Keystone Northeast, Inc. v. Keystone Retaining Wall System

Filing

UNPUBLISHED AUTHORED OPINION filed. Originating case number: 6:12-cv-00720-BHH. Copies to all parties and the district court. [1000005222]. Mailed to: Keystone Northeast, Inc.c/o Daniel B. Albert, at 2 Tennwood Drive, Greenville, SC 29609. [15-1457]

Appeal: 15-1457

Doc: 35

Filed: 01/18/2017

Pg: 1 of 17

UNPUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
No. 15-1457
KEYSTONE NORTHEAST, INC., f/k/a Pavers Plus
assignee of Madawaska Brick and Block Corp.,

GSP,

Inc.,

Plaintiff - Appellee,
v.
KEYSTONE RETAINING WALL SYSTEMS, LLC, f/k/a Keystone
Retaining Wall Systems, Inc., a division and wholly owned
subsidiary of Contech Construction Products, LLC, f/k/a
Contech Construction Products, Inc.; CONTECH CONSTRUCTION
PRODUCTS, LLC, f/k/a Contech Construction Products, Inc.,
Defendants - Appellants.

Appeal from the United States District Court for the District of
South Carolina, at Greenville.
Bruce H. Hendricks, District
Judge. (6:12-cv-00720-BHH)
Argued:

October 25, 2016

Before NIEMEYER
Circuit Judge.

and

MOTZ,

Decided:
Circuit

Judges,

January 18, 2017

and

DAVIS,

Senior

Affirmed in part, vacated in part, and remanded by unpublished
opinion. Judge Niemeyer wrote the opinion, in which Judge Motz
and Senior Judge Davis joined.
ARGUED: Paul Gregory Joyce, COLUCCI & GALLAHER, P.C., Buffalo,
New York, for Appellants.
ON BRIEF: Thomas E. Vanderbloemen,
GALLIVAN, WHITE & BOYD, P.A., Greenville, South Carolina, for
Appellants.
Unpublished opinions are not binding precedent in this circuit.

Appeal: 15-1457

Doc: 35

Filed: 01/18/2017

Pg: 2 of 17

NIEMEYER, Circuit Judge:
Keystone

Retaining

Wall

Systems,

LLC

(“Keystone

Wall

Systems”), the designer of a segmental retaining wall system and
holder of intellectual property related to that design, entered
into a “License Agreement” with Keystone Northeast, Inc., to
manufacture and sell the system in Maine, New Hampshire, and the
eastern part of Massachusetts.

The License Agreement imposed a

sales quota on Keystone Northeast, which, if not met, justified
immediate

termination

of

the

agreement.

Otherwise,

the

agreement’s term expired at the end of 2010, subject to year-toyear

renewals

thereafter

upon

the

establishment

of

revised

performance goals.
During the License Agreement’s term, Keystone Wall Systems
and Keystone Northeast entered into transfer agreements, which
provided for Keystone Northeast’s transfer of a portion of the
licensed

territories

enabling

Keystone

back

Wall

to

Keystone

Systems

to

Wall

deal

Systems,

directly

manufacturers of the blocks used in the system.

thereby

with

local

The transfer

agreements provided for readjustments of performance goals and
compensation.
When Keystone Northeast allegedly failed to meet its sales
quota for 2008, Keystone Wall Systems terminated the License
Agreement, prompting Keystone Northeast to commence this breach
of contract action for damages.
2

Appeal: 15-1457

Doc: 35

The

Filed: 01/18/2017

district

court

Pg: 3 of 17

granted

Keystone

Northeast

summary

judgment for damages under the License Agreement for the period
from 2008 to 2010, when the agreement expired.

It also awarded

damages to Keystone Northeast under three transfer agreements
for obligations that it found continued after the termination of
the License Agreement.
of

the

three

Finally, it ordered specific performance

transfer

agreements,

requiring

Systems to pay royalties into the future.

