Beanstalk Group Inc v. AM General Corp ( 2002 )


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  • In the
    United States Court of Appeals
    For the Seventh Circuit
    No. 01-2164
    Beanstalk Group, Inc.,
    Plaintiff-Appellant,
    v.
    AM General Corporation and General Motors
    Corporation,
    Defendants-Appellees.
    Appeal from the United States District Court
    for the Northern District of Indiana, South Bend Division.
    No. 00 C 525--Allen Sharp, Judge.
    Argued January 7, 2002--Decided March 15, 2002
    Before Posner, Rovner, and Evans, Circuit
    Judges.
    Posner, Circuit Judge. Beanstalk, which
    serves owners of intellectual property by
    negotiating licenses of their property,
    brought this diversity suit for breach of
    its contract with AM General; the
    substantive issues are governed by the
    law of Indiana. The contract, called a
    "representation agreement," appointed
    Beanstalk an agent of AM General to
    obtain licenses to use the latter’s
    "HUMMER" trademark. When the contract was
    made in 1997, AM General was the
    manufacturer of the Humvee, a military
    vehicle that is the successor to the jeep
    and like the jeep is also sold in a
    version intended for the civilian market,
    under the name "Hummer." Beanstalk named
    General Motors as an additional defendant
    for reasons that will appear in a moment.
    The district judge granted the
    defendants’ motion to dismiss the
    complaint (to which Beanstalk had
    attached the representation agreement)
    for failure to state a claim. Fed. R.
    Civ. P. 12(b)(6). Since the
    representation agreement was part of a
    pleading rather than submitted
    separately, the judge could consider it
    without converting the defendants’ motion
    to one for summary judgment. Fed. R. Civ.
    P. 12(c); Berthold Types Ltd. v. Adobe
    Systems Inc., 
    242 F.3d 772
    , 775 (7th Cir.
    2001).
    The agreement made Beanstalk AM
    General’s "sole and exclusive non-
    employee representative" for the purpose
    of licensing the Hummer trademark and
    entitled Beanstalk to 35 percent of the
    "gross receipts . . . received on Owner’s
    [AM General’s] behalf . . . under any
    License Agreements" made while the
    representation agreement was in force.
    Each license agreement "shall provide for
    all payments thereunder to be made to
    Beanstalk on Owner’s behalf," and
    Beanstalk is required to account
    quarterly to AM General for "all gross
    receipts actually received during the
    preceding calendar quarter under any
    License Agreements." AM General is given
    "the absolute right to veto, without
    cause and at its sole discretion," any
    proposed license, including renewals.
    "License agreement" is defined as "any
    agreement or arrangement, whether in the
    form of a license or otherwise, granting
    merchandising or other rights in the
    Property," which in turn is defined to
    mean trademarks and related rights. The
    contract, which is assignable (though by
    Beanstalk only with AM’s consent) and
    contains an integration clause, was to
    continue until the end of 2000.
    The agreement was drafted by Beanstalk,
    but this fact has little interpretive
    significance since AM General is a
    commercially sophisticated party
    represented by counsel. Most courts now
    agree with this exception to the
    principle that contracts are to be
    construed against the party that drafted
    it. Western Sling & Cable Co. v.
    Hamilton, 
    545 So. 2d 29
    , 31-32 (Ala.
    1989); Wood River Pipeline Co. v.
    Willbros Energy Services Co., 
    738 P.2d 866
    , 872 (Kan. 1987); Kinney v. Capitol-
    Strauss, Inc., 
    207 N.W.2d 574
    , 577 (Iowa
    1973); Dawn Equipment Co. v. Micro-Trak
    Systems, Inc., 
    186 F.3d 981
    , 989 n. 3
    (7th Cir. 1999); Northbrook Excess &
    Surplus Ins. Co. v. Procter & Gamble Co.,
    
    924 F.2d 633
    , 638-39 and n. 6 (7th Cir.
    1991); Missouri Pacific R.R. v. Kansas
    Gas & Electric Co., 
    862 F.2d 796
    , 799-800
    (10th Cir. 1988); First State
    Underwriters Agency of New England
    Reinsurance Corp. v. Travelers Ins. Co.,
    
    803 F.2d 1308
    , 1311-12 (3d Cir. 1986);
    Eagle Leasing Corp. v. Hartford Fire Ins.
