Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-casd-3_15-cv-01831/USCOURTS-casd-3_15-cv-01831-6/pdf.json

Nature of Suit Code: 840
Nature of Suit: Trademark
Cause of Action: 15:1125la Trademark Infringement (Lanham Act)

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•"·' lCUNITED STATES DISTRICT COURT 

SOUTHERN DISTRICT OF CALIFORNIA 

LEADERSHIP STUDIES INC., CASE NO. l 5-cv-1831-WQH-MDD 

Plaintiff, ORDER 

v. 

BLANCHARD TRAINING AND 

DEVELOPMENT 

IN CORPORA TED, and Does 1-10 

inclusive, 

Defendants. 

BLANCHARD TRAINING AND 

DEVELOPMENT, 

INCORPORATED, 

Counterclaim-Plaintiff, 

v. 

LEADERSHIP STUDIES INC., 

Counterclaim-Defendant. 

HA YES, Judge: 

D. , . .,.. 

The matter before the Court is the Motion to Dismiss and, in the Alternative, 

Motion for Summary Judgment filed by Defendant and Counterclaim-Plaintiff 

Blanchard Training and Development, Incorporated. (ECF No. 65). 

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1 I. Background 

2 On August 17, 2015, Leadership Studies, Inc. ("Leadership") filed the Complaint 

3 against Blanchard Training and Development, Inc. ("Blanchard Inc.") and other 

4 unnamed individuals. (ECF No. 1 ). On November 7, 2016, Leadership filed the Third 

5 II Amended Complaint (the "TAC"). (ECF No. 49). The TAC is the operative complaint 

6 II in this matter. The TAC asserts nine causes of action. (ECF No. 49 at 1 ). Leadership's 

7 II First Cause of Action is for Breach of Written Contract. Id. Leadership's Third Cause 

811 of Action is for Trademark Infringement Under the Lanham Act,§ 43(A), 15 U.S.C.A. 

9 § l 125(A). Id. Leadership's Fourth Cause of Action is for Trademark Infringement 

10 Via Reverse Confusion Under the Lanham Act, § 43(A), 15 U.S.C.A. § l 125(A). Id. 

11 II Leadership's Fifth Cause of Action is for Fraud in Obtaining Registered Marks under 

12 15 U.S.C. §§ 1064(3) and 1119. Id. 

13 On April 17, 2017, Blanchard Inc. filed a Motion to Dismiss Trademark Claims 

1411 (Third, Fourth, and Fifth Cause of Action) pursuant to Fed. R. Civ. P. 12(b)(l) and, in 

15 II the Alternative, Motion for Summary Judgment Pursuant to Fed. R. Civ. P. 56. (ECF 

1611No.65). On May 12, 2017, Leadership filed a Response. (ECF No. 92). 1 On May 19, 

17 2017, Blanchard Inc. filed a Reply to Leadership's Response. (ECF No. 93). 

18 II. Legal Standard 

19 II A party may move for summary judgment, identifying each claim or defense or 

20 11 the part of each claim or defense on which summary judgment is sought. Fed. R. Civ. 

2111P.56(a).2 The court shall grant summary judgment ifthe movant shows that there is 

22 

23 II 1 Leadershin initiallv filed its resnonse under seal. See ECF No. 98. Leadership has 

2411 

since filed an unsealed version of its Response (ECF No. 116). 

2 Blanchard Inc.'s Motion contends that Leadership cannot prevail on its Third and 

25 II Fourth Causes of Action for Trademark Infringement because of a previous agreement 

26 II between Blanchard Inc. and Leadership Studies Productions, Inc. (the "1982 Agreement"). 

(ECF No. 65 at 8). Because deciding B1anchard Inc.' s Motion requires this Court to consider 

27 II the ~ 982 Agreement_, which was not cited in the TAC, the Court ,will treat the Mo~ion as a 

motion for summary judgment. See Lozano v. Cabrera, 678 F. App x 511, 513 (9th Cir. 2017) 

(concluding that summary judgment was the proper standard of review because the district 

28 II court considered matters outside the pleadings, specifically an earlier settlement agreement 

between the parties to the case). 

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1 II no genuine dispute as to any material fact and the movant is entitled to judgment as a 

2 II matter of law. Id. A material fact is one that is relevant to an element of a claim or 

3 defense and whose existence might affect the outcome of the suit. See Matsushita Elec. 

4 Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 586-87 (1986). The materiality 

5 of a fact is determined by the substantive law governing the claim or defense. See 

6 Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986); Celotex Corp. v. Catrett, 

7 II 4 77 U.S. 317, 322-24 (1986). 

8 II The moving party has the initial burden of demonstrating that summary judgment 

9 is proper. See Adickes v. SH. Kress & Co., 398 U.S. 144, 153 ( 1970). The burden then 

10 shifts to the opposing party to provide admissible evidence showing that summary 

11 II judgment is not appropriate. See Anderson, 477 U.S. at 256; Celotex, 477 U.S. at 322, 

12 II 324. The opposing party's evidence is to be believed, and all justifiable inferences are 

13 to be drawn in its favor. See Anderson, 477 U.S. at 255. 

