United States Court of Appeals

FOR THE EIGHTH CIRCUIT

_____________

No. 97-1114

_____________

Klipsch, Inc., *

*

Appellant, *

* Appeal from the United States

v. * District Court for the Western

* District of Arkansas.

WWR Technology, Inc., *

*

Appellee. *

_____________

Submitted: June 11, 1997

Filed: October 14, 1997

_____________

Before BOWMAN, FLOYD R. GIBSON, and MORRIS SHEPPARD ARNOLD,

Circuit Judges.

_____________

BOWMAN, Circuit Judge.

In exchange for various debt instruments, Klipsch, Inc. sold nearly all of the

assets from its professional loudspeaker business to WWR Technology, Inc. (WWR)

and licensed WWR to use Klipsch's patents and trademarks. As part of the purchase

price, WWR issued a debenture to Klipsch. When Klipsch's attempt to redeem the

debenture from either WWR or WWR's parent company failed, Klipsch brought an

action in district court to collect on the debenture and to replevin collateral under a

Security Agreement covering the assets sold to WWR. After WWR paid Klipsch the

remaining balance on the debenture, the case ultimately was dismissed. On the same
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day that Klipsch received payment for the debenture, however, Klipsch filed its

complaint in the present action alleging, among other things, trademark and patent

infringement by WWR. After allowing WWR to amend its complaint to assert an

affirmative defense of res judicata, the District Court granted WWR's motion for

summary judgment, based on the affirmative defenses of res judicata, waiver, and

equitable forfeiture. We reverse.

I.

In 1992, Klipsch, WWR, and WWR's then-parent company entered into a series

of agreements involving Klipsch's professional loudspeaker business. Besides an Asset

Purchase Agreement, a Security Agreement, and a Manufacturing Agreement, the

parties entered into a Non-Exclusive Patent and Trademark License, Non-Competition

and Right of First Refusal Agreement [hereinafter License Agreement], which granted

various Klipsch licenses to WWR. The License Agreement was revised by an

August 5, 1994, Extension and Modification Agreement [hereinafter Extension

Agreement] entered into by Klipsch, WWR, and WWR's current parent company,

Concept Technologies Group, Inc. (Concept). The agreement effectively extended the

maturity date of the original debenture and substituted Concept in the place of WWR's

previous parent company in the original agreements. The agreement also provided,

inter alia, that upon default or breach of the substitute debenture, "[t]he licenses shall

automatically terminate, and all rights thereunder shall revert to Klipsch." The

substitute debenture allowed Klipsch the option to require redemption at any time on

or after June 30, 1995, provided prior written notice to Concept was given, and it stated

that Klipsch shall receive periodic payments of interest from Concept. After Klipsch

gave sufficient prior notice of redemption, Concept was unable to redeem the substitute

debenture. Additionally, Concept failed to pay timely the July 1, 1995, interest

payment.
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In a July 5, 1995, correspondence, Klipsch informed Concept of two

consequences of its failed redemption and late interest payment--Klipsch had a right to

pursue its security interest in the collateral held by WWR, and the licenses granted to

WWR had terminated and reverted to Klipsch. On July 24, 1995, Klipsch filed a

complaint against WWR and Concept, in which Klipsch sought from WWR the assets

that served as collateral pursuant to the Security Agreement and from Concept the

remaining balance of principal and interest on the substitute debenture less any

proceeds realized from disposition of the collateral. WWR paid the remaining balance

on the substitute debenture on August 15, 1995, and after resolving issues of attorney

fees and expenses, the District Court dismissed the case on November 6, 1995.

August 15, 1995, also marked the date that Klipsch filed its complaint in the

present action, naming only WWR as a defendant and alleging trademark infringement

pursuant to 15 U.S.C. § 1114 (1994), patent infringement pursuant to 15 U.S.C.