    Co., 
    540 F.2d 1257
    , 1261 (5th Cir. 1976).
    There are holdouts, illustrated by
    Eastern Bus Lines, Inc. v. Board of
    Education, 
    509 A.2d 1071
    , 1073-74 (Conn.
    App. 1986), where the court, quoting an
    earlier opinion, said that "the party who
    actually does the writing of an
    instrument will presumably be guided by
    his own interests and goals in the
    transaction. He may choose shadings of
    expression, words more specific or more
    imprecise, according to the dictates of
    these interests." No doubt; but the other
    party, if commercially sophisticated and
    represented by counsel, will insist on
    clarification. Indiana has yet to take a
    stand on the exception, though the only
    case from Indiana that we can find which
    bears on it, Nationwide Mutual Ins. Co.
    v. Neville, 
    434 N.E.2d 585
    , 599 (Ind.
    App. 1982), leans in favor of rejecting
    it. No matter; AM does not need the rule
    in order to prevail. We add that the rule
    is in practice a makeweight rather than a
    tie breaker.
    Beanstalk set about obtaining agreements
    for the licensing of the Hummer
    trademark. In 1999, however, two years
    into the representation agreement with
    Beanstalk, AM General entered into a
    joint-venture agreement with General
    Motors under which GM would design and
    engineer a new version of the Hummer,
    would make an interest-free loan of $235
    million to AM General for the
    construction of a factory to manufacture
    the new version, would promise to buy a
    minimum number of the new vehicles, would
    obtain an option to buy up to 40 percent
    of AM General’s common stock--and would
    acquire the Hummer trademark. GM informed
    Beanstalk that it had not assumed any of
    AM General’s obligations under the
    representation agreement and that it
    would not compensate Beanstalk for any
    license agreements made or renewed after
    the effective date of the joint-venture
    agreement.
    Beanstalk argues that the agreement
    between AM General and GM, although of
    course not labeled a license agreement,
    was one because it transferred the Hummer
    trademark to GM and thus was an
    "agreement or arrangement, whether in the
    form of a license or otherwise, granting
    merchandising or other rights in the
    Property"; for the transfer gave GM the
    right, indeed the exclusive right, to
    merchandise the Hummer trademark, that
    is, the "Property." The contract thus is
    clear, Beanstalk argues--the joint
    venture was an "agreement" that
    "grant[ed]" GM "merchandising . . .
    rights" in the Hummer trademark and it
    did not have to be "in the form of a
    license" because the representation
    agreement says "in the form of a license
    or otherwise"--and under accepted
    principles of contract law we should look
    no further. Beanstalk wants 35 percent of
    so much of the consideration running from
    GM to AM General as represents the value
    of the Hummer trademark. We do not know
    what the consideration was, or what that
    value is, because no evidence has been
    taken--in fact, the joint-venture
    agreement is not even in the record,
    though the sketch we have just given of
    its terms is not contested.
    Beanstalk is correct that written
    contracts are usually enforced in
    accordance with the ordinary meaning of
    the language used in them and without
    recourse to evidence, beyond the contract
    itself, as to what the parties meant.
    This presumption simplifies the
    litigation of contract disputes and, more
    important, protects contracting parties
    against being blindsided by evidence
    intended to contradict the deal that they
    thought they had graven in stone by using
    clear language. It is a strong
    presumption, motivated by an
    understandable distrust in the accuracy
    of litigation to reconstruct contracting
    parties’ intentions, but it is
    rebuttable--here by two principles of
    contract interpretation that are closely
    related in the setting of this suit. The
    first is that a contract will not be
    interpreted literally if doing so would
    produce absurd results, in the sense of
    results that the parties, presumed to be
    rational persons pursuing rational ends,
    are very unlikely to have agreed to seek.
    USA Life One Ins. Co. of Indiana v.
    Nuckolls, 
    682 N.E.2d 534
    , 539 (Ind.
    1997); Haworth v. Hubbard, 
    44 N.E.2d 967
    ,
    970 (Ind. 1942); Merheb v. Illinois State
    Toll Highway Authority, 
    267 F.3d 710
    , 713
    (7th Cir. 2001); Funeral Financial
    Systems v. United States, 
    234 F.3d 1015
    ,
    1018 (7th Cir. 2000); Grun v. Pneumo Abex
    Corp., 
    163 F.3d 411
    , 420 (7th Cir. 1998);
    Catalina Enterprises, Inc. Pension Trust
    v. Hartford Fire Ins. Co., 
    67 F.3d 63
    , 66
    (4th Cir. 1995).
