United States Court of Appeals,
Eleventh Circuit.
No. 93-9077.
ORIGINAL APPALACHIAN ARTWORKS, INC., a Georgia Corporation,
Plaintiff-Counter-Defendant, Appellee,
Schlaifer Nance & Company, Inc., Intervenor-Plaintiff,
v.
S. DIAMOND ASSOCIATES, INC., an Illinois Corporation, Defendant-
Counter-Claimant, Appellant.
Jan. 25, 1995.
Appeal from the United States District Court for the Northern
District of Georgia. (No. 1:87-cv-183-JTC), Jack T. Camp, Judge.
Before EDMONDSON and CARNES, Circuit Judges, and HENDERSON, Senior
Circuit Judge.
PER CURIAM:
S. Diamond Associates, Inc. ("Diamond") appeals from the
judgment of the United States District Court for the Northern
District of Georgia in this action brought by Original Appalachian
Artworks, Inc. ("OAA") seeking a declaratory judgment that Diamond
was not entitled to recover a portion of the proceeds of a
settlement agreement made between OAA and Topps Chewing Gum, Inc.
("Topps"). For the reasons set forth below, we affirm.
I. BACKGROUND
This is the second appearance of this case in our court after
an earlier remand to the district court. See Original Appalachian
Artworks, Inc. v. S. Diamond Assocs., Inc., 911 F.2d 1548 (11th
Cir.1990) ("OAA I "). The relevant facts are as follows.
OAA owns the copyright registration and trademark for the
Cabbage Patch Kids, soft sculptures designed by Xavier Roberts,
which made their debut in 1980 as the "Little People from Babyland
General." OAA's principal licensee, Coleco Industries, began mass
1
marketing Cabbage Patch Kids dolls in 1983. Also in 1983, OAA
entered into a licensing agreement with Diamond through OAA's
exclusive licensing agent, Schlaifer Nance & Co., Inc., to
manufacture and sell certain puffy sticker products related to its
dolls.2 The contract gave Diamond an "exclusive license to utilize
the name, character, symbol, design, likeness and visual
representation" of Cabbage Patch Kids, "solely and only in
connection with the manufacture, distribution and sale of the
article or articl[es] specified in Schedule "B.' " (Plaintiff's
Trial Exhibit 1, ¶ 1). Schedule "B" stated:
Schedule "B" LICENSED PRODUCTS
1. Self adhesive character and/or logo stickers as follows ...
ACCESSORIES MAY BE INCLUDED THAT DO NOT CONFLICT WITH
COLOR FORMS.
a. puffy vinyl stickers
b. "color-me" fuzzy stickers with accessory markers
c. puffy, scratch 'n sniff stickers
1
OAA's president, Della Tolhurst, testified at the trial in
this case that the sculptures were never referred to as dolls
within OAA, but as "kids" or "babies." (R12-76). She described
the "Little People" as "unique individuals, very huggable, soft,
lovable, very wholesome products." (Id.). The Cabbage Patch
Kids manufactured and marketed by Coleco Industries were
mass-produced in the Far East, had vinyl heads and initially
carried a wholesale price of $18.00. OAA continued to make and
distribute hand stitched "dolls" with fabric heads, which sold in
the gift market for $125.00 or more. Both products came with
birth certificates and adoption papers. (Id. at 80).
2
Tolhurst testified that at the height of the Cabbage Patch
Kids' popularity, OAA had approximately 127 licensees who
marketed hundreds of different related products. (R12-84).
d. flat, scratch 'n sniff stickers on cards or rolls
2. Waxed-page sticker collection book
3. Waxed-page sticker baby book in book form.
(Id. at Schedule "B"). Under the terms of the agreement, OAA
retained exclusive rights to the goodwill associated with the
Cabbage Patch name. (Id. at ¶ 11). The contract also reserved for
OAA "the sole right to determine whether or not any action shall be
taken on account of any infringements or imitations" of the
licensed products and prohibited Diamond from taking any such
action without first obtaining OAA's written consent. ( Id. at ¶
7(a)).
In 1985, Topps began distributing a sticker type of bubble gum
trading card under a trademark it obtained for Garbage Pail Kids.