§ 1125(a) (1994), and unfair competition pursuant to both 15 U.S.C. § 1125(a) (1994)

and Indiana state law, in addition to seeking a declaratory judgment that its covenant

not to compete with WWR had expired. Klipsch's right to recover under these various

theories grows from the failure of WWR or Concept to redeem the substitute debenture

and their failure to make a timely interest payment, just as the right to recover did in the

first action. In this action, however, Klipsch focuses not on the failure to redeem itself

or the failure to make a timely interest payment, but on the effect of these failures--

triggering of the License Agreement's automatic termination provision. Klipsch filed

a motion for partial summary judgment on September 17, 1996, and in response WWR

filed a cross-motion for summary judgment on the grounds of res judicata, waiver, and

equitable forfeiture. Not until October 23, 1996, however, six days after the District

Court conducted a hearing on the parties' summary judgment motions, did WWR file

a motion to amend its answer to assert the affirmative defense of res judicata. The

District Court granted the motion to amend WWR's answer on November 7, 1996.

Summary judgment in favor of WWR on the grounds of res judicata, waiver, and

equitable forfeiture was granted on December 19, 1996.
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II.

Klipsch claims that the District Court erred in: (1) permitting WWR to amend

its answer to assert res judicata, (2) granting summary judgment for WWR, and (3)

denying Klipsch's motion for summary judgment. 

III.

Klipsch argues that the District Court erred in granting WWR's motion to amend

its answer to assert the affirmative defense of res judicata. We review for abuse of

discretion a district court's decision to allow a party to amend an answer. See Corsica

Livestock Sales, Inc. v. Sumitomo Bank, 726 F.2d 374, 377 (8th Cir. 1983). Federal

Rule of Civil Procedure 15(a) provides that leave to amend pleadings "shall be freely

given when justice so requires." Amendments to pleadings should be allowed with

liberality in the absence of circumstances such as "undue delay, bad faith or dilatory

motive on the part of the movant, . . . undue prejudice to the opposing party by virtue

of allowance of the amendment, [or] futility of amendment." Foman v. Davis, 371 U.S.

178, 182 (1962); see Sanders v. Clemco Indus., 823 F.2d 214, 216 (8th Cir. 1987)

(noting that "only limited circumstances justify a court's refusal to grant leave to amend

pleadings"). Having carefully considered all of Klipsch's arguments on this point, we

cannot say that the District Court abused its discretion by granting WWR leave to

amend. 

IV.

The District Court granted summary judgment in favor of WWR on three

alternative grounds, each of which is challenged by Klipsch on appeal. We review de

novo the decision to grant summary judgment. See Temporomandibular Joint (TMJ)

Implant Recipients v. Dow Chemical Co. (In re Temporomandibular Joint (TMJ)

Implants Prods. Liab. Litig.), 113 F.3d 1484, 1492 (8th Cir. 1997). "Summary
The substitute debenture that was the subject of the first action was issued

1

pursuant to the Extension Agreement, which incorporated a section of the License

Agreement that provides: "This Agreement shall be interpreted and enforced in

accordance with the laws of the State of Indiana." Similarly, the Security Agreement

that was also at issue in the first action states that it "shall be governed by, and

construed in accordance with, the laws of the State of Indiana." The parties' transaction

bore a reasonable relation to both Indiana and Arkansas, and thus the parties could

choose to apply the law of either state. See Ark. Code Ann. § 4-1-105(1) (Michie

Supp. 1995). 

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judgment is proper only when, viewing the evidence in the light most favorable to the

nonmoving party, the record presents 'no genuine issue of material fact . . . and the

moving party is entitled to a judgment as a matter of law.'" Id. (quoting Federal Rule

of Civil Procedure 56(c)). Likewise, we review de novo a district court's determination

of state law. See Salve Regina College v. Russell, 499 U.S. 225, 231 (1991).

A.

