Authentic Apparel Group, LLC v. United States

989 F.3d 1008
Court of Appeals for the Federal Circuit·Decided March 4, 2021·No. 20-1412·Published·Cited by 8 cases

Opinion

United States Court of Appeals for the Federal Circuit

AUTHENTIC APPAREL GROUP, LLC, RON REUBEN,

Plaintiffs-Appellants

v.

UNITED STATES, Defendant-Appellee

2020-1412

Appeal from the United States Court of Federal Claims in No. 1:15-cv-00016-MCW, Senior Judge Mary Ellen Coster Williams.

Decided: March 4, 2021

J. JOSEPH BAINTON, Amagansett, NY, argued for plaintiffs -appellants.

BORISLAV KUSHNIR, Commercial Litigation Branch, Civil Division, United States Department of Justice, Washington , DC, argued for defendant-appellee. Also represented by JEFFREY B. CLARK, ROBERT EDWARD KIRSCHMAN, JR., DOUGLAS K. MICKLE; JAMES MACKEY IVES, Military Personnel Branch, United States Department of the Army, Fort Belvoir, VA.

2 AUTHENTIC APPAREL GROUP, LLC v. UNITED STATES

Before LOURIE, DYK, and STOLL, Circuit Judges.

LOURIE, Circuit Judge.

Authentic Apparel Group, LLC (“Authentic”) and Ron Reuben (“Reuben”) (collectively, “Appellants”) appeal from the decision of the United States Court of Federal Claims (“the Claims Court”) granting summary judgment in favor of the government. Authentic Apparel Grp., LLC v. United States, 146 Fed. Cl. 147 (2019) (“Summary Judgment Decision ”). Appellants also appeal from the Claims Court’s decision dismissing Reuben as a co-plaintiff in the litigation. Authentic Apparel Grp., LLC v. United States, 123 Fed. Cl. 92 (2015) (“Dismissal Decision”). For the reasons stated below, we affirm.

BACKGROUND

In August 2010, the Department of the Army (“Army”)

granted Authentic a nonexclusive license to manufacture and sell clothing bearing the Army’s trademarks in exchange for royalties. The license agreement required the Army’s advance written approval of any products and marketing materials bearing the Army’s trademarks. The license agreement stated:

Prior to any sale or distribution, [Authentic], at its expense, shall submit to [the Army] all items including , but not limited to, products, packaging, labeling , point of sale materials, trade show displays, sales materials and advertising (subject to Section 14.3) bearing the PROPERTY and/or CREATIONS . . . for [the Army]’s advance written approval, in [the Army]’s sole and absolute discretion, at all stages listed below.

AUTHENTIC APPAREL GROUP, LLC v. UNITED STATES 3

J.A. 224 § 5.1 (emphasis added). 1 The license agreement also included exculpatory clauses that exempted the Army from liability for exercising its discretion to deny approval of Authentic’s products and marketing materials:

[Authentic] shall not have any rights against [the Army] for damages or other remedies by reason of [the Army]’s failure or refusal to grant any approval referred to in this Section 5.

J.A. 225 § 5.1.8.

[Authentic] shall not have any rights against [the Army] for damages or any other remedy by reason of [the Army]’s failure or refusal to grant approval of any advertising.

J.A. 239 § 14.3.

Between 2011 and 2014, Authentic submitted nearly 500 requests for approval to the Army through The Beanstalk Group LLC (“Beanstalk”), a company that the Army has engaged to manage its trademark licenses. The Army disapproved only 41 of those submissions. During that time, Beanstalk sent several formal notices of material breach to Authentic for what it stated were failures to timely submit royalty reports and pay royalties. Authentic eventually paid its outstanding royalties through 2013, but on November 24, 2014, Authentic’s counsel informed Beanstalk that Authentic had no intention of paying outstanding royalties for 2014, and instead intended to sue the government for damages.

