Douglas Reuter v. Jax Ltd., Inc.

United States Court of Appeals
For the Eighth Circuit
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No. 12-1753
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Douglas E. Reuter
lllllllllllllllllllll Plaintiff - Appellant
v.
Jax Ltd., Inc.
lllllllllllllllllllll Defendant - Appellee
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Appeal from United States District Court
for the District of Minnesota - Minneapolis
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Submitted: December 12, 2012
Filed: April 3, 2013
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Before WOLLMAN, BYE, and BENTON, Circuit Judges.
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BENTON, Circuit Judge.
Douglas E. Reuter sought a declaratory judgment against Jax Ltd., Inc., the
exclusive manufacturer and distributor of a game he invented. Reuter alleged that Jax
breached their contract by granting unauthorized sublicenses and failing to apprise
him of unauthorized sales and Jax’s response to them. The district court1 gave
summary judgment to Jax. Reuter appeals. This court affirms.
I.
In 1981, Reuter granted Jax exclusive rights to manufacture, distribute, and sell
his board game Sequence. In 2006, the parties agreed that Walmart would not be a
vendor (unless Reuter expressly approved). In January 2010, Jax learned of
unauthorized sales at Walmarts in Canada. Anjar Co., Jax’s agent, sent a cease-and-
desist letter to Walmart. In February, Reuter independently learned of the sales and
sent friends to buy games as evidence. Though each party was obligated to notify the
other of such sales, neither communicated about them until May, when Reuter
notified Jax that Walmart was selling the game.
In February 2011, Reuter filed a two-count complaint seeking declaratory
judgment for breach of contract. Jax moved for summary judgment on July 1. On
July 14, the day before the deadline for amended pleadings, Reuter moved to amend
the complaint. The district court granted Jax’s motion to stay the hearing on Reuter’s
motion until after ruling on the summary judgment motion. In September, the court
granted Jax summary judgment, finding that Reuter waived Jax’s breach by also
failing to notify Jax of unauthorized sales, that any breach was not material, and that
Reuter had failed to show damages. In October, Reuter moved to lift the stay and
amend the complaint. The court denied his motion to amend, stating that the
proposed amended complaint was “meaningfully different” from the initial proposed
amendment, and failed to meet Rule 16’s requirement of good cause.
II.
Reuter argues that the district court erred in granting summary judgment on
Count 2 of his complaint. This court reviews a grant of summary judgment de novo,
1
The Honorable Susan Richard Nelson, United States District Court for the
District of Minnesota.
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viewing all evidence most favorably to the appellant. Hill v. City of Pine Bluff, Ark.,
696 F.3d 709, 711 (8th Cir. 2012). It is granted where “the movant shows that there
is no genuine dispute as to any material fact and the movant is entitled to judgment
as a matter of law.” Fed. R. Civ. P. 56. “Summary judgment is not appropriate if the
nonmoving party can set forth specific facts, by affidavit, deposition, or otherwise,
showing the existence of a genuine issue for trial.” Grey v. City of Oak Grove, Mo.,
396 F.3d 1031, 1034 (8th Cir. 2005). “The mere existence of a factual dispute is
insufficient alone to bar summary judgment; rather, the dispute must be outcome
determinative under prevailing law.” Id.
Count 2 alleges that Jax breached the contract by failing to apprise Reuter of
unauthorized sales and Jax’s response to them. Paragraph 8 of the parties’ Licensing
Agreement states:
In the event of any apparent unauthorized use or infringement or
imitation by others of the Licensed Product which may come to
Licensee’s or Licensor’s attention, the parties shall notify each other of
such infringement and if Licensor consents, it shall join Licensee in the
commencement of any actions or proceedings against such infringer,
share equally the expenses of such actions or proceedings, and share
equally the amount of any recovery obtained therefrom. . . . Licensor
and Licensee shall fully cooperate with each other, execute any
documents required by either, and keep each other apprised of all
matters incident to such actions or proceedings.
Reuter objects to the summary judgment, claiming genuine issues of material fact
exist whether Jax met its duty to apprise Reuter. He argues that “the district court
wrongly focused on the separate contractual duty of initial notification as the sole
basis with which to dismiss the claim.” He claims he never purported to terminate the
agreement because of any failure to notify, but instead because of Jax’s “‘failure to
apprise’ consistent with the duties set out in paragraph 8.” His original complaint in
fact alleges both failures, to notify and to apprise. While the district court focused on
the failure to notify, the court’s reasoning in granting summary judgment applies to
the failure to apprise: Reuter fails to show that the alleged breach was damaging or
material.