The District Court, in granting summary judgment in favor of WWR, held that

the affirmative defense of res judicata barred Klipsch from seeking the relief sought in

this second action. Before addressing the District Court's res judicata analysis,

however, we first must settle the choice-of-law question the case presents. In the first

action, the District Court exercised its diversity jurisdiction under 28 U.S.C. § 1332

(1994). The District Court sat in Arkansas, but pursuant to the parties' Security

Agreement and Extension Agreement the court applied Indiana substantive law. In the 1

second action, confronted with the res judicata issue, the District Court determined that

federal rules of res judicata were applicable because the prior litigation was brought in

federal court. This is not the rule when the prior litigation was brought in federal court

under diversity jurisdiction. When the prior judgment is one entered in a diversity case,

the preclusive effect of the prior judgment is determined by the preclusion rules of the

forum that provided the substantive law underlying that judgment. See Hicks v.

O'Meara, 31 F.3d 744, 746 (8th Cir. 1994). Because Indiana substantive law governed
Klipsch argues that Federal Rule of Civil Procedure 18(a), dealing with

2

permissive joinder of claims, is the proper tool to analyze whether this second action

can be brought. Because the defense of res judicata was asserted after the District

Court rendered a final judgment on the merits in the prior action, the principles of res

judicata are clearly applicable. 

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the first action, the District Court should have looked toward the res judicata rules of

Indiana in assessing the preclusive effect of its judgment in that action. 

Res judicata precludes the relitigation of a claim on grounds that were raised or

might have been raised in a prior action. See Town of Flora v. Indiana Serv. Corp., 53

N.E.2d 161, 163 (Ind. 1944); Wedel v. American Elec. Power Serv. Corp., 681 N.E.2d

1122, 1131 (Ind. Ct. App. 1997). Res judicata consists of two preclusion concepts--

issue preclusion and claim preclusion. See, e.g., Wedel, 681 N.E.2d at 1131. The

claim preclusion aspect of res judicata, which is at issue here, provides that "a final

judgment on the merits bars further claims by parties or their privies based on the same

cause of action." Montana v. United States, 440 U.S. 147 (1979); see Wedel, 681

N.E.2d at 1131. Klipsch argues that the doctrine of res judicata should not bar its

second action because the two suits do not involve the same cause of action.2

Moreover, Klipsch continues, even if the doctrine of res judicata would otherwise be

available, WWR has waived the defense by its acquiescence to the maintenance of two

separate suits.

We need not pause to consider whether under Indiana law Klipsch's second

lawsuit is merely a repackaging of the same claims presented in its first lawsuit.

Assuming arguendo that the claims in the two actions are the same for res judicata

purposes, we nevertheless agree with Klipsch that because WWR did not object to the

splitting of Klipsch's claims into two different suits, WWR has, through acquiescence,

waived the defense of res judicata. 
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According to the Restatement (Second) of Judgments, a claim is not extinguished

pursuant to the general rule against claim splitting "and part or all of the claim subsists

as a possible basis for a second action by the plaintiff against the defendant [when]:

(a) The parties have agreed in terms or in effect that the plaintiff may split his claim,

or the defendant has acquiesced therein." Restatement (Second) of Judgments § 26(1)

(1982). The Comment interpreting this rule sheds light on the idea of acquiescence.

Where the plaintiff is simultaneously maintaining separate actions based

upon parts of the same claim, and in neither action does the defendant

make the objection that another action is pending based on the same

claim, judgment in one of the actions does not preclude the plaintiff from

proceeding and obtaining judgment in the other action. The failure of the

defendant to object to the splitting of the plaintiff's claim is effective as an

acquiescence in the splitting of the claim.

Restatement (Second) Judgment § 26 cmt. a (1982).