14 III. Facts 

15 A. Background 

1611 Dr. Paul Hersey and Dr. Kenneth Blanchard worked on a theory concerning a 

17 11 methodology for leaders to influence others which came to be called Situational 

18 11 Leadership. Response to Statement of Undisputed Material Facts ("RSUMF"), ECF 

19 II No. 116-3 at if 1. Both Dr. Hersey and Dr. Blanchard founded businesses associated 

20 II with the theory. Dr. Blanchard incorporated Blanchard Inc. in 1978. Id. at if 3. Dr. 

2111 Hersey founded Management Education & Development, Inc. ("MED") in 1976 and 

22 II Leadership Studies Productions, Inc. in 1979. Id. at if 2. In July 1985, Leadership 

23 II Studies Productions, Inc. changed its name to "Leadership Studies." Id. MED merged 

24 II into Leadership Studies in September 1985. Id. Leadership Studies changed its name 

25 II to "Leadership Studies, Inc." in 2009. Id. Leadership Studies, Inc. is the plaintiff in 

26 II this action. This order refers to the Plaintiff (the company named "Leadership Studies 

27 11 Productions, Inc.," then "Leadership Studies," then "Leadership Studies, Inc.") as 

28 II "Leadership." 

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1 II MED acquired the rights to the "Situational Leadership" trademark (the "Mark") 

2 in February 1982. Id. at ~ 20. Leadership became the Mark's owner when MED 

3 merged into Leadership in 1985. Id. 

4 B. The 1982 Agreement 

5 II In the first half of 1982, Leadership was in a legal dispute with Video University, 

6 II a company with whom Leadership had a non-compete agreement. Id. at~ 21. Video 

7 II University allegedly breached this non-compete agreement by working with Blanchard, 

8 Inc. Id. Leadership filed a lawsuit against Video University, and filed but did not 

9 serve a complaint against Blanchard, Inc. Id. 

10 Leadership and Blanchard, Inc. entered into an agreement in June 1982 (the 

11 "1982 Agreement"). Id. at~ 22. The 1982 Agreement stated in part: 

12 Dear Dr. Blanchard: 

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This will confirm our telephonic agreement made earlier this day 

You ... advised that neither yourself nor Blanchard Training and 

Development, Inc. would violate the non-competition clause contained in 

the agreement between Leadership Studies Productions and Video 

University so long as that clause remained in full force and effect .... 

We agreed that . . . in the event there is no violation of this 

agreement, we would dismiss [our] suit with prejudice when the matter 

has been fully determined between Leadership Studies Productions and 

Video University. We further agree not to pursue violation of trademark 

action now or in the future as it refers to Situational Leadership. 

20 11 (ECF No. 65-7 at 2). The 1982 Agreement was signed by John R. Myers as President 

21 

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24 

25 

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of Leadership. Id. 

In the "letter transmitting the [ 1982] agreement from [Leadership's] counsel to 

[Blanchard Inc.'s] counsel," (ECF No. 116 at 11), Leadership's attorney stated 

[Leadership] will take no further action with regard to Dr. Blanchard or 

the lawsuit [against Blanchard Inc.], or in any other way prejudice the 

rights of Dr. Blanchard in the use of Situational Leadership at this time. 

[Leadership] will do nothing of any kind to interfere with the use of that 

term (other than as it relates to Video University) until we have had an 

opportunity to sit down and discuss this matter and until we are able to 

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1 

2 

come to some understanding and clarification of the agreement between 

Ors. Hersey and Blanchard. 

3 (ECF No. 111-2 at 7). 

4 In 1984, Dr. Blanchard wrote a letter to Ralph Hersey, MED's Vice-President 

5 of Marketing at the time. (ECF No. 65-7 at 11 ). The letter stated in part: 

6 

7 

8 

9 

10 Id. 

I am sure you are aware of the June, 1982 agreement which John Myers 

and I signed in which it was agreed that you would not pursue violation 

of trademark actions now or in the future as it refers to Situational 

Leadership. As it now stands neither one of us ... separately can prevent 

the use of the words or symbol of Situational Leadership, but together 

.. we can make their use exclusive to our two organizations. 

11 C. The 1987 Agreement 

12 In 1987, Leadership and Blanchard Inc. entered into another agreement (the 

13 "1987 Agreement"). Id. at 13. The 1987 AgreementgrantsBlanchard,Inc.aperpetual 

14 royalty-free license to use the Mark. Id. at 14. It also places certain restrictions on 

15 Blanchard Inc. 's use of the Mark. Id. For example, Blanchard Inc. is required to utilize 

16 the Mark "only in association with goods and services which meet or exceed a level 

17 of quality exemplified by the goods and services presently offered under the [M]ark." 

18 Id. The 1987 Agreement does not contain an integration clause. RSUMF at ii 13. 

19 D. Post-1987 Conduct 

20 In 2013, Leadership's then-new President "requested that [Blanchard Inc.] 

21 provide her with any documents of which she should be aware that addressed the 

22 parties' relationship besides the 1987 License Agreement." RSUMF at ii 45. Dr. 

23 Blanchard's response to this request did not mention the 1982 Agreement. Id. at ii 46. 

24 IV. The Trademark Claims 

25 Blanchard Inc. contends that Leadership is barred from pursuing its Third Cause 

26 of Action for Trademark Infringement and its Fourth Cause of Action for Trademark 

27 Infringement Via Reverse Confusion (collectively, the "Trademark Claims") by the 

28 following language in the 1982 Agreement: "[Leadership] further agree[ s] not to 

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1 II pursue violation of trademark action now or in the future as it refers to Situational 

2 II Leadership" (the "Covenant Not to Sue"). (ECF No. 65-7 at 2). Leadership contends 

3 that the Covenant Not to Sue does not prevent it from bringing the Trademark Claims 

4 because the parties intended the Covenant Not to Sue to apply only "to the dispute 

5 relating to Video University" and not to the claims made in this case (the 

6 "Interpretation Issue"). (ECF No. 116 at 10). Leadership further asserts that, 

7 II regardless of the intentions of the parties to the 1982 Agreement, the Covenant Not to 

8 Sue does not prevent Leadership from bringing the Trademark Claims because ( 1) the 

9 Covenant Not to Sue was a general release and Leadership's current claims arose after 

10 it was executed (the "Release Issue"), (2) the 1987 Agreement superseded the 1982 

11 Agreement (the "Novation Issue"), and (3) Blanchard Inc. either waived the right to 

12 II assert, or is estopped from asserting, that the Covenant Not to Sue bars Leadership's 

13 II claims (the "Waiver and Estoppel Issue"). (ECF No. 116). Each issue is addressed 

14 below. 

