Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-ca8-05-02620/USCOURTS-ca8-05-02620-0/pdf.json

Nature of Suit Code: 370
Nature of Suit: Other Fraud
Cause of Action: 

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1

The Honorable David S. Doty, United States District Judge for the District of

Minnesota.

United States Court of Appeals

FOR THE EIGHTH CIRCUIT

___________

No. 05-2620

___________

The Baer Gallery, Inc., *

*

Appellant, *

* Appeal from the United States

v. * District Court for the

* District of Minnesota.

Citizen’s Scholarship Foundation *

of America, Inc., now known as *

Scholarship America, Inc., *

*

Appellee. *

___________

Submitted: February 17, 2006

Filed: June 16, 2006

___________

Before WOLLMAN, ARNOLD, and GRUENDER, Circuit Judges.

___________

WOLLMAN, Circuit Judge.

The Baer Gallery, Inc. (Baer Gallery) sued Citizens’ Scholarship Foundation,

Inc., now known as Scholarship America, Inc. (Scholarship America) for fraud and

breach of contract. The district court1

 granted summary judgment in favor of

Scholarship America, and Baer Gallery appeals. We affirm.

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I. 

Baer Gallery is owned by artist Dean Baer and exists to promote his artwork.

Following the September 11, 2001, terrorist attacks against the United States, Baer

was inspired to paint a rendering of the U.S. flag (the Image). To ensure that the

Image was used for a good cause, Baer and Baer Gallery entered into a contract with

Scholarship America (the Agreement) on May 21, 2002. Scholarship America

managed the Families of Freedom Scholarship Fund (the Fund), an educational

scholarship program benefitting dependents of the terrorist attack victims.

The Agreement provided that Baer Gallery “will guarantee a sponsorship

donation to [Scholarship America] and [the Fund] of 100% of the designated funds

. . . generated through the sale of [the Image]. This contribution will be designated

as a [Scholarship America] Sponsorship and all proceeds will be unrestricted.” App.

at 459. The Agreement allowed Baer Gallery to use certain trademarks owned by

Scholarship America in connection with the Image, but indicated that Baer Gallery

“must obtain prior written approval of all materials displaying our trademarks before

the materials are shown to the public. [Scholarship America] requires, at a minimum,

72 hours (excluding weekends and holidays) to review and approve the materials.”

Id. (emphasis in original).

After entering into this contract, Baer Gallery began to make plans to promote

the sale of prints of the Image on the first anniversary of the terrorist attacks. On

August 18, 2002, Baer Gallery sent a draft press release to Scholarship America for

approval. Scholarship America, fearful that Baer Gallery’s publicity campaign would

conflict with its own public relations goals, did not approve the press release prior to

September 11, 2002. As a result, Baer Gallery was unable to promote the Image on

the first anniversary of the terrorist attacks as it had hoped.

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In September 2002, Scholarship America informed Baer Gallery via email that

it had “a corporation interested in using the print.” As a result, Scholarship America

requested that the parties append an addendum (the Addendum) to the original

contract that would assign Baer Gallery’s copyright of the Image to Scholarship

America. After months of negotiation, the parties agreed to the Addendum in

December 2002. The Addendum provided that Scholarship America would receive

exclusive rights to the Image in exchange for sponsorship benefits. Scholarship

America, in turn, agreed that “where the Image is being used on or in connection with

a product or products, it will include in some way, shape, or form information on how

to purchase the print.” Id. at 73.

At the time the Addendum was finalized, Baer Gallery was unaware of

Scholarship America’s specific plans for the Image. Unbeknownst to Baer Gallery,

Scholarship America had been negotiating with Easy Spirit to use the Image on a

hang-tag attached to a promotional Freedom Shoe. The hang-tag referred purchasers

to Scholarship America’s website “for more information on how you can help and

how you can purchase a print of this Image.” The funds raised as a result of this

promotion with Easy Spirit were used to fund Dollars for Scholars, a different

program managed by Scholarship America.

On June 12, 2003, Baer Gallery terminated its relationship with Scholarship

America. Baer Gallery then filed this action against Scholarship America in the

district court, alleging fraud, breach of contract, unjust enrichment, promissory

estoppel, and a breach of the duty of good faith and fair dealing. The district court

granted Scholarship America’s motion for summary judgment on all claims. On

appeal, Baer Gallery argues that genuine questions of material fact exist regarding the

fraud and breach of contract allegations.

