Opinion
98 Civ. 2570 (AGS)
September 29, 2000.
OPINION AND ORDER
Plaintiff Marketing/Trademark Consultants, Inc. ("MTC" or "plaintiff") filed the instant action seeking recovery of funds allegedly due pursuant to a License Placement Agreement ("LPA" or the "Agreement") between MTC and defendant Caterpillar, Inc. ("Caterpillar" or "defendant"). Pursuant to the LPA, the parties agreed inter alia, to share royalties and losses in connection with license agreements negotiated by MTC. MTC's first claim seeks payments arising out of a litigation judgment entered in favor of Caterpillar against a former licensee, and its second claim seeks a share of royalty income under certain of the license agreements. Currently before the Court are (i) MTC's motion for partial summary judgment on its first claim and Caterpillar's cross-motion for partial summary judgment as to that claim, and (ii) Caterpillar's motion for partial summary judgment on MTC's second claim. For the reasons set forth below, the Court grants MTC's motion, and denies both of Caterpillar's motions.
I. Factual Background
A. The Parties
MTC is a corporation organized and existing under the laws of the State of California, with its principal place of business located in New York. (Defendant's Statement of Uncontested Material Facts Pursuant to Local Civil Rule 56.1(a) ("Def.'s 56.1") ¶ 1); Plaintiff's Response to Defendant's Statement of Alleged Uncontested Material Facts ("Pl.'s Resp. 56.1") ¶ 1.) Caterpillar is a corporation organized and existing under the laws of Delaware with its principal place of business located in Illinois. (Def.'s 56.1 ¶ 2; Pl.'s Resp. 56.1 ¶ 2.)
B. The LPA and its Royalty Provisions
Caterpillar and MTC entered into the LPA in 1987. Pursuant to the LPA, MTC acted as Caterpillar's exclusive agent in connection with the licensing of Caterpillar's copyrights and trademarks. (Plaintiffs Statement of Undisputed Material Facts ("Pl.'s 56.1") ¶ 1; Def.'s 56.1 ¶ 5.) MTC identified potential licensees, negotiated licensing agreements with such licensees on Caterpillar's behalf, and assisted Caterpillar in administering its licensing program. (Pl.'s 56.1 ¶ 2; Defendant's Response to Plaintiffs Statement of Alleged Uncontested Material Facts Pursuant to Local Civil Rule 56.1(b) ("Def.'s Resp. 56.1") ¶ 2.) The initial term of the Agreement commenced on April 1, 1987 and expired on March 31, 1988. (Pl.'s 56.1 ¶ 3; Def.'s 56.1 ¶ 6.) After the initial term, the LPA continued for three additional "renewal terms" of one year. (Pl.'s 56.1 ¶ 5; Def.'s 56.1 ¶ 7.) Caterpillar notified MTC in December 1990 that it would not renew the LPA, and the Agreement terminated on March 31, 1991. (Pl.'s 56.1 ¶ 7; Def.'s 56.1 ¶¶ 8, 9; Letter from R.L. Pilon to Hy Forman dated Dec. 1, 1990 ("Termination Letter"), Affidavit of Hy Forman dated Jan. 7, 2000 ("Forman Aff."), Ex. B.)
In consideration for its services under the Agreement, MTC was entitled to a fee of 15 percent of all net royalties and other income earned by Caterpillar under licenses entered into by Caterpillar during the initial term, and 20 percent of net royalties and other income for the renewal terms. (Pl.'s 56.1 ¶¶ 4, 6; Def.'s Resp. 56.1 ¶¶ 4, 6.) MTC was eligible for such compensation whether or not it negotiated the license agreement generating the royalties in question. (Id.)
The Agreement defines "net royalties and other income" as follows: "[T]he amount of Gross Royalties and other income remaining after reimbursement to [Caterpillar] and MTC of the out-of-pocket expenses related to licensing and enforcing the Copyrights and Trademarks each shall incur during the respective term." (LPA, ¶ 4.) "Gross royalties and other income" is defined as "all payments which are made by Licensees to [Caterpillar] and which constitute licensing fees for the Licensed Articles." (Id.).
MTC's participation in royalty payments from a license agreement would continue "until the termination or expiration of that License Agreement for any Licensed Article executed by third parties." (LPA, Ex. A to Forman Aff. ¶¶ 4(d), 7(d).) Further, after termination of the LPA, MTC would receive compensation for (i) license agreements entered into during the term of the LPA, as well as (ii) license agreements entered into within six months after termination of the LPA, where MTC had entered into serious negotiations that had not been completed prior to the termination of the LPA or any extensions or renewals thereof. (LPA ¶¶ 2(b); Def.'s 56.1 ¶ 10; Pl.'s 56.1 ¶ 10.)