See Original Appalachian Artworks, Inc. v. Topps Chewing Gum, Inc.,
642 F.Supp. 1031, 1032 (N.D.Ga.1986) ("Topps "). The stickers
"derisively depict dolls with features similar to Cabbage Patch
Kids dolls in rude, violent and frequently noxious settings." Id.;
see also OAA I, 911 F.2d at 1549 (describing Garbage Pail Kids as
"strikingly similar to the Cabbage Patch Kids, but depicted in less
than flattering situations"). In response, OAA filed a lawsuit
against Topps for copyright and trademark infringement and unfair
competition, in which it successfully sought the right to a
preliminary injunction against Topps. See Topps, supra. 3 Later,
3
Although OAA prevailed on its motion for a preliminary
injunction, an injunction never issued because OAA did not make
the necessary application. OAA states in its brief on appeal
that it could not post the anticipated multi-million dollar bond
required and instead, it asked for an expedited trial on the
merits.
in settlement of the litigation, Topps agreed to pay OAA seven
million dollars in damages. In return, OAA agreed that it would
not authorize any of its licensees, including Diamond, to sue Topps
for copyright or trademark infringement connected with the Garbage
Pail Kids. After learning of the settlement, but prior to the
dismissal of the case, Diamond moved to intervene on the ground
that it too had suffered damages from Topps' conduct. The district
court denied Diamond's motion. See OAA I, 911 F.2d at 1549.
OAA subsequently filed this action founded upon diversity of
citizenship, 28 U.S.C. § 1332, seeking a declaratory judgment that
Diamond had no right to share in the settlement proceeds. Diamond
filed a counterclaim, alleging that it suffered economic injury
from the marketing of the Garbage Pail Kids cards and that OAA had
a fiduciary duty under its licensing agreement with Diamond to
protect Diamond's interests as a licensee. Diamond sought to have
the court impose a constructive or resulting trust or an equitable
lien on the settlement funds and for an accounting to determine the
amount of the damages to which it was entitled. Both parties moved
for summary judgment. The district court granted judgment to OAA
holding that (1) Diamond had no right to compensation under the
licensing agreement because the contract reserved to OAA the
exclusive right of suing infringers; and (2) OAA's settlement with
Topps constituted a recovery solely for the damage caused to the
goodwill associated with the Cabbage Patch Kids name, which was the
sole property of OAA, and did not reflect any decrease in licensing
revenues received from Diamond as a result of the marketing of
Garbage Pail Kids (i.e., it did not diminish Diamond's sales).
(R5-90 at 7-10); see also OAA I, 911 F.2d at 1550.
Diamond appealed. A panel of this court reversed, finding
that Diamond had two possible grounds for recovering a portion of
the settlement proceeds which the district court failed to
consider. First, Diamond could recover the amount that represented
"damages for Topps' appropriation of Diamond's exclusive license."
OAA I, 911 F.2d at 1552. The court observed that "Diamond's
licensing agreement expressly gave it the exclusive right to
manufacture Cabbage Patch stickers. If, in marketing its Garbage
Pail Kids stickers, Topps appropriated Diamond's exclusive license
to manufacture stickers, then Diamond is entitled to the proportion
of the settlement representing that appropriation." Id. Second,
Diamond could recover
the proportion of the settlement representing Diamond's
injuries as a result of Topps' sales, even if that injury did
not relate to a right that the licensing agreement expressly
granted to Diamond. OAA has a fiduciary obligation not to
allow its own copyright to be used to the detriment of its
licensees. Thus, if Diamond was injured by Topps'
conduct—even if that conduct did not constitute an
appropriation of Diamond's exclusive license—Diamond is
entitled to the proportion of the settlement representing that
injury. The present case, therefore, turns on a single issue:
did Diamond suffer injury as a result of Topps' conduct? If
so, Diamond is entitled to a proportion of the settlement
whether or not Topps' conduct constituted an appropriation of
Diamond's exclusive license.
Id. (emphasis added).
The panel also held that the district court's grant of summary
judgment to OAA could not be affirmed on the alternative basis that
there was no genuine issue of material fact with respect to whether
Diamond had been injured by Topps' conduct. Id. The court stated
that
[i]n bringing its infringement action against Topps, OAA
heavily relied on the injury suffered by Diamond to support
its claim for injunctive relief and damages. For example,
OAA's proposed findings of fact and conclusions of law in the
Topps case emphasizes throughout that Topps stickers directly
competed with Diamond's stickers. As the transcript of the
preliminary injunction hearing also demonstrates, OAA based
its case in large part on the similarity between the Topps and
Diamond stickers. Additionally, OAA had begun to prepare
Diamond's owner to testify at trial in the Topps case
regarding the company's injuries. In effect, therefore, OAA
has conceded that Diamond suffered injury as a result of the
direct competition between Topps' stickers and Diamond's own
stickers. At the very least, that concession raises a genuine
issue of material fact.
Id. at 1552-53 (footnotes omitted); see also id. at 1552 n. 4 and
1553 n. 5.
The case was therefore remanded to the district court to
determine "whether, and to what extent, Diamond suffered injury as
a result of Topps' conduct." Id. at 1553.
On remand, the district court conducted a bench trial. In its
findings of fact and conclusions of law, it first considered the
scope of Diamond's exclusive license. The court found that the
licensing agreement unambiguously granted to Diamond the exclusive
right to market the items listed in Schedule "B"; thus, Diamond's
license extended only to the specific types of stickers listed in
Schedule "B" rather than to the whole category of stickers. The
court noted that even if the contract were ambiguous it would still
conclude, on the basis of the evidence demonstrating the parties'
intent, that Diamond had only a limited item license which did not
extend to the type of bubble gum trading card stickers marketed by
Topps. Consequently, the court ruled that Topps did not
appropriate Diamond's exclusive license.