    This is an interpretive principle, not
    a species of paternalism. "The letters
    between plaintiff and defendant were from
    one merchant to another. They are to be
    read as businessmen would read them, and
    only as a last resort are to be thrown
    out altogether as meaningless futilities.
    . . . If literalness is sheer absurdity,
    we are to seek some other meaning whereby
    reason will be instilled and absurdity
    avoided." Outlet Embroidery Co. v.
    Derwent Mills, 
    172 N.E. 462
    , 463 (N.Y.
    1930) (Cardozo, C.J.). "There is a long
    tradition in contract law of reading
    contracts sensibly; contracts--certainly
    business contracts of the kind involved
    here--are not parlor games but the means
    of getting the world’s work done. . . .
    True, parties can contract for
    preposterous terms. If contract language
    is crystal clear or there is independent
    extrinsic evidence that something silly
    was actually intended, a party may be
    held to its bargain, absent some
    specialized defense." Rhode Island
    Charities Trust v. Engelhard Corp., 
    267 F.3d 3
    , 7 (1st Cir. 2001); see also
    Dispatch Automation, Inc. v. Richards,
    No. 01-2273, 
    2002 WL 221755
     at *2-3 (7th
    Cir. Feb. 11, 2002).
    The second principle is that a contract
    must be interpreted as a whole. Freigy v.
    Gargaro Co., 
    60 N.E.2d 288
    , 291 (Ind.
    1945); Harseim v. Booth, 
    33 N.E. 1016
    ,
    1017 (Ind. 1893); Allstate Ins. Co. v.
    Hammond, 
    759 N.E.2d 1162
    , 1168 (Ind. App.
    2001); United States v. Schilling, 
    142 F.3d 388
    , 395 (7th Cir. 1998); LaSalle
    National Trust, N.A. v. ECM Motor Co., 
    76 F.3d 140
    , 144 (7th Cir. 1996); A.D.E.
    Inc. v. Louis Joliet Bank & Trust Co.,
    
    742 F.2d 395
    , 396 (7th Cir. 1984);
    Catalina Enterprises, Inc. Pension Trust
    v. Hartford Fire Ins. Co., supra, 
    67 F.3d at 66
    . Sentences are not isolated units
    of meaning, but take meaning from other
    sentences in the same document.
    The second principle thus is linguistic;
    the first reflects the fact that
    interpretation is a cultural as well as a
    linguistic undertaking. To interpret a
    contract or other document, it is not
    enough to have a command of the grammar,
    syntax, and vocabulary of the language in
    which the document is written. One must
    know something about the practical as
    well as the purely verbal context of the
    language to be interpreted. In the case
    of a commercial contract, one must have a
    general acquaintance with commercial
    practices. This doesn’t mean that judges
    should have an M.B.A. or have practiced
    corporate or commercial law, but merely
    that they be alert citizens of a market-
    oriented society so that they can
    recognize absurdity in a business
    context. A blinkered literalism, a
    closing of one’s eyes to the obvious, can
    produce nonsensical results, as this case
    illustrates. Beanstalk is in the business
    of merchandising trademarks. If, while
    the representation agreement was in
    effect, a toy company wanted to make a
    toy Hummer, Beanstalk was authorized to
    grant the toy company a license in
    exchange for a fee that it would split
    35/65 with AM General. The joint-venture
    agreement was not that kind of
    arrangement. It was not an arrangement
    for the promotion of AM General’s
    trademark. By the agreement creating the
    joint venture, AM General essentially
    transferred the Hummer business to
    General Motors, retaining a role limited
    to manufacturing, in a factory built with
    GM’s money, a vehicle designed by,
    engineered by, and to be marketed by
    (that is the significance of the transfer
    of the trademark) GM. Quite apart from
    the option that GM also received to buy a
    large, doubtless controlling interest in
    AM General, it’s as if AM General had
    sold its entire business, including its
    manufacturing assets and all its
    trademarks, to GM.
