Eureka Water Co. v. Nestle Waters North America, Inc. , 690 F.3d 1139 ( 2012 )

FILED
United States Court of Appeals
Tenth Circuit
August 3, 2012
PUBLISH Elisabeth A. Shumaker
Clerk of Court
UNITED STATES COURT OF APPEALS
TENTH CIRCUIT
EUREKA WATER COMPANY, an
Oklahoma corporation,
Plaintiff - Appellee
/Cross-Appellant,
v. No. 11-6104 and 11-6116
NESTLE WATERS NORTH
AMERICA, INC., a foreign
corporation,
Defendant - Appellant
/Cross-Appellee.
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF OKLAHOMA
(D.C. NO. 5:07-CV-00988-M)
Adam H. Charnes, Kilpatrick Townsend & Stockton LLP, Winston-Salem, North
Carolina, (Richard D. Dietz, Kilpatrick Townsend & Stockton LLP, and Mark S.
Grossman, Jessica L. Perry, Crowe & Dunlevy, Oklahoma City, Oklahoma, with
him on the briefs), for Defendant - Appellant/Cross-Appellee.
Ronald T. Shinn Jr. (Robert H. Gilliland, Jr. and Joshua W. Solberg, with him on
the briefs), McAfee & Taft A Professional Corporation, Oklahoma City,
Oklahoma, for Plaintiff - Appellee/Cross-Appellant.
Before LUCERO, HARTZ, and O’BRIEN, Circuit Judges.
HARTZ, Circuit Judge.
Eureka Water Company contends that a 1975 agreement grants it the
exclusive license in 60 Oklahoma counties to sell spring water and other products
using the Ozarka trademark. It sued Nestle Waters North America, Inc., the
current owner of the Ozarka trademark, to obtain a declaratory judgment of that
right and to obtain monetary relief under several theories, including breach of
contract, tortious interference with business relations, unjust enrichment, and
promissory estoppel. A jury found for Eureka on its contract and tortious-
interference claims, and the district court entered a judgment declaring that the
1975 agreement granted Eureka the exclusive right that it claimed in the Ozarka
mark. In a postverdict ruling, the district court denied as duplicative Eureka’s
equitable claims based on unjust enrichment and promissory estoppel. After the
district court denied Nestle’s postverdict motion for judgment as a matter of law
(JMOL), Nestle appealed.
Nestle argues on appeal that it is entitled to JMOL on the contract claim
because the unambiguous terms of the 1975 agreement do not cover Ozarka spring
water and that it is entitled to JMOL on the tortious-interference claim because its
conduct was privileged and justified as a matter of law. In the alternative it seeks
a new trial because the district court admitted a prejudicial privileged document,
and a new trial or judgment in its favor because the district court erred in
admitting testimony of Eureka’s damages expert. On cross-appeal Eureka argues
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that the district court erred in denying relief on its unjust-enrichment and
promissory-estoppel claims. We have jurisdiction under 28 U.S.C. § 1291.
We agree with most of Nestle’s principal arguments. First, we reverse the
district court’s denial of Nestle’s motion for JMOL on the contract claim because
the 1975 agreement unambiguously does not cover spring water and under
Oklahoma contract law (which applies because the agreement does not come
under the Uniform Commercial Code) extrinsic evidence on the contract’s
meaning was inadmissible. Our construction of the contract also requires us to
vacate the district court’s declaratory judgment. Second, we reverse the denial of
JMOL on the tortious-interference claim because Eureka failed to show that
Nestle’s decision to charge Eureka what it charged other vendors for bottled water
was not privileged or justified. Third, we affirm the denial of Eureka’s unjust-
enrichment claim because the claim is based on the false premise that Eureka’s
license to use the Ozarka trademark covers spring water. We reverse, however,
the denial of Eureka’s promissory-estoppel claim, remanding that claim for
further consideration by the district court. Despite the remand, we need not
address Nestle’s evidentiary arguments because the document for which Nestle
claims a privilege and the testimony of Eureka’s expert witness do not appear to
be relevant to any disputed issue regarding Eureka’s promissory-estoppel claim.
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I. BACKGROUND
A. Ozarka Spring Water and Ozarka Drinking Water
As early as 1907 Ozarka Water Company sold water that it obtained from a
spring in Arkansas. It entered into franchise agreements to allow regional dealers
to bottle Ozarka spring water and sell it in specified territories. Eureka was such
a regional franchisee. Arrowhead Puritas Waters, Inc. purchased Ozarka in the
late 1960s.
In 1971 Dave Raupe purchased Eureka, which sold only spring water.
Shortly thereafter, Arrowhead concluded that Ozarka’s supply of spring water was
inadequate for further expansion and informed its franchisees that it was shutting
down its springs. The franchisees could, however, start distributing facsimile
drinking water, which was to be made from purified water by adding mineral
concentrates for taste. Arrowhead ceased bottling spring water under the Ozarka
label. Eureka and Arrowhead memorialized this arrangement in a 1972 franchise
agreement, under which Eureka paid royalties on each gallon of drinking water
that it sold.
A few years later Arrowhead and Eureka renegotiated their relationship.
Their 1975 agreement (the 1975 Agreement) called for a one-time payment of
$9,000 by Eureka in exchange for “a royalty-free, paid-up right and license to use
the said OZARKA mark in connection with the processing, bottling, sale and
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distribution within [Eureka’s territory] of purified water and/or drinking water
made from OZARKA drinking water concentrates.” Aplt. App., Vol. 29 at 9397.
Arrowhead and Eureka independently began bottling spring water in 1983.
In 1987 Arrowhead was acquired by Perrier Group of America, Inc. Two years
later, Perrier began packaging Ozarka-branded water in single-serve plastic
bottles (PET 1 bottles).