15 A. The Interpretation Issue 

16 1. Contentions of the Parties 

17 II Leadership contends that the parties to the 1982 Agreement intended the 

18 II Covenant Not to Sue to apply only "to the dispute relating to Video University" and 

19 II only "while the parties negotiated a more comprehensive license." Id. at 10-11. 

20 II Blanchard Inc. contends that, under the plain language of the Covenant not to Sue, 

2111 Leadership agreed not to pursue any violation of trademark action against Blanchard 

22 Inc. at any time. (ECF No. 65-1 at 20-21 ). 

23 2. Extrinsic Evidence 

24 Leadership requests that the Court consider certain extrinsic evidence when 

25 II interpreting the Covenant Not to Sue. First, Leadership asks the Court to consider the 

26 II circumstances surrounding the 1982 Agreement, specifically Leadership's lawsuit 

2711 against Blanchard Inc. and Video University. (ECF No. 116 at 10). Other language 

28 

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in the 1982 Agreement specifically refers to the dispute involving Video University. 

2 See ECF No. 65-7 at 2 ("[Dr. Blanchard] ... advised that neither [he] nor Blanchard 

3 ... Inc. would violate the non-competition clause ... between Leadership Studies 

4 II Productions and Video University .... [Leadership] agreed that ... [it] would dismiss 

5 II [its] suit with prejudice when the matter has been fully determined between Leadership 

6 II Studies Productions and Video University."). 

7 Leadership also requests that the Court consider the "letter transmitting the 

8 [1982] agreement from [Leadership's] counsel to [Blanchard Inc.'s] counsel." (ECF 

9 No. 116 at 11 ). In that letter, Leadership's attorney stated 

10 

11 

12 

13 

14 

15 

[Leadership] will take no further action with regard to Dr. Blanchard or 

the lawsuit [against Blanchard Inc.], or in any other way prejudice the 

rights of Dr. Blanchard in the use of Situational Leadership at this time. 

[Leadership] will do nothing of any kind to interfere with the use of that 

term (other than as it relates to Video University) until we have had an 

opportunity to sit down and discuss this matter and until we are able to 

come to some understanding and clarification of the agreement between 

Drs. Hersey and Blanchard. 

(ECF No. 111-2 at 7). 16 .. 

17 

Finally, Leadership requests that the Court consider a Declaration made by John 

18 .. Myers, who signed the 1982 Agreement as Leadership's president. 3 See ECF No. 65-7 

at 2. Myers states: 19 .. 

20 

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24 .. 

25 

The statement in the 1982 Letter Agreement that, "We further agree not 

to pursue violation of trademark action now or in the future as it refers to 

Situational Leadership" was intended to be limited to the then-pending 

litigation that had been filed against Blanchard [Inc.] relating to the 

dispute concerning contracts with Video University, and not an unfettered 

general promise that [Leadership] would never sue Blanchard [Inc.] for 

any and all trademark violations .... 

(ECF No. 80-1 at 2-3). 

26 3 Leadership also asks the Court to consider certain evidence of the parties' interactions 

27 II after the 1982 Agreement. (ECF No. 116 at 11-15). The Court finds that resolving the 

Interpretation Issue for the purposes of this Motion for Summary Judgment does not require 

28 11 considering that evidence. 

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1 3. Applicable Law 

2 Under California law, "A contract must be so interpreted as to give effect to the 

3 II mutual intention of the parties as it existed at the time of contracting, so far as the same 

411 is ascertainable and lawful." Cal. Civ. Code§ 1636; Skilstaf, Inc., v. CVS Caremark 

5 II Corp., 669 F.3d 1005, 1014-15 (9th Cir. 2012) (citing Miller v. Glenn Miller Prods., 

6 II 454 F.3d 975, 989 (9th Cir. 2006) (per curiam)). "The language of a contract is to 

711 govern its interpretation, if the language is clear and explicit, and does not involve an 

811 absurdity." Cal. Civ. Code§ 1636; F.B. T Prods., LLCv. Aftermath Records, 621 F.3d 

911958,963 (9th Cir. 2010). "When a contract is reduced to writing, the intention of the 

10 II parties is to be ascertained from the writing alone, if possible; subject, however, to the 

11 other provisions of [the California Civil Code's Title on the Interpretation of 

12 Contracts].'' Cal. Civ. Code§ 1639. "The whole of a contract is to be taken together, 

13 II so as to give effect to every part, if reasonably practicable, each clause helping to 

14 II interpret the other." Id. at § 1641. 

15 

16 

17 

18 

19 

20 

21 

To interpret a written contract, courts follow a two-step analysis: 

First, the court provisionally receives (without actually admitting) all 

credible evidence concerning the parties' intentions to determine 

"ambiguity," i.e., whether the language is "reasonably susceptible" to the 

interpretation urged by a party. If in light of the extrinsic evidence, the 

court decides the language is "reasonably susceptible" to the 

interpretation urged, the extrinsic evidence is then admitted to aid in the 

second step-interpreting the contract. 