    Beanstalk is not a business broker. It
    had nothing to do with the joint venture
    and indeed didn’t even know about it
    until after it took place. The parties
    could hardly have intended that Beanstalk
    should get a commission if AM General
    decided, as in effect it did, to get out
    of the Hummer business. A business would
    not contract to pay an agent for work
    that the agent did not do but that the
    business did itself. Beanstalk and AM
    General must have known when they signed
    the representation agreement that if AM
    General ever sold its Hummer business,
    the trademark would go with it, as the
    purchaser would need it in order to
    identify the product, while AM General
    would no longer have any need or use for
    it. Indeed, AM General would have nothing
    to attach the trademark to--and a
    trademark is an identifier, not a free-
    standing piece of intellectual property;
    hence the rule that a trademark cannot be
    sold in gross, that is, without the
    assets that create the product that it
    identifies. 15 U.S.C. sec. 1060; United
    Drug Co. v. Theodore Rectanus Co., 
    248 U.S. 90
    , 97 (1918); In re Cult Awareness
    Network, Inc., 
    151 F.3d 605
    , 608 n. 1
    (7th Cir. 1998); Green River Bottling Co.
    v. Green River Corp., 
    997 F.2d 359
    , 362
    (7th Cir. 1993); Sands, Taylor & Wood Co.
    v. Quaker Oats Co., 
    978 F.2d 947
    , 956
    (7th Cir. 1992); Beauty Time, Inc. v. VU
    Skin Systems, Inc., 
    118 F.3d 140
    , 150 (3d
    Cir. 1997). The parties would hardly have
    intended Beanstalk to obtain a commission
    on the sale of the business merely
    because the sale would inevitably include
    the trademark. And they would not have
    wanted to burden the sale with the added
    cost of allocating the purchase price
    between the trademark and the other
    assets involved in the sale, as Beanstalk
    claims they must do in order to compute
    the commission to which it is entitled on
    the joint venture. (Such allocations may
    be required for tax purposes. See
    Thrifticheck Service Corp. v.
    Commissioner, 
    287 F.2d 1
    , 2, 3-4 (2d Cir.
    1961) (Friendly, J.). We are not told
    whether that was the case with the AM
    General-GM joint venture.)
    The unreasonableness of Beanstalk’s
    position can be seen most clearly by
    imagining that the joint venture had
    taken place the day after the
    representation agreement between
    Beanstalk and AM General went into
    effect. Then on Beanstalk’s
    interpretation it would be entitled to 35
    percent of the entire value of the Hummer
    trademark even though it had made
    absolutely no contribution to that value.
    That makes no sense; it is apparent that
    the definition of "License Agreement" in
    the representation agreement covers any
    agreement that has the function or
    character of a trademark licensing
    agreement even if the word "license" or a
    cognate term does not appear; the sale of
    a business is an agreement of an entirely
    different character. "[The] issue of
    whether a transfer of the use of a
    trademark is a sale or a license for tax
    purposes is a thorny one, and has not
    always been consistently solved in the
    courts. The basic problem is to determine
    the extent to which the transferor
    retains proprietary rights in the
    transferred asset. If the transferor
    retains sufficient proprietary rights,
    the transfer must be considered a license
    rather than a sale. . . . We do not sug
    gest that [the] nomenclature [used in the
    contract] should be finally determinative
    of the distinction between a license and
    a sale." Consolidated Foods Corp. v.
    United States, 
    569 F.2d 436
    , 437, 442
    (7th Cir. 1978). Indeed not.
    Beanstalk ignores relevant provisions of
    the contract, one of which engages
    Beanstalk to be AM General’s "sole and
    exclusive non-employee representative,"
    implying that AM General’s employees can
    negotiate license agreements without
    going through Beanstalk. Beanstalk agrees
    with this interpretation, as it must
    (there is no possible ambiguity), but
    claims that even when an employee of AM
    General negotiates such an agreement with
    no involvement by Beanstalk, Beanstalk is
    entitled to 35 percent of the revenues
    that AM General obtains under the
    agreement. No reason is given why AM
    General would compensate Beanstalk for
    services rendered wholly by AM General’s
    own employees, whom it must compensate.
    That would be paying double for the same
    service.
    Further ignored are the provisions
    keying Beanstalk’s commissions to gross
    receipts "received"--obviously by
    Beanstalk--"on Owner’s [that is, AM
    General’s] behalf" and requiring
    Beanstalk to account to AM General
    periodically for the gross receipts of
    the license agreements. This implies that
    Beanstalk would receive receipts only for
    license agreements that it negotiated.