We apply the Restatement (Second) of Judgments and conclude that WWR

clearly acquiesced to Klipsch's splitting of its claim into two suits. Klipsch filed a

complaint in the first action on July 24, 1995, and it filed a complaint in the present

action on August 15, 1995. Until November 6, 1995, the date the first action was

dismissed, both actions were proceeding simultaneously, and at no time did WWR

object that another action was pending on the same claim. The District Court,

however, declined to follow the Restatement (Second) of Judgments on this issue. The

court noted that it was unaware of any Eighth Circuit decision adopting Restatement

(Second) of Judgments section 26(1)(a), and found that WWR was not under any

affirmative obligation to object to the splitting of the cause of action. The court instead

focused on Klipsch's conduct, and Klipsch's decision to file two suits arising out of the

same factual scenario.
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The District Court erred in its decision not to follow Restatement (Second) of

Judgments section 26(1)(a). The court should have examined whether Indiana courts,

not the Eighth Circuit, have adopted section 26(1)(a). Like the Eighth Circuit,

however, Indiana courts have neither adopted nor rejected section 26(1)(a). We then

are left to apply our best judgment to the question of whether the Indiana Supreme

Court would adopt the approach taken in section 26(1)(a) if given the opportunity to

do so. We conclude that it is likely it would. Accordingly, the District Court's

observation that Klipsch could have asserted all of its rights against WWR in a single

suit, though correct, is not dispositive. In simultaneous actions, under the approach

reflected in section 26(1)(a) the focus should be on whether the defendant could have

objected to the plaintiff's splitting of his claim. A main purpose of the general rule

against claim splitting "is to protect the defendant from being harassed by repetitive

actions based on the same claim." Restatement (Second) of Judgments § 26 cmt. a; see

also Johnson v. Anderson, 590 N.E.2d 1146, 1150 (Ind. Ct. App. 1992). If a defendant

chooses not to make the objection that another action based on the same claim is

pending, that defendant has waived this protective aspect of res judicata and acquiesces

to the splitting of the claim. See Kern Oil & Ref. Co. v. Tenneco Oil Co., 840 F.2d

730, 735 (9th Cir. 1988), cert. denied, 488 U.S. 948 (stating that defendant could not

object to claims being split where both actions had been pending in federal court

without objection from defendant and defendant first raised claim-preclusion objection

after judgment in one case); James Wm. Moore et al., Moore's Federal Practice

§ 131.24[1] (3d ed. 1997) ("Acquiescence . . . occurs when a defendant allows two

simultaneous actions on the same claim to proceed without objection"). 

On the facts of this case, WWR had ample opportunity to object, prior to the

entry of judgment in Klipsch's first lawsuit, to the splitting of a single claim that WWR

contends resulted from Klipsch's filing of its second lawsuit. Klipsch filed its second

lawsuit on August 15, 1995, and the District Court entered judgment in Klipsch's first

lawsuit approximately three months later, on November 6, 1995. Yet not until

September 17, 1996--more than a year after Klipsch had filed its second lawsuit and
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some nine months after the entry of judgment in the first lawsuit--did WWR raise for

the first time (by way of its response to Klipsch's motion for partial summary judgment)

the suggestion that Klipsch's second lawsuit was barred by the judgment in the earlier

case. WWR's failure to object until after judgment had been entered in the first lawsuit

can only be regarded as acquiescence in the splitting of the claim. We thus hold that

the District Court's judgment in the first action does not preclude Klipsch from

obtaining judgment in the present action. Because of WWR's acquiescence, the

affirmative defense of res judicata is unavailable, and the District Court's grant of

summary judgment in favor of WWR on this ground is improper. Summary judgment

on WWR's res judicata defense should be entered in favor of Klipsch.

B.

The District Court also granted summary judgment to WWR based on the

affirmative defense of waiver. The parties' License Agreement, as amended by the

Extension Agreement, contains an automatic termination provision which provides that

upon default or breach of the substitute debenture, "[t]he [l]icenses shall automatically

terminate, and all rights thereunder shall revert to Klipsch." The court found that

Klipsch waived its right to enforce the automatic termination provision of the License

Agreement by its prior acceptances of defective performance. Thus, despite the breach

of the substitute debenture, the rights under the License Agreement remained with

WWR, thereby rendering Klipsch's assertions in this action untenable. 

