A & L Laboratories, Inc. v. Bou-Matic LLC

429 F.3d 775, 2005 WL 3071211
CourtCourt of Appeals for the Eighth Circuit
DecidedNovember 17, 2005
DocketNos. 05-1469, 05-1471
StatusPublished
Cited by6 cases

This text of 429 F.3d 775 (A & L Laboratories, Inc. v. Bou-Matic LLC) is published on Counsel Stack Legal Research, covering Court of Appeals for the Eighth Circuit primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
A & L Laboratories, Inc. v. Bou-Matic LLC, 429 F.3d 775, 2005 WL 3071211 (8th Cir. 2005).

Opinion

BRIGHT, Circuit Judge.

A & L Laboratories (“A & L”) brought this action against Bou-Matic LLC (“Bou-Matic”), seeking a declaration of non-infringement of sixty-seven common law or foreign trademarks and asserting unfair competition, defamation and other claims against Bou-Matic. Bou-Matic counterclaimed, asserting common law trademark infringement and several other claims. The district court1 dismissed the majority of the parties’ claims, held A & L had a license in trademarks owned by Bou-Matic, and ordered A & L to pay a 3% license fee to Bou-Matic for the use of the license. Bou-Matic appealed, and A & L cross-appealed. We affirm.

I. BACKGROUND

The conflict in this case centers on the ownership of trademarks for various chemicals used in dairy sanitation and udder hygiene. A & L Laboratories manufactures these chemicals and for many years engaged in a business relationship with Bou-Matic’s predecessor, a distributor named DEC International (“DEC”). A & L supplied DEC with chemicals and DEC then distributed these products to its customers.

In June 2000, A & L and DEC entered into their last contract, the Global Purchasing Agreement (“GPA”). Under the terms of this agreement, A & L and its parent company, Hypred, manufactured products for DEC and, at DEC’S direction, placed DEC’S “BOU-MATIC” trademark and other product-name trademarks on the product labels. “BOU-MATIC” was the name of the division within DEC that did business with A & L Laboratories. DEC bought these products from A & L and then resold them to its customers. The GPA specified that A & L could sell directly to these customers only if it first obtained DEC’S permission and paid DEC a 5% commission over the first $4,000 of those sales.

In August 2001, DEC filed for bankruptcy. Several months later, A & L and DEC negotiated an Amendment to the GPA that would allow A & L to sell products directly to consumers while DEC was in bankruptcy. Under the Amendment, DEC no longer required A & L to obtain its permission before selling to its customers, and A & L now agreed to pay DEC a 8.5% commission for each sale rather than the original 5% rate. Paragraph 5 of the Amendment explains the purpose of the commission rate:

DEC and HYPRED intend that:
a) the commission income to DEC will equal the income ... that DEC derived [778]*778from the Sanitation and Udder Health program as operated prior to this Amendment; [and,]
b) the commission compensates DEC for, among other things, HYPRED’s continued use of DEC’S trade name “BOU MATIC” during the term of this Amendment.

Appellees’ Add. at 16. The Amendment was intended to operate as an interim agreement while DEC remained in bankruptcy.

In September 2002, Bou-Matic LLC, a new company, purchased, through the bankruptcy court, the division of DEC that did business with A & L. Shortly thereafter, DEC rejected the GPA and the Amendment, which it was entitled to do under the Bankruptcy Code. A & L; A & L’s parent company, Hypred; and Bou-Matic LLC then entered into negotiations for a new supply agreement. The parties operated under the terms of the amended GPA for several months while the negotiations were ongoing. When the negotiations failed, this litigation ensued.

II. PROCEDURAL HISTORY

A & L filed suit against Bou-Matic LLC, requesting a declaration of non-infringement of sixty-seven trademarks and asserting claims for unfair competition, defamation, deceptive trade practices, and tortious interference with contract. Bou-Matic counterclaimed, asserting common law trademark infringement, unfair competition, false advertising, misappropriation of trade secrets, breach of contract and breach of fiduciary duty. In addition, Bou-Matic sought an accounting for commissions owed by A & L. Both parties filed motions for summary judgment.

The district court judge dismissed the majority of both parties’ claims. It ruled that Bou-Matic owned forty-one of the sixty-seven trademarks and that A & L held a license in those trademarks by virtue of Paragraph 9 of the amended GPA. The case went to trial before Judge Mag-nuson on the single issue of the license fee. The court noted that, although A & L and Bou-Matic were initially partners, they became competitors when the license arose. At trial, however, the parties presented evidence of licenses only between partners. Neither party discussed evidence of licenses between competitors in the industry. The parties presented evidence regarding the value and benefits of the Bou-Matic product names versus those of the underlying chemical formulations, the parties’ treatment of the products within their own companies, the relationship between the parties, and the prior agreements between the parties. Based on the evidence presented, the district court determined that 3% was an appropriate license fee.

III. DISCUSSION

We review the district court’s summary judgment decision de novo and apply the same standards as the trial court. Summary judgment is appropriate if the evidence, viewed in the light most favorable to the nonmoving party, shows that no genuine issue of material fact exists and that the moving party is entitled to judgment as a matter of law. Krenik v. County of Le Sueur, 47 F.3d 953 (8th Cir.1995).

On appeal, Bou-Matic first argues that the district court erred in concluding that under Paragraph 9 of the amended GPA, DEC’S rejection of the agreement created a license in favor of A & L. Paragraph 9 of the amended GPA states

If, after the effective date of this Amendment and before June 27, 2005, DEC commits a new and material breach of the [GPA] which remains uncured fourteen (14) days after DEC has received written notice of the breach (it [779]*779being understood that DEC’s continuing nonpayment of its prepetition indebtedness does not constitute a material breach under this paragraph), ... [A & L] ... will be entitled to continue to use the trade names and product names associated with those Chemicals and Supplies, but excluding the trade name “BOU MATIC.” • ■

Appellees’ Add. at 17.

According to Bou-Matic, rejecting the amended GPA did not constitute a new breach and therefore did not give rise to a license under Paragraph 9. Title 11 U.S.C. § 365(g)(l)(2004) asserts that the rejection of an executory contract is a breach of that contract that is deemed to have occurred immediately before the date of filing the bankruptcy petition. Because DEC’s rejection is deemed to have occurred before the Amendment was signed, Bou-Matic argues, it cannot constitute a new breach.

This argument ignores the intentions of DEC and A & L, which were clear and were made after DEC entered bankruptcy. It also ignores the main purpose of § 365(g), which is to determine the priority of the creditor/non-debtor’s claim. Section 365(g) treats a rejection as a breach to ensure that the non-debtor will have a claim against the debtor. It does not determine the rights of parties regarding the contract. In re Lavigne,

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429 F.3d 775, 2005 WL 3071211, Counsel Stack Legal Research, https://law.counselstack.com/opinion/a-l-laboratories-inc-v-bou-matic-llc-ca8-2005.