C. The Jerryco Judgment
According to the terms of the LPA, "[l]itigation judgments in [Caterpillar's] favor in excess of expenses shall be considered as other income to [Caterpillar] and subject to sharing with [MTC] pursuant to this Agreement." (Pl.'s 56.1 ¶ 9; Def.'s Resp. 56.1 ¶ 9; LPA ¶ 4(c).) In June 1988. Caterpillar entered into a five-year licensing agreement with Jerryco Footware, Inc. ("Jerryco"), which granted Jerryco an exclusive license to use certain Caterpillar trademarks for the sale of work boots and other footware. (Pl.'s 56.1 ¶ 10, 13; Def.'s Resp. 56.1 ¶ 13; Def.'s 56.1 ¶ 17; Ex. E to Forman Aff.) Caterpillar paid MTC its share of royalty income that it received from Jerryco from 1988 through the first quarter of 1994. (Pl.'s 56.1 ¶ 14; Def.'s Resp. 56.1 ¶ 14.) On or about November 24, 1993, after the termination of the Jerryco license agreement, Caterpillar commenced an action against Jerryco in the United States District Court for the Central District of Illinois, alleging that Jerryco had failed to make required royalty payments, and had engaged in fraudulent conduct and misappropriation of Caterpillar's trademarks. (Pl.'s 56.1 ¶ 15; Def.'s Resp. 56.1 ¶ 15.) The Illinois court found that from 1988 through December 31, 1993, Jerryco had submitted false royalty reports to Caterpillar which underreported sales of licensed articles. As a result, millions of dollars in royalties owed to Caterpillar under the license agreement had been diverted by the Jerryco defendants. (Pl.'s 56.1 ¶ 16; Def.'s Resp. 56.1 ¶ 16.) In Caterpillar's final quarterly royalty report to MTC concerning Jerryco, Caterpillar deducted $116,755.06 for Jerryco litigation expenses from its gross income, thereby reducing MTC's share of royalty income. (Pl.'s 56.1 ¶ 17; Def.'s Resp. ¶ 17.) Caterpillar recovered a final judgment against Jerryco on March 30, 1995 in the sum of $10,902,570 (the "Jerryco Judgment"). (Pl.'s 56.1 ¶ 18; Def.'s Resp. 56.1 ¶ 18; Affidavit of Donna F. Mulvihill dated Feb. 14, 2000 ("First Mulvihill Aff."), Ex. C.) Caterpillar has collected a portion of the Jerryco Judgment, and has incurred substantial expenses in litigating and enforcing the judgment. (Pl.'s 56.1 ¶¶ 25, 26; Def.'s 56.1 ¶¶ 18-20.)
D. Instant Action
MTC filed the instant action on April 10, 1998 alleging two breach of contract claims. In its first claim, MTC alleges that it is entitled to a share of the funds Caterpillar has collected with respect to the Jerryco Judgment. (Corrected Complaint ("Compl.") ¶ 17.) Specifically, MTC alleges that Caterpillar has collected a total of $2,902,555.43 and that its expenses related to the judgment are $1,551,280.45, making the ultimate amount owed $270,254.99. (Pl.'s 56.1 ¶¶ 25-27.) Caterpillar disagrees that the terms of the LPA require it to pay anything to MTC. (Caterpillar's Memorandum of Law in Support of Its Motion for Partial Summary Judgment and in Opposition to Plaintiffs Motion for Partial Summary Judgment on Plaintiffs First Claim for Relief ("Cat. Mem.").) However, in the event the Court determines that Caterpillar is liable, it disagrees with the figures provided by MTC. Caterpillar claims that it has collected only $2,562,875.74 from Jerryco, and that its expenses are $2,082,038.00. (Def.'s 56.1 ¶¶ 18, 20.) Therefore, it claims the ultimate amount owed is $96,167.55. (Def.'s Resp. 56.1 ¶ 27.) Each party has filed a motion for partial summary judgment on this claim.
$270,254.99 is 20 percent of the amount collected minus expenses.
$96,167.55 is 20 percent of Caterpillar's alleged collections minus expenses. In its statement of undisputed facts, Caterpillar asserts that its costs and expenses were "at least" $1,551,280.45, the quantity calculated by MTC. (Def.'s 56.1 ¶ 19.) When this number is applied, Caterpillar's ultimate amount owed is $220,319.06.
In its second claim, MTC alleges that Caterpillar has failed to render its due share of royalties to MTC for certain license agreements entered into by Caterpillar during the term of the LPA. (Plaintiff MTC's Memorandum of Law in Opposition to Defendant's Motion for Partial Summary Judgment on Plaintiffs Second Claim for Relief ("Pl.'s Mem. Sec. Claim") at 1.) Specifically, MTC alleges that it is entitled to revenue from certain license agreements that were "renewed, extended, or amended," after the termination of the LPA. MTC alleges that during the term of the Agreement, Caterpillar entered into more than 30 license agreements with various domestic and foreign entities. (Forman Aff. ¶ 4.) Certain of these agreements were later renewed, extended, or amended, and Caterpillar continued to receive royalties from these agreements. (Id; Compl. ¶ 18.) However, Caterpillar only rendered royalty payments for the relevant agreements until the date of renewal, extension, or amendment, and in all cases not after April 1994, when it claimed that the agreements under which MTC was eligible for payment had terminated or expired. (Pl.'s Mem. Sec. Claim at 3, 8-14; Letter from T.R. Dean to Bruce Schwartz dated Apr. 25, 1994, Ex. F to Forman Aff.)
In its Complaint, MTC provides a non-exclusive list of the companies whose agreements MTC alleges were renewed, extended or amended, and from which Caterpillar purportedly continued to receive royalty payments, all of which had originally entered into agreements with Caterpillar during the term of the LPA. (Compl. ¶¶ 20-21.).
MTC claims that the provisions of the LPA allowing for royalty payments to continue until the "termination" or "expiration" of those agreements, (LPA ¶¶ 4(d), 7(d)), encompassed the renewals, extensions and amendments thereto, therefore entitling MTC to additional royalty payments. (Compl. ¶ 12, Pl.'s Mem. Sec. Claim at 2.) In contrast, Caterpillar contends that the scope of royalty payments under the LPA did not encompass such renewals, extensions or amendments. In Caterpillar's view, "all license agreements" under which MTC was entitled to receive royalty payments, and specifically those entered into after the termination of the LPA, "have expired or terminated." (Def.'s 56.1 ¶ 11.) Caterpillar has filed a motion for partial summary judgment as to this claim.
