BRIGHTON COLLECTIBLES INC v. SHOES INC

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Court of Appeal, Second District, California.

BRIGHTON COLLECTIBLES, INC., Plaintiff and Appellant, v. S & J SHOES, INC., et al., Defendants and Respondents.

B224310, B226866

Decided: October 28, 2011

Law Offices of Gary Freedman, Gary Freedman;  Sussman Shank and John A. Schwimmer for Plaintiff and Appellant. Howarth & Smith, Don Howarth and Padraic Glaspy for Defendants and Respondents.

NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS

Brighton Collectibles, Inc. (Brighton) appeals from a judgment entered after a court trial in which the trial court determined as a matter of law that the trademark license agreement (agreement) entered into between Brighton and S & J Shoes, Inc. (S & J), did not require S & J to keep its retail store open for the full term of the agreement and that S & J did not breach the agreement by closing its store before the full term of the agreement had ended.   Brighton contends that the agreement required S & J to keep the store open for the full term of the agreement;  the court inserted a new and additional ground for termination;  extrinsic evidence supports Brighton's interpretation of the agreement;  in the alternative, if the extrinsic evidence was disputed or involved credibility determinations, the court erred by denying Brighton a jury trial;  and Brighton was entitled to attorney fees because S & J breached the agreement or Brighton was the prevailing party.   We conclude that the court's interpretation of the license agreement was correct as a matter of law and there was no factual dispute for the jury to determine.   And S & J, as the prevailing party, was entitled to attorney fees.   We affirm the judgment.

BACKGROUND

Brighton manufactures and sells leather products using its trademarks, including the name and trademark “ ‘BRIGHTON.’ ”   S & J is a Texas corporation that operated a retail store in Dallas, Texas under the name “ ‘Brighton Collectibles by Brenda’ ” beginning in 1998 (the store).   On August 15, 2006, S & J entered into the agreement with Brighton for the nonexclusive right to use the Brighton name and trademark in connection with the store and to sell Brighton's products at the store.   The term of the agreement was from August 15, 2006 until June 30, 2008, subject to termination in the event of, among other things, insolvency by either party, breach by either party of any obligation under the agreement, failure by S & J to pay amounts due for goods sold and delivered, and the sale or transfer of any equity interest in S & J. Under the agreement, S & J had to abide by conditions concerning the appearance and design of the store, the use of the trademark, advertising, and the quality of other products sold in the store.   The agreement required that “during each year of the Term,” S & J spend at least 2 percent of its net sales to update and refurbish the store.   S & J also was required to offer for sale at all times during the term of the agreement the full range of products manufactured by Brighton and ensure that 95 percent of the dollar amount of all goods in the store and inventory be Brighton's products.   Further, S & J was required to carry insurance, comply with laws, allow for inspection of records, maintain mailing lists of its customers to be provided to Brighton on an annual basis, and not challenge Brighton's trademark.   The agreement contained an integration clause and a provision that “[t]he prevailing party in any action or dispute between [Brighton], ․ on the one hand, and [S & J], on the other hand, including but not limited to any dispute relating to or arising out of this Agreement, shall recover all of its fees and costs, including attorneys' fees and other expenses.”   In December 2006, S & J decided to close the store.   It arranged for Brighton to purchase the remaining Brighton inventory from the store.

On December 31, 2008, Brighton filed a complaint against S & J and Stephen Slaughter and Brenda Slaughter (referred to individually as Stephen and Brenda, or collectively as the Slaughters) for breach of contract alleging, among other things, that S & J had breached the agreement by closing the store before the full term of the agreement had ended;  S & J had failed to provide a copy of the store's customer mailing list to Brighton upon closing the store;  and the Slaughters, the sole shareholders, officers and directors of S & J, were the alter egos of S & J. In its complaint, Brighton sought damages in the amount of $250,000, but at trial requested $320,805.

On August 14, 2009, S & J filed a motion for summary judgment that was denied by the trial court on November 2, 2009.   At a status conference on December 17, 2009, after considering briefs submitted by the parties and hearing arguments of counsel on the issue of whether Brighton was entitled to a jury trial, the trial court held that the extrinsic evidence offered by Brighton did not raise a triable issue of fact giving rise to a jury trial.

