L-7 Designs, Inc. v. Old Navy, LLC
2011 U.S. App. LEXIS 10929
| 2d Cir. | 2011Background
- L-7 Designs (Todd Oldham) sued Old Navy for breach of a Creative Services Agreement (Sept 2007) involving TODD OLDHAM branding; Old Navy sought to launch a Branded Line with 5% royalties to L-7 under a separate licensing agreement.
- SOW/Agreement obliged Oldham to provide design services for three years for $2 million annually plus bonuses and potential royalties; a separate license was to be negotiated by Oct 1, 2008.
- Section 5 of the SOW contemplated good-faith negotiations for the Branded Line, with a separate license to be finalized; public announcement occurred Sept 21, 2007.
- From 2008–early 2009, negotiations were protracted with multiple drafts and discussions; Old Navy delayed and advanced representations allegedly false about negotiating in good faith.
- Old Navy ultimately terminated the Agreement in Feb 2009 after L-7 filed suit; District Court dismissed Counts II, IV, V and granted judgment on the pleadings, leading to this appeal.
- L-7 appeals to reinstate Counts I (wrongful termination/declaratory relief) and III (breach of contract for failure to negotiate in good faith); the appeal seeks reversal or remand for further proceedings.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Breach of contract for failure to negotiate in good faith | Old Navy dilatorily negotiated; false representations to stall; January Proposal designed to induce rejection | Old Navy engaged in good-faith negotiations with progress and no breach | Plaintiff stated a plausible claim; remand for merits on Count III |
| Wrongful termination/declaratory relief | Termination without proper cure notice violated Agreement; termination retaliatory | Termination was permissible; cure not required or futile | Count I survives; remand for further proceedings on declaratory aspects |
| Standard of review and dismissal analysis | Exhibits attached to counterclaims integral; de novo review appropriate | Judgment on the pleadings proper under 12(c) delineations | Court applied de novo review correctly; issues reinstated on remand |
| Relation between Counts III and IV (good-faith duty) | Count IV duplicative of Count III | Distinct theories; Separate breaches alleged | Count IV appropriately dismissed as redundant post-reinstatement of Count III |
| Amendment/repleading | New evidence warrants repleading bad-faith negotiation claim | Futility and previous denials foreclose amendment | District Court denial of leave to replead was erroneous but harmless given Count III reinstated |
Key Cases Cited
- Adjustrite Sys., Inc. v. GAB Bus. Servs., Inc., 145 F.3d 543 (2d Cir. 1998) (preliminary negotiation obligation under binding agreement to negotiate in good faith)
- Cortec Indus., Inc. v. Sum Holding L.P., 949 F.2d 42 (2d Cir. 1991) (necessity of translating motion into Rule 56 when information is public or integral to complaint)
- Arcadian Phosphates, Inc. v. Arcadian Corp., 884 F.2d 69 (2d Cir. 1989) (out-of-pocket costs recoverable in good-faith partial performance)
- Sira v. Morton, 380 F.3d 57 (2d Cir. 2004) (integral documents incorporated by reference or attached to complaint for Rule 12 considerations)
- Venture Assocs. Corp. v. Zenith Data Sys. Corp., 96 F.3d 275 (7th Cir. 1996) (insistence on terms beyond a proposed deal can indicate bad faith)