II. Discussion
A. Summary Judgment Standard
This contract dispute is governed by Illinois law. (LPA ¶ 10.) A district court may grant summary judgment only if it is satisfied that "there is no genuine issue as to any material fact and . . . the moving party is entitled to a judgment as a matter of law." Anderson v. Liberty Lobby. Inc., 477 U.S. 242, 248 (1986); see also Vector-Springfield Properties. Ltd. v. Central Ill. Light Co., Inc., 108 F.3d 806, 809 (7th Cir. 1997). The burden rests on the moving party to demonstrate the absence of a genuine issue of material fact, which may be satisfied if it can point to the absence of evidence necessary to support an essential element of the non-moving party's claim. See Celotex Corp. v. Catrett, 477 U.S. 317, 322-23 (1986). Reasonable inferences are resolved in favor of the party against whom summary judgment is sought. See Anderson, supra, 477 U.S. at 255. If the moving party meets its burden, the opposing party must produce evidentiary proof in admissible form sufficient to raise a material question of fact to defeat the motion for summary judgment. See Williams v. Ramos, 71 F.3d 1246, 1248 (7th Cir. 1995). When reasonable minds could not differ as to the import of the proffered evidence, then summary judgment is proper. See Anderson, supra, 477 U.S. at 250-52. Moreover, "more than mere conclusory allegations are required to defeat a motion for summary judgment." Nowak v. St. Rita High Sch., 142 F.3d 999, 1002 (7th Cir. 1998).
In this case, MTC and Caterpillar have cross-moved for partial summary judgment with regard to MTC's first claim for relief. On cross-motions for summary judgment, the rule governing inferences and burden of proof is the same as for unilateral summary judgment motions. See Buttitta v. City of Chicago, 80 F. Supp. 213, 217 (N.D. Ill 1992), aff'd 9 F.3d 1198 (7th Cir. 1993). That is, each cross-movant must present sufficient evidence to satisfy its burden of proof on all material facts.
In contract disputes, summary judgment should be granted only when the pertinent provisions are clear and unambiguous and eliminate any genuine issue of material fact. See Ryan v. Chromalloy Am. Corp., 877 F.2d 598, 602 (7th Cir. 1989); Farm Credit Bank of St. Louis v. Whitlock, 144 Ill.2d 440, 447 (1991). When interpreting a contract, "clear and unambiguous terms" should be given their "ordinary and natural meaning." Emergency Med. Care. Inc. v. Marion Mem. Hosp., 94 F.3d 1059, 1061 (7th Cir. 1996) (citations omitted). Under Illinois law, a "contract must be interpreted as a whole, giving meaning and effect to each provision." Id. This court also takes notice of the rule of construction that, in interpreting a contract, courts "should reach for fair and reasonable results," and "where contracts are negotiated by counsel for sophisticated commercial parties, courts should interpret ambiguous language to realize the reasonable expectations of the ordinary businessperson." Bank of New York v. Amoco Oil Co., 35 F.3d 643, 662 (2d Cir. 1994) (applying New York law).
B. MTC Is Entitled to Summary Judgment on its First Claim
In its motion for partial summary judgment, MTC states that "Caterpillar, without justification, and in clear breach of its agreement with MTC, has refused to pay MTC its share of the [Jerryco Judgment]." (Plaintiffs Memorandum of Law in Support of Motion for Partial Summary Judgment ("Pl.'s Mem.") at 2.) Paragraph 2(b), the first section of paragraph 4, and paragraph 4(c) of the LPA are at the center of plaintiffs argument, and the linkage between these paragraphs constitutes the central dispute between the parties as to MTC's first claim. These paragraphs provide in relevant part:
2(b). In the event that this Agreement terminates for any reason, MTC shall be entitled to receive compensation as set forth in Paragraph 4. (LPA ¶ 2(b).)
4. MTC shall be entitled to receive compensation in an amount equal to [a percentage] of all Net Royalties and other income (defined hereafter) accrued or actually received by Caterpillar . . . Net Royalties and other income shall mean the amount of Gross Royalties and other income remaining after reimbursement to [Caterpillar] and MTC of the out-of-pocket expenses related to licensing and enforcing the Copyrights and Trademarks each shall incur during the respective "term." (Id. ¶ 4.)
4(c). [Caterpillar] shall be reimbursed from Gross Royalties and other income for out-of-pocket expenses in connection with enforcement of Copyrights and Trademarks, including outside counsel fees, private investigators, etc. Litigation judgments in [Caterpillar's] favor in excess of expenses shall be considered as other income to [Caterpillar] and subject to sharing with MTC pursuant to this "Agreement." (Id. ¶ 4(c).)
The Jerryco Judgment is a litigation judgment obtained against a licensee after the termination of the LPA. MTC contends that the above provisions entitle it to a percentage of the net amount Caterpillar has collected on the Jerryco Judgment because: (i) paragraph 2(b) enables MTC to receive compensation after the LPA's termination; (ii) the first section of paragraph 4 entitles MTC to "other income" received pursuant to the license agreements; and (iii) paragraph 4(c) defines litigation judgments entered in Caterpillar's favor as "other income" subject to sharing with MTC. (Pl.'s Mem. at 4, 9; Plaintiff MTC's Memorandum of Law in Further Support of its Motion for Partial Summary Judgment and In Opposition to Defendant's CrossMotion for Partial Summary Judgment ("Pl.'s Mem. Fur. Supp.") at 4-5.)
In its cross-motion for partial summary judgment on the first claim, Caterpillar focuses specifically on paragraph 4(c). It argues that the language of paragraph 4(c), "read with the limitations imposed by the overall agreement," shows that MTC is only entitled to share in litigation judgments obtained (i) in trademark infringement actions, (ii) against non-MTC licensees, and (iii) during the term of the LPA. (Cat. Mem. at 1, 7; Caterpillar's Memorandum of Law in Further Support of its Motion For Partial Summary Judgment and in Further Opposition to Plaintiffs Motion for Partial Summary Judgment on Plaintiffs First Claim for Relief ("Cat. Mem. Fur. Supp.") at 1, 7-12.) Because the Jerryco Judgment was obtained after the termination of the LPA against an MTC licensee for failure to render royalty payments, Caterpillar claims it is not required to share the proceeds with MTC.
