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

_____________ Bef ore BOWMAN, FLOYD R. GIBSON, and MORRIS SHEPPARD ARNOLD , Circuit Judges.

_____________ BOWMAN, Circuit Judge.

In e xchange for various debt instruments, Klipsch, Inc. sold nearly all of th e assets fro m its professional loudspeaker business to WWR Technology, Inc. (WWR) and l icensed 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 th e deb enture from either WWR or WWR's parent company failed, Klipsch brought a n act ionin district court to collect on the debenture and to replevin collateral under a Security Agree ment covering the assets sold to WWR. After WWR paid Klipsch the remaini ng balance on the debenture, the case ultimately was dismissed. On the same-2-

da y that Klipsch received payment for the debenture, however, Klipsch filed it s compl aint in the present action alleging, among other things, trademark and paten t in fringement

by WWR. After allowing WWR to amend its complaint to assert a n affirma tive defense of res judicata, the District Court granted WWR's motion fo r
summa ry judgment, based on the affirmative defenses of res judicata, waiver, an d equitable forfeiture. We reverse.

I.
In 1992, Klipsch, WWR, and WWR's then-parent comp any entered into a series of agreements involving Klipsch's professional loudspeaker busi ness. Besides an Asset Purchas e Agreement, a Security Agreement, and a Manufacturing Agreement, th e parties entered into a Non-Exclusive Patent and Trademark License, Non-Competition and Right of First Refusal Agr eement [hereinafter License Agreement], which granted vari ous Klipsch licenses to WWR. The License Agreement was revised by a n August 5, 1994, Extension and Modification Agreement [hereinafter Extensio n Agr eement] 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 p arent 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." Th e 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 give n, and it stated tha t Klipsch shall receive periodic payments of interest from Concept. After Klipsch gave sufficient prior notice of redemption, Concept was unable t o redeem the substitute debent ure. Additionally, Concept failed to pay timely the July 1, 1995, interes t payment.-3-

In a July 5, 1995, correspondence, Klipsch informed Concept of tw o consequences of its failed redemption and la te interest payment--Klipsch had a right to pursue its sec urity interest in the collateral held by WWR, and the licenses granted to WWR had ter minated 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 th e remai ning balance of principal and interest on the substitute debenture less an y proceeds realized from disposition of the coll ateral. 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 th e present action, naming only WWR as a defen dant 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 compet ition 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. Klips ch's right to recover under these various theories grows from the failure of WWR or Concept to redeem th e 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, Kl ipsch focuses not on the failure to redeem itself

or the f ailure 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 1 7, 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 Co urt conducted a hearing on the parties' summary judgment motions, did WWR file

a mo tion to amend its answer to assert the affirmative defense of res judicata. Th e 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, an d equitable forfeiture was granted on December 19, 1996.-4- II.
Klipsch claims that the District Court erred in: (1) permitting WWR to amend its answe r 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 granti ng WWR's motion to amend its answer t o assert the affirmative defense of res judicata. We review for abuse o f discretion a district court's deci sion to allow a party to amend an answer. See Corsica Livesto ck Sales, Inc. v. Sumitomo Bank , 726 F.2d 374, 377 (8th Cir. 1983). Federal Rule o f Civil Procedure 15(a) provides that leave to amend pleadings "shall be freely giv en when justice so requires." Amendments to pleadings should be allowed with li berality in the absence of circumstances such as "undue delay, bad faith or dilator y motive on t

he 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 t o amend.

IV.