    The implication is reinforced by the fact
    that the representation agreement
    contains no provision for compensating
    Beanstalk out of receipts received
    directly by AM General, for example under
    a license agreement negotiated by an
    employee of AM General.
    Beanstalk goes so far as to argue that,
    whoever negotiates the license agreement,
    the receipts generated by it must be paid
    in the first instance to Beanstalk to
    enable it to take its 35 percent cut off
    the top. Beanstalk thus is arguing that
    not 35 percent but 100 percent of so much
    of the consideration that GM paid AM
    General for the joint-venture agreement
    that represented the value of the Hummer
    trademark had to be paid to Beanstalk.
    Beanstalk’s argument amounts to saying
    that if Chrysler hired it to license the
    Chrysler trademarks and then sold its
    entire automobile business to Daimler for
    $10 billion, Beanstalk would be entitled
    to an immediate cash receipt of $3.5
    billion, from which it would deduct 35
    percent of the value of the Chrysler
    trademarks and then remit the balance to
    Chrysler. Absurd.
    Against all this it might be argued that
    to disregard a contractual term, whether
    on the basis that interpreting it
    literally would yield absurd results or
    that other terms in the contract alter
    the disputed term’s apparent meaning,
    requires evidence and thus cannot be done
    on a motion to dismiss. Not so. For when
    we said earlier that the interpretation
    of a contract is a cultural as well as a
    linguistic undertaking, we did not add
    that the materials of interpretation are
    limited to literal meanings on the one
    hand and trial-type evidence on the
    other. The cultural background that a
    judge brings to the decision of a
    contract case includes as we said a
    general knowledge of how the world
    operates, including the commercial world,
    and this knowledge, precisely because it
    is general rather than being knowledge of
    the specific facts of the case
    ("adjudicative facts"), can show that the
    literal interpretation of a particular
    contractual term would be unsound, in
    which event no evidence need be taken.
    Unelko Corp. v. Prestone Products Corp.,
    
    116 F.3d 237
    , 240 (7th Cir. 1997).
    It would be different if Beanstalk,
    instead of standing on the literal terms
    of the representation agreement--
    onquicksand, in other words--wanted to
    present evidence to show that the
    agreement means what it says it means.
    The only evidence it wants to present is
    that before selling the Hummer business
    to GM, AM General approached Beanstalk
    and asked for an express exclusion from
    the representation agreement of any
    agreement "for the purpose of producing
    motor vehicles" even if such an agreement
    included a transfer of trademark rights.
    But of course. It was simple prudence for
    AM General to try to head off this
    lawsuit. It doesn’t follow that the
    lawsuit has any merit. Indeed, to
    penalize AM General for attempting an
    amicable resolution of a potential
    dispute in advance would violate the
    spirit of the rule that makes settlement
    offers inadmissible in an adjudication on
    the merits. See Fed. R. Evid. 408.
    With our conclusion that there was no
    breach of contract, Beanstalk’s other
    claims collapse, though not, as the
    defendants argue, because they are
    sketchily alleged. Federal pleading
    rules, which require that a complaint
    only give notice of the plaintiff’s
    claim, and not that it spell out the
    facts underlying the claim, Leatherman v.
    Tarrant County Narcotics Intelligence &
    Coordination Unit, 
    507 U.S. 163
    , 168
    (1993); Kirksey v. R.J. Reynolds Tobacco
    Co., 
    168 F.3d 1039
    , 1041 (7th Cir. 1999)
    ("all that’s required to state a claim in
    a complaint filed in a federal court is a
    short statement, in plain (that is,
    ordinary, nonlegalistic) English, of the
    legal claim. . . . The courts keep
    reminding plaintiffs that they don’t have
    to file long complaints, don’t have to
    plead facts, don’t have to plead legal
    theories"), govern even in diversity
    suits. Johnson v. Hondo, Inc., 
    125 F.3d 408
    , 417 (7th Cir. 1997); Colton v.
    Swain, 
    527 F.2d 296
    , 304 (7th Cir. 1975).
    And while we are about correcting the
    defendants, we point out that AM General
    is incorrect to argue that an appellate
    court is to give weight to the district
    court’s interpretation of the law of the
    state in which the district court is
    located. Leavitt v. Jane L., 
    518 U.S. 137
    , 145 (1996) (per curiam); Salve
    Regina College v. Russell, 
    499 U.S. 225
    ,
    231 (1991); Triple G Landfills, Inc. v.