Keystone

Wall

From the district

court’s judgment, Keystone Wall Systems filed this appeal.
Keystone

Northeast

has

not

appeared

in

this

appeal.

Nonetheless, we affirm the district court’s judgment awarding
Keystone Northeast damages through 2010, but we vacate its award
of

damages

order

of

under

the

specific

transfer

agreements

performance,

and

after

we

2010

remand

and
for

its
the

recalculation of damages.
I
The
Keystone

License

Agreement

Northeast,

dated

between
January

Keystone
2,

Wall

1998,

Systems

gives

and

Keystone

Northeast an exclusive license to manufacture and sell Keystone
Wall System’s designed block system in Maine, New Hampshire, and
the eastern part of Massachusetts.

The License Agreement fixed

an annual sales quota based on the square footage of block “face
area” and provided that Keystone Wall Systems could terminate
the

contract

immediately

and
3

without

notice

if

Keystone

Appeal: 15-1457

Doc: 35

Northeast

Filed: 01/18/2017

failed

to

meet

the

Pg: 4 of 17

quota.

If

not

terminated

for

failure to meet the sales quota or for any other enumerated
reason, the Agreement was set to expire at the end of 2010,
“with renewals for successive year terms” under newly negotiated
sales quotas.
Possessing this exclusive right to manufacture and sell the
block

system,

Keystone

Northeast

contracted

with

local

manufacturers to produce the blocks in various portions of its
licensed territory.

These manufacturers included Gagne & Son

Concrete Blocks, Inc., in Maine; HiWay Concrete Products Co.,
Inc.,

in

Massachusetts;

Massachusetts.

and

Adolf

Jandris

&

Sons,

Inc.,

in

But, as Keystone Northeast’s relationships with

those three manufacturers soured, Keystone Northeast sought to
transfer back to Keystone Wall Systems portions of its licensed
territory to enable Keystone Wall Systems to deal directly with
the local manufacturers.
Keystone

Northeast,

and

As a result, Keystone Wall Systems,
the

local

manufacturers

entered

into

transfer agreements, which not only transferred territory back
to Keystone Wall Systems but also adjusted royalties and quotas
and provided for other modifications to the License Agreement.
Keystone

Northeast,

Keystone

Wall

Systems,

and

Gagne

entered into the first transfer agreement in December 1999 (the
“Gagne Transfer Agreement”).

This agreement (1) renewed the

License Agreement through December 31, 2003; (2) increased sales
4

Appeal: 15-1457

Doc: 35

Filed: 01/18/2017

Pg: 5 of 17

quotas that would reach a maximum of 500,000 square feet of
block face area in 2003; (3) provided that Gagne’s sales in
Maine would count toward Keystone Northeast’s annual sales quota
for

purposes

of

Keystone

Northeast’s

obligations

under

the

License Agreement; (4) provided that Keystone Northeast had the
right of first refusal to expand its licensed territory into
western Massachusetts before Keystone Wall Systems could accept
a third party offer to acquire that territory; and (5) provided
that the License Agreement otherwise continued in full force and
effect.

The agreement also provided that if Keystone Northeast

exercised its right of first refusal, 75,000 square feet would
be added to its sales quota.

To exercise its right, Keystone

Northeast was required to match the initial license fee offered
by the third party, up to a maximum of $25,000.
Keystone Wall Systems and Keystone Northeast entered into
two other similar transfer agreements in 2000, transferring back
Keystone
Jandris

Northeast’s
and

HiWay.

licensed
Those

territory

transfer

that

was

agreements

served

(1)

set

by
out

schedules for license-fee sharing between Keystone Northeast and
Keystone Wall Systems; (2) provided that Jandris’ and HiWay’s
sales

would

count

toward

Keystone

Northeast’s

annual

sales

quota; (3) added western Massachusetts to Keystone Northeast’s
licensed territory; and (4) otherwise provided for the continued
enforcement of the License Agreement.
5