Nestle purchased Perrier in 1992 and began selling Eureka its PET spring
water at below-market prices for resale to Eureka wholesale customers. (For
convenience, we will now refer to the Perrier/Nestle entity as Nestle, even if the
described events predate Nestle’s purchase of Perrier.) In 1997, however, Eureka
discovered that Nestle had been directly shipping Ozarka PET spring water to
Sam’s Club and Wal-Mart stores within Eureka’s territory. In response to
Eureka’s claim that these sales violated the 1975 Agreement, Nestle agreed to pay
Eureka 50 cents a case on all PET spring-water products and 30 cents a case for
all bulk products (1-gallon and 2.5-gallon packages) that Nestle sold in Eureka’s
territory. The parties refer to the payments as royalties or invasion fees. Nestle
did not pay royalties to any other bottler in the country. From 1997 until October
15, 2007, Eureka received 67 royalty checks totaling about $2.5 million.
1
PET is apparently short for polyethylene terephthalate.
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In late 2003 Nestle unilaterally reduced the royalty rates for both PET and
bulk cases to 25 cents a case. Although Eureka continued to invoice Nestle for
the difference, it was not paid.
In a May 2007 meeting, William Pearson, Vice President and chief
financial officer of Nestle, told Steve Raupe, Eureka’s CEO, that Nestle was
losing money doing business with Eureka and that something had to change.
Three months later Pearson wrote Raupe a letter stating that as of October 15,
2007, Nestle no longer would pay royalties or offer Eureka a lower price on
Ozarka spring water than what Nestle charged comparable purchasers. This
lawsuit followed.
B. District Court Proceedings
Eureka filed suit against Nestle on September 7, 2007, in the United States
District Court for the Western District of Oklahoma. Jurisdiction was based on
diversity of citizenship. See 28 U.S.C. § 1332. Eureka’s amended complaint
raised nine claims for relief. Relevant to this appeal are the claims for
declaratory judgment, breach of contract, tortious interference with contractual
and business relations, promissory estoppel, and unjust enrichment. All these
claims were brought to trial.
Eureka’s theory at trial on the contract claim was that the 1975 Agreement
covered all Ozarka products, not just what the contract referred to as purified
water and drinking water, and that Nestle had breached the Agreement by selling
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Ozarka spring water to businesses within Eureka’s exclusive territory. Eureka
presented evidence that both Eureka and Arrowhead had intended the 1975
Agreement to cover all Ozarka products. Some evidence suggested that the 1975
Agreement was to be what Eureka terms a “Coke deal,” similar to those entered
into by Coca-Cola, which purportedly permit franchisees to bottle and distribute
future Coca-Cola products not mentioned in the franchise agreement. Other
evidence indicated that Nestle had believed that the 1975 Agreement covered all
Ozarka products.
On its tortious-interference claim, Eureka argued to the jury that Nestle had
wrongfully interfered with Eureka’s relationships with wholesale customers by
raising the price charged Eureka on spring water so high that Eureka could no
longer profitably resell to those customers.
The jury awarded Eureka $9.2 million on the contract claim and $5 million
on the tortious-interference claim. After the jury returned its verdict, the district
court entered a declaratory judgment that the 1975 Agreement applies to all
Ozarka products, including Ozarka spring water. It dismissed Eureka’s unjust-
enrichment and promissory-estoppel claims, finding that the verdict already
included the allowable damages on those claims.
II. DISCUSSION
On appeal Nestle argues that it is entitled to (1) JMOL on the contract
claim because the unambiguous terms of the license agreement do not cover
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Ozarka spring water; (2) JMOL on the tortious-interference claim because its
conduct was privileged and justified as a matter of law; (3) judgment in its favor
or a new trial because Eureka’s only evidence of damages was improperly
admitted testimony of Eureka’s damages expert; and (4) in the alternative, a new
trial because the district court admitted a highly prejudicial privileged document.
Eureka argues on cross-appeal that the district court erred in denying relief on its
unjust-enrichment and promissory-estoppel claims. We begin with Nestle’s first
two issues.
A. Contract Claim
We review de novo the district court’s denial of a motion for JMOL. See
Wagner v. Live Nation Motor Sports, Inc., 586 F.3d 1237, 1243 (10th Cir. 2009).
“In a diversity case such as this one, the substantive law of the forum state
governs the analysis of the underlying claims . . . .” Id. at 1244 (internal
quotation marks omitted). We will reverse the district court’s denial of Nestle’s
motion for JMOL if “[d]rawing all reasonable inferences in favor of the
nonmoving party, . . . the evidence points but one way and is susceptible to no
reasonable inferences supporting the party opposing the motion.” Id. (internal
quotation marks omitted).
Eureka prevailed on its claim that the 1975 Agreement granted it the
exclusive right within its territory to use the Ozarka mark in connection with all
Ozarka products, including Ozarka spring water. To convince the jury of its
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interpretation of the contract, it presented extrinsic evidence regarding the
parties’ course of dealing and Nestle’s understanding of the Agreement. The
district court ruled the contract facially unambiguous but admitted this extrinsic
evidence after deciding that the 1975 Agreement was a contract for the sale of
goods and therefore subject to Okla. Stat. tit. 12A, § 2-202 (part of Oklahoma’s
version of the Uniform Commercial Code (UCC)), which, it ruled, permits such
evidence even when the contract appears unambiguous on its face. Nestle argues
(1) that its agreement with Eureka was not a contract for the sale of goods and
was therefore governed by Oklahoma common law rather than the UCC; (2) that
under Oklahoma common law, extrinsic evidence is not admissible to create an
ambiguity; and (3) that the 1975 Agreement unambiguously covers only purified
water and drinking water, not spring water. We agree.
1. Applicability of UCC
In our view the UCC does not govern the 1975 Agreement. Article 2 of the
Oklahoma UCC governs “transactions in goods.” Okla. Stat. tit. 12A, § 2-102.
“‘Goods’ means all things (including specially manufactured goods) which are
movable at the time of identification to the contract for sale . . . .” Okla. Stat.
tit. 12A, § 2-105(1). This circuit has held that when a contract involves the sale
of both goods and non-goods, an Oklahoma court would apply the “predominant
factor” test to determine whether the UCC governs. See Specialty Beverages,
L.L.C. v. Pabst Brewing Co., 537 F.3d 1165, 1174 (10th Cir. 2008). To explain
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why the Agreement is not under the UCC, we first summarize the Agreement,
which consists of the recitals and seven numbered sections.