    Board of Commissioners, 
    977 F.2d 287
    , 291
    (7th Cir. 1992).
    GM cannot be guilty of tortious
    interference with Beanstalk’s contract
    with AM General when GM did not
    "interfere" with it, that is, procure a
    breach, though the defendants are wrong
    to argue that Indiana requires that the
    interference be "malicious"; it’s enough
    if it’s intentional and unjustified.
    Winkler v. V.G. Reed & Sons, Inc., 
    638 N.E.2d 1228
    , 1235 (Ind. 1994); Zemco
    Mfg., Inc. v. Navistar Int’l
    Transportation Corp., 
    186 F.3d 815
    , 822-
    23 (7th Cir. 1999) (Indiana law). The
    word "malicious" does appear in a few
    cases, such as Morgan Asset Holding Corp.
    v. CoBank, ACB, 
    736 N.E.2d 1268
    , 1272
    (Ind. App. 2000), but it is apparent that
    the "malice" to which it refers, as in
    the cases that require proof of "actual
    malice" in a defamation suit by a public
    figure, is intentionality rather than ill
    will. See Flintridge Station Associates
    v. American Fletcher Mortgage Co., 
    761 F.2d 434
    , 441 (7th Cir. 1985).
    Neither defendant can be guilty of
    unjust enrichment either. When a contract
    defines the relationship of two parties,
    termination without fault is a defense to
    a claim of unjust enrichment, Bayh v.
    Sonnenburg, 
    573 N.E.2d 398
    , 409 (Ind.
    1991); Boushehry v. Ishak, 
    550 N.E.2d 784
    , 787 (Ind. App. 1990); Murray v. Abt
    Associates, Inc., 
    18 F.3d 1376
    , 1379 (7th
    Cir. 1994), unless part or full
    performance by one party has resulted in
    the conferral of uncompensated values on
    the other party. That often happens when
    a contract is voided under the statute of
    frauds after performance by one party but
    before payment by the other. Hensley v.
    Hilton, 
    131 N.E. 38
    , 40 (Ind. 1921);
    Wallem v. CLS Industries, Inc., 
    725 N.E.2d 880
    , 887, 890 (Ind. App. 2000);
    Fischer v. First Chicago Capital Markets,
    Inc., 
    195 F.3d 279
    , 283 (7th Cir. 1999).
    In such a case the performing party is
    entitled to the fair value of his
    performance. There is nothing like that
    here. Beanstalk received the full
    consideration for which it had
    negotiated, namely 35 percent of the
    gross receipts of the license agreements
    that it negotiated.
    As for GM’s having told Beanstalk that
    it will not pay any commissions on
    license agreements that are renewed, GM
    was entitled as the owner of the
    "Property" to veto any license
    agreements, including renewals, that
    Beanstalk might propose. Even if GM
    remains bound by the representation
    agreement, which it does not, because the
    agreement did not require AM General to
    assign its duties under it to an assignee
    of the "Property" covered by the
    agreement, the veto power granted the
    represented party excuses GM from any
    duty to renew any license agreements
    negotiated by Beanstalk.
    Affirmed.
    Rovner, Circuit Judge, dissenting in
    part. I believe the majority has strayed
    beyond the bounds of Rule 12(b)(6) in
    affirming the dismissal of Beanstalk’s
    breach of contract claim, and I therefore
    respectfully dissent. At this stage of
    the proceedings, we must accept all
    factual allegations in the complaint and
    draw all reasonable inferences from those
    facts in favor of the plaintiff.
    Leatherman v. Tarrant County Narcotics
    Intelligence and Coordination Unit, 
    507 U.S. 163
    , 164 (1993); Slaney v. The
    International Amateur Athletic
    Federation, 
    244 F.3d 580
    , 597 (7th Cir.
    2001), cert. denied, 
    122 S. Ct. 69
    (2001); Camp v. Gregory, 
    67 F.3d 1286
    ,
    1290 (7th Cir. 1995), cert. denied, 
    517 U.S. 1244
     (1996). We are obliged to allow
    the case to proceed unless it appears
    beyond doubt that the plaintiff can prove
    no set of facts in support of its claim
    which would entitle it to relief. Pokuta
    v. Trans World Airlines, Inc., 
    191 F.3d 834
    , 839 (7th Cir. 1999). The majority
    proceeds down two paths to conclude that
    Beanstalk’s claim fails as a matter of
    law, but I believe that, at most, these
    paths lead to the conclusion that the
    contract is ambiguous, and we must
    therefore look to extrinsic evidence to
    determine the intention of the
    contracting parties.