F.B.T Prods., LLC, 621 F.3d at 963 (quoting Winetv. Price, 6 Cal. Rptr. 2d 554, 557 

22 (Ct. App. 1992)). "The initial question whether a contract is ambiguous is ... one of 

23 law." Niederer v. Ferreira, 234 Cal. Rptr. 779, 787 (Ct. App. 1987). 

24 "When there is no material conflict in the extrinsic evidence, the trial court 

25 interprets the contract as a matter oflaw." Wolf v. Walt Disney Pictures & Television, 

26 162 Cal. App. 4th 1107, 1126 (Cal. Ct. App. 2008), as modified on denial of reh 'g 

27 (June 4, 2008) (citing City of Hope Nat. Medical Center v. Genentech, Inc., 181 P.3d 

28 142, 156 (Cal. 2008)). 

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1 

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If, however, there is a conflict in the extrinsic evidence, the factual 

conflict is to be resolved by the jury. (City of Hope Nat. Medical Center, 

at p. 395, 75 Cal.Rptr.3d at 350 ["when, as here, ascertaining the intent of 

the parties at the time the contract was executed depends on the credibility 

of extrinsic evidence, that credibility determination and the interpretation 

of the contract are questions of fact that may properly be resolved by the 

jury"]; Warner Constr. Corp. v. City of Los Angeles (1970) 2 Cal.3d 285, 

291, ... [it is a" 'judicial function to interpret a written instrument unless 

the interpretation turns upon the credibility of extrinsic evidence' "] .... ) 

7 11 Id. at 112 7. 

8 

9 

4. Analysis 

This Court must begin the process of interpreting the Covenant Not to Sue by 

10 II determining whether its "language is 'reasonably susceptible"' to Leadership's 

11 proposed interpretations. F.B. T Prods., LLC, 621 F.3d at 963 (quoting Winet, 6 Cal. 

12 Rptr. at 557). The Court considers the extrinsic evidence offered by Leadership when 

13 making this determination. Id. The Covenant Not to Sue states "[Leadership] further 

14 agree[ s] not to pursue violation of trademark action now or in the future as it refers to 

15 Situational Leadership." (ECF No. 65-7 at 2). Leadership contends that the Covenant 

16 Not to Sue can reasonably be interpreted to apply only "to the dispute relating to Video 

17 University" and only "while the parties negotiated a more comprehensive license." 

18 (ECF No. 116 at 10-11). 

19 The Covenant Not to Sue explicitly provides that Leadership will not sue 

20 Blanchard Inc. for trademark violation "now or in the future." (ECF No. 65-7 at 2). 

21 That language is not reasonably susceptible to an interpretation that would impose a 

22 time limit on the applicability of the Covenant Not to Sue. However, the language of 

23 the Covenant Not to Sue is reasonably susceptible to an interpretation which would 

24 limit Leadership's promise not to sue to the dispute involving Video University. In the 

25 Covenant Not Sue, Leadership "agreed not to pursue violation of trademark action." 

26 (ECF No. 65-7 at 2). Considering the circumstances surrounding the 1982 Agreement 

27 and the language in the 1982 Agreement that specifically refers to the dispute involving 

28 

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I II Video University, the phrase is reasonably susceptible to Leadership's proposed 

2 II interpretation. See id. (referencing "our lawsuit in California" and "that suit"). 

3 II Leadership may have agreed not to bring any violation of trademark claims or 

4 II Leadership may have agreed not to bring the trademark infringement claim they had 

5 II already asserted against Blanchard Inc. in the Video University litigation. The Court 

611 concludes that the Covenant Not to Sue is reasonably susceptible to either 

7 interpretation. 

8 Having concluded that the Covenant Not to Sue is reasonably susceptible to 

9 II multiple interpretations, the Court must decide whether the Covenant Not to Sue should 

10 II beinterpretedbytheCourtorthejury. See Wolfv. Walt Disney Pictures& Television, 

11 II 162 Cal. App. 4th 1107, 1126 (Cal. Ct. App. 2008). Under California Law, the court 

12 II interprets a contract "when there is no material conflict in the extrinsic evidence," and 

13 II a jury interprets a contract when there is such a conflict. Wolf, 162 Cal. App. 4th at 

14 II 1126. A material conflict in extrinsic evidence exists when" ascertaining the intent of 

15 the parties at the time the contract was executed depends on the credibility of extrinsic 

16 evidence." City of Hope Nat. Med. Ctr. v. Genentech, Inc., 181P.3d142, 156 (Cal. 

1711 2008) (citing Warner Constr. Corp. v. City of Los Angeles, 466 P.2d 996, 997 (Cal 

18 II 1970) (In Bank)). In this case, Leadership has submitted a sworn declaration of John 

1911 Myers, a signatory of 1982 Agreement, stating that the Covenant Not to Sue "was 

20 II intended to be limited to the then-pending litigation that had been filed against 

21 II Blanchard [Inc.] relating to the dispute concerning contracts with Video University." 

2211 (ECF No. 80-1at2-3). Determining the intent of the parties to the 1982 Agreement 

23 II will require assessing Myers' credibility. Consequently, the jury, not the Court, will 

2411 have to decide on the proper interpretation of the Covenant Not to Sue. 