MTC licensees are those that signed a license agreement with Caterpillar during the term of the LPA, whether or not the license was negotiated with MTC. Declaration of Bruce R. Wiegand dated Feb. 12. 2000 ("Wiegand Decl.") ¶ 24.)
Caterpillar confines the scope of eligible litigation judgments to trademark infringement actions based on its reading of paragraph 4(c) as a whole. Pointing out that the first sentence focuses on reimbursement to Caterpillar for fees incurred "in connection with enforcement of Copyrights and Trademarks," Caterpillar contends that the litigation judgments which are the subject of the second sentence also must be limited to those incurred in the enforcement of copyrights and trademarks. Such enforcement, in Caterpillar's view, can only mean "lawsuits brought for trademark and copyright infringement" because of the reference in the first sentence to "outside counsel fees for litigation" and "private investigators" as reimbursable costs. (Cat. Mem. at 9; Cat. Mem. Fur. Supp. at 5.)
Caterpillar's interpretation of the provision is unduly narrow. While the paragraph clearly limits litigation judgments for which sharing is required to those relating to the enforcement of Caterpillar's copyrights or trademarks, it does not indicate that such "enforcement" should be confined to infringement actions. Moreover, the Agreement suggests that actions to enforce the underpayment of royalties fees, such as the Jerryco action, would be encompassed by the provision. First, the overall purpose of the LPA, and MTC's duties therein, center on licensing and enforcement. In setting out the essential bargain reached by the parties, paragraph 1 states inter alia that MTC would "negotiate basic terms and conditions of license agreements with third parties covering Licensed Articles ("License Agreements"), subject to [Caterpillar]'s sole and absolute approval, [and] use best efforts to assist [Caterpillar] in merchandising, promoting, advertising and protecting Client's Copyrights and Trademarks." (LPA ¶ 1(a)(2).) (emphasis added). This provision clearly links MTC's licensing duties with those of protection or enforcement, and sets forth general enforcement responsibilities. It gives no indication, and the Court has no reason to infer, that the parties intended to separate the enforcement of trademarks in the context of possible infringement from that enforcement in the context of underpayment or non-payment of royalties. Therefore, litigation judgments such as that against Jerryco, which implicate liability for a licensee for both trademark infringement and non-payment of royalties, appear to be encompassed by paragraph 4(c). Second, litigation judgments are defined in paragraph 4(c) as "other income" to Caterpillar, which, according to the first section of paragraph 4, is "received . . . pursuant to any License Agreement and any other agreement related to Licensed Articles." (LPA ¶ 4, 4(c).) Such a linkage suggests that litigation judgments against licensees, and in particular those for underpayment of royalties, would be covered by paragraph 4(c) and eligible for sharing with MTC. Caterpillar's second argument, that only litigation judgments against non-MTC licensees are covered by paragraph 4(c), (Cat. Mem. Fur. Supp. at 6), fails under this same rationale.
Even if such enforcement were confined to infringement actions, the Jerryco suit would not be excluded because it was, at least in part, an infringement action. According to the final judgment, the defendants were found liable for, inter alia violating section 43(a) of the Lanham Act, 15 U.S.C. § 1125 (a), i.e. trademark infringement. (Ex. C. to First Mulvihill Aff.) Acknowledging the trademark aspect of the Jerryco Judgment, Caterpillar suggests, without citing any authority on point, that MTC would only be entitled to a pro-rata portion of the award, that is, 20 percent of that portion of the award attributable to trademark infringement. (Cat. Mem. Fur. Supp. at 11-13.) This suggestion is unavailing, and in any case is irrelevant here because the Court finds that more than infringement judgments are eligible for sharing with MTC.
While Caterpillar asserts that the parties did not envision much possibility of litigation against licensees, the record reflects that the parties discussed litigation judgments under paragraph 4(c) in terms of both licensees and infringers. (Wiegand Decl. ¶ 19.).
Caterpillar attempts to support its position regarding non-MTC licensees by contending that, pursuant to the section of paragraph 1 quoted supra, MTC had a clear "duty to police" licensees to ensure that they rendered timely royalty payments to Caterpillar. (Cat. Mem. Fur. Supp. at 7; Wiegand Decl. ¶ 7.) Caterpillar further claims that the potential for receipt of a percentage of royalties gave MTC the incentive to police. (Cat. Mem. at 8; Cat. Mem. Fur. Supp. at 8.) Thus, in Caterpillar's view, "if MTC failed in this function and Caterpillar did not get all of the royalty payments that were due from a licensee and in turn had to sue that licensee to recover those royalties, it is entirely consistent with the LPA that MTC should not receive a share of any judgment obtained." (Cat. Mem. at 8-9; Cat. Mem. Fur. Supp. at 7.) Rather, Caterpillar contends that paying MTC 20 percent of litigation proceeds obtained against licensees "would give MTC a disincentive to police" in order to avoid the costs of such policing. (Cat. Mem. Fur. Supp. at 7.) Caterpillar claims that it would be more consistent with the LPA's purpose to include a provision giving MTC the incentive to perform its policing function for entities that are not part of the licensing program, i.e. infringers. In Caterpillar's view, the clause of paragraph 4(c) providing for sharing of litigation judgments is just such a provision. (Cat. Mem. at 9; Wiegand Decl. ¶ 19.)