Appeal: 15-1457

Doc: 35

In

Filed: 01/18/2017

September

2005,

Pg: 6 of 17

Keystone

Wall

Systems

and

Keystone

Northeast renewed the 1998 License Agreement “through December
31, 2010, with no change in the Performance Requirements” and
without any other amendment.
From 2005 to 2007, Keystone Northeast was credited with
sales of more than 575,000 square feet, meaning that it exceeded
its

sales

quota

even

if

its

quota

had

increased

to

575,000

square feet upon exercise of its right of first refusal for
western Massachusetts.

In 2008, however, Keystone Northeast was

credited for only 538,037 square feet, which exceeded its quota
if it had not exercised the right of first refusal (500,000
square feet), but fell short of its quota if it had exercised
the right of first refusal (575,000 square feet).
By

letter

dated

March

17,

2009,

Keystone

Wall

Systems,

taking the position that Keystone Northeast’s sales quota had
increased to 575,000 square feet, notified Keystone Northeast
that it was “terminating the License Agreement . . . effective
December 31, 2008,” because it failed to meet its quota.
letter

stated

Keystone

that,

Northeast

under

had

the

obtained

Jandris
the

Transfer

rights

to

The

Agreement,

production

in

western Massachusetts and therefore had in effect exercised its
right

of

Agreement.

first

refusal

After

as

specified

termination,

in

Keystone

the
Wall

Gagne
Systems

Transfer
stopped

paying Keystone Northeast its share of royalties for sales made
6

Appeal: 15-1457

Doc: 35

Filed: 01/18/2017

Pg: 7 of 17

by Gagne, Jandris, and HiWay, as specified in the three transfer
agreements.
On March 12, 2012, Keystone Northeast commenced this action
against Keystone Wall Systems for breach of contract, based on
Keystone Wall Systems’ termination of the License Agreement and
for related torts.

After the completion of discovery, Keystone

Wall

a

Systems

Keystone

filed

Northeast’s

cross-motion

for

motion

for

summary

claims,

and

Keystone

summary

judgment

on

its

judgment

on

Northeast
breach

of

all

of

filed

a

contract

claim.
By order dated March 16, 2015, the district court entered
partial summary judgment in favor of Keystone Northeast, ruling
that it was entitled to judgment on its breach of contract claim
because Keystone Northeast had not exercised its right of first
refusal under the License Agreement and therefore its quota had
remained at 500,000 square feet, a number that it satisfied.
The court also ruled that Keystone Northeast was entitled to
royalties under the three transfer agreements so long as the
License Agreement was in force.

Because Keystone Wall Systems

“would not have automatically been entitled to terminate the
License Agreement at the end of the term in 2010,” the court
concluded that Keystone Northeast could seek “damages accruing
beyond that time.”

Finally, the court concluded that the three

transfer agreements “depend[ed] on the License Agreement,” and
7

Appeal: 15-1457

thus

Doc: 35

Filed: 01/18/2017

Keystone

Northeast

“did

Pg: 8 of 17

not

have

a

perpetual

right

to

receive royalties regardless of its compliance with the License
Agreement.”
Both
order

The court deferred ruling on the amount of damages.

parties

dated

rulings.

filed

March

25,

motions
2015,

for

the

reconsideration,

district

court

and

revised

by
its

First, it reversed its earlier ruling that Keystone

Wall Systems would not have unilaterally terminated the License
Agreement at the end of its 2010 term, concluding that in fact
it would have.

Accordingly, the court concluded that Keystone

Northeast was entitled to damages for the termination of the
License Agreement only from the end of 2008 (the time of the
breach) to the end of 2010, and not for any “damages for the
future value of the license.”

Second, the court reversed its

earlier ruling that Keystone Northeast was entitled to royalties
under

the

Agreement

transfer
was

in

agreements

force.