25 11 Because the undisputed facts do not establish, as a matter of law, that the 

2611 Covenant Not to Sue bars Leadership from bringing the Trademark Claims, Blanchard 

2711 Inc. is not entitled to summary judgment on the Trademark Claims. 

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B. The Release Issue 

2 II Leadership contends that, even if the parties intended the Covenant Not to Sue 

3 to prevent Leadership from bringing any violation of trademark action against 

4 Blanchard Inc. at any time, the Covenant Not to Sue does not prevent Leadership from 

5 II bringing the Trademark Claims because the Covenant Not to Sue was a general release 

6 II subject to California Civil Code § 1542 . (ECF No. 116 at 26). Leadership contends 

7 II that, under California Civil Code § 1542, the Covenant Not to Sue could not waive 

8 rights belonging to the owner of the Mark, which Leadership did not acquire until 

9 1985. Id. Blanchard Inc. contends that the Covenant Not to Sue was a specific release 

10 and therefore§ 1542 does not apply. (ECF No. 93 at 12). 

11 Under California law, "a covenant not to sue operates as a release." Matthey v. 

12 II Gally, 4 Cal 62, 64 ( 1854 ). California law divides releases into two categories: general 

13 II releases and specific releases. See Brae Transp., Inc. v. Coopers & Lybrand, 790 F.2d 

1411 1439, 1444 (9th Cir. 1986). California Civil Code§ 1542 provides that "[a] general 

15 II release does not extend to claims which the creditor does not know or suspect to exist 

1611 in his or her favor at the time of executing the release, which if known by him or her 

17 II must have materially affected his or her settlement with the debtor." 

18 II In Brae Transp., Inc. v. Coopers & Lybrand, the Court of Appeals was tasked 

19 II with deciding whether a release was general and consequently subject to § 1542. 790 

20 II F.2d 1439. The plaintiffs in Brae purchased stock in a company from the defendants 

21 II and later discovered that the net worth of the company was less than the defendants had 

22 II warranted. Id. at 1440. The parties settled their dispute by entering into an agreement 

23 II that released the defendants from all claims concerning the company's net worth. Id. 

24 11 The Court of Appeals concluded that the release was specific because it "stemmed from 

25 II a specific section of the Stock Purchase Agreement ... [and] general only in the sense 

26 II that it waived all future (and hence unknown) claims as to the specific issue of net 

2711 worth." Id. at 1444. The Court of Appeals concluded that § 1542 did not apply to the 

28 

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1 release. Id. 

2 In the 1982 Agreement, Leadership "agree[ d] not to pursue violation of 

3 trademark action [against Blanchard Inc.] now or in the future as it refers to Situational 

4 II Leadership." (ECF No. 65-7 at 2). Leadership released certain claims against 

5 Blanchard Inc. for violation of the Mark. See Matthey, 4 Cal at 64 ("[A] covenant not 

6 to sue operates as a release."). Like the release at issue in Brae, the Covenant Not to 

7 II Sue was specific in that it was written to cover claims arising from a specific source of 

811 Leadership's rights (the Mark) and "general only in the sense that it waived all future 

9 (and hence unknown) claims as to the specific issue." Brae, 790 F.2d at 1144. 

10 Consequently,§ 1542 does not apply to the Covenant Not to Sue. If the parties to the 

11 1982 Agreement intended the Covenant Not to Sue to apply to the Trademark Claims, 

12 § 154 2 did not prevent them from effectuating their intent. 

13 C. The Novation Issue 

14 Leadership contends that, even if the parties intended the Covenant Not to Sue 

15 to prevent Leadership from bringing any violation of trademark action against 

16 II Blanchard Inc. at any time, the 1987 Agreement was a novation that superseded and 

17 II replaced the 1982 Agreement and the Covenant Not to Sue. (ECF No. 116 at 3 ). 

18 II Leadership contends that the 1987 Agreement comprehensively addressed the parties' 

19 II rights to the Mark and is inconsistent with an interpretation of the Covenant Not to Sue 

20 II under which it would continue to preclude the Trademark Claims. Id. Leadership 

21 II contends that the parties conduct after the 1987 Agreement demonstrates that they 

22 II intended it to supercede and replace the 1982 Agreement. Id. 

23 II Blanchard Inc. contends that the 1987 Agreement did not supersede the 

24 II Covenant Not to Sue because "there is no language in the 1987 Agreement which .. 

25 II . would revoke or supersede the earlier promise." (ECF No. 65-1 at 23). Blanchard 

26 Inc. contends that "there are no obligations in the 1987 Agreement conflicting with the 

27 [Covenant Not to Sue]." (ECF No. 93 at 9). Blanchard Inc. contends that it has not 

28 

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1 II "engaged in any conduct inconsistent with its intent to enforce a right not to be sued 

2 for using the Situational Leadership trademark." Id. at 14. 

3 A "[n]ovation is the substitution of a new obligation for an existing one." Cal. 

4 Civ. Code§ 1530. One means of accomplishing a novation is by "the substitution of 

5 a new obligation between the same parties, with intent to extinguish the old 

6 II obligation." Id. at § 1531 (1 ). A"[ n ]ovation is made by contract, and is subject to all 

7 the rules concerning contracts in general." Id. at § 1532. "Whether a new agreement 

8 amounts to a novation is always a question of intention; and intention on the part of all 

9 parties that such agreement should constitute a novation must clearly appear." 0 'Reilly 

10 v. Johnson, 205 P.2d 716, 717 (Cal. Ct. App. 1949). The party "relying upon a 

11 II novation must establish that the new obligation was intended as a substitution and 

12 II extinguishment of the old one." Anglo-California Tr. Co. v. Wallace, 209 P.2d 78, 79 

13 (Cal Ct. App. 1922). 