At trial by court, Stephen testified that S & J had entered into a series of license agreements with Brighton beginning in 1998.   Stephen testified that Brighton had drafted the agreement and Stephen had not negotiated any of the terms, including the length of the agreement.   He testified that he did not have any conversations or understandings with anyone from Brighton about the terms and meanings of the agreement.   He testified that the length of the term corresponded to the scheduled expiration of the store lease.   He also testified that S & J sent customer lists to Brighton on a periodic basis, but he did not know if S & J had sent a customer list after December 2006.   Stephen testified that S & J operated two other stores in Texas and that the store was no longer profitable.   Stephen decided to close the store because S & J was having cash flow problems and the shopping center wanted to take over the store's space and offered to terminate the lease.

Stephen identified email correspondence he had received from Jerry Kohl, the president of Brighton.   One email from Kohl to Stephen dated December 17, 2006, stated:  “If you are closing the store, we will buy the merchandise at the prices listed in the License Agreement.  [¶] I still don't understand why you are closing 18 months before the License Agreement expires, especially when you signed the License Agreement just a few months ago.  [¶] We are not agreeing to an early termination of your obligations under the License Agreement.   If you explain why you want to close, MAYBE I can suggest a solution like Brighton taking over the lease and operating the store for its remaining lease.   Please let me know.”   Stephen testified that he responded to that email with the following email dated December 18, 2006:  “I read the licence [sic ] agreement again.   After closing the Brighton Collectible by Brenda store in the Dallas Galleria, we accept the offer for Brighton to buy our inventory as per the licence [sic ] agreement.”   Subsequently, Kohl sent Stephen an email that read in part:  “Given the unexplained closure of The Galleria store with 18 months remaining on the License Agreement and the obligations that you will owe us as a result of that violation of the License Agreement and that you will have only one store remaining, we do want to be realistic about the amount of credit we will extend․”  Stephen responded by email dated December 20, 2006:  “It is past that point.   We are sorry.   We tried to do this with you months ago.   We have an agreement ․ to terminate the lease.  [¶] We will close the store at the close of business December 24th, and start packing the goods after Christmas.”   The store closed on December 24, 2006.

Jeff Moran, the chief financial officer of Brighton, who was hired by Brighton in January 2007, testified that when Brighton gives a licensee the opportunity to use the Brighton name, it is “with the goal that we've got an assured customer for a defined period of time that we're going to sell products to.”   Moran, who was not an expert witness, testified that he determined the amount of damages by calculating a monthly gross profit for the 18–month term remaining on the contract based on 2006 averages for S & J. The parties agreed that a customer list had been last provided in March 2006.

The trial court read a statement of decision into the record, holding that the agreement did not require S & J to keep the store open for the full term of the agreement.   It concluded that S & J had terminated the agreement but did not breach the agreement when it did so.   In determining that S & J had terminated the agreement, the court noted that Stephen had not made a “material contradiction” to the assertions made by Kohl in his emails that S & J had terminated the agreement.   The court stated that S & J's termination of the agreement was not a breach of the agreement because there was no express obligation for S & J to stay open for the full term of the agreement “even if it is not a financially sound thing to do.”   The court determined that S & J's closure of the store was based on financial reasons.   The court noted that Brighton did not invest funds in S & J that it had to recoup.   Brighton did not advance funds to S & J for décor, conduct training of S & J personnel, or promote S & J. And Brighton did not grant an exclusive license to S & J so that Brighton was dependent on S & J to continue to sell its goods.   The court held that even assuming there had been a breach by S & J, Brighton had not proved damages because Moran had not shown that sales for the remainder of the term of the agreement would have continued at the same pace as in 2006.   The court also determined that Brighton had not proved alter ego as to the Slaughters.   The court determined that S & J had resold inventoried goods to Brighton as required under the agreement but had breached the agreement by failing to turn over the customer mailing list.   On March 8, 2010, the trial court entered a judgment in favor of the Slaughters against Brighton and in favor of Brighton against S & J for nominal damages of $1 for failing to turn over the customer list.

S  & J brought a motion for an award of attorney fees and costs as the prevailing party under the attorney fees provision of the agreement.   Brighton opposed the motion on the basis that it was the prevailing party because it had received an award of nominal damages, or, in the alternative, that there was no prevailing party.   The trial court rejected Brighton's argument and held that S & J was the prevailing party because it had prevailed on a breach of contract action in which Brighton was seeking a substantial recovery.   It awarded S & J attorney fees in the amount of $40,568 and costs in the amount of $2,807.07.