The recitals name Arrowhead (Nestle’s predecessor) as “SUPPLIER” and
Eureka as “DISTRIBUTOR” and summarize the parties’ 1972 franchise
agreement, which licensed Eureka to use the Ozarka trademark in return for
paying royalties on each gallon of purified water and drinking water sold. Next
the recitals state:
The parties now believe that it will be to their mutual advantage to
terminate the continuing obligation of DISTRIBUTOR under said
Franchise Agreement to pay said royalties in consideration of a lump
sum payment for a paid-up license; and to discontinue all obligations
of SUPPLIER under said Franchise Agreement except for the
obligation to furnish OZARKA drinking water concentrates at
SUPPLIER’s cost, the continued exercise of control over the quality
of the drinking water sold by distributor under the OZARKA mark,
and the maintenance of OZARKA registrations in the United States
Patent Office for drinking water and for refrigerated and evaporative
coolers for drinking water.
Aplt. App., Vol. 29 at 9396–97. After stating that Eureka has paid Nestle $9,000,
the Agreement sets forth the parties’ rights and obligations.
Section 1 (“LICENSE TO DISTRIBUTE, BOTTLE, ADVERTISE, AND
SELL OZARKA PRODUCTS”) grants Eureka:
a royalty-free, paid-up right and license to use the said OZARKA
mark in connection with the processing, bottling, sale and
distribution within [Eureka’s territory] of purified water and/or
drinking water made from OZARKA drinking water concentrates and
in connection with coolers and dispensers therefor, subject to the
terms and conditions hereinafter set forth.
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Id. at 9397 (emphasis added). The section requires that “[a]ll OZARKA [purified
and] drinking water bottled or sold by DISTRIBUTOR” be labeled and produced
in accordance with specified standards, id. at 9398, and gives Nestle the right to
inspect Eureka’s production facilities and to terminate the agreement if Eureka
fails to correct any deficiencies in its production process. In addition, the section
prohibits Nestle from granting any other party within Eureka’s territory “a license
to process, bottle or sell OZARKA drinking water.” Id. at 9401–02.
Section 2 (“THE SUPPLY OF OZARKA DRINKING WATER
CONCENTRATES TO DISTRIBUTOR”) requires that Nestle “furnish to
DISTRIBUTOR OZARKA drinking water concentrates in such quantities as may
be required by DISTRIBUTOR for production of OZARKA drinking water,
charging DISTRIBUTOR therefor at its own cost plus freight.” Id. at 9402. It
further provides, however, that “DISTRIBUTOR may obtain OZARKA drinking
water concentrates from a party other than SUPPLIER.” Id. Once Eureka
identifies the third-party supplier and Nestle is satisfied that the third party can
maintain quality standards, Nestle will provide the formulation for the
concentrates to the third party. (Nestle stopped providing the concentrates to
Eureka by 1987, and perhaps a number of years before that.)
Under Section 3 (“TERM AND TERMINATION”) the 1975 Agreement
“shall continue in full force and effect so long as DISTRIBUTOR shall continue
the use of the OZARKA mark as licensed hereunder.” Id. Section 4
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(“INFRINGEMENT BY THIRD PARTY”) requires each party “to notify the other
of any infringements of the trademark OZARKA within [Eureka’s] Territory.” Id.
at 9403 (internal quotation marks omitted). Section 5 (“NOTICES”) states that
all mailings to Nestle are considered delivered when sent by registered mail to the
specified address. Id. And Section 6 (“ASSIGNMENT”) prohibits Eureka from
assigning its rights under the Agreement to anyone without Nestle’s written
consent, unless it is selling its entire business. Id. at 9404. Finally, under
Section 7 (“PRODUCT LIABILITY”) Eureka bears sole liability for any third-
party product-liability claims based on injury from the OZARKA products or their
containers. Id.
Nestle argues that the 1975 Agreement is not a transaction in goods because
it is a license for a trademark, which it claims is not a good under the UCC. We
agree with Nestle that the Agreement includes a trademark license. Section 1
grants Eureka “a royalty-free, paid-up right and license to use the . . . OZARKA
mark in connection with the processing, bottling, sale and distribution . . . of
purified water and/or drinking water.” Id. at 9397. We also agree with Nestle
that a trademark license is not a “good” as that term is used in the UCC.
Intellectual property is not a movable thing, see Okla. Stat. tit. 12A, § 2-105
(“‘Goods’ means all things . . . which are movable at the time of identification to
the contract for sale . . . .”); rather, it is a type of intangible property, see Penguin
Group (USA) Inc. v. Am. Buddha, 609 F.3d 30, 36 n.4 (2d Cir. 2010) (“a
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copyright [is] . . . an intangible thing”); 1 McCarthy on Trademarks and Unfair
Competition § 2:14 (4th ed. 2012) (“[I]n discussing ‘ownership’ of a trademark,
we must recognize that we are dealing with intangible, intellectual property.”).
Although one can express the content of intellectual property in a movable
medium (such as a trademark registration form), the intellectual property remains
intangible. See United States v. Brown, 925 F.2d 1301, 1307 (10th Cir. 1991)
(“Purely intellectual property . . . can be represented physically, such as through
writing on a page, but the underlying, intellectual property itself, remains
intangible.”). Therefore, the grant of a trademark license is not a transaction in
goods under the UCC. See Lamle v. Mattel, Inc., 394 F.3d 1355, 1359 n.2 (Fed.
Cir. 2005) (“[A] license for intellectual property . . . is not a sale of goods.”);
Emerson Radio Corp. v. Orion Sales, Inc., 253 F.3d 159, 161, 170 (3d Cir. 2001)
(three-year exclusive license to use a trademark); Grappo v. Alitalia Linee Aeree
Italiane, S.p.A., 56 F.3d 427, 432 (2d Cir. 1995) (nonexclusive license for
copyrighted material); JRT, Inc. v. TCBY Sys., Inc., 52 F.3d 734, 739 (8th Cir.