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II.

We review de novo a district court’s grant of summary judgment. Drake ex rel

Cotton v. Koss, 445 F.3d 1038, 1042 (8th Cir. 2006). Summary judgment is proper

if there are no disputed issues of material fact and the moving party is entitled to

judgment as a matter of law. Fed. R. Civ. P. 56(c); Drake, 445 F.3d at 1042. We

view the evidence and the inferences that may reasonably be drawn from the evidence

in the light most favorable to the nonmoving party. Id. We review de novo the

district court’s interpretation of Minnesota law. Id.

A. 

Baer Gallery alleges that Scholarship America made three fraudulent

representations or omissions: (1) by claiming in an email that there was “a

corporation interested in using the print,” (2) by failing to disclose the true nature of

Easy Spirit’s planned use of the Image, and (3) by failing to disclose that all proceeds

from the agreement with Easy Spirit would benefit Dollars for Scholars. 

To prevail on a claim of fraud by misrepresentation under Minnesota law, Baer

Gallery must show: (1) a false representation of a material fact, (2) made with

knowledge of the falsity or made without knowing whether the statement was true or

false, (3) made with the intention to induce appellants to act in reliance on the

statement, (4) that the representation caused Baer Gallery to act in reliance, and (5)

pecuniary damage. Am. Computer Trust Leasing v. Boerboom Int’l, Inc., 967 F.2d

1208, 1212 (8th Cir. 1992). Baer Gallery’s reliance on the representation must be

reasonable, and reliance on an implied misrepresentation is unreasonable if a written

contract provision explicitly states a fact completely contradictory to the claimed

misrepresentation. Houlihan v. Offerman & Co., 31 F.3d 692, 695-96 (8th Cir. 1994).

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Baer Gallery claims that the email stating that there was “a corporation

interested in using the print” implied that the unnamed corporation would use fullsize prints of the Image. Baer Gallery thus argues that the email–specifically, the

mention of “the print”–was a false representation that induced Baer Gallery to agree

to the Addendum. Even assuming that the email implied that the interested

corporation would use full-size prints of the Image, we conclude that the express

language of the Addendum precludes Baer Gallery from reasonably relying on such

an implication. Under the specific provisions of the Addendum, Scholarship America

could modify, adapt, and use the Image in connection with other products, but was

not free to sell the Image by itself. For example, paragraph 3 provides that

Scholarship America “may, without limitation, reproduce, distribute, publish, display,

modify, adapt, create derivative works (works consisting of editorial revisions,

elaboration, or other modifications of the Image), or otherwise use or exploit all or

part of the Image.” App. at 71. In paragraph 16, Baer Gallery agreed “to work with

[Scholarship America] on a new print layout, if necessary, to include a corporate

sponsor who wishes to use the Image on or in connection with its product.” Id. at 72.

Finally, paragraph 19 provides that “This Agreement covers use of the Image to

promote a product or products, but does not include selling the Image itself. For

example, the Image may be used on an enclosure or collateral item distributed with

(but not sold separately from) a corporate sponsor’s product. . . . Use of the Image for

any other purpose other than stated is prohibited under the Agreement.” Id. at 73.

In light of this contractual language, we conclude that Baer Gallery could not

have reasonably believed that Scholarship America agreed only to sell full-size, highquality prints. Indeed, paragraph 19 prohibited Scholarship America from selling

copies of the Image unless the Image was used as “an enclosure or collateral item

distributed with” some other product. Thus, Baer Gallery’s fraudulent

misrepresentation claim relating to the use of the word “print” must fail.

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To establish a claim of fraud by omission, Baer Gallery must show the

existence of a duty to disclose. Exeter Bancorporation, Inc. v. Kemper Sec. Group,

Inc., 58 F.3d 1306, 1314 (8th Cir. 1995). Such a duty might exist where there is a

fiduciary or confidential relationship between the parties, where disclosure is

necessary to clarify misleading information already disclosed, or where one party has

special knowledge of material facts to which the other party does not have access.

Id. If such a duty is shown, concealment is fraudulent if a party conceals a fact

material to the transaction and peculiarly within its knowledge, knowing that the

other party acts on the presumption that no such fact exists. Id.

