c)(iv)(B) of the Agreement, the parties seemingly agree--as we think they must--that the language of that provision standing alone does not yield an unambiguous answer to the dispositive issue. Both concede the need to find unambiguous meaning by reading this provision in context of the entire Agreement, and both contend that unambiguous meaning favorable to their respective positions can be found in such a contextual search.

Taken as a whole, Combe argues, the Agreement determines the parties'...

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