DISCUSSION

A. S & J did not breach the agreement by closing the store before the full term of the agreement

Brighton contends that the trial court incorrectly interpreted the agreement, which required S & J to keep the store open for the full term of the agreement;  extrinsic evidence supports Brighton's interpretation of the agreement;  the court failed to consider properly the circumstances surrounding the making of the agreement;  and the court inserted a new and additional ground for termination.   We disagree with Brighton's contentions.

“Any contract must be construed as a whole, with the various individual provisions interpreted together so as to give effect to all, if reasonably possible or practicable.  (Civ.Code, § 1641;  Code Civ. Proc., § 1858;  1 Witkin, Summary of Cal. Law (9th ed.   1987) Contracts, § 686, pp.   619–620.)   Courts must interpret contractual language in a manner which gives force and effect to every provision, and not in a way which renders some clauses nugatory, inoperative or meaningless.  [Citations.]  The fundamental goal of contractual interpretation is to give effect to the mutual intention of the parties.  (Civ.Code, § 1636;  [citations];  1 Witkin, Summary of Cal. Law, supra, Contracts, § 684, pp.   617–618.)   The mutual intention to which the courts give effect is determined by objective manifestations of the parties' intent, including the words used in the agreement, as well as extrinsic evidence of such objective matters as the surrounding circumstances under which the parties negotiated or entered into the contract;  the object, nature and subject matter of the contract;  and the subsequent acts and conduct of the parties.  (Civ.Code, §§ 1635–1656;  Code Civ. Proc., §§ 1859–1861, 1864;  [citations];  1 Witkin, Summary of Cal. Law, supra, Contracts, §§ 688–689, pp.   621–623.)”  (City of Atascadero v. Merrill Lynch, Pierce, Fenner & Smith, Inc. (1998) 68 Cal.App.4th 445, 473–474.)  “Our review of the trial court's interpretation of a contract generally presents a question of law for this court to determine anew.  [Citation.]”  (DVD Copy Control Assn., Inc. v. Kaleidoscope, Inc. (2009) 176 Cal.App.4th 697, 713.)

Brighton argues that the trial court erred because it did not construe together all the provisions of the agreement to give effect to every part.   It contends the court failed to reconcile the grounds for premature termination, which did not include S & J's voluntary decision to close the store, with the obligations that S & J was required to perform “ ‘at all times during the [t]erm of this [a]greement.’ ”  (Italics added.)   We disagree.   Our review of the agreement shows that it was not an agreement between S & J and Brighton to operate a store, but a licensing agreement giving S & J the nonexclusive right to use the Brighton name and trademark and to sell Brighton's products.   In return, Brighton controlled S & J's use of Brighton's trademark and products in the store and sold Brighton products to S & J for resale.   Thus, the express provisions of the agreement imposed various conditions on S & J's use of the Brighton trademark in its store design, depiction of the mark, and advertising.   It also required S & J to offer for sale the full range of Brighton's products, that at least 95 percent of the total dollar amount of the net sales at the store be Brighton products, and that S & J spend at least 2 percent of its net sales to update and refurbish the store during each year of the term.   Although the agreement provided for a term from August 15, 2006, until June 30, 2008, and specified that it was subject to early termination for various reasons, nothing in the express language of the agreement obligated S & J to keep the store open for the entire term.   Rather, we conclude that the agreement simply specified the obligations of S & J with respect to Brighton's trademarked products while the store was open.

We also disagree with Brighton's argument that S & J had an implied obligation to keep the store open based on the express provision of the agreement that S & J was required to perform “ ‘at all times during the [t]erm of this [a]greement.’ ”  (Italics added.)  “ ‘To effectuate the intent of the parties, implied covenants will be found if after examining the contract as a whole it is so obvious that the parties had no reason to state the covenant, the implication arises from the language of the agreement, and there is a legal necessity.’  [Citation.]  [¶] A contract term will be implied only where the term is ‘indispensable to effectuate the expressed intention of the parties.’   [Citation.]  A term can only be implied ‘․ upon grounds of obvious necessity.’ ”  (Ben–Zvi v. Edmar Co. (1995) 40 Cal.App.4th 468, 473.)   Here, the purpose of the agreement was to allow Brighton to protect its trademark during the time that S & J sold its product.   Thus, an implied term to keep the store open for the term of the agreement was not necessary to give effect to the expressed intentions of the parties.