The Di strict Court granted summary judgment in favor of WWR on thre e alternative grounds, each of which is challenged by Klipsch on appeal. We review de

no vo the decision to grant summary judgment. See Temporomandibular Joint (TMJ) Implan t Recipients v. Dow Chemical Co. (In re Temporomandibular Joint (TMJ ) Implants Prods. Liab. Litig.) , 113 F.3d 1484, 1492 (8th Cir. 1997). "SummaryThe substitute debenture that was the subject of the first action was issue d 1 pursuant to the Extension Agreement, which incorporated a section of the Licens e Agr eement

that provides: "This Agreement shall be interpreted and enforced i n accordan ce with the laws of the State of Indiana." Similarly, the Security Agreement that was al so at issue in the first action states that it "shall be governed by, an d construed in accordance with, the laws of the State of Indiana." The par ties' transaction bore a reasonable relation to both Indiana and Arkansas, and thus the parties coul d choose to ap ply the law of either state. See Ark. Code Ann. § 4-1-105(1) (Michi e Supp. 1995).
-5- judgment is pro per only when, viewing the evidence in the light most favorable to the

nonmov ing party, the record presents 'no genuine issue of material fact . . . and th e 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 distr ict 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 secon d 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, t he District Court exercised its diversity jurisdiction under 28 U.S.C. § 133 2 (1994). The District Court sat in Arkansas, but pursuant to the parties' Securit y Agreement and Extension Agreement the court applied Indiana subst antive law. In the 1 second action, confronted with the res judicata issue, the Di strict Court determined that federal rules of res judicata were appli cable because the prior litigation was brought in federal court. This is not the rule when the pr ior 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 foru m 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 governedKlipsch 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 br ought. Because the defense of res judicata was asserted after the Distric t Court re ndered a final judgment on the merits in the prior action, the principles of res judicata are clearly applicable.
-6- the f irst 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 T own 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 11 22, 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. Th e claim pr eclusion aspect of res judicata, which is at issue here, provides that "a fina l judgment on the merits bars further claims by parties or their privies based on the same

cause of a ction." Montana v. United States , 440 U.S. 147 (1979); see Wedel , 68 1 N.E.2d at 1131. Klipsch argues that the doctrine of res judicata should not bar it s
sec ondaction because the two suits do not involve the same cause of action. 2 Mo reover, 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 nee d not pause to consider whether under Indiana law Klipsch's secon d lawsuit is m erely 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 judicat a purposes, we nevertheless agree with Klipsc h that because WWR did not object to the splitting of Klipsch's claims i nto two different suits, WWR has, through acquiescence, waived the defense of res judicata.-7-

According to the Restatement (Second) of Judgments, a claim is not extin guished pursuant to the general rule against claim splitting "and part or all of the claim subsists

as a possib le 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 defendan t mak e the objection that another action is pending based on the sam e claim, judgment in one of t he actions does not preclude the plaintiff from proceeding and obtaining judgment i n the other action. The failure of the defendant to object to the splitting of the plaintif f'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 WW R clearly a cquiesced to Klipsch's splitting of its claim into two suits. Klipsch filed a
co mplaint in the first action on July 24, 1995, and it filed a complaint in the presen t action o n August 15, 1995. Until November 6, 1995, the date the first action wa s dismi ssed, both actions were proceeding simultaneously, and at no time did WW R object that another action was pending on the same claim. The District Court , however, declined to follow the Restatement (Second) of J udgments on this issue. The court noted that it was unaware of any Eighth Circuit decision adopting Restatement (Secon d) of Judgments section 26(1)(a), and found that WWR was not under an y affirmative obligation to object to the splitting of the cau se of action. The court instead focused on Klipsch's conduct, and Klipsc h's decision to file two suits arising out of the same factual scenario.-8-

The District Court erred in its decision not to follow Restatement (Second) o f 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, In diana 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 Suprem e 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 tha

t Klipsch could have asserted all of its rights against WWR in a single suit, though correct, is not dispositive. In simultaneous actions, under the approac h reflected in se ction 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 rul e aga inst claim splitting "is to protect the defendant from being harassed by repetitiv e actions based on the same claim." Restatement (Second) of Judgment s § 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 i s pending, that defendant has waived this protective aspect of res judi cata and acquiesces to the splitting of the claim. See Kern Oil & Ref. Co. v. Tenneco Oil Co. , 840 F.2 d 730, 735 ( 9th Cir. 1988), cert. denied , 488 U.S. 948 (stating that defendant could not obje ctto claims being split where both actions had been pending in federal cour t without objection from defendant and defen dant first raised claim-preclusion objection af ter judgment in one case); James Wm. Moore et al., Moore's Federal Practic e § 1 31.24[1] (3d ed. 1997) ("Acquiescence . . . occurs when a defendant allows tw o simultaneous actions on the same claim to proceed without objection").