1995) (contract for services and use of a trademark).
Admittedly, as Eureka points out, the 1975 Agreement also contemplates
the sale of goods. Section 2 of the Agreement states that Nestle “shall furnish to
[Eureka] OZARKA drinking water concentrates in such quantities as may be
required by [Eureka] for production of OZARKA drinking water.” Aplt. App.,
Vol. 29 at 9402. Drinking water concentrates are goods. The question, then, is
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whether the license or the sale of goods is the predominant factor in the contract.
See Specialty Beverages, 537 F.3d at 1174.
Here, there is little doubt that the license—not the right to purchase
drinking-water concentrates—is what motivated the transaction. Eureka’s right to
purchase drinking-water concentrates was a matter of financial indifference to
Nestle. The Agreement required Nestle to sell Eureka the concentrates at Nestle’s
cost plus freight. And from Eureka’s point of view, although the concentrates
enabled it to sell Ozarka drinking water, it could not engage in those sales without
the license granted by the Agreement. See Grappo, 56 F.3d at 432 (training
manuals would have been useless absent a copyright license to use them).
Moreover, the Agreement could be fully consummated without any sales of
concentrates from Nestle to Eureka; if Eureka found a suitable supplier, Nestle
would provide the supplier with the intellectual property (the formulation for the
concentrates) necessary to produce the concentrates for Eureka.
Eureka relies on Pepsi-Cola Bottling Co. of Pittsburgh, Inc. v. PepsiCo,
Inc., 431 F.3d 1241 (10th Cir. 2005), where we held that New York’s version of
the UCC governed a contract granting a bottling company an exclusive territory to
bottle and distribute Pepsi-Cola. See id. at 1248, 1255–56 n.7. But Pepsi-Cola
Bottling is distinguishable. The contract in that case required the bottling
company to purchase all its Pepsi-Cola concentrate from PepsiCo, see id. at 1248(“[T]he Company will sell to the Bottler, and the Bottler will purchase, at the
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Company’s then price or prices . . . at the time of each sale, the Bottler’s
requirements of Pepsi-Cola concentrate or syrup for the bottling of Pepsi-Cola
hereunder.” (internal quotation marks omitted)), and PepsiCo was not required to
sell the syrup at cost. Presumably, PepsiCo made its money by selling the syrup.
Although the bottler did not purchase the concentrate directly from PepsiCo, it
did so indirectly, as a member of a 27-bottler cooperative. See id. at 1248 n.1.
The financial core of the contract was the purchase and sale of syrup—a good.
To be sure, we observed in Pepsi-Cola Bottling that “an overwhelming
majority of . . . jurisdictions have held that distributorship contracts are sales
contracts and thus governed by the UCC.” Id. at 1256 n.7; see also Specialty
Beverages, 537 F.3d at 1174–75 (Oklahoma Supreme Court would, in accordance
with the majority rule, apply the UCC to a distribution agreement because the sale
of goods is the predominant factor). And we recognize that the 1975 Agreement
refers to the parties as “Supplier” and “Distributor.” But it is the substance of
the Agreement that controls, and the substance is not a distribution contract. “In
the world of goods, a distribution contract is a commitment by a manufacturer to
sell products to a distributor with the expectation that the distributor will resell
them to others in the stream of commerce.” Raymond T. Nimmer, Through the
Looking Glass: What Courts and UCITA Say About the Scope of Contract Law in
the Information Age, 38 Duq. L. Rev. 255, 294–95 (2000). Under the 1975
Agreement, unlike a distribution agreement, the sale of goods from “Supplier” to
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“Distributor” is only an incidental, and perhaps nonexistent (Nestle quit supplying
the concentrates no later than 1987), component of the contractual relationship.
Accordingly, we hold that the UCC does not govern the 1975 Agreement;
rather, Oklahoma common law governs.
2. Admissibility of Extrinsic Evidence Under Oklahoma
Common Law
Eureka argues that under Oklahoma common law the circumstances
surrounding execution of a contract are admissible to establish intent. But the
most recent Oklahoma case authority that it cites is from 1980. Whatever the law
may have been then, that is not Oklahoma law now. Under current Oklahoma
common law, extrinsic evidence is not admissible to create an ambiguity in a
contract that is unambiguous on its face. In Mercury Investment Co. v. F.W.
Woolworth Company, 706 P.2d 523, 529 (Okla. 1985), the state supreme court
wrote:
[T]he practical construction of an agreement, as evidenced by the
acts and conduct of the parties, is available only in the event of an
ambiguity. But where a contract is complete in itself and, as viewed
in its entirety, is unambiguous, its language is the only legitimate
evidence of what the parties intended. The intention of the parties
cannot be determined from the surrounding circumstances, but must
be gathered from a four-corners’ examination of the contractual
instrument in question.
(emphasis omitted). See Bank of Oklahoma, N.A. v. Red Arrow Marina Sales &
Serv., Inc., 224 P.3d 685, 699 (Okla. 2009) (“Where a contract is complete in
itself and, as viewed in its entirety, contains clear and explicit language leaving it
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free of ambiguity, its language is the only legitimate evidence of what the parties
intended.”); Otis Elevator Co. v. Midland Red Oak Realty, Inc., 483 F.3d 1095,
1102 n.10 (10th Cir. 2007) (“[T]he Oklahoma Supreme Court’s most recent
pronouncement [is that] extrinsic evidence may not be used to interpret an
unambiguous contract in Oklahoma.”).
We therefore turn to the question whether the 1975 Agreement is
ambiguous regarding whether it covers all Ozarka products, including spring
water, or covers only purified water and drinking water. “Whether a contract is
ambiguous and hence requires extrinsic evidence to clarify the doubt is a question
of law for the courts.” Pitco Prod. Co. v. Chaparral Energy, Inc., 63 P.3d 541,
545 (Okla. 2003); see King v. PA Consulting Group, Inc., 485 F.3d 577, 589 (10th
Cir. 2007) (“Whether a contract is ambiguous is a question of law that we review
de novo.”).
i. Facial Ambiguity
“A contract is ambiguous if it is reasonably susceptible to at least two
different constructions. To decide whether a contract is ambiguous we look to the
language of the entire agreement. A contract must be considered as a whole so as
to give effect to all its provisions.” Pitco, 63 P.3d at 545–46 (footnotes omitted).