It

only

so

concluded

long

as

instead

the

License

that,

because

Keystone Wall Systems’ obligation to pay royalties under the
transfer agreements was not dependent on the License Agreement,
Keystone Wall Systems had a continuing obligation beyond 2010 to
pay Keystone Northeast its share of the royalties.
The

next

calculations,

day,

the

court

and,

following

held
the

a

hearing

hearing,

on

the

awarded

damage

Keystone

Northeast $725,775 in damages, calculated to the date of the
court’s order, plus $203,140 in prejudgment interest.
8

Because

Appeal: 15-1457

Doc: 35

Filed: 01/18/2017

Pg: 9 of 17

it concluded that the amount of future royalties would be the
product

of

speculation,

it

ordered

specific

performance,

obligating Keystone Wall Systems to continue paying royalties
under

the

transfer

agreements,

based

on

sales

in

Keystone

Northeast’s territory.
From the district court’s judgment, entered April 1, 2015,
Keystone Wall Systems filed this appeal.

II
Keystone

Wall

Systems

contends

first

that

Keystone

Northeast in fact exercised its right of first refusal to obtain
the western Massachusetts territory and that therefore its quota
under the License Agreement increased from 500,000 square feet
to 575,000 square feet, a figure that Keystone Northeast did not
meet

in

2008.

It

argues

that

the

district

court

erred

in

concluding that it breached the License Agreement and therefore
that we should reverse the summary judgment entered in favor of
Keystone Northeast and grant summary judgment in favor of it.
The

question

thus

presented

is

whether

the

record

demonstrates that Keystone Northeast indeed exercised the right
of first refusal, thereby increasing its quota obligation, as
provided in the Gagne Transfer Agreement.
The district court was unable to find sufficient evidence
to justify a reasonable jury’s finding that Keystone Northeast

9

Appeal: 15-1457

Doc: 35

Filed: 01/18/2017

Pg: 10 of 17

exercised its right of first refusal.

Accordingly, it denied

Keystone Wall Systems’ motion for summary judgment and granted
Keystone Northeast’s motion.
Based

on

our

review

of

the

record,

we

agree

with

the

district court and conclude that, as a matter of law, Keystone
Northeast did not exercise its right of first refusal and that
therefore Keystone Wall Systems was not justified in terminating
the license agreement based on Keystone Northeast’s failure to
meet its 2008 quota.
The right of first refusal provision in the Gagne Transfer
Agreement provides that Keystone Northeast “shall have a first
right

of

refusal

Massachusetts
accept

a

to

Territory

third

party

obtain

the

before
offer

to

license

[Keystone
acquire

to

Wall
that

the

Western

Systems]

license.”

may
The

provision continues by requiring Northeast, in order to exercise
the right, “to match the initial license fee up to a maximum of
$25,000.00 and an addition of 75,000 square feet to [Keystone
Northeast’s]

existing

quota.”

Under

Minnesota

law,

which

governed the contract, for a right of first refusal to “ripen[]
into an option,” a third party would have to make a bona fide
offer and that offer would have to be communicated to the party
holding the right.

Dyrdal v. Golden Nuggets, Inc., 689 N.W.2d

779, 784 (Minn. 2004).

10

Appeal: 15-1457

Doc: 35

Filed: 01/18/2017

Pg: 11 of 17

Based on our review of the record, we can find no evidence
either that a third party made a bona fide offer to Keystone
Wall Systems or that Keystone Wall Systems communicated a thirdparty

offer

to

Keystone

Northeast.

Keystone

Wall

Systems

argues, nonetheless, that circumstantial evidence supports its
position.
interested

It maintains that the record shows that Jandris was
in

Massachusetts

acquiring
territory

Keystone

and

that,

Wall
when

Systems’
the

western

territory

was

ultimately granted to Keystone Northeast in the Jandris Transfer
Agreement, Keystone Northeast and Jandris evenly split payment
of the $25,000 license fee.