Klipsch advances various arguments as to why the District Court erred in

granting summary judgment to WWR based on the affirmative defense of waiver. First,

Klipsch contends that the agreements' non-waiver clauses prevented it from waiving the

right to enforce the termination provision. Second, even assuming the unenforceability

of the non-waiver clauses, genuine issues of material fact existed as to whether Klipsch

actually waived its right to terminate the License Agreement. Third, any waiver that

may have been previously granted by Klipsch had been sufficiently revoked by the time
The License Agreement provides that Indiana law shall apply in interpreting and 3

enforcing the agreement. We agree with the District Court's decision to apply Indiana

law in analyzing the issue of waiver.

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WWR and Concept failed to redeem the substitute debenture. Based on these

arguments, Klipsch concludes that summary judgment on the defense of waiver should

be entered in its favor, or alternatively, the grant of summary judgment in favor of

WWR should be reversed and the matter should be remanded for trial because genuine

issues of material fact exist as to whether Klipsch waived the right to invoke the

automatic termination provision.

Non-waiver provisions exist in or are incorporated into each of the relevant

agreements. As an example, the non-waiver provision in the License Agreement

provides:

The waiver by either party of any breach of this Agreement by the other

party in a particular instance shall not operate as a waiver of subsequent

breaches of the same or different kind. The failure of either party to

exercise any rights under this Agreement in a particular instance shall not

operate as a waiver of such party's right to exercise the same or different

rights in subsequent instances.

The District Court found that under Indiana law the existence of the non-waiver

3

provisions does not prohibit WWR from asserting the defense of waiver. Klipsch

contends that under Indiana law non-waiver clauses are enforceable, and that in any

event, there is no support for a determination that Klipsch waived its rights under the

non-waiver provision. 

Klipsch relies upon the Indiana Supreme Court's decision in Van Bibber v.

Norris, 419 N.E.2d 115 (Ind. 1981), to support its argument that the non-waiver

provision in the License Agreement prevents WWR from asserting the defense of
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waiver. In Van Bibber, the parties entered into an installment sale security agreement,

which provided for debtor's purchase of a mobile home from seller. During the course

of the agreement, seller's bank accepted numerous late payments from debtor, without

declaring a default. In the sixth year of the security agreement, however, after an

untimely payment, the bank declared a default and repossessed the mobile home. The

trial court found that the bank, through its pattern of accepting late payments, had

waived its right to enforce strict compliance with the terms of the security agreement.

The Indiana Supreme Court reversed, holding that the trial court improperly had

ignored the security agreement's non-waiver clause, which prevented the acceptance

of late payments from acting as a waiver of the bank's right to strictly enforce the terms

of the agreement. See id. at 121.

We hold that Van Bibber does prevent WWR from successfully asserting its

waiver defense. The District Court noted that "[a] broad interpretation of Van Bibber

would bar WWR's waiver argument," but found "that such a broad interpretation would

be improper." Klipsch, Inc. v. WWR Technology, Inc., No. 95-4076, mem. op. at 13

(W.D. Ark. Dec. 19, 1996). The District Court reasoned that language in Van Bibber

strongly indicated that the Indiana Commercial Code compelled that court's holding,

and that Indiana cases decided since Van Bibber extend its holding only to cases

involving non-waiver clauses in the mortgage context. We believe that the language

in Van Bibber is sufficiently expansive to apply to this case. The late payments relied

upon by WWR to support its waiver argument involved late payments on two notes and

a previous debenture, both of which had been issued by WWR and its prior parent

company as part of the original transaction involving the sale of Klipsch's professional

loudspeaker business. Klipsch did not sell its professional loudspeaker business's

assets to WWR in exchange for a one-time lump sum payment; instead payments were

due on these various instruments at different times, similar to an installment contract.

