Commw. School, Inc. v. Commw. Academy Holdings ( 2021 )

United States Court of Appeals
For the First Circuit
No. 20-1112
THE COMMONWEALTH SCHOOL, INC.,
Plaintiff, Appellee,
v.
COMMONWEALTH ACADEMY HOLDINGS LLC, a/k/a Commonwealth Academy,
ET AL.,
Defendants, Appellants.
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MASSACHUSETTS
[Hon. Indira Talwani, U.S. District Judge]
Before
Kayatta, Selya, and Barron,
Circuit Judges.
John H. Ray, III, with whom Ray & Counsel, P.C. was on brief,
for appellants.
M. Lawrence Oliverio, with whom Polsinelli P.C. was on brief,
for appellee.
April 14, 2021
SELYA, Circuit Judge. This multifaceted appeal requires
us to resolve, as threshold matters, a pair of jurisdictional
issues. The first is an issue concerning our appellate
jurisdiction, and the second is an issue concerning the district
court's jurisdiction. After concluding that neither of these
jurisdictional booby traps derails the appeal, we reach the merits
and reverse the district court's order of dismissal, direct
enforcement of the contested agreement, and remand for further
proceedings consistent with this opinion.
I. BACKGROUND
The dispute between the parties dates back several
years, and we think it helpful to sketch the relevant facts. The
Commonwealth School, Inc. (the School) has operated a Boston-based
private school since 1958. It was the plaintiff below and is the
appellee in this court. The School's antagonist, defendant-
appellant Commonwealth Academy Holdings LLC,1 operates a relatively
new private school (founded in 2011) in Springfield,
Massachusetts. The distance between Boston and Springfield is
slightly over ninety miles.
1The School's suit also named other defendants allegedly
associated with Commonwealth Academy Holdings LLC, and the latter
— in its pleadings — suggested that an unnamed entity, Project 13,
Inc., may be the real party in interest. For present purposes,
nothing turns on the interrelationships among these players, and
we refer to them, collectively, as "the Academy."
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The pot began to boil in April of 2016. At that time,
the School brought suit under the Lanham Act, see 15 U.S.C.
§§ 1114(a), 1125(a), against the Academy. The School alleged that
it had trademarked the name "Commonwealth School" and that the
Academy's name ("Commonwealth Academy") infringed that trademark.
The School's complaint also contained supplemental claims arising
under Massachusetts law, based on essentially the same conduct.
The School subsequently filed an amended complaint covering much
the same ground, see Fed. R. Civ. P. 15(a)(1)(B), and the Academy
filed an answer in which it denied liability, raised affirmative
defenses, and asserted four counterclaims.
In August of 2016, the two parties seemingly achieved a
settlement through court-attached mediation. The settlement was
based on an oral agreement reached at a mediation session held on
August 3, 2016. The material terms of the agreement are
straightforward: the School agreed to pay $25,000 to the Academy
in exchange for the Academy changing its name to "Springfield
Commonwealth Academy."2 The mediator reported the oral agreement
to the district court the next day. Based on the mediator's
report, the district court conditionally dismissed the case on
August 8, cautioning that the conditional order of dismissal
2 The agreement also authorized the Academy to use the acronym
"SCA." Because this provision sheds no light on the current
dispute, we omit any further reference to it.
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allowed either party to reopen the case within sixty days if the
settlement "is not consummated." Both the School's amended
complaint and the Academy's counterclaims were to be dismissed.
The parties failed to memorialize the agreement in
writing. Within the sixty-day grace period, the School moved to
reopen the case. In response, the Academy moved for enforcement
of what it deemed to be a valid settlement agreement. At a hearing
before the district court on October 13, 2016, both sides
acknowledged that they had agreed to the material terms of the
settlement. Shortly thereafter, the district court entered an
order in which it found that a settlement had been reached at the
August 3 mediation session and that, accordingly, the Academy must
change its name and the School must pay it $25,000.
For nearly three years, the district court maintained
this posture. Early in the process of supervising the
implementation of the settlement agreement, the court directed the
School to escrow the agreed $25,000 payment. The School complied,
and the Academy took steps to change its name in a variety of
publications, social media outlets, and promotional materials. It
also changed its website. Nevertheless, the prescribed $25,000
payment was not released from escrow. The School said that,
despite the Academy's palliative actions, no payment was due
because the Academy was allowing students to use basketball jerseys
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that prominently featured the words "Commonwealth Academy" but
relegated the word "Springfield" to a smaller font.