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Reuter justifies his termination based on Paragraph 9 of the Agreement: “In
the event that Licensee defaults in the performance of any of the terms of the
Agreement and such default is not cured within thirty (30) days after notice thereof
from Licensor, Licensor may terminate this Agreement forthwith by so notifying
Licensee.” But, under Minnesota law, “[a] breach of contract claim fails as a matter
of law if the plaintiff cannot establish that he or she has been damaged by the alleged
breach.” Jensen v. Duluth Area YMCA, 688 N.W.2d 574, 578-79 (Minn. Ct. App.
2004). To prove damages, Reuter “must demonstrate by a preponderance of evidence
that: ‘(a) profits were lost, (b) the loss was directly caused by the breach . . . , and (c)
the amount of such causally related loss is capable of calculation with reasonable
certainty rather than benevolent speculation.’” Hinz v. Neuroscience, Inc., 538 F.3d
979, 984 (8th Cir. 2008), quoting B & Y Metal Painting, Inc. v. Ball, 279 N.W.2d
813, 816 (Minn. 1979).
Reuter’s original complaint did not allege any monetary damages, and at the
summary judgment hearing he admitted “we don’t know” of any damages. He now
claims that “Jax’s withholding of this information damaged Reuter by frustrating his
ability to police and defend his copyrights and other intellectual property rights and
to confirm that he had been paid all royalties due him.” He further maintains that
harm need not be pecuniary and that he was harmed by denial of his right to control
the use of his copyrighted materials. To the contrary, he has not met Minnesota’s
requirements to show loss of profit, causal connection, or even that such a loss is
calculable. Further, his claim to such speculative harm is undercut by emails he sent
pursuing a deal with Walmart.
Reuter also fails to establish the breach’s materiality. To justify termination,
the breach must be material. See BOB Acres, LLC v. Schumacher Farms, LLC, 797
N.W.2d 723, 728-29 (Minn. Ct. App. 2011) (holding that because breach of contract
was not material, performance under the contract was not excused). “A breach is
material when ‘one of the primary purposes’ of a contract is violated.” Hous. and
Redevelopment Auth. of St. Cloud v. Tesfaye, 2010 WL 1753271, at *4 (Minn. Ct.
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App. May 4, 2010) (unpublished), quoting Steller v. Thomas, 45 N.W.2d 537, 542
(Minn. 1950). “The supreme court has held that even when express conditions of the
contract are violated, the breach is not necessarily material.” BOB Acres, 797
N.W.2d at 728-29, citing Boatwright Constr., Inc. v. Kemrich Knolls, 238 N.W.2d
606, 607 (Minn. 1976).
The district court concluded that “the primary purpose of the Agreement was
to allow Jax to manufacture and distribute Sequence in exchange for royalties to be
paid to Reuter.” Reuter argues that the contract had multiple primary purposes,
including “the exploitation of Reuter’s intellectual property.” Even if that were a
primary purpose, and even if it were meaningfully different from the purpose stated
by the district court, it was not materially violated by Jax’s failure to keep Reuter
apprised of its proceedings against Walmart.
Even if Reuter did not waive Jax’s breach with his own breach, any factual
disputes are not outcome determinative because Jax’s breach was neither damaging
nor material. The court properly granted summary judgment.2
Reuter repeatedly argues that Jax ratified the unauthorized sales. He cites the
fact that Jax’s agent assigned license agreements (previously with two other
companies) to Jax permitting Walmart sales. Reuter does not point to any evidence
that Jax ever authorized the sales. Upon learning of them, Jax directed the agent to
send a cease-and-desist letter. When notified by Reuter that sales continued, Jax saw
that Walmart removed Reuter’s game. Such actions by Jax cannot be interpreted as
ratifying continued Walmart sales.
2
Reuter also details for the first time in his reply brief that the district court
erroneously made inferences against him. This argument is not separately considered.
See Jenkins v. Winter, 540 F.3d 742, 751 (8th Cir. 2008) (“This court does not
consider issues raised for the first time on appeal in a reply brief unless the appellant
gives some reason for failing to raise and brief the issue in his opening brief.”
(internal quotation marks omitted)); Peavy v. WFAA-TV, 221 F.3d 158, 176 (5th Cir.
2000) (“This issue, raised in a footnote, is not adequately briefed.”).
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III.
Reuter argues that the district court erred in denying him leave to file an
amended complaint to add claims for breach of contract. This court generally reviews
a district court’s denial of leave to amend a complaint for abuse of discretion, though
the underlying legal conclusions for a denial based on the futility of the proposed
amendments are reviewed de novo. Walker v. Barrett, 650 F.3d 1198, 1210 (8th Cir.
2011).