On the facts of this case, WWR had ample opportunity to object, prior to th e entry of judgment in Klipsch's first lawsuit , to the splitting of a single claim that WWR conten ds 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 unti l September 17, 1996--more than a year after Klipsch had filed its second lawsuit and-9-

so me 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 par tial 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 be en entered in the first lawsuit

can only be regarded as acquiescence in the splitting of the claim. We thus hold that the Distric t Court's judgment in the first action does not preclude Klipsch fro m obtaining judgment in the present action. Because of WWR's acquiescence, th e affirmat ive defense of res judicata is unavailable, and the District Court's grant o f summary judgment in fav or 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 th e affirmati ve defense of waiver. The parties' License Agreement, as amended by th e Extension Agreement, contains an automatic termina tion provision which provides that upon default or breach of the subst itute debenture, "[t]he [l]icenses shall automatically terminat e, and all rights thereunder shall revert to Klipsch." The court found tha t Klipsch waived i ts right to enforce the automatic termination provision of the License Agreement by its prior acceptances of defective performance. Thus, despite the breach of the s ubstitute debenture, the rights under the License Agreement remained with WWR, thereby rendering Klipsch's assertions in this action untenable.
Klip sch advances various arguments as to why the District Court erred i n 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. Sec ond, 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 timeThe License Agreement provides that Indiana law shall apply in interpreting and 3 enforcing the agreement. We ag ree with the District Court's decision to apply Indiana law in analyzing the issue of waiver.
-10- WWR and Concept failed to redeem the substitute debenture. Based on thes e arguments, Klipsch concludes that summary judgment on the defense of waiver should be entered i n its favor, or alternatively, the grant of summary judgment in favor o f 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 th e automatic termination provision.

Non-waiver provisions exist in or are incorporated into each of the relevan t agreem ents. As an example, the non-waiver provision in the License Agreemen t provides:

The w aiver 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 brea ches of the same or different kind. The failure of either party t o exercise any rights under this Agree ment 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.

Th e District Court found that under Indiana law the existence of the non-waive r 3 provision s does not prohibit WWR from asserting the defense of waiver. Klipsc h contends that under Indiana law non-waiver clauses are enforceable, and that in an y
ev ent, 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-waive r provision in the License Agreement prevents WWR from asserting the defense of-11-

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 ba nk accepted numerous late payments from debtor, without declaring a default. In the sixth year of the security agreement, however, after a n untimely payment, the bank declar ed a default and repossessed the mobile home. The trial cou rt found that the bank, through its pattern of accepting late payments, ha d waived its right to enforce strict compliance with the terms of the security agreement. The India na Supreme Court reversed, holding that the trial court improperly ha d ignored the security agreement's non-waiver clause, which prevented the acceptanc e of late payments from acting as a waiver of the bank's ri ght to strictly enforce the terms of the agreement. See id. at 121. We hold that Van Bibber does prevent WWR from successfully asserting it s waiver defense. The District Court no ted that "[a] broad interpretation of Van Bibber would bar WWR's waiver argument," but found "that such a broad i nterpretation would be improper." Kli

psch, 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 st rongly indicated that the Indiana Commercial Code compelled that court's holding , an d that Indiana cases decided since Van Bibber extend its holding only to case s 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 tw o notes and

a previous debenture, both of which had been issued by WWR and its prior paren t company as part of the original transaction involving the sale of Klipsch's professional loudspeak er