The specific purpose of the non-waiver clause as stated in Van Bibber, "avoiding the

risk of waiver by notifying the debtor in a contract term that the secured party's

acceptance of late payments cannot be relied on as treating the time provisions as 
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modified or waived," seems equally germane to the present case. Van Bibber, 419

N.E.2d at 121. If the parties' License Agreement "is to be truly effective according to

its terms, we must conclude that [Klipsch] did not waive its rights to demand strict

compliance and to pursue its contract and statutory remedies." Id. Additionally, rather

than narrow the breadth of Van Bibber's holding, we believe that subsequently decided

Indiana cases expand the holding. While the District Court and WWR reference a

string of cases applying Van Bibber's holding to cases involving a mortgage, see, e.g.,

First Fed. Sav.& Loan Assoc. v. Stone, 467 N.E.2d 1226, 1232 (Ind. Ct. App. 1984),

there is no authority that the holding is limited to the mortgage or other particular

contexts.

Moreover, irrespective of the enforceability of the non-waiver clauses, WWR

has not demonstrated a pattern of accepting late payments that would justify a

determination of waiver of the License Agreement's automatic termination provision.

See van de Leuv v. Methodist Hosp., 642 N.E.2d 531, 533 (Ind. Ct. App. 1994)

(stating that party asserting waiver defense has burden of proving that defense). As

evidence of waiver, the District Court referred to several instances, spanning from April

1993 to January 1994, where Klipsch extended the maturity date on the two notes that

had been issued as part of the original transaction involving the sale of Klipsch's assets.

Moreover, the court noted that the Manufacturing Agreement had been extended twice,

lastly as part of the August 5, 1994, Extension Agreement, which also effectively

extended the maturity date of the original debenture by replacing that debenture with

a substitute debenture with a later maturity date. There is no evidence that Klipsch ever

waived any of its rights under the Extension Agreement or the substitute debenture.

See van de Leuv, 642 N.E.2d at 533 ("Waiver is an intentional relinquishment of a

known right involving both knowledge of the existence of the right and the intention to

relinquish it."). The instances of defective performance accepted by Klipsch, the most

recent of which was on August 5, 1994, did not constitute a waiver of Klipsch's right

to invoke the License Agreement's automatic termination provision for a breach of the

substitute debenture. Klipsch arguably may have waived the right to enforce the 
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License Agreement's automatic termination provision for late payment on the notes or

the original debenture, but it had never waived its right to enforce strict compliance

with the terms of the substitute debenture. Cf. Farm Equip. Store, Inc. v. White Farm

Equip. Co., 596 N.E.2d 274, 277 (Ind. Ct. App. 1992) (stating that a modification or

waiver of one part of a contract does not result necessarily "in a wholesale waiver or

modification of other . . . provisions in the contract"). To the contrary, a month before

Klipsch's failed redemption attempt, Klipsch sent Concept a notice indicating its

intention to exercise its redemption option.

Summary judgment in favor of WWR on the grounds of waiver should be

reversed, and summary judgment on the grounds of waiver should be entered in favor

of Klipsch.

C.

As a final ground supporting summary judgment in favor of WWR, the District

Court determined that the doctrine of equitable forfeiture bars Klipsch from enforcing

the automatic termination provision of the License Agreement; therefore, the license

rights at issue in the present action never reverted back to Klipsch, but remained with

WWR pursuant to the original License Agreement. In support of its decision, the

District Court referred to Indiana's "long standing policy against forfeiture," Klipsch,

No. 95-4076, mem. op. at 21 (granting summary judgment), and to the balance of

equities in favor of WWR. Klipsch argues that the District Court erred in applying the

doctrine of equitable forfeiture to the parties' License Agreement and in basing its

decision on disputed facts and facts not in the record, while ignoring allegedly

undisputed facts that support a decision in favor of Klipsch. Klipsch seeks either a

grant of summary judgment in its favor or, at a minimum, a reversal of the District

Court's grant of summary judgment in favor of WWR. 
Indiana law is also applicable in analyzing the waiver issue. 4

