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UNPUBLISHED AUTHORED OPINION filed.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]
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UNPUBLISHED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Affirmed in part, vacated in part, and remanded by unpublished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Unpublished opinions are not binding precedent in this circuit.
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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.
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The
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district
court
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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
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Northeast
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failed
to
meet
the
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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
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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.
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In
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September
2005,
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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
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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
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thus
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Keystone
Northeast
“did
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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
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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
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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).
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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
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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
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thereby
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increased
its
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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
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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
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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.
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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
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performance, and we remand for the recalculation of damages,
limiting damages to the period ending December 31, 2010.
IT IS SO ORDERED.
17
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