In our view, the 1975 Agreement is not reasonably susceptible to two different
constructions regarding the type of water that it concerns. Its plain language
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grants Eureka a right to use the Ozarka trademark only in connection with
purified water and what it terms drinking water.
The language granting Eureka a license to use the Ozarka trademark is
unequivocal:
The Franchise Agreement between the parties of [Arrowhead] and
[Eureka] is hereby terminated and [Eureka] is granted a royalty-free,
paid-up right and license to use the said OZARKA mark in
connection with the processing, bottling, sale and distribution within
[a specified region] of purified water and/or drinking water made
from OZARKA drinking water concentrates . . . .
Aplt. App., Vol. 29 at 9397 (emphasis added). No reasonable reading of this
paragraph could extend Eureka’s right to use the Ozarka trademark to spring
water. The provision lists only “purified water” and “drinking water” without
referencing any other products.
At least three other parts of the Agreement further support this conclusion.
First, § 1 sets forth detailed standards that Eureka must follow in producing and
labeling purified water and drinking water, with no reference to spring water or
any other Ozarka products. The purified-water provision states that “[a]ll purified
water sold under the OZARKA mark . . . shall be designated as purified water
with the method of preparation specified” and that “[t]he mineral content of any
such purified water sold . . . shall not at any time exceed ten (10) parts per
million by weight.” Id. at 9398 (emphasis added). 2 The drinking-water provision
2
The requirement reads in full:
(continued...)
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states that “[a]ll OZARKA drinking water sold by DISTRIBUTOR shall be
produced from purified water plus OZARKA drinking water concentrates” and
that “[a]ll OZARKA drinking water bottled or sold by DISTRIBUTOR shall be
produced in accordance with the production and control specifications of drinking
water . . . supplied to DISTRIBUTOR by SUPPLIER.” Id. (emphasis added). 3
2
(...continued)
All purified water sold under the OZARKA mark whether produced
by distillation, deionization or other means of demineralization shall
be designated as purified water with the method of preparation
specified, i.e., “Purified Drinking Water Prepared by Distillation,” or
by such other designation as may be approved by SUPPLIER in
writing. The mineral content of any such purified water sold under
the OZARKA mark shall not at any time exceed ten (10) parts per
million by weight.
Aplt. App., Vol. 29 at 9398.
3
The paragraphs setting forth these requirements are as follows:
All OZARKA drinking water sold by DISTRIBUTOR shall be
produced from purified water plus OZARKA drinking water
concentrates. The labeling shall conform substantially to the form of
label annexed hereto as Exhibit I or as may be modified from time to
time by SUPPLIER through written notice to DISTRIBUTOR.
Aplt. App., Vol. 29 at 9398.
All OZARKA drinking water bottled or sold by DISTRIBUTOR shall
be produced in accordance with the production and control
specifications of drinking water effective March 7, 1972 supplied to
DISTRIBUTOR by SUPPLIER, and DISTRIBUTOR shall conform in
all respects to the quality control provisions respecting concentration,
sanitation, sampling, and other procedures set forth in said
production and control specifications.
(continued...)
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Later § 1 states that “SUPPLIER . . . shall have access to the purification and
drinking water production facilities of DISTRIBUTOR at all times during normal
operations hours for the purpose of checking . . . the quality of the purified and/or
drinking water produced by DISTRIBUTOR,” id. at 9399 (emphasis added); 4 and
that “[a]ll labels employed by DISTRIBUTOR for use on or in connection with
OZARKA drinking water and/or OZARKA purified water shall first be approved
3
(...continued)
Id. at 9398–99.
4
The full text of this requirement is:
SUPPLIER through its qualified representative shall have access to
the purification and drinking water production facilities of
DISTRIBUTOR at all times during normal operations hours for the
purpose of checking the procedures employed by DISTRIBUTOR in
the operation of such facilities and the quality of the purified and/or
drinking water produced by DISTRIBUTOR and bottled and sold by
it under the OZARKA trademark. SUPPLIER shall from time to time
inspect the OZARKA water production and bottling operations of
DISTRIBUTOR and take production line samples for tasting and
laboratory analysis. DISTRIBUTOR will also send production line
samples to SUPPLIER for quality control testing at least quarterly.
Such inspections by SUPPLIER shall be in addition to any and all
supply of written data to DISTRIBUTOR, as may be required under
the production and control specifications, and in addition to any and
all inspections and analyses required under United States Public
Health drinking water regulations, as well as any state regulations of
the state within which DISTRIBUTOR is operating, and
DISTRIBUTOR agrees to comply with all such Federal and state
regulations controlling the standards of drinking water, as well as the
said production and control specifications of SUPPLIER.
Aplt. App., Vol. 29 at 9399–9400.
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in writing by SUPPLIER for trademark usage,” id. at 9400 (emphasis added). 5
The language of § 1 unequivocally establishes that neither purified water nor
drinking water encompasses spring water.
Likewise, § 2 of the Agreement makes no mention of spring water. It
provides terms for the supply of materials necessary for producing drinking water,
saying that Nestle “shall furnish DISTRIBUTOR OZARKA drinking water
concentrates . . . for the production of OZARKA drinking water.” Id. at 9402
(emphasis added).
We also note that the recitals reference only purified water and drinking
water. The summary of the 1972 franchise agreement states that under that
agreement Eureka had “installed facilities for production of OZARKA
‘scientifically prepared’ drinking water produced by adding OZARKA drinking
water concentrates to purified water” and “ha[d] been engaged in the sale of such
OZARKA drinking water and OZARKA purified water in [Eureka’s territory].”
