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Jacked Up, L.L.C. v. Sara Lee Corp.

United States Court of Appeals, Fifth Circuit

April 25, 2017

JACKED UP, L.L.C., Plaintiff-Appellant,
v.
SARA LEE CORPORATION; THE J.M. SMUCKER COMPANY, Defendants-Appellees. JACKED UP, L.L.C., Plaintiff-Appellant,
v.
THE J.M. SMUCKER COMPANY, Defendant-Appellee.

         Appeals from the United States District Court for the Northern District of Texas

          Before PRADO, HIGGINSON, and COSTA, Circuit Judges.

          EDWARD C. PRADO, Circuit Judge:

         In September 2011, Jacked Up, L.L.C. ("Jacked Up") and Sara Lee Corporation ("Sara Lee") signed a licensing agreement whereby Sara Lee would produce and sell energy drinks developed by Jacked Up. Shortly thereafter, Sara Lee sold its beverage division to the J.M. Smucker Company ("Smucker"). Smucker decided not to assume Sara Lee's licensing agreement with Jacked Up, and in November 2011, Sara Lee formally terminated the agreement. Jacked Up brought suit against Sara Lee, alleging breach of contract, breach of fiduciary duty, fraud, and fraudulent inducement. Jacked Up joined claims against Smucker for, among others, tortious interference with a contract and trade secret misappropriation. The district court granted summary judgment against Jacked Up on all claims. We AFFIRM in part, REVERSE in part, and REMAND for further proceedings.

         I. FACTUAL AND PROCEDURAL BACKGROUND

         In 2011, Jacked Up was a small start-up company that sold energy shots to convenience stores. Sara Lee was a large corporation with multiple well-established food and beverage brands. Jacked Up's founder and sole owner, Joe Schmitz, met some Sara Lee employees at a trade show in early 2011. Schmitz and the Sara Lee employees discussed creating a Jacked Up line of dispensed teas, coffees, and cappuccinos.[1] Sara Lee already had an "Infusia" line of vitamin-infused teas under the Pickwick brand, but these teas were not marketed as energy drinks and did not sell well. Sara Lee saw a Jacked Up line of beverages as an opportunity to enter the energy drink market and "pioneer a brand new dispensed energy beverage category."

         After several months of negotiations and product development, Jacked Up agreed to license its brand name and proprietary energy ingredients to Sara Lee in exchange for royalties. Under the terms of the licensing agreement, Jacked Up would sell its energy ingredients to Sara Lee and Sara Lee would then manufacture and sell Jacked Up products. The parties agreed to share marketing costs. In addition, the agreement called for market testing. The initial term of the licensing agreement was five years, followed by a three-year renewal term. However, the licensing agreement featured a number of termination clauses triggered by various events and dates.

         One termination provision, Section 14(b), gave either party "the right to terminate this Agreement if it provides written notice to the other party no later than 60 days prior to any anniversary of the Effective Date." Sara Lee proposed adding this termination provision while the parties were finalizing the agreement. In an email, Sara Lee referred to this provision as an "annual Termination clause" affording both parties "the ability to terminate if strategy changes or market conditions shift, etc." Jacked Up accepted the added provision, describing it as "adding limited right for either party to terminate at anniversary dates of agreement."

         During negotiations, Sara Lee also requested a change-of-control termination provision (Section 14(c)). In an email, Sara Lee director of marketing Greg Immell explained that Sara Lee wanted this provision "in the event North American Beverage[2] is purchased by a third party company." Schmitz testified that this statement led him to question Sara Lee "executives Mr. Drake and Mr. Immell about any intent to sell the North American Beverage [Division]." According to Schmitz, these executives represented that Sara Lee "had no intent to sell the business and that it was not discussing any sale to any third party. They also represented that [Schmitz] did not need to be concerned as under no circumstance would [Sara Lee sell] the business and not include the License Agreement as part of the deal." Jacked Up and Sara Lee finalized the licensing agreement around September 28, 2011, with an effective date of October 1, 2011.