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We believe that the District Court incorrectly granted summary judgment in favor

of WWR based on the theory of equitable forfeiture. Indiana law generally disfavors 4

forfeitures, see id.; however, forfeiture may be "appropriate under circumstances in

which it is found to be consonant with notions of fairness and justice under the law,"

Colonial Discount Corp. v. Bowman, 425 N.E.2d 266, 268 n.1 (Ind. Ct. App. 1981)

(internal quotations omitted). Forfeiture based on the facts of this case is in keeping

with the concepts of fairness and justice. In negotiating the License Agreement,

Klipsch, WWR, WWR's then-parent company, and later Concept (via the Extension

Agreement) were all represented by counsel and freely agreed to the clear and

unambiguous language contained in the termination provision. Furthermore, the

License Agreement provided that the license rights themselves were "terminable" and

"restricted." WWR enjoyed the use of the license rights from the time the parties

entered into the License Agreement in 1992 to the time Klipsch informed WWR that,

based on the breaches of the substitute debenture, Klipsch was invoking the License

Agreement's termination provision (Klipsch made this clear in a July 5, 1995, letter to

Concept). Additionally, the license rights represented only a portion of the assets

purchased by WWR from Klipsch. WWR also acquired and still retains, among other

things, all of Klipsch's professional loudspeaker equipment, inventory, materials, and

supplies. The District Court focused on the inequity of terminating WWR's license

rights after WWR had made a late payment of the full amount owed on the substitute

debenture, given WWR's efforts to develop the business. Klipsch strongly disagrees

with the court's conclusory statements concerning the impact of WWR's efforts on the

profitability of Klipsch's former business and the unjustness of allowing Klipsch to reap

the benefits of those efforts. While there may be some dispute as to immaterial,

peripheral facts, the plain, unambiguous language of the termination clause is not in

dispute; nor is the fact that WWR breached the terms of the substitute debenture

seriously contested. Based on these two undisputed material facts, summary judgment

should not have been entered in favor of WWR on the grounds of equitable forfeiture.
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Without delving into the disputed facts relied upon by the District Court in granting

summary judgment on the basis of equitable forfeiture, we note that the District Court

ignored what the parties had bargained for. Forfeiture of the license rights, especially

after Klipsch informed WWR and Concept that it was not going to be satisfied with late

payment on the substitute debenture, does not offend notions of fairness or justice.

WWR's arguments provide nothing that is a good reason for denying effect to the

termination clause in accordance with its freely bargained-for terms. Klipsch is entitled

to summary judgment on WWR's equitable-forfeiture defense.

V.

Finally, Klipsch argues that the District Court erred in denying its motion for

summary judgment on its patent, trademark, and non-compete-clause claims. Because

we have determined that the District Court erred in granting summary judgment to

WWR (and in denying summary judgment to Klipsch on the affirmative defenses

discussed in the preceding portions of this opinion), we agree that the District Court

erred in denying Klipsch's motion for summary judgment on its claims of patent and

trademark infringement and on its claim that the non-compete clause is no longer

binding. The material facts necessary to resolution of this motion are not in dispute.

WWR failed to redeem the substitute debenture by June 30, 1995, in accordance with

the parties' agreements and after proper notice of Klipsch's intention to exercise its

option to compel such redemption. WWR also failed to remit the quarterly interest

payment due Klipsch on the debenture by the due date of July 1, 1995, or within the ten

day "cure" period. Each of these actions resulted in a breach of the terms of the

substitute debenture, triggering the automatic termination of the parties' license

agreement. As a result, WWR's right to use Klipsch patents and trademarks terminated

in July 1995, and WWR's continued, non-permissive use of this property amounts to

infringement. Likewise, when WWR's license to use Klipsch patents and trademarks

was defaulted as a result of non-payment of the substitute debenture and of the

quarterly interest, Klipsch's conditional agreement not to compete with WWR in the
The footnote stated that the Skendzel court "recognized exceptions to the rule, 5

when forfeiture clauses may properly be enforced," but stated that "'[w]e are persuaded

that forfeiture may only be appropriate under the circumstances in which it is found to

be consonant with notions of fairness and justice under the law.'" Colonial, 425 N.E.2d

at 268 n.1 (quoting Skendzel, 301 N.E.2d at 650).