In addition to the fact that Caterpillar provides no support in the record for its assertions, its arguments are flawed because Caterpillar addresses the case of individual licensees rather than examining the operation of the Agreement as a whole. If MTC's job was to police one licensee, and it failed, there would be a logical reason to exclude it from litigation payments obtained from that licensee. However, the LPA encompassed approximately 30 agreements, covering both domestic and foreign entities. MTC was paid a percentage of royalties in consideration for its efforts to negotiate the agreements and for promoting and protecting Caterpillar's intellectual property. Given the work it performed on behalf of Caterpillar for all licensees, it would not be inconsistent with the purpose of the LPA to ensure that MTC was compensated in the event that an individual licensee derogated from its duty to pay and Caterpillar nevertheless recovered a judgment in its favor. Moreover, contrary to Caterpillar's second contention, knowing that it would share in royalties even in the case where a licensee underpays would act as an additional incentive for MTC to negotiate and police the agreements. Such a safety net could also serve as an incentive to police non-MTC licensees. Finally, Caterpillar's suggestion that the possibility of litigation judgments against licensees would cause MTC to limit its oversight in order to save costs is contrary to the nature of the Agreement and the nature of litigation. First, by signing the LPA, MTC agreed to assist Caterpillar in protecting its copyrights and trademarks. Failing to do so would likely result in consequences beyond the mere reduction in royalty payments, namely the possible breach of its obligations under the Agreement and the alienation of Caterpillar, which might in turn result in an early termination of the Agreement and a decrease in MTC's revenue. Potential licensees might also avoid signing license agreements with MTC on behalf of Caterpillar in apprehension of encountering litigation down the road, which also would result in revenue loss for MTC. Second, relying on litigation judgments against licensees to recoup delinquent royalty payments is a poor business decision given (i) the costs associated with litigation, which could limit or eliminate the possibility for payment, and (ii) the unpredictability of the result. Caterpillar's second argument that paragraph 4, and in particular paragraph 4(c), only applies to litigation judgments against non-MTC licensees is therefore unavailing.
It should be noted that MTC disputes that it had a "duty to police" licensees, asserting that Caterpillar always had primary responsibility for protecting its copyrights and trademarks. (Pl.'s Mem. Fur. Supp. at 7-8; Declaration of Wes Anson dated Mar. 3, 2000 ("Anson Decl.") ¶ 5.).
It should be noted that Caterpillar's allegations that MTC failed to police the Jerryco agreement are questionable, at least in part, because the LPA was terminated in 1991 and Caterpillar's allegations of wrongdoing focus on Jerryco's activities during 1991 and 1992. (Pl.'s Mem. Fur. Supp. at 8.).
In support of their respective arguments, both parties discuss the payment to MTC of a 20 percent share of two other litigation judgments against non-MTC licensees, Gillespie Industries, Inc. (made during the term of the LPA) and M. Hidary Co. (made after the LPA's termination). Caterpillar argues that these decisions support its position that only trademark infringement judgments against non-MTC licensees are to be shared with MTC. (Cat. Mem. at 12-13; Wiegand Decl. ¶¶ 20-23.) Plaintiff, after determining that Gillespie and Hidary were not licensees, contends that their judgments are irrelevant to the instant case. (Pl.'s Mem. Fur. Supp. at 6.) The Court agrees with MTC. The record reflects that, aside from the Jerryco Judgment, the judgments against Gillespie and Hidary were the only two litigation judgments obtained since the inception of the LPA. (See Caterpillar Interoffice Memorandum dated Sept. 15, 1992 ("Cat. Interoffice Mem.").) Accordingly, while the fact that MTC was paid 20 percent of these judgments may indicate that paragraph 4(c) applies to judgments against non-MTC licensees, it does not imply that judgments against licensees are not included.
Caterpillar's third argument is that the "LPA unambiguously provides that MTC share only in litigation judgments obtained during the term of the LPA." (Cat. Mem. Fur. Supp. at 9.) Caterpillar points out that the first section of paragraph 4 focuses only on compensation to be provided during the initial or renewal terms of the Agreement. (Id.; LPA ¶ 4.) The "express provisions" of that paragraph gave MTC the right to share in "other income . . . accrued or actually received" by Caterpillar during the term of the LPA. (Cat. Mem. at 12.) Accordingly, in Caterpillar's view, "the most reasonable interpretation" of the LPA is that MTC could only share in other income not "accrued or actually received" by Caterpillar during the term of the LPA "when the LPA specifically provided for such sharing." (Cat. Mem. Fur. Supp. at 9.) It points to paragraph 2(b), which provides that, in addition to its rights under paragraph 4, MTC is entitled to compensation for certain license agreements entered into within six months of the LPA's termination. (Cat. Mem. at 11.) Thus, Caterpillar contends that paragraph 4, in its entirety, only provides for compensation during the term of the LPA; accordingly, litigation judgments such as the Jerryco Judgment "accrued or actually received" by Caterpillar after the termination of the LPA, which are "other income" under paragraph 4, would not be subject to sharing with MTC. (Id. at 11-12.)
However, Caterpillar misreads paragraph 2(b) and mistakenly focuses on the termination of the LPA, rather than the license agreements to which its provisions apply. By providing a linkage to paragraph 4, the first sentence of paragraph 2(b) enables MTC to receive compensation, after the LPA's termination, for agreements existing at the time of the termination. Moreover, because they are explicitly linked to paragraph 2(b), the provisions of paragraph 4, including those governing "other income" to Caterpillar, are not restricted by the termination of the LPA. Rather, such compensation is only limited by the termination or expiration of the license agreements themselves, which operate separately.