         In early October 2011, shortly after the licensing agreement went into effect, Sara Lee displayed Jacked Up products at a convenience store trade show. According to Schmitz, a Sara Lee worker at the show told him about an impending sale of the company. Schmitz testified that he again asked Sara Lee executives-Immell and director of sales Jim Whitaker-whether Sara Lee was planning a sale. The executives, according to Schmitz, again represented that Sara Lee was not selling its business.

         On October 24, 2011, Sara Lee publicly announced the sale of its North American Beverage Division to Smucker; this sale closed in early 2012. According to Schmitz, Sara Lee asked him to participate in a telephone call around October 21, 2011.[3] On that call, according to Schmitz, Immell

stated that [Sara Lee] was selling its coffee business to Smuckers, that the License Agreement would not be part of the [sale] to Smuckers, that [Sara Lee] was terminating the License Agreement immediately at Smuckers' request, that [Sara Lee] would no longer perform any obligations under the agreement, and that [Sara Lee] was discontinuing the Jacked Up Energy Iced Teas, Coffees, and Cappuccinos.

         Schmitz testified that had he known of Sara Lee's impending sale to Smucker, he would not have signed the agreement and would not have launched Jacked Up products at the convenience store trade show.

         Immell recounted the late October telephone call somewhat differently. According to Immell, he did tell Schmitz that Smucker would not assume the licensing agreement.[4] But he also indicated that "Sara Lee was interested in pushing forward with the proposed dispensed energy iced tea product pursuant to the License Agreement, including by pursuing the required market testing to see how a Jacked Up branded dispensed energy iced tea would fare in the marketplace." Schmitz refused to move forward with market testing, however. Thus, according to Immell's account, it was Jacked Up that violated the agreement first.

         In any event, the deal quickly broke down. An internal Sara Lee email dated October 26, 2011, suggests that Sara Lee had told Jacked Up by then that the licensing agreement would not come to fruition. An email from Sara Lee to Schmitz on November 4, 2011, further states that "Jacked Up Energy Tea is not part of [the] sale and will be discontinued." Sara Lee formally terminated the licensing agreement by letter on November 18, 2011.

         As quickly as the licensing agreement broke down, it wound up in court. Jacked Up brought a breach of contract claim against Sara Lee in Texas state court on November 7, 2011-before Sara Lee even sent its formal termination letter. After Sara Lee removed the case to federal court, Jacked Up added Smucker as a defendant, claiming that Smucker tortiously interfered with the licensing agreement. Jacked Up later added claims for breach of fiduciary duty, fraud, and fraudulent inducement against Sara Lee, as well as a claim for common law trade secret misappropriation against Smucker. Jacked Up based this trade secret claim on the allegation that Smucker has used Jacked Up formulas in its Pickwick-brand iced teas (a brand it purchased from Sara Lee).

         After discovery, all three parties moved for summary judgment. In connection with these motions, the parties moved to strike certain summary judgment evidence. Jacked Up also requested a continuance pursuant to Federal Rule of Civil Procedure 56(d) in response to Smucker's summary judgment motion, claiming that Smucker had not yet revealed what formula it was using in its teas. The district court granted Sara Lee's and Smucker's motions for summary judgment on various grounds, denied the motions to strike as moot, and denied Jacked Up's 56(d) request for a continuance. The district court entered judgment in favor of Sara Lee and Smucker on June 4, 2015. This appeal followed.

         II. JURISDICTION AND STANDARD OF REVIEW

         Jacked Up is a limited liability company whose sole member-Joe Schmitz-is a Texas citizen. Sara Lee is a Maryland corporation with its principal place of business in Illinois. Smucker is an Ohio corporation with its principal place of business in Ohio. Therefore, the district court had diversity jurisdiction under 28 U.S.C. § 1332. This Court has appellate jurisdiction under 28 U.S.C. § 1291.

         We review de novo a district court's grant of summary judgment. Sierra Club, Lone Star Chapter v. Cedar Point Oil Co., 73 F.3d 546, 562 (5th Cir. 1996). The Court must view "the facts and inferences . . . in the light most favorable to the nonmoving party." Id. at 562-63. Summary judgment is appropriate "if 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(a). A genuine dispute of material fact exists if the "evidence is such that a reasonable jury could return a verdict for the nonmoving party." Royal v. CCC & R Tres Arboles, L.L.C., 736 F.3d 396, 400 (5th Cir. 2013) (quoting Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986)). Additionally, this Court reviews for abuse of discretion a district court's denial of a Rule 56(d) motion for a continuance. Am. Family Life Assurance Co. of Columbus v. Biles, 714 F.3d 887, 894 (5th Cir. 2013).