5
This requirement states in full:
All labels employed by DISTRIBUTOR for use on or in connection
with OZARKA drinking water and/or OZARKA purified water shall
first be approved in writing by SUPPLIER for trademark usage and
compliance with state and Federal labeling laws, and all advertising
and listings and printed matter of DISTRIBUTOR shall also be
submitted for approval to SUPPLIER prior to publication where the
mark OZARKA is included in the listing, advertisement, or other
printed matter.
Aplt. App., Vol. 29 at 9400.
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Id. at 9396 (emphasis added). In short, nothing in the Agreement indicates that it
covers spring water.
Eureka responds that the Agreement is ambiguous because on several
occasions it uses the terms Ozarka products and Ozarka waters. But “[a] contract
must be considered as a whole so as to give effect to all its provisions without
narrowly concentrating upon some clause or language taken out of context.”
Mercury Inv. Co., 706 P.2d at 529; see also Okla. Stat. tit. 15, § 157 (“The whole
of a contract is to be taken together, so as to give effect to every part, if
reasonably practicable, each clause helping to interpret the others.”). When
viewed in light of the Agreement’s focus on purified water and drinking water,
the references to Ozarka products and waters cannot reasonably be read to expand
the scope of the licensing provision beyond the only two specific products
mentioned. Rather, the unmodified terms products and waters are clearly used
only as shorthand for the products and waters specified elsewhere, just as we have
often referred to the 1975 Agreement as “the Agreement.” For example, Eureka
points to the licensing provision’s heading: “LICENSE TO DISTRIBUTE,
BOTTLE, ADVERTISE, AND SELL OZARKA PRODUCTS.” Aplt. App., Vol.
29 at 9397. But immediately following the heading is the statement that the
license granted is “in connection with the . . . distribution . . . of purified water
and/or drinking water.” Id. The only licensed Ozarka “products” are purified
water and drinking water. The heading cannot reasonably be interpreted as
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expanding the coverage of the provision. Similarly, the sole appearances of the
term Ozarka water(s) in the Agreement are in subsections 1(d) and 1(f), which
allow Nestle to inspect Eureka’s purification and drinking-water production
facilities and which require Eureka’s compliance with production standards that
are applicable only to purified water and drinking water—the only “waters” of
interest.
Eureka also claims that the Agreement’s reference to trademark registration
number 836,026, which is a registration for Ozarka drinking water, creates an
ambiguity because in 1967, when Ozarka (Arrowhead’s predecessor) registered
the trademark, it sold only Ozarka spring water. 6 Eureka argues that “[i]t is
reasonable to conclude that based on the reference to this trademark, Arrowhead
and Eureka believed that spring water and drinking water are sufficiently alike
that a trademark or license for one necessarily covers the other.” Aplee. Br. at
25. Eureka’s argument fails because it relies on extrinsic evidence—evidence
6
The reference appears in the Agreement’s recitals:
The parties now believe that it will be to their mutual advantage to
terminate the continuing obligation of DISTRIBUTOR under said
Franchise Agreement to pay said royalties in consideration of a lump
sum payment for a paid-up license, and to discontinue all obligations
of SUPPLIER under said Franchise Agreement except for . . . the
maintenance of OZARKA registrations in the United States Patent
Office for drinking water and for refrigerated and evaporative coolers
for drinking water, Nos. 836,026 and 876,741, issued September 26,
1967 and March 5, 1969, respectively.
Aplt. App., Vol. 29 at 9396–97.
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that in 1967 Ozarka sold only spring water. But even if we could consider the
evidence, and even if whoever filed the trademark thought that “drinking water”
encompassed spring water, that does not tell us the meaning of “drinking water”
in the 1975 Agreement eight years later. The Agreement specifies that the
drinking water it covers must be produced by adding concentrates to purified
water, and no one has suggested that spring water is so produced.
ii. Latent Ambiguity
Eureka seeks to escape the Oklahoma rule against the use of extrinsic
evidence to interpret an unambiguous contract by invoking an exception to the
general rule—the exception for latent ambiguities. “A ‘latent ambiguity’ is one
not evident from the face of the instrument alone but becomes apparent when
applying the instrument to the facts as they exist.” Ryan v. Ryan, 78 P.3d 961,
964 (Okla. Civ. App. 2003). “It arises when language is clear and intelligible and
suggests but a single meaning, but some extrinsic fact or some extraneous
evidence creates a necessity for interpretation or a choice between two or more
possible meanings.” Id. at 965; see id. (“Where a writing contains a reference to
an object or thing, such as a pump” but extrinsic evidence shows “that there are
two or more things or objects, such as pumps, to which it might properly apply, a
latent ambiguity arises.” (internal quotation marks omitted)). The canonical
examples of latent ambiguity are contracts (or wills) that describe a thing (or
person) with a proper noun when two such things bear the same proper noun.
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Many commentaries have been written on Raffles v. Wichelhaus, 2 H. & C. 906,
159 Eng. Rep. 375 (Ex. 1864), in which the contract concerned the purchase of a
shipment of cotton to be delivered from Bombay on the ship “Peerless.”
Unfortunately, two ships of that name had departed from Bombay two months
apart.