Brighton also contends that extrinsic parol evidence shows that S & J breached the agreement and contradicts the interpretation that S & J was not required to keep the store open throughout the term of the agreement.   The parol evidence rule codified in Civil Code section 1625 and Code of Civil Procedure section 1856 bars extrinsic evidence of prior or contemporaneous agreements to alter, vary, or add to or directly contradict an integrated writing but does not prohibit the introduction of extrinsic evidence to explain the meaning of a written contract if the meaning urged is one to which the written contract terms are reasonably susceptible.  (Casa Herrera, Inc. v. Beydoun (2004) 32 Cal.4th 336, 343.)   Brighton argues that Stephen's failure to respond to emails sent by the president of Brighton which discussed the closing of the store and stated that S & J would owe damages for prematurely terminating the agreement was extrinsic parol evidence that supports its interpretation that S & J breached the agreement by failing to perform for the entire term of the agreement.   But Stephen's failure to respond to the emails after a dispute had arisen does not explain the meaning of any of the terms of the agreement and certainly does not stand for the proposition that S & J had no right to terminate the agreement.  (Heston v. Farmers Ins. Group (1984) 160 Cal.App.3d 402, 413 [“While evidence of the actions of the parties subsequent to an inquiry because of an ambiguous contract may be considered in interpreting an agreement, this allowance is qualified by a restriction that the actions to be considered occur before a dispute has arisen.”].) At most, as the trial court determined, Stephen's silence was an admission of termination, but not an admission of breach of the agreement.  (Gilbert v. City of Los Angele s (1967) 249 Cal.App.2d 1006, 1009 [an admission by silence occurs under circumstances that would ordinarily evoke a response, such as an accusation of crime, negligence, or wrongdoing].)

Brighton further urges that the trial court failed to consider properly the circumstances surrounding the making of the agreement, including the object, nature, and subject matter of the writing that it must do in order to place itself in the same situation in which the parties found themselves at the time of contracting.  (Gribaldo, Jacobs, Jones & Associates v. Agrippina Versicherunges A.G. (1970) 3 Cal.3d 434, 443.)   We disagree.   The record shows that the court took into account the circumstances surrounding the making of the agreement.   The court noted that Brighton did not grant an exclusive license to S & J over its trademark.   Thus, while under an exclusive license agreement, Brighton might have been “dependent on [S & J] to continue to sell the goods so that [Brighton] could recoup the costs it could have invested in [S & J's] operation,” under the nonexclusive license agreement, Brighton was not so dependent on S & J. And the court noted that S & J, as a nonexclusive licensee, would receive no reasonable benefit in obligating itself to keep the store open for the term of the agreement.   Nor, as the court noted, did Brighton advance funds to S & J, which might imply the requirement of a minimum term for Brighton to recoup its costs.   And the agreement did not specify a minimum purchase amount by S & J.

Still, Brighton urges that the trial court incorrectly assessed the circumstances in concluding that S & J had not breached the agreement, because Moran testified that Brighton benefited by obtaining an assured customer for the entire term of the agreement;  the term of the agreement corresponded to the term of the store lease;  the Brighton trademark was valuable and helped attract customers;  and S & J did not pay anything to Brighton for the right to use the Brighton trademark in the name.   But Moran's testimony is not evidence of an objective manifestation of Brighton's intent at the time it entered into the agreement.   Also, in concluding that S & J had not breached the agreement, the trial court took into consideration Stephen's testimony that Brighton had drafted the agreement, Stephen had not negotiated the term of the lease with Brighton, and Stephen had no conversations or understandings with anyone from Brighton about the meaning or terms of the agreement.   And as stated, the court also assessed the benefit to each party of entering into the agreement.   We do not agree with Brighton's further argument that the court improperly inserted a new ground for termination into the agreement by concluding that S & J did not have an obligation to keep the store open “ ‘if it is not a financially sound thing to do.’ ”   Rather, the court stated that “the contract does not impose an express obligation on [S & J] to stay open, even if it is not a financially sound thing to do.”