         III. DISCUSSION

         On appeal, Jacked Up argues that issues of fact preclude summary judgment on its breach of contract, breach of fiduciary duty, fraud, and fraudulent inducement claims against Sara Lee, as well as its tortious interference and trade secret claims against Smucker.

         A. Claims Against Sara Lee

         1. Breach of Contract

         The district court concluded that Sara Lee terminated the contract in accordance with Section 14(b)'s plain language. Jacked Up challenges the district court's interpretation of Section 14(b), insisting that this provision is ambiguous. In response, Sara Lee defends the district court's interpretation of Section 14(b), and further argues that even if the district court misinterpreted this termination provision, Jacked Up fails to establish a breach of contract claim.

         a. Whether the district court misinterpreted the contract

         The contractual provision at issue in this case is Section 14(b) of the licensing agreement, which states: "Either party shall have the right to terminate this Agreement if it provides written notice to the other party no later than 60 days prior to any anniversary of the Effective Date." The district court found this provision unambiguous. According to the district court, Section 14(b) permits at-will termination during a "10-month window every year." Because Sara Lee terminated the licensing agreement during one such window-i.e., more than 60 days before the first anniversary date-the court held that Sara Lee did not breach the contract.

         Jacked Up provides two alternative interpretations of Section 14(b). In its principal brief on appeal, Jacked Up argues that the word "anniversary" in Section 14(b) means the end of the initial five-year term and the end of the subsequent three-year renewal term. Jacked Up also offered this interpretation before the district court. In its reply brief, Jacked Up argues that Section 14(b) creates an annual right to opt out of the contract.[5] In other words, "if a party gives notice 60 days prior to the anniversary of the Effective Date, the License Agreement terminates at the end of that calendar year. If neither party gives notice 60 days prior to the anniversary of the Effective Date, the License Agreement extends to another year."

         The parties agree that Illinois law controls the breach of contract claim. Under Illinois law, "[t]he primary objective in construing a contract is to give effect to the intent of the parties." Gallagher v. Lenart, 874 N.E.2d 43, 58 (Ill. 2007). A contract "is to be construed as a whole, giving effect to every provision, if possible." Cent. Ill. Light Co. v. Home Ins. Co., 821 N.E.2d 206, 213 (Ill. 2004). If words in the contract "are clear and unambiguous, they must be given their plain, ordinary, and popular meaning." Id. "But if the contract is ambiguous, 'its construction is then a question of fact, and parol evidence is admissible to explain and ascertain what the parties intended.'" Curia v. Nelson, 587 F.3d 824, 829 (7th Cir. 2009) (quoting Farm Credit Bank of St. Louis v. Whitlock, 581 N.E.2d 664, 667 (Ill. 1991)). Contractual language is ambiguous if it "is susceptible to more than one meaning." Gallagher, 874 N.E.2d at 58. Whether a contract is ambiguous is a question of law. Quake Constr., Inc. v. Am. Airlines, Inc., 565 N.E.2d 990, 994 (Ill. 1990).

         As an initial matter, the first interpretation offered by Jacked Up-that Section 14(b) only permits termination at the ends of the initial and renewal terms-is unreasonable. This interpretation ignores the clear and unambiguous meaning of "anniversary": "the yearly recurrence of the date of a past event." Anniversary, Random House Webster's Unabridged Dictionary (2d ed. 2001) (emphasis added). Thus, Section 14(b) unambiguously provides an annual right of termination.

         The real interpretive question in this case is when termination is effective. Sara Lee argues, and the district court held, that termination under Section 14(b) is effective immediately. Jacked Up's second interpretation, by contrast, implies that termination is effective at the end of the year.[6] Both interpretations have some merit.

         The plain language of Section 14(b) favors Sara Lee's interpretation. Section 14(b) simply affords each party "the right to terminate . . . if it provides written notice." The provision does not state that termination is effective at some later date. The provision could ...


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