After a hearing aimed at resolving the "basketball
jersey" contretemps, the district court reversed course: it
concluded, in an electronic order entered on September 5, 2019,
that the parties had not reached an agreement three years earlier
because there had not been a "meeting of the minds." Accordingly,
the court refused to enforce the settlement even though the Academy
had fulfilled virtually all of its commitments under the agreement
and, in addition, had represented that it would alter its
basketball jerseys in such a way as the court deemed necessary to
satisfy the School's objection. Despite indicating that it was
vacating the settlement and the order of dismissal, the district
court stated in the same order that either side could reopen the
case by filing a notice to that effect within thirty days. The
court did not explain why, having vacated the order of dismissal,
the case had to be "reopened."3
The court's invitation went unrequited. With matters at
a standstill and the School displaying no inclination to prosecute
The district court described its September 5 order as an
3
order vacating the "Settlement Order of Dismissal" that was entered
on August 8, 2016. This characterization is confusing because the
court also spoke of the parties' need to take affirmative action
in order to "reopen[]" the case. For ease in exposition, we refer
throughout to the September 5 order as an order refusing to enforce
the settlement.
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its claims, the court issued another order on January 7, 2020.
The January 7 order notified the parties that the case would be
dismissed unless one of them showed cause for reopening within two
weeks. When neither party responded to the show cause order, the
court dismissed the case with prejudice on January 23, 2020.
This timely appeal followed. In it, the Academy
principally asks us to reverse the district court's refusal to
enforce the settlement agreement.
II. ANALYSIS
Before we can reach the essence of the parties' dispute
— the question of contract formation — two jurisdictional obstacles
must be removed. First, we must determine whether this court has
appellate jurisdiction. Second, we must determine whether the
district court had jurisdiction to enforce the putative
settlement. Only when those jurisdictional obstacles have been
cleared away can we turn to the merits of the appeal. We proceed
accordingly.
A. Appellate Jurisdiction.
Courts of appeals must confirm the existence of
appellate jurisdiction in every case, see Calvary Chapel of Bangor
v. Mills, 984 F.3d 21, 26 (1st Cir. 2020), taking care to "monitor
their jurisdictional boundaries vigilantly," Am. Fiber &
Finishing, Inc. v. Tyco Healthcare Grp., 362 F.3d 136, 139 (1st
Cir. 2004). The threshold question in this appeal is whether we
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have jurisdiction to review the district court's September 5 order
refusing to enforce the parties' settlement. Although this order
was interlocutory in nature, the Academy submits that it is
reviewable because it merged with the judgment (that is, with the
eventual dismissal with prejudice of the action).
For the most part, our appellate jurisdiction extends
only to "final decisions of the district courts." 28 U.S.C.
§ 1291. Interlocutory orders, virtually by definition, are not
"final decisions," and they ordinarily cannot be appealed at the
time they are entered. See Awuah v. Coverall N. Am., Inc., 585
F.3d 479, 480 (1st Cir. 2009). Once a district court enters final
judgment, though, antecedent interlocutory orders typically merge
into the judgment and become subject to appellate review. See
John's Insulation, Inc. v. L. Addison and Assocs., 156 F.3d 101,
105 (1st Cir. 1998).
Of course, this general rule, familiarly known as the
"merger doctrine," admits of exceptions. Particularly pertinent
for present purposes is the exception which provides that
interlocutory orders do not merge with a final judgment when that
judgment is premised upon the failure to prosecute a case. See
id. at 105-07. No fewer than seven circuits (including this
circuit) have adopted this exception to the merger doctrine. See
id. at 105 (collecting cases). The question, then, reduces to
whether the interlocutory order that the Academy seeks to challenge
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and the final judgment in this case combine to trigger this
exception.4
Literally, the exception would seem to apply: the order
that the Academy seeks to challenge is plainly interlocutory, and
the final judgment in this case is based on a failure to prosecute.
But as we explain below, we believe that the peculiar circumstances
of this case give rise to an exception to the exception and, thus,
bring the appeal within the encincture of our appellate
jurisdiction.