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. Th e specific purpose of the non-waiver clause as stated in Van Bibber , "avoiding the ris k 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-12-

modi fied or waived," seems equally germane to the present case. Van Bibber , 41 9 N.E.2d at 121. If theparties' License Agreement "is to be truly effective according to its terms , we must conclude that [Klipsch] did not waive its rights to demand stric t compliance and to pursue its contract and statutory reme dies." Id. Additionally, rather than narrow the breadth of Van Bibber 's holding, w e believe that subsequently decided Indiana cases expand the holding. While the District Court and WWR reference a string of cases applying Van Bibber 's hold ing 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 particula r contexts. More over, irrespective of the enforceability of the non-waiver clauses, WW R 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 va n de Leuv v. Methodist Hosp. , 642 N.E.2d 531, 533 (Ind. Ct. App. 1994 ) (stating tha t party asserting waiver defense has burden of proving that defense). A s evidence of waiver, the District Court referred to several instances, span ning 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 ha d been extended twice, lastly as part of the August 5, 1994, Extension Agreement, which also effectivel y 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 th at 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 def ective performance accepted by Klipsch, the most

re cent of which was on August 5, 1994, did not constitute a waiver of Klipsch's right to invoke the License Agree ment's automatic termination provision for a breach of the substitute debenture. Klipsch arguably may have waived the right to enforce the-13-

License Agreement's a

utomatic termination provision for late payment on the notes or the ori ginal debenture, but it had never waived its right to enforce strict complianc e 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 i n the contract"). To the contrary, a month before Klipsc h's failed redemption attempt, Klipsch sent Concept a notice indicating it s intention to exercise its redemption option.
Summary jud gment in favor of WWR on the grounds of waiver should b e reversed, and sum

mary 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 t

hat the doctrine of equitable forfeiture bars Klipsch from enforcing the automatic termination provision of the License Agreement; therefore, the licens e rights at issue

in the present action never reverted back to Klipsch, but remained with WWR pursuan t to the original License Agreement. In support of its decision, th e District Court referred to Indiana's "long standing policy against forfeiture," Klipsch , No. 95-407 6, mem. op. at 21 (granting summary judgment), and to the balance o f equities in favor of WWR. Klipsch argues t hat the District Court erred in applying the doctrine of equitable forfeiture to the parties' License Agreement and in basing it s decision on disputed facts and facts not in the record, while ignoring allegedl y undisputedfacts that support a decision in favor of Klipsch. Klipsch seeks either a gr ant of summary judgment in its favor or, at a minimum, a reversal of the Distric t Court's grant of summary judgment in favor of WWR.Indiana law is also applicable in analyzing the waiver issue. 4
-14- We believe that the District Court incorrectly granted summary judgment in f avor of WWR based on the theor y of equitable forfeiture. Indiana law generally disfavors 4 forfe itures, see id. ; however, forfeiture may be "appropriate under circumstances i n whichit is found to be consonant with notions of fairness and justice under the law," Co lonial 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 , Klip sch, WWR, WWR's then-parent company, and later Concept (via the Extensio n Agreeme nt) were all represented by counsel and freely agreed to the clear an d unambiguous language contained in the termination provision. Furthermore, th e License Agreement provided that the license rights themselves were "terminable" and "restric ted." WWR enjoyed the use of the license rights from the time the partie s 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 Licens e Agreement's terminati on provision (Klipsch made this clear in a July 5, 1995, letter to Concept). Additionally, the license rights represented only a portion of the asset s purchased by WWR from Klipsch. W WR also acquired and still retains, among other thi ngs, all of Klipsch's professional loudspeaker equipment, inventory, materials, and supplies. The District Court focused on the inequity of terminating WWR's licens e 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 conclusorystatements 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 , periph eral facts, the plain, unambiguous language of the termination clause is not i n dispute ; nor is the fact that WWR breached the terms of the substitute debentur e seriously contested. Based on these two undi sputed material facts, summary judgment should not have been entered in favor of WWR on the grounds of equitable forfeiture.-15-

