United States Court of Appeals,

Eleventh Circuit.

No. 93-9077.

ORIGINAL APPALACHIAN ARTWORKS, INC., a Georgia Corporation,

Plaintiff-Counter-Defendant, Appellee,

Schlaifer Nance & Company, Inc., Intervenor-Plaintiff,

v.

S. DIAMOND ASSOCIATES, INC., an Illinois Corporation, DefendantCounter-Claimant, Appellant.

Jan. 25, 1995.

Appeal from the United States District Court for the Northern

District of Georgia. (No. 1:87-cv-183-JTC), Jack T. Camp, Judge.

Before EDMONDSON and CARNES, Circuit Judges, and HENDERSON, Senior

Circuit Judge.

PER CURIAM:

S. Diamond Associates, Inc. ("Diamond") appeals from the

judgment of the United States District Court for the Northern

District of Georgia in this action brought by Original Appalachian

Artworks, Inc. ("OAA") seeking a declaratory judgment that Diamond

was not entitled to recover a portion of the proceeds of a

settlement agreement made between OAA and Topps Chewing Gum, Inc.

("Topps"). For the reasons set forth below, we affirm.

I. BACKGROUND

This is the second appearance of this case in our court after

an earlier remand to the district court. See Original Appalachian

Artworks, Inc. v. S. Diamond Assocs., Inc., 911 F.2d 1548 (11th

Cir.1990) ("OAA I "). The relevant facts are as follows.

OAA owns the copyright registration and trademark for the

Cabbage Patch Kids, soft sculptures designed by Xavier Roberts,
 1

OAA's president, Della Tolhurst, testified at the trial in

this case that the sculptures were never referred to as dolls

within OAA, but as "kids" or "babies." (R12-76). She described

the "Little People" as "unique individuals, very huggable, soft,

lovable, very wholesome products." (Id.). The Cabbage Patch

Kids manufactured and marketed by Coleco Industries were

mass-produced in the Far East, had vinyl heads and initially

carried a wholesale price of $18.00. OAA continued to make and

distribute hand stitched "dolls" with fabric heads, which sold in

the gift market for $125.00 or more. Both products came with

birth certificates and adoption papers. (Id. at 80). 

 2Tolhurst testified that at the height of the Cabbage Patch

Kids' popularity, OAA had approximately 127 licensees who

marketed hundreds of different related products. (R12-84). 

which made their debut in 1980 as the "Little People from Babyland

General." OAA's principal licensee, Coleco Industries, began mass

marketing Cabbage Patch Kids dolls in 1983. 1

 Also in 1983, OAA

entered into a licensing agreement with Diamond through OAA's

exclusive licensing agent, Schlaifer Nance & Co., Inc., to

manufacture and sell certain puffy sticker products related to its

dolls.2

 The contract gave Diamond an "exclusive license to utilize

the name, character, symbol, design, likeness and visual

representation" of Cabbage Patch Kids, "solely and only in

connection with the manufacture, distribution and sale of the

article or articl[es] specified in Schedule "B.' " (Plaintiff's

Trial Exhibit 1, ¶ 1). Schedule "B" stated:

Schedule "B" LICENSED PRODUCTS

1. Self adhesive character and/or logo stickers as follows ...

ACCESSORIES MAY BE INCLUDED THAT DO NOT CONFLICT WITH

COLOR FORMS.

a. puffy vinyl stickers

b. "color-me" fuzzy stickers with accessory markers

c. puffy, scratch 'n sniff stickers
 3

Although OAA prevailed on its motion for a preliminary

injunction, an injunction never issued because OAA did not make

the necessary application. OAA states in its brief on appeal

that it could not post the anticipated multi-million dollar bond

required and instead, it asked for an expedited trial on the

merits. 

d. flat, scratch 'n sniff stickers on cards or rolls

2. Waxed-page sticker collection book

3. Waxed-page sticker baby book in book form.

(Id. at Schedule "B"). Under the terms of the agreement, OAA

retained exclusive rights to the goodwill associated with the

Cabbage Patch name. (Id. at ¶ 11). The contract also reserved for

OAA "the sole right to determine whether or not any action shall be

taken on account of any infringements or imitations" of the

licensed products and prohibited Diamond from taking any such

action without first obtaining OAA's written consent. (Id. at ¶

7(a)).

In 1985, Topps began distributing a sticker type of bubble gum

trading card under a trademark it obtained for Garbage Pail Kids.

See Original Appalachian Artworks, Inc. v. Topps Chewing Gum, Inc.,

642 F.Supp. 1031, 1032 (N.D.Ga.1986) ("Topps "). The stickers

"derisively depict dolls with features similar to Cabbage Patch

Kids dolls in rude, violent and frequently noxious settings." Id.;

see also OAA I, 911 F.2d at 1549 (describing Garbage Pail Kids as

"strikingly similar to the Cabbage Patch Kids, but depicted in less

than flattering situations"). In response, OAA filed a lawsuit

against Topps for copyright and trademark infringement and unfair

competition, in which it successfully sought the right to a

preliminary injunction against Topps. See Topps, supra.3 Later,
in settlement of the litigation, Topps agreed to pay OAA seven

million dollars in damages. In return, OAA agreed that it would

not authorize any of its licensees, including Diamond, to sue Topps

for copyright or trademark infringement connected with the Garbage

Pail Kids. After learning of the settlement, but prior to the

dismissal of the case, Diamond moved to intervene on the ground

that it too had suffered damages from Topps' conduct. The district

court denied Diamond's motion. See OAA I, 911 F.2d at 1549.