Keystone Wall Systems reasons that

there “would have [been] no reason to offer [Keystone Northeast]
such an arrangement if the parties had not been exercising the
right of first refusal.”
This evidence, however, is not evidence that Jandris or any
other third party actually made an offer or that a third-party
offer

was

direct

communicated

evidence

Northeast’s

points

President

to

Keystone

in

the

Dan

Northeast.

opposite

Albert

Indeed,

direction.

testified

that

the

Keystone
Keystone

Northeast had not exercised its right of first refusal and that
it had never received notice of a third-party offer.
with

that

testimony,

Keystone

Wall

Systems’

former

Consistent
President

Bill Dawson, who actually signed the Gagne and Jandris Transfer
Agreements, testified that he did not recall Keystone Northeast
11

Appeal: 15-1457

Doc: 35

Filed: 01/18/2017

Pg: 12 of 17

exercising its right of first refusal.

To the contrary, he

recalled that Keystone Northeast continued to have a 500,000
square feet quota during the period from 2005 to 2008, which was
indicative

of

the

fact

that

Keystone

Northeast

had

never

exercised its right of first refusal.
Keystone Wall Systems does point to an affidavit filed in
district court in which Keystone Wall Systems’ Sales Manager
John

Schramm

Plaintiff’s
Superior’s
County,

stated

right

of

territory

making

Massachusetts.”

it

conclusorily,
first
in

the

“As

refusal,

Massachusetts
sole

licensee

the
as
in

a

result

Plaintiff
well
the

as

of

the

obtained
Berkshire

Commonwealth

of

This litigation affidavit, however, points to

no evidence to support its bare conclusion.

Indeed, Schramm

himself explicitly denied such a conclusion in an e-mail that he
sent during the relevant period.

In response to Keystone Wall

Systems’ President’s inquiry whether Keystone Northeast’s quota
had indeed increased by 75,000 square feet, as provided in the
right of first refusal, Schramm responded, “We gave him the west
half of Mass[achusetts] in a later agreement.

We had no third

party offer that I am aware of.”
In light of this record, we agree with the district court
that

there

is

no

record

evidence

to

support

Keystone

Wall

Systems’ contention that Keystone Northeast exercised its right
of first refusal over the western Massachusetts territory and
12

Appeal: 15-1457

Doc: 35

thereby

Filed: 01/18/2017

increased

its

Pg: 13 of 17

quota

to

575,000

square

feet.

Accordingly, Keystone Wall Systems’ termination of the license
agreement in 2008 constituted a breach of the agreement, for
which Keystone Northeast was entitled to damages.

III
It

is

uncontroverted

expired

at

the

thereafter.

end

of

that
2010

Nonetheless,

the
and

the

License
that

district

Agreement’s

it

was

court

not

ruled

term

renewed
that

the

three transfer agreements, each of which modified the License
Agreement, constituted separate and independent contracts that
imposed independent and continuing obligations on Keystone Wall
Systems

to

pay

Keystone

Northeast

royalties

beyond

2010.

Accordingly, the court awarded damages for royalties up to the
date of its order and specific performance for a payment of
royalties in the future.
Keystone Wall Systems contends that the district court also
erred in these rulings, as the three transfer agreements were
amendments
Agreement

to

the

ended,

so

License
did

Agreement,

the

three

and

when

transfer

the

License

agreements.

We

agree.
In substance, the transfer agreements effected transfers of
portions

of

territory

licensed

under

the

License

Agreement.

Therefore, they would be meaningless without the existence of

13

Appeal: 15-1457

Doc: 35

Filed: 01/18/2017

Pg: 14 of 17

the underlying License Agreement.

This is made explicit in the

terms of the various transfer agreements.
recital

that

the

parties

“entered

a

Each begins with the

License

Agreement

dated

January 2, 1998” and that Keystone Northeast and Keystone Wall
Systems “desire to accomplish a transfer” of some of Keystone
Northeast’s rights under that License Agreement.