The cases carving out the exception to the merger
doctrine for dismissals for want of prosecution all involved
plaintiffs who sought to appeal interlocutory orders following
such dismissals. See, e.g., id. at 104; DuBose v. Minnesota, 893
F.2d 169, 170-71 (8th Cir. 1990); Sere v. Bd. of Trs. of Univ. of
Ill., 852 F.2d 285, 286-87 (7th Cir. 1988); Marshall v. Sielaff,
492 F.2d 917, 919 (3d Cir. 1974). The case at hand deviates from
this pattern. The School, as the plaintiff, was the party that
would naturally be expected to prosecute the action. Yet, it is
4 Where the merger doctrine applies, an appellant need not
specifically list the challenged interlocutory order (in addition
to the final judgment) in its notice of appeal. See John's
Insulation, 156 F.3d at 105; see also Fed. R. App. P. 3(c). Here,
however, the Academy took a belt and suspenders approach, listing
both the interlocutory order and the final judgment in its notice
of appeal.
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the Academy that seeks to appeal the interlocutory order.5 And
this deviation from the usual pattern makes a dispositive
difference: given this altered posture, the Academy would
effectively have no avenue at all for appellate review of the
challenged order if that order did not merge with the final
judgment.
In explicating our reasoning, we start with our decision
in John's Insulation. There, we catalogued several reasons for
the exception to the merger doctrine. The main reason, we
indicated, is to preserve the integrity of the final judgment rule
by preventing any potential reward for "dilatory and bad faith
tactics." John's Insulation, 156 F.3d at 105 (quoting Sere, 852
F.2d at 288). We explained that "[i]f a litigant could refuse to
proceed whenever a trial judge ruled against him, wait for the
court to enter a dismissal for failure to prosecute, and then
obtain review of the judge's interlocutory decision, the policy
against piecemeal litigation and review would be severely
weakened." Id. at 105-06 (quoting Marshall, 492 F.2d at 919).
To be sure, the Academy asserted counterclaims in its
5
original pleading, and it may technically be regarded as a
plaintiff with respect to those counterclaims. Even so, the
Academy has not pursued its counterclaims beyond its initial
pleading, and the terms of the settlement agreement relate directly
to the Academy's trademark infringement claim. Consequently, the
existence of the counterclaims does not affect our analysis of the
merger doctrine.
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This rationale, however, is uniquely applicable to
plaintiffs. The risk of a defendant playing fast and loose with
the final judgment rule in this manner is nonexistent.
This case illustrates the point. Once the district court
refused to enforce the settlement, there was no way for the Academy
to engineer a final judgment as a means of obtaining review of an
interlocutory order. The School, as the plaintiff, held the reins
as to whether to prosecute the case that it had brought: only the
School could elect to pursue its claims.
We add, moreover, that the specter of piecemeal
litigation, which we mentioned in John's Insulation, see id., is
absent here. Reversal of the interlocutory order would reinstate
the settlement and provide a roadmap to end the litigation, not
extend it. Cf. Bethel v. McAllister Bros., 81 F.3d 376, 381 (3d
Cir. 1996) (observing "that it is well established that otherwise
non-appealable orders may become appealable where circumstances
foreclose the possibility of piecemeal litigation"). The
exception to the merger doctrine finds a more welcoming home where
reversal of an interlocutory order would simply pave the way for
further litigation rather than moving towards an end to legal
proceedings. That is not the situation here.
There is yet another reason for the exception: the
concern that a plaintiff may drag his heels and substantially delay
the progress of the litigation in order to secure a dismissal for
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want of prosecution that he then can use as a lever for obtaining
review of an adverse interlocutory ruling. See John's Insulation,
156 F.3d at 107. This concern is heightened because a plaintiff
who wishes immediately to appeal an interlocutory order has
recourse to a more efficient process: he can request a voluntary
dismissal, see Fed. R. Civ. P. 41(a), making it possible to appeal
the earlier order right away. But no such process is available to
a defendant. Here, for instance, the Academy had no opportunity
to voluntarily dismiss the School's claims in order to seek
immediate appellate review of the interlocutory order.
Attempting to dull the force of this reasoning, the
School suggests that the Academy had ample opportunity to keep the
case alive in the district court. In this regard, it points to
the district court's September 5 order providing that either party
could "reopen[]" the case by a notice filed within thirty days.