Caterpillar suggests that plaintiffs reading of paragraph 4(c) effectively provides for payments to MTC in perpetuity, which runs contrary to the parties' negotiated understanding. (Cat. Mem. at 11.) However, the LPA specifically provides that royalty payments were restricted by the license agreements pursuant to which they were due, as payments would only continue until the "termination" or "expiration" of those agreements. (LPA ¶¶ 4(d), 7(d).) The license agreements were also the focal point for payment of litigation judgments, because such judgments were "other income . . . accrued or actually received by [Caterpillar] . . .pursuant to any License Agreement." (LPA ¶¶ 4, 4(c).) But the LPA does not specify when the receipt of payments arising out of "other income" should cease. Accordingly, it is reasonable to suppose that any litigation judgment against a licensee related to that licensee's activity under the license agreement would be required to be shared with MTC, even if such judgment accrues after the termination of both the LPA and the relevant license agreement. MTC is therefore entitled to recover its due share of the Jerryco judgment.
The meaning of the terms "termination" and "expiration," in the context of the time during which MTC was entitled to receive payment, is the focal point of MTC's second claim, discussed infra.
The strength of this rationale is demonstrated in the Jerryco case, where Jerryco failed to pay all of its royalties due during the term of the LPA. In 1993, after the LPA's termination, Caterpillar deducted Jerryco litigation expenses from its gross royalties, thereby reducing MTC's compensation. MTC should therefore be entitled to recoup a portion of the money it had not previously received as a result of both Caterpillar's deduction and Jerryco's non-payment, no matter when the litigation judgment is obtained.
The payment of "other income" arising out of litigation judgments against non-MTC licensees is not an issue before the Court. However, the Court notes the difficulty of such payments continuing beyond the termination of the LPA, because non-MTC licensees are not under contract with Caterpillar, and thus have no finite contractual life.
Under Illinois law, a plaintiff proves a breach of contract by establishing a valid and enforceable contract, performance of contractual duties by the plaintiff, breach by the defendants, and resulting damages to the plaintiff. See Olympic Chevrolet v. General Motors Corp., 959 F. Supp. 918, 921 (N.D. Ill. 1997). The record reflects that the LPA was a valid and enforceable contract, and that the plaintiff performed its contractual duties thereunder. (Pl.'s Mem. at 3; Termination Letter.) Caterpillar breached the LPA by not paying MTC the required percentage of the Jerryco Judgment, and MTC has suffered demonstrable losses. Accordingly, MTC is entitled to summary judgment on its first claim.
The Court now turns to the amount of payment due MTC. While the LPA does not specify the percentage of litigation judgment proceeds to be paid to MTC, the provisions of paragraph 4 and Caterpillar's previous conduct indicate that 20 percent is the applicable amount. The initial passage of paragraph 4 provides that MTC should receive 20 percent of royalties "[d]uring any renewal terms of the LPA." (LPA ¶ 4.) While the Jerryco Judgment was not obtained during any renewal term, paragraph 2(b) states that the provisions of paragraph 4 shall apply to compensation after the LPA's termination. Thus, the applicable percentage must be either 15 or 20 percent, (see LPA ¶ 4), and 20 percent is the reasonable conclusion because it was the applicable percentage for all years of the LPA after the first year. Moreover, Caterpillar itself appears to have selected 20 percent as the benchmark, given that it paid MTC 20 percent of the two other trademark-related litigation judgments entered in Caterpillar's favor since the inception of the LPA. See note 10, supra.
Thus, MTC is entitled to a payment of 20 percent of the amount of the Jerryco Judgment collected by Caterpillar as of the date of this Opinion, less attorneys fees and expenses. The submissions of the parties reflect their disagreement as to (i) the amount of the Jerryco Judgment Caterpillar has heretofore recovered, and (ii) the amount of attorneys fees and costs Caterpillar has incurred in litigating the action and enforcing the judgment. (Pl.'s 56.1 ¶¶ 25-27; Def.'s 56.1 ¶¶ 18-20.) Caterpillar initially provided documents to MTC that yielded different calculations than those documents which Caterpillar used to prepare its cross-motion, and Caterpillar's own estimates have changed slightly between the submission of its initial moving papers and its further responses. (Affidavit of Lynn E. Judell dated Mar. 8, 2000 ("First Judell Aff.") ¶¶ 5-11; Affidavit of Mark Jostes dated Feb. 11, 2000. ¶ 4, Exs. A, B; Declaration of Mark Jostes dated Mar. 22, 2000 ("Jostes Decl.").) MTC's latest calculations were provided to the Court on March 8, 2000; Caterpillar's latest were provided on March 22, 2000. Within ten (10) days from the date of this order, Caterpillar shall submit to the Court and serve on MTC an affidavit showing its current statements of receipts and expenses, supported by new or existing exhibits as necessary. The affidavit should also indicate an estimate of the total amount owed to MTC. MTC shall respond by affidavit within 10 days from its receipt of Caterpillar's submissions.
Caterpillar appears unsure of its latest estimate, as it claims, in the same paragraph of its most recent declaration on the subject, that the total amount received from Jerryco is both $2,746,746 and $2,731,897.08. (Jostes Decl. ¶ 12.).
C. Caterpillar Is Not Entitled to Summary Judgment on MTC's Second Claim
Both parties agree that after the termination of the LPA, MTC was to share in royalties received by Caterpillar under those license agreements existing at the time of the termination and certain agreements signed within six months of the termination. (LPA ¶ 2(b).) However, they disagree with regard to how long MTC would continue to receive its share of those royalties. The relevant provisions of the LPA, paragraphs 4(d) and 7(d), state as follows:
4(d). MTC's participation in said royalty payments from each License Agreement shall continue until termination or expiration of that License Agreement for any Licensed Article executed by third parties (Licensees). (LPA ¶ 4(d)) (emphasis added).
7(d). [Caterpillar] shall, within thirty (30) days after termination of this Agreement and thereafter on a quarterly basis until the License Agreements have terminated or expired, render an accounting to MTC, including remitting to MTC any management fees, advances, and Payments then due. (LPA ¶ 7(d)) (emphasis added).