    We all seem to agree that, when read
    literally, the contract clause defining
    "License Agreement" would include AM
    General’s sale of its Hummer business,
    including the "Hummer" and "Humvee"
    trademarks, to General Motors. The
    majority holds that we may disregard the
    literal interpretation of a single clause
    whenever (1) this literal reading would
    produce absurd results, or (2) when the
    isolated clause takes on a different
    meaning when viewing the contract as a
    whole. I have no quarrel with either
    proposition as a correct statement of the
    law of contracts in Indiana, the relevant
    jurisdiction here. However, I do not
    agree that a literal interpretation of
    the defined term "License Agreement"
    would necessarily lead to absurd results.
    Moreover, when the contract is read as a
    whole, that term is at worst ambiguous.
    Under these circumstances, dismissal for
    failure to state a claim is inappropriate
    because there may be some set of facts
    that Beanstalk could prove which would
    entitle it to relief.
    I foresee two problems with the
    application of the "absurd results" rule
    in this case. First, and most
    importantly, we come to this case not
    after trial or even on summary judgment
    after a full and fair airing of the
    relevant facts through discovery, but
    rather on a motion to dismiss. It is
    probably no coincidence that nearly every
    case on which the majority relies for the
    "absurd results" rule is on appeal from
    either a summary judgment ruling or a
    trial. See USA Life One Ins. Co. of
    Indiana v. Nuckolls, 
    682 N.E.2d 534
    , 536
    (Ind. 1997) (summary judgment); Haworth
    v. Hubbard, 
    44 N.E.2d 967
    , 968 (Ind.
    1942) (trial); Merheb v. Illinois State
    Toll Highway Authority, 
    267 F.3d 710
    , 711
    (7th Cir. 2001) (summary judgment);
    Funeral Financial Systems v. United
    States, 
    234 F.3d 1015
    , 1017 (7th Cir.
    2000) (summary judgment); Grun v. Pneumo
    Abex Corp., 
    163 F.3d 411
    , 419 (7th Cir.
    1998), cert. denied, 
    526 U.S. 1087
     (1999)
    (summary judgment); Rhode Island
    Charities Trust v. Engelhard Corp. 
    267 F.3d 3
    , 4 (1st Cir. 2001); Catalina
    Enterprises, Inc. Pension Trust v.
    Hartford Fire Ins. Co., 
    67 F.3d 63
    , 64
    (4th Cir. 1995), cert. denied, 
    517 U.S. 1105
     (1996) (summary judgment); Dispatch
    Automation, Inc. v. Richards, 
    2002 WL 221755
     at *1 (7th Cir. Feb. 11, 2002)
    (summary judgment). In the one case
    decided on a motion to dismiss, the
    motion was denied and that denial
    affirmed, meaning the case was allowed to
    move forward to discovery and trial. See
    Outlet Embroidery Co. v. Derwent Mills,
    
    172 N.E. 462
     (N.Y. 1930) (Cardozo, C.J.).
    The value of discovery in these
    circumstances cannot be overstated.
    Beanstalk, in making a cross-motion for
    summary judgment, submitted an affidavit
    which calls into question the majority’s
    conclusion that a literal reading of the
    "License Agreement" provision leads to an
    absurd result. In the affidavit,
    Beanstalk reveals, and AM General does
    not dispute, that shortly before AM
    General sold the Hummer business to
    General Motors, AM General asked
    Beanstalk to modify the contract. In
    particular, AM General sought to
    expressly exclude certain types of
    transactions relating to the transfer of
    rights in the trademark,
    including"agreements between [AM General]
    and any individual or entity, for the
    purpose of producing motor vehicles or
    motor vehicle parts and accessories, even
    if rights in the [trademarks] are
    licensed, transferred, or otherwise
    involved in such agreements." R. 24,
    Exhibit B, at para. 1(c). In other words,
    AM General seems to have well understood
    the contract to include the sale of its
    Hummer business, and wished to avoid
    paying Beanstalk 35% of the value of the
    trademarks in the sale. Beanstalk
    declined to make this change, and now,
    even though both of the parties seem to
    have assumed the contract covered, or
    potentially covered the sale to GM, the
    majority finds this to be an absurd
    conclusion. See R. 24, Exhibit C.