The Academy's failure to file such a notice, the School says,
evinces a deliberate abandonment of any challenge to that order.
This suggestion mixes plums with pomegranates: the question is
not whether the Academy could have kept the case alive by filing
a notice to reopen but, rather, whether the Academy had any control
over the School's decision qua plaintiff not to prosecute the
action that it had brought.
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That ends this aspect of the matter. We hold that the
exception to the merger doctrine does not apply and, thus, we have
jurisdiction to hear and determine this appeal.
B. District Court Jurisdiction.
The second jurisdictional hurdle is easier to vault. It
is axiomatic that federal courts are courts of limited
jurisdiction. See Kokkonen v. Guardian Life Ins. Co. of Am., 511
U.S. 375, 377 (1994); Klimowicz v. Deutsche Bank Nat'l Tr. Co.,
907 F.3d 61, 64 (1st Cir. 2018). In many instances, a motion to
enforce a settlement, filed after the underlying action has been
dismissed, will require some independent showing of federal
jurisdiction. See Kokkonen, 511 U.S. at 381-82. But everything
depends on context, and the district court may retain jurisdiction
to enforce a settlement in a dismissed case as long as the order
of dismissal either incorporates the settlement agreement or
explicitly reserves jurisdiction to enforce the settlement. See
id.; Metro-Goldwyn Mayer, Inc. v. 007 Safety Products, Inc., 183
F.3d 10, 14 (1st Cir. 1999).
In the course of this appeal, neither party questioned
the district court's jurisdiction to enter orders regarding the
enforcement vel non of the putative settlement. At oral argument,
however, the court itself voiced concern over whether a Kokkonen
issue might be lurking in the penumbra of the case. Having come
to the court's attention, the issue must be addressed. After all,
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the court of appeals has an independent obligation to inquire sua
sponte into potential defects in the district court's subject-
matter jurisdiction. See Caribbean Mgmt. Grp. v. Erikon LLC, 966
F.3d 35, 40 (1st Cir. 2020).
Upon close examination of the record, we are satisfied
that the court below had jurisdiction to enter the challenged order
(that is, the September 5 order in which it concluded that there
had been no "meeting of the minds" and, thus, refused to enforce
the settlement agreement). Importantly, the court had — on August
8, 2016 — entered a conditional order of dismissal that, in effect,
reserved its jurisdiction over the case for a period of sixty days.
This grace period provided a window within which the parties could
reduce their oral settlement agreement to a written agreement or,
if unsuccessful, seek some further order from the district court.
Such a conditional dismissal is precisely the type of "retaining
jurisdiction" provision contemplated by the Kokkonen Court. 511
U.S. at 381.
Thereafter, the district court's jurisdiction was fully
restored: both the School and the Academy moved, within the sixty-
day window, to reopen the case. The Academy's motion also asked
for enforcement of the settlement agreement. Enforcement of the
settlement was, therefore, within the district court's
jurisdictional orbit. See id.; Malave v. Carney Hosp., 170 F.3d
217, 220 (1st Cir. 1999).
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C. The Merits.
This brings us to the merits: the district court's
refusal to enforce the settlement agreement. In a case like this
one, arising under federal law and brought in federal court,
federal common law supplies the substantive rules of decision.
See Malave, 170 F.3d at 220. Even so, federal courts are normally
"free to borrow from state law," absent any conflict between
federal interests and the borrowed state law. McCarthy v. Azure,
22 F.3d 351, 356 (1st Cir. 1994).
Issues of contract formation, which often involve mixed
questions of law and fact, are reviewed on a "sliding scale."
Quint v. A.E. Staley Mfg. Co., 246 F.3d 11, 14 (1st Cir. 2001).
The district court's handling of legal questions is reviewed de
novo and its factual determinations are reviewed for clear error.
See id. Here, the key question — contract formation — is a question
of law informed by essentially undisputed facts.6 It follows that
the district court's order refusing to enforce the settlement
6 To be sure, the parties' joint October 3, 2018 status report
to the district court indicates that the School may seek to claim
that the Academy's entitlement to the entire $25,000 payment is
conditioned upon the Academy's production of receipts evidencing
expenditures incurred in complying with its name-change
obligations. While any such claim seems implausible in light of
the district court's description of the settlement agreement, we
need not resolve it here. After all, such a claim goes to contract
performance, not contract formation, and can be resolved on remand
by the district court.