In accordance with this court's directive, the district court
then determined whether Diamond had been damaged even though Topps'
conduct did not constitute an appropriation of Diamond's license.
In its consideration of this issue, the court found that Diamond
failed to carry its burden of proof and that the evidence
introduced at the trial demonstrated there was no direct
competition between Topps' Garbage Pail Kids stickers and Diamond's
Cabbage Patch Kids stickers. The court rejected Diamond's reliance
on the position take by OAA in the Topps case as proof that it had
been damaged. The court stated that OAA's proposed findings of
fact and conclusion of law submitted at the preliminary injunction
stage of that litigation
were based on limited discovery and reflected positions taken
by counsel at that time rather than facts supported by the
evidence. According to Mr. Nodine, OAA's counsel in the Topps
case, the [proposed] findings of fact and conclusions of law
demonstrated counsel's positions at the time, many of which
were later abandoned based on further discovery and counsel's
evaluation of evidence that could not be proven at trial.
Thus, the testimony of Roger Schlaifer [OAA's licensing agent]
and the proposed findings of fact and conclusions of law at
the preliminary injunction hearing must be given the weight
the circumstances justify. The court notes that with regard
to Mr. Schlaifer, the parties failed to call him as a witness
in this case, and they did not refer to any deposition taken
of Mr. Schlaifer in this case. Instead, the parties referred
to Mr. Schlaifer's previous testimony in the transcript of the
Topps preliminary injunction proceeding.
....
... The arguments of counsel during the preliminary
stages of the Topps case were taken for purposes of advocacy
and, as Mr. Nodine testified in this case, OAA was unable to
support this position with evidence. Although Mr. Nodine
admits that he received an affidavit of Mr. Eber of Hallmark
for the Topps case to the effect that the stickers competed,
this was the only evidence of competition between Garbage Pail
Kids and puffy vinyl stickers that OAA had in that case. Mr.
Nodine testified during this trial that as a result of this
lack of evidence of direct competition OAA changed the trial
strategy in the Topps case to represent the damage that the
Garbage Pail Kids had on OAA's good will and the Cabbage Patch
Kids' image. Thus, Mr. Nodine testified that OAA's position
at the preliminary stages of the Topps case became untenable,
and the emphasis of the Topps litigation was changed to focus
on the damage to OAA's good will. The great weight of the
evidence at this trial has shown that there was no direct
competition.
(R9-150 at 9-10, 13-14).
After summarizing the evidence introduced at the trial
relating to the sticker market in general, the demand for Cabbage
Patch Kids products versus Garbage Pail Kids products and Diamond's
sales during the relevant period of time, the court concluded that
Diamond failed to show any injury as a result of Topps' conduct. 4
The court additionally found that Diamond failed to prove a breach
by OAA of any fiduciary duty it owed to Diamond. Finally, the
court noted that, even if Diamond had proven injury, "it offered no
method to quantify that injury or to determine what proportion of
the settlement was attributable to that injury." (Id. at 16 n. 7).
The court again entered judgment in favor of OAA.
II. DISCUSSION
Diamond's principal argument on appeal is that OAA should be
held, under the doctrine of judicial estoppel, to the position it
took in the Topps litigation that Topps' Garbage Pail Kids trading
cards competed with Diamond's Cabbage Patch Kids stickers and that
Diamond was damaged by Topps' sales. "The doctrine of judicial
4
Licensing expert Jerrold Robinson testified that the puffy
vinyl sticker "craze" was fading in the latter part of 1984 and
that by late 1985 (when Topps began selling Garbage Pail Kids
trading cards), the market for this type of sticker was
completely gone. (R13-332-33). This trend was reflected by
Diamond's puffy sticker sales, which dropped dramatically in the
fourth quarter of 1984. (See R12-114; Plaintiff's Trial Exhibit
19). There was also evidence that Diamond's stickers did not
compete with Topps' stickers because the products had different
channels of trade, prices and end uses. In addition, there was
testimony that Cabbage Patch Kids appealed to younger girls,
while the hard images portrayed by the Garbage Pail Kids
attracted older boys.
estoppel "is directed against those who would attempt to manipulate
the court system through the calculated assertion of divergent
sworn positions in judicial proceedings.' " Chrysler Credit Corp.
v. Rebhan, 842 F.2d 1257, 1261 (11th Cir.1988) (quoting Johnson
Serv. Co. v. Transamerica Ins. Co., 485 F.2d 164, 175 (5th
Cir.1973)). "The doctrine is designed to prevent parties from
making a mockery of justice by inconsistent pleadings." American
Nat'l Bank of Jacksonville v. FDIC, 710 F.2d 1528, 1536 (11th
Cir.1983). We find Diamond's reliance on this concept to be
unavailing for several reasons.