On January 6, 2015, Authentic and Reuben filed a complaint in the Claims Court against the United States for

1 The license agreement provides definitions for the terms “PROPERTY” and “CREATION,” but for our purposes it is sufficient to assume that those terms refer to the Army’s trademarks.

4 AUTHENTIC APPAREL GROUP, LLC v. UNITED STATES

breach of contract. The primary allegations of breach were based on what Appellants stated as the Army’s denial of the right to exploit the goodwill associated with the Army’s trademarks, refusal to permit Authentic to advertise its contribution to certain Army recreation programs, delay of approval for a financing agreement for a footwear line, and denial of approval for advertising featuring the actor Dwayne “The Rock” Johnson. On August 26, 2015, the Claims Court dismissed Reuben as a plaintiff from the case for lack of standing. Dismissal Decision, 123 Fed. Cl. at 96–97. Authentic subsequently amended its complaint to include an allegation that the Army breached the implied duty of good faith and fair dealing by not approving the sale of certain garments.

On November 27, 2019, the Claims Court granted the government’s motions for summary judgment and denied Authentic’s cross motions. The Claims Court determined that, in view of the express exculpatory clauses in the license agreement, Authentic could not recover damages from the government based on the Army’s exercise of its discretion regarding the approval or disapproval of products and marketing materials. See Summary Judgment Decision, 146 Fed. Cl. at 156–57. The Claims Court then proceeded to separately examine and reject each allegation in Authentic’s amended complaint, finding that the Army’s conduct was in line with its obligations under the license agreement and was not unreasonable. Id. at 157–77. The Claims Court entered judgment in favor of the government. Authentic appealed, and we have jurisdiction under 28 U.S.C. § 1295(a)(3).

DISCUSSION

I

We first address Appellants’ challenge to the dismissal of Reuben for lack of standing. The Claims Court’s subject matter jurisdiction is a question of law. Bosco v. United States, 931 F.2d 879, 882 (Fed. Cir. 1991) (citing Phillips v.

AUTHENTIC APPAREL GROUP, LLC v. UNITED STATES 5

GSA, 924 F.2d 1577, 1579–80 (Fed. Cir. 1991)). We therefore review de novo the Claims Court’s determination regarding standing. Id. (citing Chevron U.S.A., Inc. v. United States, 923 F.2d 830, 833 (Fed. Cir. 1991)). But “[w]e review any factual findings, including those underlying the standing analysis . . . , for clear error.” Starr Int’l Co. v. United States, 856 F.3d 953, 963 (Fed. Cir. 2017) (citing Norman v. United States, 429 F.3d 1081, 1087 (Fed. Cir. 2005)).

Standing to sue the United States on a contract claim is limited to those in privity of contract with the government . See P. Gas & Elec. Co. v. United States, 838 F.3d 1341, 1350 (Fed. Cir. 2016) (“PG&E”). In rare situations, a third party can have standing to sue the United States upon a showing that he or she is an intended third-party beneficiary of a contract with the government. See Flexfab, L.L.C. v. United States, 424 F.3d 1254, 1263 (Fed. Cir. 2005). However, even with regard to contracts between private parties, third-party beneficiary status is considered an “exceptional privilege” that is “an exception to the general principle, which proceeds on the legal and natural presumption that a contract is only intended for the benefit of those who made it.” German All. Ins. Co. v. Home Water Supply Co., 226 U.S. 220, 230 (1912). Thus, it is well settled that “the requirements to demonstrate third-party beneficiary status are ‘stringent.’” PG&E, 838 F.3d at 1361 (quoting Anderson v. United States, 344 F.3d 1343, 1352 (2003)). “In order to prove third party beneficiary status, a party must demonstrate that the contract not only reflects the express or implied intention to benefit the party, but that it reflects an intention to benefit the party directly.” Glass v. United States, 258 F.3d 1349, 1354 (Fed. Cir. 2001). “[A]t a minimum there must be a particular, identifiable benefit that was clearly intended to flow to the third party.” PG&E, 838 F.3d at 1361.

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