The Oklahoma Supreme Court’s decision in Druggists’ Mutual Fire
Insurance Co. of Iowa v. Shaw, 41 P.2d 69 (Okla. 1935) (per curiam), illustrates
the point. A business that occupied two adjacent buildings on lot 10, block 7—a
two-story building and a one-story building—purchased an insurance policy
covering property “contained in the two-story non-combustible roof brick
building situated on lot 10, Block 7.” Id. at 69–70 (internal quotation marks
omitted). A fire destroyed the property in the one-story building, and the insurer
denied coverage. See id. at 70. The business argued that the policy had a latent
ambiguity and that it could therefore introduce extrinsic evidence showing that
the parties intended the contract to cover property in the one-story building. See
id. The court held that the extrinsic evidence was inadmissible because there was
no uncertainty in applying the terms of the contract to the facts as they existed;
the policy covered a two-story building on a specified lot and there was in fact a
single two-story building on that lot. See id. The court said that the situation
would have been different had there been two two-story buildings, or no two-
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story building. See id. But it refused to allow the parties, “under the guise of a
latent ambiguity, [to] contradict the plain terms of the written instrument.” Id.Here, Eureka has failed to identify any latent ambiguity in the 1975
Agreement. Perhaps the latent-ambiguity doctrine might allow Eureka to prove
that the parties understood the term purified water or drinking water in the 1975
Agreement to mean something broader than the purified water or drinking water
described in that Agreement, although one could doubt whether such proof would
be possible in light of the precise language of the Agreement defining purified
water and drinking water. In any event, all that is referred to in Eureka’s brief on
appeal to show a latent ambiguity is the following:
(1) Trademark No. 836,026 suggests that Arrowhead believed that
drinking water and spring water were functionally interchangeable;
(2) Nestle aggressively sought to buy from Eureka a right which it
now claims Eureka did not possess under the 1975 Bottling
Agreement and that it could regain by merely terminating a
supplemental agreement with reasonable notice; (3) for nearly two
decades, Nestle extended special pricing and paid invasion fees to
Eureka for sales made into its territory, all applicable to Ozarka
spring water; and (4) for nearly thirty years, Nestle and its
predecessors-in-interest were aware of and acquiesced to Eureka’s
continued expansion of Ozarka products in Oklahoma.
Aplee. Br. at 40. We have previously concluded, however, that the trademark
application does not indicate that the term drinking water as defined in the 1975
Agreement encompasses spring water. And items 2, 3, and 4 do not show how the
parties defined the terms purified water or drinking water (as extrinsic evidence
might show which ship named “Peerless” the parties were referring to) but are
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simply evidence of the parties’ general intent in entering into the Agreement.
This evidence was used at trial to prove that the agreement was meant to include
more than the purified water and drinking water specified in the Agreement, not
that the term purified water or drinking water actually encompassed spring water.
Such evidence of general intent, not tied to the specific usage of a particular word
or term, does not establish a latent ambiguity. If it did, the latent-ambiguity
exception would swallow the general rule barring extrinsic evidence.
Thus, we hold that the 1975 Agreement applies only to purified water and
drinking water. The declaratory judgment and the jury’s verdict to the contrary
(including the damages award) must be reversed. We remand to the district court
for entry of judgment in favor of Nestle on the contract claim.
B. Tortious Interference Claim
From 1990 until 2007 Eureka supplied PET spring water to several
wholesale customers after purchasing that water from Nestle at a below-market
price. Eureka contends that in October 2007 Nestle began tortiously interfering
with its customer relationships in two ways: (1) by ceasing to offer the
discounted price, which made it impossible for Eureka to sell to wholesalers at a
profit, and (2) by selling directly to Eureka’s customers.
The cause of action for tortious interference with a contractual or business
relationship has four elements that must be proved by the plaintiff: “(1) the
interference was with an existing contractual or business right; (2) such
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interference was malicious and wrongful; (3) the interference was neither
justified, privileged nor excusable; and (4) the interference proximately caused
damage.” Wilspec Techs., Inc. v. DunAn Holding Grp., Co., 204 P.3d 69, 74
(Okla. 2009). Nestle argues that it is entitled to JMOL on Eureka’s tort claim
because Eureka failed to satisfy the first, third, and fourth elements. Because we
agree that Eureka failed to carry its burden on the third element, we need not
address the others.
It is undisputed that the increase in price charged by Nestle to Eureka for
PET spring water brought the price in line with what Nestle charged other
wholesale customers. Nestle’s opening brief on appeal contends that the price
increase was justified and privileged. In response, Eureka makes two arguments.
Neither is persuasive.
First, Eureka asserts that “[e]ven assuming arguendo that Nestle’s decision
to raise Eureka’s prices was justified, its subsequent sales into Eureka’s exclusive
territory surely were not. Nestle had no legitimate interest in having relationships
with Ozarka customers in Eureka’s territory.” Aplee. Br. at 46. But we have
already held that Eureka did not have any exclusive territory with respect to
spring water. Moreover, the only evidence relating to sales of PET spring water
by Nestle to former Eureka wholesale customers is that the customers contacted
Nestle after Eureka quit selling them the PET spring water and advised them to
call Nestle to obtain the product.
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Eureka’s second argument is two-sentences long: “Nestle justified its price
increase on false pretenses, telling Eureka it was losing money on Ozarka sales in
Eureka’s territory. Nestle actually profited there.” Id. It is not uncommon,
however, for a business to speak in terms of “losing” money when it is missing
out on an opportunity to make more money. And as Eureka itself states in its
opening brief, “[B]y selling at prices necessary to provide [an] incentive to
Eureka, Nestle was sacrificing margins that it realized in other markets where it
operated without Eureka.” Id. at 11 n.8. In any event, any “false pretense” was
not wrongful to Eureka. The decision to raise the prices to Eureka was not
negotiated but was a unilateral act by Nestle. Eureka does not make, and could
not make, any claim that it relied on the alleged false pretense. In short, Eureka
has failed to show why Nestle did not have the same right as any other seller of
goods to treat all similarly situated customers the same, absent a contractual
obligation to the contrary. We therefore reverse the judgment on the tortious-
interference claim and remand to the district court to grant JMOL to Nestle on
this claim.
C. Equitable Claims
After the jury returned its verdict in favor of Eureka, the district court
dismissed Eureka’s equitable claims of unjust enrichment and promissory
estoppel on the ground that the jury’s verdict had afforded Eureka full relief.
Eureka cross-appeals that decision. Because we reverse the jury verdict on the
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contract and tortious-interference claims, the basis for the district court’s denial is
no longer sound. We therefore consider whether we should remand these claims
for further consideration by the district court.
1. Unjust Enrichment
Eureka claims that Nestle was unjustly enriched by not paying Eureka the
royalty owed on Nestle’s sales of PET spring water to Sam’s Clubs within
Eureka’s territory. We affirm the district court’s dismissal of the claim because
the claim is based on a premise we have just held to be false. Eureka’s opening
brief states its theory to support the claim: “Because Eureka has a license for all
Ozarka products, Nestle has indisputably been unjustly enriched by all
unauthorized sales occurring prior to October 15, 2007.” Id. at 71. But Eureka
had no such license for spring water, so the claim must fail.