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engenders de novo review. See, e.g., Coffin v. Bowater Inc., 501
F.3d 80, 97 (1st Cir. 2007).
On appeal, the School argues, in effect, that the
Academy's use of basketball jerseys that did not comply with the
terms of the settlement agreement proves that the parties, years
before, never achieved the requisite meeting of the minds. This
revisionist history does not withstand scrutiny.
Federal common law on contract formation requires mutual
assent as to all material terms in order for a valid contract to
be formed. See Quint, 246 F.3d at 14-15; Casa del Caffe Vergnano
S.P.A. v. ItalFlavors, LLC, 816 F.3d 1208, 1212 (9th Cir. 2016).
In determining whether there was mutual assent, the parties' post-
negotiation conduct may provide persuasive evidence that an
agreement was reached at an earlier time. Cf. TLT Constr. Corp.
v. RI, Inc., 484 F.3d 130, 136 (1st Cir. 2007) ("[T]here is no
surer way to find out what parties meant, than to see what they
have done." (internal citation omitted)).
At the August 3 mediation session, both parties agreed
to the material terms of the settlement: the School was to pay a
fixed sum of $25,000 in exchange for the Academy changing its name
to "Springfield Commonwealth Academy." The record makes manifest
that, from and after the August 3 session, both the School and the
Academy behaved as if the settlement agreement was in full flower.
A prime example of this behavior took place on October 13, 2016,
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when the district court confirmed the existence of the settlement
agreement at a hearing related to settlement compliance. Both
parties acknowledged that an agreement had been reached during
mediation and made pellucid that they were asking the court to
"enforce [the] settlement agreement." The School's counsel added
that "[t]here's no dispute as to what [the mediator] read into the
record . . . that the defendant agreed to change its name to
Springfield Commonwealth Academy . . . and [the School] agreed to
pay the defendant a certain sum of money . . . ." In light of
this representation and the Academy's acquiescence in it, the
district court supportably found that the parties had reached an
accord.
The court's finding cannot be discounted as idle
chatter. The court gave that finding bite on November 3, 2016,
ordering the Academy to refrain from using the "Commonwealth
Academy" nomenclature in its publications, promotional materials,
athletic jerseys, and other public-facing outlets. It also ordered
the School to place the $25,000 payment in escrow. The parties
complied without objection — a circumstance indicating that they,
like the court, believed that a meeting of the minds had taken
place. The parties' conduct following the negotiation of an
agreement can itself constitute evidence that they considered the
agreement valid and binding. See Román-Oliveras v. P.R. Elec.
Power Auth. (PREPA), 797 F.3d 83, 87 (1st Cir. 2015) (finding
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settlement enforceable where neither party had objected to earlier
district court order recognizing parties' agreement); see also
Sound Check, Inc. v. Am. Fed'n of Telev. and Radio Artists, 204
F.3d 801, 804 (8th Cir. 2000) ("Performance is evidence that a
party intended to enter into a contract."). The parties' conduct
speaks volumes here.
There is more. In an October 3, 2018 status report to
the district court, the School raised only issues regarding the
allegedly nonconforming basketball jerseys; it did not claim, say,
that the terms of the settlement agreement were incomplete or
unclear. Equally as telling, the School's evident purpose in
raising the "basketball jersey" issue was to seek performance of
the settlement agreement. Taken in context, we think that this
amounts to the School's reaffirmation of the material terms of the
settlement agreement that it had entered into more than two years
earlier. See Salem Laundry Co. v. New Eng. Teamsters and Trucking
Indus. Pension Fund, 829 F.2d 278, 281 (1st Cir. 1987) (concluding
that parties' post-negotiation conduct confirmed material terms of
settlement agreement). What is more, the School acknowledged — at
a hearing held to resolve the "basketball jersey" dispute — that
the Academy "complied with the Court's order to change [its] name,"
which reinforces the conclusion that the material terms of the
settlement agreement were in place. See Román-Oliveras, 797 F.3d
at 87.