In its second claim, MTC alleges that Caterpillar has failed to render its due share of royalties for certain license agreements entered into by Caterpillar during the term of the Agreement. (Pl.'s Mem. Sec. Claim at 1.) It claims that, in these cases, Caterpillar ceased payment of royalties as soon as the original license agreement expired, without regard to whether the agreement had been, or would be, extended. (Id.) In MTC's view, the provisions in paragraphs 4(d) and 7(d) allowing for royalty payments to continue until the "termination or expiration" of license agreements encompassed the renewals, extensions and amendments thereto, therefore entitling MTC to additional royalty payments. (Pl.'s Mem. Sec. Claim at 2.) MTC also points to instances where Caterpillar ceased payment of royalties for licensees whose original agreements had not "terminated" or "expired" within Caterpillar's definition, which constitutes "a clear breach of the LPA." (Id.)
Caterpillar stopped all payments after the end of the first quarter of 1994, claiming that the last of the eligible license agreements had terminated or expired. (Pl.'s Mem. Sec. Claim at 3; Pl.'s 56.1 ¶ 14; Def.'s Resp. 56.1 ¶ 14.).
Caterpillar moves for summary judgment as to MTC's second claim. In particular, Caterpillar states that "[t]here is only one reasonable reading of the parties' contract, and it is not the one advanced by MTC." (Caterpillar's Memorandum of Law in Support of its Motion for Partial Summary Judgment on Plaintiffs Second Claim for Relief ("Cat. Mem. Sec. Claim") at 2.) Caterpillar avers that "[t]he parties agreement is clear that MTC's right to share in royalties continued only until the termination or expiration of the underlying license agreements." (Id. at 1.) It therefore states that the "plain language" of the LPA indicates that the scope of royalty payments under the LPA did not encompass the renewal, extension or amendment of the license agreements. (Id. at 2.) Because all license agreements under which MTC was entitled to payment have terminated or expired, and Caterpillar has fully rendered payment to MTC under these agreements, MTC is not entitled to any further payments. (Id. at 6; Weigand Decl. ¶¶ 13-14.)
Rehashing its argument with respect to MTC's first claim, Caterpillar contends that under MTC's definition, MTC would have rights to royalty payments "in perpetuity." (Caterpillar's Memorandum of Law in Further Support of its Motion for Partial Summary Judgment on Plaintiffs Second Claim for Relief ("Cat. Mem. Fur. Supp.") at 1.) However, MTC's definition simply would allow it to share in royalty payments until the relationship with licensees ended. (Plaintiff MTC's Supplemental Memorandum of Law Regarding Defendant's Motion for Partial Summary Judgment With Respect to MTC [sic] Second Claim for Relief ("Pl.'s Suppl. Mem.") at 6, 15 n. 5.) Consider, for example, Caterpillar's contract with licensee JOAL. The original JOAL agreement was due to expire on December 31, 1992. (Affidavit of Donna F. Mulvihill dated Mar. 23, 2000, Ex. L ¶ II.) However, on June 23, 1992, Caterpillar and JOAL entered into a new agreement with effective dates from July 1, 1992 to December 31, 1995. (Id., Ex. K.) Caterpillar allegedly received royalty payments from JOAL through December 1996. (Pl.'s Mem. Sec. Claim at 12; Ex. B to Anson Decl.) Under Caterpillar's definition, MTC would receive — and did receive — payments through June 30, 1992; under MTC's definition, payments would continue through December 1996. A third reading, which can be gleaned from plaintiffs submissions, is that MTC would only receive payments until the expiration date of the new or extended agreement, and not for royalty payments made later to Caterpillar. (Letter from Peter Wagner to Bruce Wiegand dated June 25, 1992, Ex. D to First Mulvihill Aff.; Letter from William A. Shue to David Hoffman dated Aug. 20, 1992, Affidavit of Lynn E. Judell dated May 23, 2000 ("Second Judell Aff."), Ex. H.) Under this reading, MTC would receive a percentage of JOAL payments up to and including December 31, 1995.
In order to determine when MTC's right to share in royalty payments ended, this Court must construe the meaning of the terms "termination" and "expiration" under the LPA. While the words appear clear on their face, an examination of these terms in the context of the Agreement as a whole, as well as relevant extrinsic evidence, indicates that there are material issues of fact regarding their meaning that preclude summary judgment against MTC. The "ordinary and natural meaning" of these terms varies in contractual settings based on the context in which they are applied. In the context of the LPA as a whole, the terms "termination" and "expiration" are ambiguous as they are "capable of being understood in more sense than one." See Farm Credit Bank, supra, 144 Ill.2d at 447. In particular, it is not clear whether such "termination" or "expiration" referenced only the original term of the original agreement, or whether succeeding terms and/or agreements would be covered. Neither "termination" nor "expiration" are defined in the Agreement; nor do the paragraphs discussing them give the Court reason to infer their meaning. Moreover, the first section of paragraph 4, by providing for the payment of royalties for agreements not negotiated by MTC, suggests the possibility of payments for agreements that were renewed or extended. (LPA ¶ 4.)
Moreover, the submissions of the parties, and in particular the references to extrinsic evidence, demonstrate that there are significant issues of fact related to the length of time over which royalty payments were to be payable. First, the task of determining the correct definition of "termination" or "expiration" under the LPA is complicated by the multiple forms of extensions that occurred. In particular, the record reflects that license agreements were (i) extended by execution of an amendment to the agreement, (ii) amended or renewed by the licensee's exercise of an option to extend, (iii) extended by execution of a new agreement prior to the expiration of the original agreement, and (iv) extended by the execution of a new agreement immediately upon expiration of the original agreement. (Pl.'s Mem. Sec. Claim at 7-14; Pl.'s Suppl. Mem. at 13-15; Anson Decl. ¶ 26; Cat. Mem. Sec. Claim at 7-14.) It is unclear how each form of transaction would fit, if at all, within the definition of "termination" or "expiration." In adjudicating a motion for summary judgment as to a contract claim, "it is improper for the court to speculate in order to determine the parties' intent."Farm Credit Bank, supra, 144 Ill.2d at 448.