14 A contract is more likely to be a novation when it is inconsistent with the 

15 II contract it allegedly novates. See Douillard v. Woodd, 128 P.2d 6, 8 (Cal. 1922); 

1611 Olympic Fin. Co. v. Thyret, 337 F.2d 62, 68 (9th Cir. 1964) (To determine whether an 

1 7 II agreement is a novation, "it is necessary to contrast the respective rights and 

18 II obligations of the parties before and after the effective date of this instrument."). 

19 II "Another important factor in determining whether there has been novation ... is the 

20 II conduct of the parties." Fanucchi & Limi Farms v. United Agri Prod., 414 F.3d 1075, 

21 II l 085 (9th Cir. 2005) (interpreting California law). 

22 II There is no language in the 1987 Agreement that expressly states that the 

23 II parties intended to replace the 1982 Agreement. See ECF No. 65-7 at 13-17. In 

2411 support of its contention that the 1987 Agreement "imposes obligations on [Blanchard 

25 II Inc.] that directly conflict with the [Covenant Not to Sue]," Leadership cites provisions 

2611 of the 1987 Agreement restricting Blanchard Inc.'s use of the Mark and requiring 

2711 Blanchard Inc. to gather material for renewal applications. (ECF No. 116 at 18). 

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1 II However, these additional obligations incurred by Blanchard Inc. do not conflict with 

2 Leadership's promise not to bring trademark infringement claims against Blanchard 

3 Inc.: Both parties can simultaneously uphold their respective obligations, and 

4 II Leadership can enforce Blanchard Inc. 's contractual obligations by suing for breach of 

5 II contract. 4 The Court concludes that there are no provisions of the 1987 Agreement that 

611 conflict with the Covenant Not to Sue. 

7 The circumstances that led to the 1987 Agreement support the conclusion that 

8 the parties were able to accomplish the primary purpose of the 1987 Agreement without 

911 invalidating the Covenant Not to Sue. In its Response to Blanchard's motion, 

10 II Leadership noted that the 1982 Agreement "had numerous drawbacks" including that 

11 II "its very existence could weaken the Mark's strength." ECF No. 116 at 17 (citing 

12 Already LLC v. Nike, Inc., 568 U.S. 85, 99 (2013), for the proposition that '"granting 

13 covenants not to sue may be a risky long-term strategy for a trademark holder' because 

1411 they can be construed as naked licenses."). The 1987 Agreement addressed this 

15 II "drawback" by requiring Blanchard Inc. to only use the Mark in connection with 

1611 products that met certain quality thresholds. Id. at 17-18. Leadership's contractual 

17 II obligation not to bring actions against Blanchard Inc. for violating the Mark did not 

18 11 invalidate this requirement or prevent Leadership and Blanchard Inc. from furthering 

19 11 their "mutual interest" in ensuring the strength of the Mark. Id. at 18. 

20 II The parties conduct after the 1987 Agreement also does not support the 

21 II conclusion that the parties intended the 1987 Agreementto supersede the Covenant Not 

22 11 to Sue. Leadership contends that the "parties consistently have treated the 1987 

2311 [Agreement] as the operative contract governing the parties relationship." (ECF No. 

24 

25 

26 

27 

28 

4 Leadership's First Cause of Action is for breach of the 1987 Agreement. (ECF No. 

49 at ifif 57-69). 

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1 II 1 16 at 23 ). Leadership cites the following facts 5 to support this contention: (I) 

2 Blanchard Inc. "repeatedly has acknowledged [an] obligation" imposed on it by the 

3 1987 Agreement, id.~ and (2) the 1982 Agreement was not mentioned in an internal 

4 II memorandum written by Dr. Blanchard, 6 Blanchard Inc.' s discovery responses, or Dr. 

5 II Blanchard's response to a Leadership executive's request for any documents that 

6 addressed the parties' relationship, id. at 13-14. Blanchard Inc.'s compliance with the 

7 1987 Agreement is not evidence that the 198 7 Agreement replaced the 1982 Agreement 

8 because compliance with the 1987 Agreement is consistent with the terms of the 1982 

9 Agreement. "The intention on the part of all parties that [the 1987] agreement should 

10 II constitute a novation" is not "clearly app[ arent ]" from Dr. Blanchard's response to the 

11 II Leadership executive, the internal memorandum, or Blanchard Inc. 's discovery 

1211 responses. O'Reilly v. Johnson, 205 P.2d 716, 717 (Cal. Ct. App. 1949). 

13 II The Court concludes that the 1987 Agreement did not supersede the Covenant 

14 II Not to Sue as a matter of law because ( 1) there is no language in the 1987 Agreement 

15 II that expressly revokes the Covenant Not to Sue, (2) there are no provision of the 1987 

1611 Agreement that conflict with the Covenant Not to Sue, and (3) the conduct of the 

17 parties has not been consistent with the continued validity of the Covenant Not to Sue. 

18 D. The Waiver and Estoppel Issue 

19 11 Leadership contends that"[ w ]hether it is considered estoppel or implied waiver," 

20 II Blanchard Inc. is barred "from using the 1982 Agreement as a defense to 

2111 [Leadership's] trademark claims" because of its "conduct from 1987 forward," 

2211 specifically the fact that Dr. Blanchard's response to a Leadership executive's request 

23 

2411 5 The Court accepts these facts as true for the purposes of this motion for summary judgment. 