Because this is a diversity case, the application of the
doctrine of judicial estoppel is governed by state law. Chrysler
Credit Corp., 842 F.2d at 1261; City of Miami Beach v. Smith, 551
F.2d 1370, 1377 n. 12 (5th Cir.1977). Diamond has not cited any
Georgia law in support of its contention that the doctrine has
relevance here. It appears from our independent research that the
Georgia courts have not expressly sanctioned this method of issue
preclusion. See, e.g., Southmark Corp. v. Trotter, Smith & Jacobs,
212 Ga.App. 454, 442 S.E.2d 265, 266 (1994) (cautioning "as to the
semantical dangers which surround the term "judicial estoppel' and
similar matters of issue preclusion" and stating that the federal
common law concept of judicial estoppel used to preclude a party
from asserting a position inconsistent with one successfully
maintained in a prior judicial proceeding "has no exact equivalent
under Georgia law"), cert. denied, 1994 Ga. LEXIS 702 (Ga. May 5,
1994). It is even less certain that the Georgia courts would
embrace this notion under the particular facts of this case in
which the prior proceeding ended in a settlement. See
Konstantinidis v. Chen, 626 F.2d 933, 939 (D.C.Cir.1980) (declining
to apply judicial estoppel under District of Columbia law because
"[a] settlement neither requires nor implies any judicial
endorsement of either party's claims or theories").
We need not decide, however, whether OAA should be judicially
estopped from denying that Diamond was damaged by Topps' conduct.
The burden was on Diamond to prove how and to what extent it was
injured by Topps' distribution of the Garbage Pail Kids stickers.
Diamond could do this by (1) showing that Topps appropriated its
exclusive license, or (2) establishing that it was harmed by
Topps's activities even absent such appropriation. Diamond failed
on both counts.
We find no error in the district court's determination that
the licensing agreement between Diamond and OAA extended only to
those items listed in Schedule "B" and that Topps, on account of
this, did not invade Diamond's exclusive domain. In Georgia,
[t]he cardinal rule in the construction of contracts is to
ascertain the intention of the parties. The language which
the parties have used will be looked to for the purpose of
finding that intention, which when it is once ascertained will
prevail over all other considerations, in determining the
nature of the agreement. The question remaining is whether
(the language) of the contract creates an ambiguity which may
be explained by parol [evidence]. A word or phrase is
ambiguous when it is of uncertain meaning and may be fairly
understood in more ways than one. Language which is
unambiguous will not be construed as ambiguous based on
extrinsic circumstances. Where the language of a contract is
plain and unambiguous, no construction is required or
permissible and the terms of the contract must be given an
interpretation of ordinary significance.
Race, Inc. v. Wade Leasing, Inc., 201 Ga.App. 340, 411 S.E.2d 56,
57 (1991) (quotation marks and citations omitted) (parentheses and
emphasis in the original).
The agreement here plainly states that Diamond's license
covers the articles specified in Schedule "B." Schedule "B" lists
four types of stickers and two types of sticker books, neither of
which encompass the sticker type of bubble gum trading card
marketed by Topps. In view of the contract's unambiguous
terminology, Diamond's contentions regarding the parties' course of
dealings are irrelevant.
Because there was no invasion of Diamond's exclusive license,
it could recover a portion of the settlement proceeds only by
showing actual injury unrelated to appropriation as a result of
Topps' activities. To do so, it necessarily was required to show
some relationship between the distribution of Topps' Garbage Pail
Kids stickers and lost sales of its Cabbage Patch Kids products.
The district court's conclusion that there was no such correlation
is a finding of fact subject to the clearly erroneous standard of
review. Taylor Rental Corp. v. J.I. Case Co., 749 F.2d 1526, 1530
(11th Cir.1985) (appellate court reviews district court's
determination of damages for clear error).
The only evidence Diamond proffered on the subject of damages
was the testimony of Weston Anson, an expert in the licensing
industry. He postulated that Topps distributed the Garbage Pail
Kids merchandise pursuant to a de facto sublicense of Diamond's
exclusive license covering the whole category of stickers. He
contended, therefore, that Diamond was entitled to sublicensing
royalties, which he stated are generally split equally between the
licensor and the licensee. This theory of damages is completely
dependent upon a finding that Diamond's license extended to the
entire category of stickers, which we have determined was not the
case. Diamond produced no evidence of actual harm. The district
court's finding on the issue of damages is not clearly erroneous.
III. CONCLUSION
For the reasons stated herein, we hold that the district court
did not err in deciding the merits of this case favorably to OAA
and, accordingly, AFFIRM the court's judgment.