    Certainly it might have been poor
    judgment for AM General to have agreed to
    this term, and AM General no doubt wishes
    to disown this language now that it is in
    litigation. But we do not normally
    protect parties from the consequences of
    entering into bad deals except when the
    contract is unconscionable and the party
    being held to it is unsophisticated.
    Operating Engineers Local 139 Health
    Benefit Fund v. Gustafson Const. Corp.,
    
    258 F.3d 645
    , 650 (7th Cir. 2001)
    ("People generally are held to the
    agreements they sign and are not
    permitted to fob them off as
    ’boilerplate’ without invoking fraud,
    unconscionability, or mutual mistake as a
    ground for walking away from their
    contract."). I doubt AM General needs our
    protection.
    Second, in the absence of discovery, the
    majority substitutes its own "cultural
    understanding," its own "cultural
    background," and its own general
    knowledge of the commercial world for a
    defined term in the contract, a dubious
    proposition at best. Judges are trained
    in law, not business, and however
    cosmopolitan we may be about the world of
    commerce, I think it an unwise practice
    to substitute our general knowledge of
    the business world for the express terms
    of a contract, especially in the absence
    of any discovery that might elucidate the
    parties’ true intent. Beanstalk’s
    affidavits reveal not only that AM
    General sought to change the terms of the
    contract to exclude the sale at issue
    here, but also that in early
    negotiations, Beanstalk explained to AM
    General that it expected a share of any
    license agreements that internal
    employees of AM General negotiated. See
    R. 24, at para. 4. The majority dismisses
    Beanstalk’s interpretation of this term,
    arguing that this would be paying double
    for the same services. On this 12(b)(6)
    motion, however, we have no idea what the
    parties bargained for. Beanstalk could
    well have accepted a smaller commission
    than it normally obtains in order to get
    a cut of the in-house business. Beanstalk
    has argued on appeal that, because it was
    generally increasing the value of the
    trademarks, it was entitled to a share of
    any transfer of rights in the trademarks,
    whether or not it was directly involved
    in negotiating the deal. This explanation
    is not so absurd that Beanstalk should
    lose its claim as a matter of law, before
    we even allow discovery. Indeed, it is
    not absurd at all. Remember that at this
    stage of the proceedings, we must sustain
    the complaint unless it appears beyond
    doubt that the plaintiff can prove no set
    of facts in support of its claim which
    would entitle it to relief.
    Finally, even when reading the contract
    as a whole, I believe the language is at
    worst ambiguous. The majority deftly
    points out various terms in the contract
    that render Beanstalk’s interpretation
    suspect. I agree that when reading the
    contract as a whole, Beanstalk’s claim is
    weak, and indeed might not survive
    summary judgment. But Rule 12(b)(6) is
    not a substitute for summary judgment,
    and we must avoid the temptation to weed
    out weak claims by bending the Federal
    Rules of Civil Procedure past the
    breaking point. We have acknowledged that
    the Federal Rules, drafted at a time when
    our courts were less busy, may not have
    kept up with the realities of the growth
    of federal litigation. Jackson v. Marion
    County, 
    66 F.3d 151
    , 153 (7th Cir. 1995).
    We noted an increasing tendency to bend
    the Rules to dispose of cases on summary
    judgment that formerly would have gone to
    trial, and to dismiss on the pleadings
    cases that would have gotten at least as
    far as summary judgment. 
    Id.
     We drew the
    line in Jackson to make clear that we
    will not interpolate a requirement of
    fact pleading into the federal rules. I
    believe we should similarly draw the line
    here to require discovery on the
    intentions of the contracting parties
    rather than substituting our own cultural
    understanding for ambiguous contract
    terms. Although there is a tension
    between the definition of License
    Agreement and other provisions of the
    contract, it is not for us to resolve
    that tension on a motion to dismiss.
    Therefore, I respectfully dissent from
    the majority’s affirmance of the
    dismissal of Beanstalk’s breach of
    contract claim. I join the majority’s
    opinion on the unjust enrichment and
    tortious interference claims.
    

Document Info

Docket Number: 01-2164

Judges: Per Curiam

Filed Date: 3/15/2002

Precedential Status: Precedential

Modified Date: 3/3/2016

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