Baer Gallery’s first allegation of fraudulent omission–the failure to disclose

that the Image would be used as a hang-tag on a shoe–fails when examined in light

of the language of the Addendum. The Addendum states that Scholarship America

has the right to modify or adapt the Image, and to use it as a collateral item used to

promote another product. We thus conclude that Scholarship America did not

conceal any material fact relating to their future use of the Image.

Baer Gallery also alleges that Scholarship America failed to disclose that the

proceeds from the deal with Easy Spirit would benefit Dollars for Scholars, not the

Fund. As the district court aptly stated, “[t]his alleged omission does not amount to

fraud because it was neither an omission nor material.” The Agreement provides that

“all proceeds [from the agreement] will be unrestricted.” App. at 459. Because Baer

Gallery had already agreed that Scholarship America was free to use the proceeds

from the Image as it saw fit, Scholarship America was under no legal duty to disclose

any specific future funding plans. Thus, Baer Gallery’s fraud claims must fail as a

matter of law. 

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B.

Baer Gallery alleges three contract breaches by Scholarship America. First,

Baer Gallery claims that the Agreement required all proceeds to go to the Fund and

that Scholarship America breached the Agreement by using proceeds to fund Dollars

for Scholars. Second, Baer Gallery claims that the Agreement required Scholarship

America to approve its promotional campaign before September 11, 2002, which

Scholarship America did not do. Third, Baer Gallery claims that the hang-tag did not

provide enough information to satisfy Scholarship America’s duty under the

Addendum to provide information on how to purchase the print.

These claims turn on disputes of contract interpretation. The construction and

effect of a contract presents a question of law, unless an ambiguity exists. Brookfield

Trade Ctrs., Inc. v. County of Ramsey, 584 N.W.2d 390, 394 (Minn. 1998). A

contract is ambiguous if its language is reasonably susceptible to more than one

interpretation. Id. In interpreting a contract, we are to give the language its plain and

ordinary meaning and to attempt to give meaning to all of the contract’s provisions.

Id.

Baer Gallery’s assertion that the Agreement required the proceeds from the

Image to benefit only the Fund is without merit. The Agreement states that “all

proceeds will be unrestricted.” App. at 459. Baer Gallery points to the reference to

the Fund in the title of the Agreement and three instances of language within the

Agreement that indicate that the Fund is to receive some financial support because

of the Agreement. These examples do not contradict the unambiguous provision

allowing Scholarship America to determine how the proceeds would be used.

Baer Gallery’s claim that the Agreement required Scholarship America to

approve its promotional campaign similarly defies the plain language of the

Agreement. The Agreement requires Baer Gallery to “obtain prior written approval

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Notwithstanding the language granting Scholarship America discretion to

withhold or delay approval, Baer Gallery argues that Scholarship America breached

the covenant of good faith and fair dealing by placing its interests ahead of Baer

Gallery’s interests. The exercise of contractually granted discretion violates the

implied covenant of good faith and fair dealing only if it is exercised unreasonably.

Team Nursing Serv., Inc. v. Evangelical Lutheran Good Samaritan Soc’y, 433 F.3d

637, 641-42 (8th Cir. 2006). We conclude that no such unreasonable exercise

occurred here.

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of all materials displaying our trademarks before the materials are shown to the

public.” Id. Baer Gallery interprets this provision to limit Scholarship America’s

freedom to withhold or delay approval. The language of the Agreement does not

support this interpretation. The clear language of the Agreement gives Scholarship

America the discretion to either approve or withhold approval, and Scholarship

America did not breach the Agreement when it did not approve the press release prior

to September 11, 2002.2

Finally, Baer Gallery alleges Scholarship America breached paragraph 19 of

the Addendum, which requires that “[i]n all instances, where the Image is being used

on or in connection with a product or products, it will include in some way, shape, or

form information on how to purchase the print.” The hang-tag contained the

following language: “Please visit www.scholarshipamerica.org for more information

on how you can help and how you can purchase a print of this image.” It is

undisputed that the Scholarship America website provided interested buyers with a

link to a Baer Gallery website at which they could purchase the print. Baer Gallery

argues, however, that this was a less than optimal method of directing potential

buyers to their website. That may be true, but the contract only requires that the

information be provided in “some way, shape, or form.” According to the undisputed

facts, Scholarship America did not breach the plain language of this contractual

provision. 

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The judgment is affirmed.

______________________________

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