Withou t delving into the disputed facts relied upon by the District Court in grantin g summary judgment on the basis of equitable forfeiture, we note that the District Court ignored what the part

ies had bargained for. Forfeiture of the license rights, especially after Klipsch informed WWR and Concept that it was not going to be satisf ied with late pay ment 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 th e 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 fo r summary judgment on its patent, trademar k, and non-compete-clause claims. Because

we have det ermined that the District Court erred in granting summary judgment t o WWR (and i n denying summary judgment to Klipsch on the affirmative defense s discu ssed in the preceding portions of this opinion), we agree that the District Cour t erred in denying Klipsch's motion for summary judgment on its claims of patent an d trade mark

infringement and on its claim that the non-compete clause is no longe r b i nding. 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 it s option to compel such redemption. WWR also failed to remit the quarterly interes t payment due Klipsch on the debenture by the due date of July 1, 1995, or within the ten day "cure" per iod. Each of these actions resulted in a breach of the terms of th e substitute debenture, triggering the automatic termination of the parties' licens e 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 infringemen

t. Likewise, when WWR's license to use Klipsch patents and trademarks

was defa ulted as a result of non-payment of the substitute debenture and of th e quarterly interest, Klipsch's conditional agreement not to compete with WWR in theThe 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).
-16- professiona lmarket "so long as" WWR held a license to use the Klipsch name wa s rendered a nullity. Be cause 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 an d 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 , 30 1 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 iss ued 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 Inventor y Note was August 31, 1993. Klipsch extended the ma turity date on the Equipment note fourtime s and extended the maturity date on the Inventory Note three times. Whe n most of these extensions were granted, payment on the notes was already-17-

past d ue, thus triggering the Termination provision of the License Agreement. Eac h time, however, Klipsch neglected to act upon its right to terminate the licens e agre ement. On February 23, 1994, WWR's then-parent company, Concept, pai d WWR's obligations on the Equipment and Inventory Notes in full.

On A ugust 5, 1994, the parties entered into an Extension and Modificatio n Agreement which, inte

r alia , extended the maturity date of the Debenture from March 15, 1994 to June 30, 1995, and substituted Concept for WW R as the responsible party. The Debenture was payable on demand any time on or after the June 30th maturit y date, provided Klipsch gave Concept thirty d ays notice. Klipsch provided notice of its inte nt to redeem the Debenture, but Concept failed to pay the full amount of th e Debenture to Klipsch by June 30. Because Concept failed to redeem the Debenture, Conce pt was required to make an interest payment on July 1, 1995, which it did no t pay to Kl ipsch until July 14. On August 15, 1995, Concept paid to Klipsch th e remaining bala

nce on the Debenture. Thus, as of August 15, 1995, Concept had paid Klipsch $2 10,238 on the Equipment Note, $701,134 on the Inventory Note, an d $425,000 on the Debenture. During the time that Klipsch allowed WWR to make late payments withou t invoking the Automatic Termination provision, WWR continued to develop and market the prof essional loudspeaker business using the Klipsch trademark, arguably greatl y improving the value of that trademark. After years of developing Klipsch's name and after paying K

lipsch over one million dollars for the right to develop its own business using th e Klipsch name, Klipsch is essentially asking for the forfeiture of WWR' s business. Without the use of the Klipsch trademark that WWR substantially d eveloped, WWR will no longer have the u se of a recognizable name in the loudspeaker business which is essential to its successful operation. In the final analysis, WWR spent three yea rs developing a name which it now has no right to use. Effectively, WWR ha s 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-18-

License Agreement. Because I do not believe these results are " consonant with notions of fairnes s and justice," id. , as found by District Judge Harry F. Barnes in his opinion in this case, I would affirm the district court's decisi on based on the equitable forfeiture issue.

A true copy.

Attest:

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