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We recognize that — for reasons not apparent from the
record — the parties never got around to reducing their agreement
to writing. That failure, though, is not a fatal flaw. As a
general matter, oral settlement agreements are enforceable as long
as the parties have mutually assented to all of their material
terms. See Quint, 246 F.3d at 15. So it is here.
Agreeing upon the material terms of a contract, whether
oral or in writing, is not a guarantee that interstitial questions
will not arise. Such questions, however, generally do not furnish
grounds for rescission of a fully formed agreement. See Colfax
Envelope Corp. v. Local No. 458-3M, Chicago Graphic Communications
International Union, 20 F.3d 750, 752 (7th Cir. 1994) (Posner, J.)
(explaining that "[m]ost contract disputes arise because the
parties did not foresee and provide for some contingency that has
now materialized" but such disputes are treated as matters of
interpretation, "not as grounds for rescinding the contract").
Here, the "basketball jersey" question clearly relates to
performance, not to contract formation.
We add, moreover, that federal common law incorporates
the "common-sense canons of contract interpretation." Bellino v.
Schlumberger Techs., Inc., 944 F.2d 26, 29 (1st Cir. 1991) (quoting
Burnham v. Guardian Life Ins. Co. of Am., 873 F.2d 486, 489 (1st
Cir. 1989)). Those canons validate this approach. One such canon
is that parties have formed a binding agreement once they have
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assented to all of the material terms. See Bourque v. FDIC, 42
F.3d 704, 708 (1st Cir. 1994). Another canon teaches that when a
party's conduct indicates its interest in enforcing an agreement,
it cannot then evade its own obligations under the agreement. See
AccuSoft Corp. v. Palo, 237 F.3d 31, 55-56 (1st Cir. 2001). That
canon was triggered when the School sought to have the district
court prohibit the Academy's use of its allegedly noncompliant
basketball jerseys.
In light of these canons, we think it plain that the
failure to imagine every possible permutation related to
performance does not necessarily negate the formation of a valid
settlement agreement. See generally TLT Constr., 484 F.3d at 135
(explaining that the presence of an ambiguity "will not necessarily
preclude the formation of a binding contract" so long as "the
parties . . . have progressed beyond the stage of imperfect
negotiation" (internal citation omitted)). The case at hand is a
poster child for this proposition.
The parties' differences about what the Academy was
required to do with respect to its basketball team's jerseys relate
to performance under the settlement agreement's change-of-name
provision, not contract formation. In fact, the "basketball
jersey" dispute assumes that a change-of-name agreement had
previously been reached. Coupling the nature of this dispute with
the parties' conduct at and after the August 3 mediation session,
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the dispute cannot be said to undermine the existence of the
settlement agreement.7 See Román-Oliveras, 797 F.3d at 87; Salem
Laundry Co., 829 F.2d at 281. Where, as here, a dispute surfaces
as to performance under a contractual term, the existence of that
dispute does not allow one of the contracting parties to treat a
settlement agreement as if it had been written in disappearing
ink. See AccuSoft Corp, 237 F.3d at 55.
On this record, we conclude that both parties assented
to all the material terms of a fully formed agreement: the School
was to pay the fixed sum of $25,000 in exchange for the Academy's
compliance with the agreed-upon name-change provision. It
follows, as night follows day, that the settlement agreement was
valid and enforceable. We hold, therefore, that the district court
erred both in refusing to enforce the settlement agreement and in
dismissing the case after effectively declaring the settlement
agreement null and void.
III. CONCLUSION
We need go no further. For the reasons elucidated above,
we reverse the district court's order of dismissal and remand the
It also bears mentioning that even the dispute about the
7
basketball jerseys proved to be a non-issue. When the School
complained to the district court, the Academy represented that it
was currently using a jersey that complied with the School's
demands and that it was willing to seek the district court's
permission for continued use of that design. This concession
appears to have marked a resolution of the dispute over
performance, not a repudiation of the settlement agreement.
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case for enforcement of the settlement agreement and for further
proceedings consistent with this opinion. Should gap-filling be
required, we remind the district court that it possesses a modicum
of authority to put meat on the bare bones of the parties'
agreement. See Restatement (Second) of Contracts, § 204 (1981);
see also Cofman v. Acton Corp., 958 F.2d 494, 497 (1st Cir. 1992).
Costs shall be taxed in favor of the Academy.
Reversed and remanded.
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