OAA subsequently filed this action founded upon diversity of

citizenship, 28 U.S.C. § 1332, seeking a declaratory judgment that

Diamond had no right to share in the settlement proceeds. Diamond

filed a counterclaim, alleging that it suffered economic injury

from the marketing of the Garbage Pail Kids cards and that OAA had

a fiduciary duty under its licensing agreement with Diamond to

protect Diamond's interests as a licensee. Diamond sought to have

the court impose a constructive or resulting trust or an equitable

lien on the settlement funds and for an accounting to determine the

amount of the damages to which it was entitled. Both parties moved

for summary judgment. The district court granted judgment to OAA

holding that (1) Diamond had no right to compensation under the

licensing agreement because the contract reserved to OAA the

exclusive right of suing infringers; and (2) OAA's settlement with

Topps constituted a recovery solely for the damage caused to the

goodwill associated with the Cabbage Patch Kids name, which was the

sole property of OAA, and did not reflect any decrease in licensing

revenues received from Diamond as a result of the marketing of

Garbage Pail Kids (i.e., it did not diminish Diamond's sales).
(R5-90 at 7-10); see also OAA I, 911 F.2d at 1550.

Diamond appealed. A panel of this court reversed, finding

that Diamond had two possible grounds for recovering a portion of

the settlement proceeds which the district court failed to

consider. First, Diamond could recover the amount that represented

"damages for Topps' appropriation of Diamond's exclusive license."

OAA I, 911 F.2d at 1552. The court observed that "Diamond's

licensing agreement expressly gave it the exclusive right to

manufacture Cabbage Patch stickers. If, in marketing its Garbage

Pail Kids stickers, Topps appropriated Diamond's exclusive license

to manufacture stickers, then Diamond is entitled to the proportion

of the settlement representing that appropriation." Id. Second,

Diamond could recover

the proportion of the settlement representing Diamond's

injuries as a result of Topps' sales, even if that injury did

not relate to a right that the licensing agreement expressly

granted to Diamond. OAA has a fiduciary obligation not to

allow its own copyright to be used to the detriment of its

licensees. Thus, if Diamond was injured by Topps'

conduct—even if that conduct did not constitute an

appropriation of Diamond's exclusive license—Diamond is

entitled to the proportion of the settlement representing that

injury. The present case, therefore, turns on a single issue:

did Diamond suffer injury as a result of Topps' conduct? If

so, Diamond is entitled to a proportion of the settlement

whether or not Topps' conduct constituted an appropriation of

Diamond's exclusive license.

Id. (emphasis added).

The panel also held that the district court's grant of summary

judgment to OAA could not be affirmed on the alternative basis that

there was no genuine issue of material fact with respect to whether

Diamond had been injured by Topps' conduct. Id. The court stated

that

[i]n bringing its infringement action against Topps, OAA
heavily relied on the injury suffered by Diamond to support

its claim for injunctive relief and damages. For example,

OAA's proposed findings of fact and conclusions of law in the

Topps case emphasizes throughout that Topps stickers directly

competed with Diamond's stickers. As the transcript of the

preliminary injunction hearing also demonstrates, OAA based

its case in large part on the similarity between the Topps and

Diamond stickers. Additionally, OAA had begun to prepare

Diamond's owner to testify at trial in the Topps case

regarding the company's injuries. In effect, therefore, OAA

has conceded that Diamond suffered injury as a result of the

direct competition between Topps' stickers and Diamond's own

stickers. At the very least, that concession raises a genuine

issue of material fact.

Id. at 1552-53 (footnotes omitted); see also id. at 1552 n. 4 and

1553 n. 5.

The case was therefore remanded to the district court to

determine "whether, and to what extent, Diamond suffered injury as

a result of Topps' conduct." Id. at 1553.

On remand, the district court conducted a bench trial. In its

findings of fact and conclusions of law, it first considered the

scope of Diamond's exclusive license. The court found that the

licensing agreement unambiguously granted to Diamond the exclusive

right to market the items listed in Schedule "B"; thus, Diamond's

license extended only to the specific types of stickers listed in

Schedule "B" rather than to the whole category of stickers. The

court noted that even if the contract were ambiguous it would still

conclude, on the basis of the evidence demonstrating the parties'

intent, that Diamond had only a limited item license which did not

extend to the type of bubble gum trading card stickers marketed by

Topps. Consequently, the court ruled that Topps did not

appropriate Diamond's exclusive license.