25 6 Leadership contends that shortly after the 1987 Agreement was executed, Dr. 

26 II Blanchard wrote an internal Blanchard Inc. memorandum that discussed the implications of 

the 1987 Agreement and did not refer to the 1982 Agreement. (ECF No. 116 at 13 ). However, 

2711 Leadership has provided no support for these assertions. See ECF 116-3 at iJ 42 (citing 

sources that do not discuss an internal Blanchard Inc. memorandum). 

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1 for any documents that addressed the parties' relationship did not mention the 1982 

2 Agreement. (ECF No. 116 at 27). Blanchard Inc. contends that it "is not estopped 

3 II from seeking dismissal of the Trademark Claims on the basis of the Covenant Not to 

411 Sue" and that Leadership's "waiver argument fares no better." (ECF No. 93 at 13). 

5 "The doctrine of equitable estoppel ... provides that a person may not deny the 

6 existence of a state of facts if he intentionally led another to believe a particular 

7 II circumstance to be true and to rely upon such belief to his detriment." Strong v. County 

8 of Santa Cruz, 543 P.2d 264, 266 (Cal. 1975) (In Bank) (citing City of Long Beach v. 

9 Mansell, 4 76 P.2d 423, 442 (Cal. 1970) (In Bank)). "[E]stoppel requires reasonable 

I 0 reliance on a misleading communication upon which the victim was intended to rely." 

11 Warner Bros. Int'! Television Distribution v. Golden Channels & Co., 522 F.3d 1060, 

12 1069 (9th Cir. 2008). 

13 II In order for Blanchard Inc. to be estopped from using the Covenant Not to Sue 

14 II as a defense to the Trademark Claims, Leadership must have come to believe that the 

15 1982 Agreement was no longer enforceable by "reasonabl[y] rel[ying] on a misleading 

16 communication" from Blanchard Inc. Id. Leadership bases its claim for equitable 

17 II estoppel on Dr. Blanchard's response to a request made by a executive for "any 

18 II documents ... that addressed the parties' relationship." (ECF No. 79 at 14, 27). Dr. 

1911 Blanchard's response did not mention the 1982 Agreement. Id. However, Leadership 

20 II was a party to both the 1982 Agreement and the 1987 Agreement, and therefore had 

21 II constructive knowledge of the rights established under those agreements. The Court 

22 II concludes that Leadership could not reasonably rely on Dr. Blanchard's response to 

23 II believe that the 1982 Agreement was no longer enforceable. Blanchard Inc. is not 

2411 estopped from relying upon the Covenant Not to Sue as a defense to the Trademark 

2511 Claims. See Warner Bros., 522 F.3d at 1069. 

26 II The California Supreme Court recently summarized the requirements for an 

2711 implied waiver: 

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1 

2 

3 

4 

5 

6 

As we have explained in various contexts, waiver means the intentional 

relinquishment or abandonment of a known right. Waiver requires an 

existing right, the waiving party's knowledge of that right, and the party's 

actual intention to relinquish the right. Waiver always rests upon intent. 

The intention may be express, based on the waiving party's words, or 

implied, based on conduct that is so inconsistent with an intent to enforce 

the right as to induce a reasonable belief that such right has been 

relinquished. 

Lynch v. California Coastal Comm 'n, 396 P.3d 1085, 1088 (Cal. 2017) (citations 711 

omitted). There is no evidence in the record that suggests that Blanchard Inc. expressly 811 

waived its rights under the Covenant Not to Sue. There is no evidence of conduct of 

911 

Blanchard Inc. "that is so inconsistent with an intent to enforce the [Covenant Not to 10 II 

11 Sue] as to induce a reasonable belief that [its] right[s] ha[ve] been relinquished." Id. 

Blanchard Inc. has not waived its rights under the Covenant Not to Sue. 

12" 

E. Conclusion 

13 

14 

The jury must decide whether the Covenant Not to Sue was intended to prevent 

Leadership from bringing the Trademark Claims or only claims relating to the dispute 

15 11 

16 .. involving Video University. Consequently, the Court denies Blanchard Inc.'s motion 

for summary J. udgment on the Trademark Claims. 

17" 

18 

If the jury concludes that the Covenant Not to Sue was intended to apply only 

to claims related to Blanchard Inc. 's interactions with Video University, the Covenant 

19 II 

20 .. Not to Sue does not prevent Leadership from bringing the Trademark Claims as those 

21 

claims are not based on Blanchard Inc.'s interactions with Video University. See ECF 

No. 49 at ifi1107-147. If the jury concludes that the Covenant Not to Sue was intended 

22 II 

to prevent Blanchard Inc. from bringing any claims for violation of the Mark, 

23 ll 

Leadership is barred from pursuing the Trademark Claims. 7 The Court concludes that 

24" 

25 7 Leadership's Third Cause of Action is for "Trademark Infringement Under the 

26 II Lanham Act" and alleges that Blanchard Inc. 's "uses of the Mark and several derivative marks 

infringe on [its] Mark in violation of Section 32(l)(a) of the Lanham Act." Id. at iii! 93, 105. 

27 II Leadership's Fourth Cause of Action is for "Trademark Infringement Via Reverse Confusion 

Under the Lanham Act" and alleges that "the consumer confusion generated by Blanchard 

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1 11 Covenant Not to Sue has not been rendered unenforceable by California Civil Code§ 

2 1542, the 1987 Agreement, or Blanchard Inc. 's conduct. 