Eureka’s reply brief on cross-appeal raises an additional theory. It suggests
that the unjust-enrichment claim is not based on the 1975 Agreement but on a
later “invasion fee agreement,” Aplee. Reply Br. at 9, an alleged promise by
Nestle in 1997 to pay a royalty on its sales to customers in Eureka’s territory
(purportedly because such sales invaded Eureka’s rights under the 1975
Agreement). Eureka claims that Nestle failed to comply fully with its promise.
But this contention is not stated sufficiently clearly in Eureka’s opening brief on
cross-appeal to preserve the issue. See Becker v. Kroll, 494 F.3d 904, 913 n.6
(10th Cir. 2007) (“An issue or argument insufficiently raised in the opening brief
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is deemed waived.”). Although the brief refers to the 1997 promise, it relies on
Eureka’s license, not the invasion-fee agreement, to establish the unjust-
enrichment claim, stating that the money saved by Nestle by not paying the
agreed-upon royalties “came at the expense of Eureka’s exclusive rights.” Aplee.
Br. at 72.
Further, Eureka does not point to where this theory was raised below.
Eureka’s statement of legal issues in the final pretrial order says almost nothing
about the unjust-enrichment claim, merely reciting a two-sentence statement of
the general principle, and certainly does not raise this specific theory. Eureka’s
proposed jury instructions on the unjust-enrichment claim, which were ultimately
not given to the jury, clearly based the claim on Eureka’s license rights, stating as
the first element of the claim: “[Eureka] owns the right to the Ozarka mark.”
Aplt. App., Vol. 3 at 834. Likewise, at the hearing on Nestle’s Rule 50 motion
(held after the close of evidence but before closing arguments), it said that its
unjust-enrichment claim was “based on the license agreement.” Id., Vol. 27 at
8979. And Eureka’s postjudgment brief on its equitable claims also relies on the
license agreement. Although it mentions the alleged 1997 promise by Nestle, the
reference is only to justify an award based on promissory estoppel. As we have
repeatedly declared, we will not consider theories not advanced in the lower
court. See ClearOne Commc’ns, Inc. v. Biamp Sys., 653 F.3d 1163, 1182 (10th
Cir. 2011) (“This court will generally not consider an argument that was not
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raised in the district court.”). Ordinarily we rely on the opposing party to raise
failure to preserve an argument, see Westefer v. Snyder, 422 F.3d 570, 584 n.20
(7th Cir. 2005) (“a defense of waiver may itself be waived if not raised”); but
Nestle had no opportunity to brief the matter after Eureka’s reply brief.
2. Promissory Estoppel
Eureka’s promissory-estoppel claim is based on Nestle’s alleged failure to
fulfill two promises. First, Eureka claims that in 1997 Nestle agreed to
compensate Eureka for each case of Ozarka product that Nestle shipped directly
into Eureka’s territory—50 cents for PET products and 30 cents for bulk products.
Over the next 10 years Nestle sent Eureka 67 checks totaling about $2.5 million.
But Eureka claims that Nestle still owes it $1,056,474 because in late 2003 Nestle
unilaterally reduced the royalty rates for both PET and bulk cases to 25 cents a
case. Nestle never paid as originally promised, even though Eureka sent invoices
for the difference. Second, in the early 1990s Eureka began invoicing Nestle for
pickup allowances, billbacks, promotions, and trade discounts, and up until 2007
Nestle reimbursed Eureka for those fees. But Eureka claims that Nestle has
refused to reimburse it for 29 invoices totaling approximately $298,000.
A claim for promissory estoppel has four elements: “(1) a clear and
unambiguous promise, (2) foreseeability by the promisor that the promisee would
rely upon it, (3) reasonable reliance upon the promise to the promisee’s detriment
and (4) hardship or unfairness can be avoided only by the promise’s
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enforcement.” Garst v. Univ. of Okla., 38 P.3d 927, 931 (Okla. Civ. App. 2001)
(internal quotation marks omitted). Nestle does not contend that Eureka failed to
establish any of the four elements listed above. Instead, it argues that Eureka
cannot recover under promissory estoppel because Eureka’s evidence failed to
satisfy a fifth element—that Nestle made false representations or concealed facts.
But, as Eureka points out, Nestle failed to raise its “misrepresentation” argument
below. Therefore, we will not consider it, see ClearOne, 653 F.3d at 1182, and
we remand for further proceedings on the claim.
D. Evidentiary Issues
Nestle also raises two evidentiary issues on appeal. It argues that the
district court erroneously admitted at trial a privileged document and Eureka’s
expert testimony on damages. The arguments are not frivolous, but we need not
address them. The only claim remaining on remand is Eureka’s promissory-
estoppel claim, and the challenged evidence is irrelevant to that claim. The
expert testimony concerned only the value of Eureka’s business, not the value of
the unpaid royalties and other fees sought under the promissory-estoppel claim
(and which can be computed without the aid of an expert). As for the allegedly
privileged document, Eureka introduced it at trial as extrinsic evidence of the
meaning of the 1975 Agreement. Although it may marginally support one
element of Eureka’s promissory-estoppel claim—that Nestle had promised Eureka
to make royalty and other payments—Eureka did not rely on the document in its
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motion below for judgment on the promissory-estoppel claim. We do not expect
the document to be material to the district court’s consideration of the
promissory-estoppel claim on remand.
III. CONCLUSION
We REVERSE the district court’s denial of Nestle’s motion for judgment as
a matter of law on Eureka’s contract and tortious-interference claims, REVERSE
the declaratory judgment, and REMAND to the district court with instructions to
enter judgment in favor of Nestle on the contract and tortious-interference claims.
We REVERSE the district court’s denial of Eureka’s promissory-estoppel claim
and REMAND that claim to the district court for further consideration in light of
this opinion. We AFFIRM the district court’s denial of relief on Eureka’s unjust-
enrichment claim.
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