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professional market "so long as" WWR held a license to use the Klipsch name was

rendered a nullity. Because WWR no longer holds a license to use the Klipsch name,

Klipsch is no longer bound not to compete with WWR in the professional market.

Summary judgment should be entered in favor of Klipsch on its claim of patent and

trademark infringement and on its claim that the agreement not to compete is void.

VI.

The grant of summary judgment in favor of WWR is reversed, and the case is

remanded for further proceedings consistent with this opinion. 

Floyd R. Gibson, Circuit Judge, dissenting.

I respectfully dissent because, in this case, forfeiture is not "'consonant with

notions of fairness and justice under the law.'" Colonial Discount Corp. v. Bowman,

425 N.E.2d 266, 268 n. 1 (Ind. Ct. App. 1981) (quoting Skendzel v. Marshall, 301

N.E.2d 641, 650 (Ind. 1973)). In exchange for a large portion of Klipsch's assets,

5

including the right to use various license rights under the License Agreement, WWR

issued a $210,238 Equipment Note and a $701,134 Inventory Note, as well as a

$425,000 Convertible Subordinated Debenture, in favor of Klipsch. The maturity date

on the Equipment Note was March 31, 1993, and the maturity date on the Inventory

Note was August 31, 1993. Klipsch extended the maturity date on the Equipment note

four times and extended the maturity date on the Inventory Note three times. When

most of these extensions were granted, payment on the notes was already
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past due, thus triggering the Termination provision of the License Agreement. Each

time, however, Klipsch neglected to act upon its right to terminate the license

agreement. On February 23, 1994, WWR's then-parent company, Concept, paid

WWR's obligations on the Equipment and Inventory Notes in full.

On August 5, 1994, the parties entered into an Extension and Modification

Agreement which, inter alia, extended the maturity date of the Debenture from March

15, 1994 to June 30, 1995, and substituted Concept for WWR as the responsible party.

The Debenture was payable on demand any time on or after the June 30th maturity

date, provided Klipsch gave Concept thirty days notice. Klipsch provided notice of its

intent to redeem the Debenture, but Concept failed to pay the full amount of the

Debenture to Klipsch by June 30. Because Concept failed to redeem the Debenture,

Concept was required to make an interest payment on July 1, 1995, which it did not

pay to Klipsch until July 14. On August 15, 1995, Concept paid to Klipsch the

remaining balance on the Debenture. Thus, as of August 15, 1995, Concept had paid

Klipsch $210,238 on the Equipment Note, $701,134 on the Inventory Note, and

$425,000 on the Debenture.

During the time that Klipsch allowed WWR to make late payments without

invoking the Automatic Termination provision, WWR continued to develop and market

the professional loudspeaker business using the Klipsch trademark, arguably greatly

improving the value of that trademark. After years of developing Klipsch's name and

after paying Klipsch over one million dollars for the right to develop its own business

using the Klipsch name, Klipsch is essentially asking for the forfeiture of WWR's

business. Without the use of the Klipsch trademark that WWR substantially developed,

WWR will no longer have the use of a recognizable name in the loudspeaker business

which is essential to its successful operation. In the final analysis, WWR spent three

years developing a name which it now has no right to use. Effectively, WWR has

given up considerable time, money, and effort in exchange for a loudspeaker business

which is not worth much of anything without the use of the trademark under the 
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License Agreement. Because I do not believe these results are "consonant with notions

of fairness and justice," id., as found by District Judge Harry F. Barnes in his opinion

in this case, I would affirm the district court's decision based on the equitable forfeiture

issue.

A true copy.

Attest:

CLERK, U.S. COURT OF APPEALS, EIGHTH CIRCUIT.