3 V. Leadership's Fifth Cause of Action 

4 II Leadership's Fifth Cause of Action for Fraud in Obtaining Registered Marks 

5 II seeks cancellation of certain trademarks. ECF No. 49 at if 147. Blanchard Inc. 

6 II contends that this Court does not have subject matter jurisdiction over Leadership's 

7 Fifth Cause of Action ifLeadership's Trademark Claims are dismissed. (ECF No. 65-1 

8 at 25). Under Section 3 7 of the Lanham Act, "In any action involving a registered 

911 mark the court may ... order the cancellation of registrations .... " 15 U.S.C § 1119. 

10 II "This language specifies that cancellation may only be sought if there is already an 

11 ongoing action that involves a registered mark .... " Airs Aromatics, LLC v. Opinion 

12 Victoria's Secret Stores Brand Mgmt., Inc., 744 F.3d 595, 599 (9th Cir. 2014). 

13 II Because the Court has not dismissed the Trademark Claims, it continues to have 

14 subject matter jurisdiction over Leadership's Fifth Cause of Action. 8 

15 VI. Requests for Attorney Fees 

16 II Both Leadership and Blanchard Inc. contend that the Court should award them 

1 7 II attorney fees. Blanchard Inc. contends that the Court should award it attorney fees 

18 II because (1) Leadership pursued this case despite its awareness of the 1982 Agreement, 

19 II and (2) Leadership Studies, Inc. attempted to conceal the fact that it is the same entity 

20 II as Leadership Studies Productions, Inc., the company that was a party to the 1982 

21 II Agreement.9 (ECF No. 65-1 at 27, 28). Leadership contends that the Court should 

22 

23 II [Inc.]' s actions .~ave, and continue to, undermine Leadership St1:1dies · abili_ty to use ~nd b~nefit 

from the Mark. Id. at iii! 111, 121. Both of these causes of action are actions for v1olat10n of 

24 the Mark. 

25 8 The Court reserves judgment on whether it would retain subject matter jurisdiction 

over Leadership's Fifth Cause of Action if the Trademark Claims were dismissed. 

26 9 Blanchard Inc. also •·requests the opportunity to submit additional briefing and 

27 II evidence that bears on the timing and motivation of Leadership['s lawsuit] .... " (ECF No. 

65-1 at 28). Blanchard Inc. may raise this issue in a motion for sanctions if it so desires. 

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1 II award it attorney fees because Blanchard Inc. "was well-aware of the facts that show 

2 that the 198 7 License superseded the 1982 Covenant (or ... establish[] material factual 

3 disputes in that area)." (ECF No. 116 at 31). 

4 Section 35 of the Lanham Act provides that "[t]he Court in exceptional cases 

5 may award reasonable attorney fees to the prevailing party." 15 U.S.C. § l l l 7(a). A 

6 case is "exceptional" when it "stands out from others with respect to the substantive 

7 strength of a party's litigating position ... or the unreasonable manner in which the 

8 case was litigated." Octane Fitness. LLC v. ICON Health & Fitness, Inc., 134 S. Ct. 

9 1749, 1756 (2014) (interpreting the Patent Act). "[I]n determining whether to award 

10 II fees ... district courts c[ an] consider a 'nonexclusive' list of 'factors,' including 

11 II 'frivolousness, motivation, objective unreasonableness ... and the need in particular 

12 II circumstances to advance considerations of compensation and deterrence."' Id. at 1756 

13 II n.4 (quoting F ogerry v. Fantasy, Inc., 510 U.S. 51 7, 5 34 n. 19 (1994) ). "District courts 

14 II analyzing a request for fees under the Lanham Act should examine the 'totality of the 

15 II circumstances' to determine ifthe case was exceptional, exercising equitable discretion 

16 II in light of the nonexclusive factors identified in Octane Fitness and F ogerry .... '' 

1711 SunEarth, Inc. v. Sun Earth Solar Power Co., 839 F.3d 1179, 1181 (9th Cir. 2016) 

18 II (quoting Octane Fitness, 134 S. Ct. at 1756). 

19 II Neither party is entitled to attorney fees based on "the substantive strength of 

20 II [the other] party's litigating position." Octane Fitness, 134 S. Ct. at 1756. The scope 

21 11 of the Covenant Not to Sue and the effects of the 1987 Agreement are legal issues 

22 II appropriately brought before this Court. The parties' arguments in support of their 

23 II respective positions on these issues are neither "frivolous[]" nor "objective[ly] 

2411 unreasonable[]." Octane Fitness, 134 S. Ct. at 1756 n.4 (quotingFogerry, 510 U.S. at 

2511 534 n.19). 

26 II Blanchard Inc. is also not entitled to attorney fees based on Leadership's alleged 

2711 attempts to conceal the fact that Leadership Studies, Inc. is the same entity as 

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1 Leadership Studies Productions, Inc. Leadership Studies Productions, Inc. changed its 

2 name to "Leadership Studies" during the negotiations that culminated in the 1987 

3 Agreement, and that name change was reflected in the different drafts of that 

4 Agreement. Blanchard Inc. can be presumed to have been aware of the relationship 

5 II between the parties with whom they were negotiating, and consequently is not entitled 

611 to attorney fees for Leadership's alleged efforts to conceal that relationship. 

7 VII. Conclusion 

8 IT IS HEREBY ORDERED that Blanchard Inc.' s Motion to Dismiss and, in the 

9 Alternative, Motion for Summary Judgment (ECF No. 65) is DENIED. 

10 

11 II DATED: 

12 II 

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11/10! 17 

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WILLIAM Q. HA YES 

United States District Judge 

I 5-cv-1831-WQH-MDD 

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