The parties

thus clearly treated the License Agreement as the premise of the
transfer agreements.
Again, after the recitals, each agreement makes clear that
the

transfer

agreement

transferred

a

portion

of

Keystone

Northeast’s “right, title and interest in and to the License
Agreement pertaining to the Transferred Territory to [Keystone
Wall

Systems]

subject

to

the

terms

and

conditions

of

this

Agreement.

. . . The License Agreement, except to the extent

amended

this

by

effect.”

Agreement,

shall

continue

in

full

force

and

(Emphasis added).

And yet again, the transfer agreements provide that, if the
third party license in the transferred territory “is terminated
for

any

reason,”

Agreement”

would

Keystone
be

Northeast’s

amended

to

“then

include

current
the

License

transferred

territory.
Finally,
agreements,
Agreement

in

apart

the

from

parties’

2005,

the

language

extension

extending

it
14

to

of

the

2010,

in

the

underlying
indicates

transfer
License
that

the

Appeal: 15-1457

Doc: 35

Filed: 01/18/2017

Pg: 15 of 17

parties viewed the transfer agreements simply as amendments to
the License Agreement.
License

Agreement,

The renewal agreement refers to “the

as

amended

by

the

transfer

agreements.”

(Emphasis added).
Because
holding

that

continuing

we
the

conclude

that

transfer

obligations

the

district

agreements

beyond

the

court

imposed

termination

erred

independent
of

Agreement, we reverse its ruling in that regard.

the

in
and

License

We thus vacate

the award of damages and the order of specific performance and
remand for the recalculation of damages only through the end of
2010.

IV
Finally,

Keystone

Wall

Systems

challenges

the

district

court’s calculation of damages during the 2008 to 2010 period.
Specifically,

it

claims

that

the

district

court

incorrectly

assumed that -- after Keystone Wall Systems breached the License
Agreement in 2008 -- Keystone Northeast would meet its quota of
500,000 in both 2009 and 2010, as third-party sales data for
those years suggests that Keystone Northeast would not have met
its quota unless it began manufacturing blocks itself.

Keystone

Wall Systems concludes, therefore, that the court should not
have awarded damages based on royalties and interest for 2009
and 2010.

We disagree.

15

Appeal: 15-1457

Doc: 35

Filed: 01/18/2017

Pg: 16 of 17

In estimating lost profit, a court should not assume that a
party

is

unable

to

fulfill

its

end

of

the

bargain.

See

Williston on Contracts § 64:10 (4th ed. 2002) (“[T]he fact that
the plaintiff’s damage is uncertain in amount or even that it is
uncertain that substantial damage has been caused should not
deprive the plaintiff of a right to compensation for the loss of
the defendant’s performance that would have given the plaintiff
a

chance

to

make

a

profit

or

avoid

damage”).

The

License

Agreement contemplated continued performance until 2010.

And

because Keystone Northeast had met its 500,000 square feet quota
each year preceding Keystone Wall System’s purported breach, the
district court did not err in assuming that Keystone Northeast
would continue to meet that quota for the following two years.
*

*

*

In sum, we agree with the district court that Keystone Wall
Systems

breached

the

License

Agreement

and

Northeast was entitled to damages through 2010.
find

that

the

transfer

agreements

depended

on

that

Keystone

But because we
the

continued

existence of the License Agreement, Keystone Wall Systems was
not

obligated

License
district

to

make

Agreement’s
court’s

royalty

term

award

of

payments

ended.
damages

16

We
and

beyond

2010

therefore
its

order

when

the

vacate

the

of

specific

Appeal: 15-1457

Doc: 35

Filed: 01/18/2017

Pg: 17 of 17

performance, and we remand for the recalculation of damages,
limiting damages to the period ending December 31, 2010.

IT IS SO ORDERED.

17