Under Illinois law, a court may examine extrinsic evidence to assess whether a contract is ambiguous. See, e.g., Ahsan v. Eagle, 287 Ill. App.3d 788, 790-91 (3d Dist. 1997); Riney v. Weiss Neuman Shoe Co., 217 Il.App.3d 435, 442 (3d Dist. 1991);Zale Constr. Co. v. Hoffman, 145 Ill. App.3d 235, 241 (5th Dist. 1986); URS Corp. v. Ash, 101 Ill. App.3d 229, 235 (4th Dist. 1981). Moreover, evidence of "trade usage," or meanings that members of the trade would attach to apparently clear words, phrases or sentences, is admissible to interpret a seemingly clear contract. See Bristow v. Drake St., Inc., 41 F.3d 345, 352 (7th Cir. 1994).
Second, the record reflects a complex history of negotiations and communications between the parties on the issue of how long Caterpillar was obligated to render royalty payments. The draft provisions of the LPA, cited by Caterpillar in its motion papers, reveal a disagreement between the parties concerning the length of payments, which led to the ultimate ambiguity on this point in the final draft. (Cat. Mem. Sec. Claim at 8-11; Wiegand Decl. ¶ 8, Exs. C, D.) The communications between the parties after the formation of the contract, which are less probative of the meaning of its provisions, reveal that the individuals who negotiated the LPA and/or assisted in its drafting, never achieved a meeting of the minds on the length of the payments. (Pl.'s Suppl. Mem. at 3-6.)
Although MTC's initial preference was for language indicating that it would share in royalties until licensees stopped paying them, ultimately the parties agreed to language limiting the period during which MTC could receive royalties, namely, the "termination" or "expiration" of the underlying agreement. But the extent of this limit cannot clearly be determined from the terms of the contract, or from extrinsic evidence.
Third, plaintiff has presented evidence of custom and practice in the licensing industry during the 1980s; this evidence, based on the deposition testimony of one of the negotiators of the LPA, raises questions of fact with regard to the understanding of the parties at the time they contracted as to how long royalty payments would continue. (Id. at 8-9.)
Fourth, the testimony of certain Caterpillar executives, (Id. at 10-13), in conjunction with other evidence submitted to the Court by both parties, indicates that Caterpillar has adopted inconsistent positions with regard to the nature of "terminations" or "extensions." In particular, Caterpillar appears to have taken the position that MTC was entitled to a share of royalties (i) through the original expiration date of the license agreement, (Letter from Bruce Wiegand to Peter Wagner, Ex. E to Second Judell Aff.), (ii) through the date the license agreement was terminated, without allowance for extensions, (Defendant's Response to Plaintiffs May 23, 2000 Supplemental Memorandum of Law ("Cat. Suppl. Mem.") at 7-8, discussing IMC and JOAL), (iii) through the date of the last extension or amendment provided under the contract, (Cat. Interoffice Mem., discussing Canteen, Entertec, Geiger, Louisville, Sigma, Voyager, and Wagners; Cat. Mem. Fur. Supp. Sec. Claim at 9-14, discussing NZG Modelle, Tonkin, Sales Guides/Norscot, and Conrad; Deposition of David Hoffman, Ex. C to First Judell Aff. at 79-82, discussing Stateside; Deposition of Bruce Wiegand ("Wiegand Dep."), Ex. K to First Judell Aff. at 86-88, discussing Conrad), (iv) through the new expiration date where Caterpillar and a licensee entered into a new agreement prior to the termination of the original agreement, (Wiegand Dep. at 95-99, discussing IMC), and (v) for a period after the agreement is terminated, even if there are no renewals or extensions, (Cat. Mem. Fur. Supp. Sec. Claim at 13-14, discussing Conrad.)
Even were the Court to adopt Caterpillar's suggested definition of "termination" or "expiration" as a matter of law, summary judgment would not be appropriate on MTC's second claim. While Caterpillar asserts that it has rendered to MTC all payments owed under the license agreements before their "termination," MTC's submissions raise issues of fact as to whether Caterpillar would still be liable under its own definition. MTC's motion papers, and the declaration submitted in support of those papers, present evidence of this derogation with respect to agreements between Caterpillar and certain licensees. (Pl.'s Mem. Sec. Claim at 8-14; Anson Decl. ¶¶ 12, 13 (first sentence), 14-16, 17 (first sentence).) Caterpillar's responses merely confirm such issues of fact. (See Cat. Mem. Fur. Supp. Sec. Claim at 8; Cat. Suppl. Mem. at 7-8 n. 4, discussing payments to IMC during 1992-93.) MTC's claim requires further examination of each of the agreements under which it claims it is owed money, including the contract documents, the summaries of Caterpillar's royalty records, and the quarterly reports and payments from Caterpillar to MTC. (Pl.'s Mem. Sec. Claim at 7; Anson Decl. ¶ 11.) Accordingly, the Court declines to grant Caterpillar's motion for partial summary judgment as to MTC's second claim.
III. Conclusion
For the foregoing reasons, MTC's motion for partial summary judgment as to its first claim is granted, and Caterpillar's motions for partial summary judgment as to MTC's first and second claims are denied. The parties shall submit affidavits with regard to damages related to MTC's first claim as provided by this Opinion.
SO ORDERED.