On July 14, 2011, the day before the deadline for amended pleadings, Reuter
moved to amend his complaint. In October – after the court stayed that motion,
granted summary judgment, and received Jax’s Rule 11 motion against Reuter’s first
proposed amended complaint – Reuter moved for leave to file a second amended
complaint. Because it was filed after the motion deadline and the district court
concluded it replaced the original motion to amend, the court applied Rule 16’s good
cause standard and denied the motion.
Reuter argues that the original motion to amend was never terminated or
abandoned, and so the more liberal Rule 15 standard should apply to three of the
claims that he asserts “remained intact and largely unchanged in the two subsequent
modifications proposed by Reuter after the deadline but before the Court ruled.”
Putting aside whether Reuter’s argument on appeal matches the one he made below,
it was proper to deny the motion to amend because the three allegedly unchanged
claims were futile. A district court may deny leave to amend “if there are compelling
reasons such as undue delay, bad faith, or dilatory motive, repeated failure to cure
deficiencies by amendments previously allowed, undue prejudice to the non-moving
party, or futility of the amendment.” Sherman v. Winco Fireworks, Inc., 532 F.3d
709, 715 (8th Cir. 2008) (internal quotation marks omitted). Duplicative and
frivolous claims are futile. See Lindell v. McCaughtry, 115 Fed. Appx. 872, 876 (7th
Cir. 2004) (unpublished); Bonin v. Calderon, 59 F.3d 815, 846 (9th Cir. 1995).
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The three claims at issue are either duplicative or frivolous. The first claim,
alleging a breach of contract for Jax’s failure to pay Reuter royalties for foreign sales,
essentially repackages the original complaint’s allegation that Jax breached the
contract by granting unauthorized sublicenses. Even if sufficiently dissimilar, the
claim is futile because the alleged breach is immaterial and did no damage. Reuter
admits that Jax paid him about $267,000 in lost royalties, but complains that they
were “not for royalties it had collected but for royalties it calculated would have been
due Reuter had Jax collected or properly paid such foreign royalties.” He points to
no evidence of damage by Jax’s paying out-of-pocket rather than from direct
royalties. He objects that his “auditors have been unable to obtain direct confirmation
of the amounts supporting Jax’s voluntary payment.” But Reuter identifies no
evidence that the amount is inadequate and does not attempt to do so. As the district
court pointed out, if Reuter believed that facts showing such harm needed
development, he should have filed an affidavit under Rule 56(d).
The second claim, alleging a breach of contract for Walmart sales, fails for the
reasons explained above: it was not material and Reuter has failed to show damage.
The third claim, alleging a breach of contract for failure to involve Reuter in
the Walmart sales, is the same as one of the two original counts. It was adequately
answered by the district court, as explained above.
Reuter argues that even if this court finds the proposed amendments futile, it
must find that the district court abused its discretion because it undertook no Rule 15
futility analysis and instead incorrectly applied Rule 16. See Smith v. Chem.
Leaman Tank Lines, Inc., 285 F.3d 750, 752 (8th Cir. 2002) (“A district court abuses
its discretion if it applies the incorrect law.”). This court puts aside the question of
which Rule applies. The district court’s failure to analyze futility does not preempt
this court’s upholding the motion’s denial on that basis. The record supports such a
denial, and “we may affirm the district court’s judgment on any basis supported by
the record.” Wisdom v. First Midwest Bank, of Poplar Bluff, 167 F.3d 402, 406 (8th
Cir. 1999). See also Gralike v. Cook, 191 F.3d 911, 921 n.9 (8th Cir. 1999)
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(affirming judgment on grounds not considered by the district court); United States
v. Sager, 743 F.2d 1261, 1263 n.4 (8th Cir. 1984) (“We review judgments, not
opinions, and we may affirm a judgment on any ground supported by the record,
whether or not that ground was urged below or passed on by the District Court.”).
Other circuits have also addressed futility where the district court did not. See Great
W. Mining & Mineral Co. v. Fox Rothschild LLP, 615 F.3d 159, 175 (3d Cir. 2010)
(“In the instant case, however, the District Court did not consider whether permitting
Great Western to amend and substitute Proposed Amended Complaint 3 would have
been futile, thus our review is de novo, applying the same standard that would have
been applied by the District Court.”); Oleson v. United States, 27 Fed. Appx. 566,
570-71 (6th Cir. 2001) (unpublished) (affirming the district court’s denial of a motion
to amend on the basis that the same outcome would result under the district court’s
analysis (which the Sixth Circuit neither approved nor rejected) or under futility
analysis (which the district court had not performed)).
The district court did not err in denying Reuter’s motion to amend the
complaint.
V.
The judgment of the district court is affirmed.
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