Thus, the court's interpretation was properly based on S & J's and Brighton's objective intent, the words used in the agreement, and the extrinsic evidence of the surrounding circumstances under which S & J negotiated or entered into the contract, including S & J's intent to operate a profitable enterprise.   (City of Atascadero v. Merrill Lynch, Pierce, Fenner & Smith, Inc., supra, 68 Cal.App.4th at p. 474.)   In sum, the agreement did not expressly or impliedly require S & J to keep the store open for the full term of the agreement, and “[w]e may not ‘create for the parties a contract which they did not make, and ․ cannot insert in the contract language which one of the parties now wishes were there.’  [Citation.]”  (Ben–Zvi v. Edmar Co., supra, 40 Cal.App.4th at p. 473.)

B. The trial court did not err in denying Brighton a jury trial with respect to the issues of breach and of damages

Brighton further contends that, assuming the extrinsic evidence presented by Brighton at trial was disputed or involved credibility determinations, Brighton was entitled to a jury trial on the issue of breach and damages.   We disagree and conclude that Brighton was not entitled to a jury trial.

Citing City of Hope National Medical Center v. Genentech, Inc. (2008) 43 Cal.4th 375 at page 395 for the proposition that the jury may interpret an agreement when construction turns on the credibility of extrinsic evidence, Brighton contends that Stephen's admission by silence, S & J's financial soundness, and evidence of damages were disputed issues for the jury.   We disagree.   Stephen's failure to respond to Kohl's e-mails and Stephen's testimony about S & J's financial state were not disputed issues at trial.   Accordingly, the trial court did not err in denying Brighton a jury trial.   In light of our conclusion that the trial court did not err in determining that S & J did not breach the agreement, the issue of damages is moot.   We therefore reject Brighton's argument that the court wrongfully denied Brighton a jury trial with respect to the issue of damages.

C. The trial court did not abuse its discretion in awarding attorney fees to S & J

Brighton contends that the trial court abused its discretion by granting attorney fees in the amount of $40,568 and costs in the amount of $2,807.07 to S & J as the prevailing party because even though Brighton did not recover all the damages that it sought, the court found S & J had breached the agreement by failing to provide a current customer list after the agreement had been terminated and awarded Brighton a net judgment of $1. We disagree.

Civil Code section 1717, subdivision (a) provides:  “In any action on a contract, where the contract specifically provides that attorney's fees and costs, which are incurred to enforce that contract, shall be awarded either to one of the parties or to the prevailing party, then the party who is determined to be the party prevailing on the contract, whether he or she is the party specified in the contract or not, shall be entitled to reasonable attorney's fees in addition to other costs.”   A party that completely prevails on or defeats all contract claims is entitled to reasonable attorney fees as the prevailing party.  (Scott Co. v. Blount, Inc. (1999) 20 Cal.4th 1103, 1109.)  “If neither party achieves a complete victory on all the contract claims, it is within the discretion of the trial court to determine which party prevailed on the contract or whether, on balance, neither party prevailed sufficiently to justify an award of attorney fees.  ‘[I]n deciding whether there is a “party prevailing on the contract,” the trial court is to compare the relief awarded on the contract claim or claims with the parties' demands on those same claims and their litigation objectives as disclosed by the pleadings, trial briefs, opening statements, and similar sources.’   [Citation.]”  (Ibid. [trial court did not abuse discretion in concluding that plaintiff prevailed for purposes of Civil Code section 1717 where it did not achieve all its litigation objectives but only succeeded in establishing $440,000 out of $2 million in damages].)

On appeal, Brighton challenges the fact of the award, not the amount of the award.   We conclude that the trial court did not abuse its discretion in making its award.   Brighton failed to prove S & J had breached the agreement for closing the store before the full term of the agreement had expired and therefore was unable to prevail on its claim for $320,805 in damages.   Brighton's award of nominal damages of $1 for S & J's failure to turn over customer lists does not outweigh that S & J had achieved its major litigation objectives by prevailing on the $320,805 breach of contract claim.

We conclude the trial court did not abuse its discretion in determining that S & J was the prevailing party.

DISPOSITION

The judgment is affirmed.   S & J Shoes, Inc., and the Slaughters are entitled to costs on appeal.

NOT TO BE PUBLISHED.

We concur:

CHANEY, J. JOHNSON, J.