In accordance with this court's directive, the district court

then determined whether Diamond had been damaged even though Topps'
conduct did not constitute an appropriation of Diamond's license.

In its consideration of this issue, the court found that Diamond

failed to carry its burden of proof and that the evidence

introduced at the trial demonstrated there was no direct

competition between Topps' Garbage Pail Kids stickers and Diamond's

Cabbage Patch Kids stickers. The court rejected Diamond's reliance

on the position take by OAA in the Topps case as proof that it had

been damaged. The court stated that OAA's proposed findings of

fact and conclusion of law submitted at the preliminary injunction

stage of that litigation

were based on limited discovery and reflected positions taken

by counsel at that time rather than facts supported by the

evidence. According to Mr. Nodine, OAA's counsel in the Topps

case, the [proposed] findings of fact and conclusions of law

demonstrated counsel's positions at the time, many of which

were later abandoned based on further discovery and counsel's

evaluation of evidence that could not be proven at trial.

Thus, the testimony of Roger Schlaifer [OAA's licensing agent]

and the proposed findings of fact and conclusions of law at

the preliminary injunction hearing must be given the weight

the circumstances justify. The court notes that with regard

to Mr. Schlaifer, the parties failed to call him as a witness

in this case, and they did not refer to any deposition taken

of Mr. Schlaifer in this case. Instead, the parties referred

to Mr. Schlaifer's previous testimony in the transcript of the

Topps preliminary injunction proceeding.

....

... The arguments of counsel during the preliminary

stages of the Topps case were taken for purposes of advocacy

and, as Mr. Nodine testified in this case, OAA was unable to

support this position with evidence. Although Mr. Nodine

admits that he received an affidavit of Mr. Eber of Hallmark

for the Topps case to the effect that the stickers competed,

this was the only evidence of competition between Garbage Pail

Kids and puffy vinyl stickers that OAA had in that case. Mr.

Nodine testified during this trial that as a result of this

lack of evidence of direct competition OAA changed the trial

strategy in the Topps case to represent the damage that the

Garbage Pail Kids had on OAA's good will and the Cabbage Patch

Kids' image. Thus, Mr. Nodine testified that OAA's position

at the preliminary stages of the Topps case became untenable,

and the emphasis of the Topps litigation was changed to focus
 4

Licensing expert Jerrold Robinson testified that the puffy

vinyl sticker "craze" was fading in the latter part of 1984 and

that by late 1985 (when Topps began selling Garbage Pail Kids

trading cards), the market for this type of sticker was

completely gone. (R13-332-33). This trend was reflected by

Diamond's puffy sticker sales, which dropped dramatically in the

fourth quarter of 1984. (See R12-114; Plaintiff's Trial Exhibit

19). There was also evidence that Diamond's stickers did not

compete with Topps' stickers because the products had different

channels of trade, prices and end uses. In addition, there was

testimony that Cabbage Patch Kids appealed to younger girls,

while the hard images portrayed by the Garbage Pail Kids

attracted older boys. 

on the damage to OAA's good will. The great weight of the

evidence at this trial has shown that there was no direct

competition.

(R9-150 at 9-10, 13-14).

After summarizing the evidence introduced at the trial

relating to the sticker market in general, the demand for Cabbage

Patch Kids products versus Garbage Pail Kids products and Diamond's

sales during the relevant period of time, the court concluded that

Diamond failed to show any injury as a result of Topps' conduct. 4

The court additionally found that Diamond failed to prove a breach

by OAA of any fiduciary duty it owed to Diamond. Finally, the

court noted that, even if Diamond had proven injury, "it offered no

method to quantify that injury or to determine what proportion of

the settlement was attributable to that injury." (Id. at 16 n. 7).

The court again entered judgment in favor of OAA.

II. DISCUSSION

Diamond's principal argument on appeal is that OAA should be

held, under the doctrine of judicial estoppel, to the position it

took in the Topps litigation that Topps' Garbage Pail Kids trading

cards competed with Diamond's Cabbage Patch Kids stickers and that

Diamond was damaged by Topps' sales. "The doctrine of judicial
estoppel "is directed against those who would attempt to manipulate

the court system through the calculated assertion of divergent

sworn positions in judicial proceedings.' " Chrysler Credit Corp.

v. Rebhan, 842 F.2d 1257, 1261 (11th Cir.1988) (quoting Johnson

Serv. Co. v. Transamerica Ins. Co., 485 F.2d 164, 175 (5th

Cir.1973)). "The doctrine is designed to prevent parties from

making a mockery of justice by inconsistent pleadings." American

Nat'l Bank of Jacksonville v. FDIC, 710 F.2d 1528, 1536 (11th

Cir.1983). We find Diamond's reliance on this concept to be

unavailing for several reasons.

 Because this is a diversity case, the application of the

doctrine of judicial estoppel is governed by state law. Chrysler

Credit Corp., 842 F.2d at 1261; City of Miami Beach v. Smith, 551

F.2d 1370, 1377 n. 12 (5th Cir.1977). Diamond has not cited any

Georgia law in support of its contention that the doctrine has

relevance here. It appears from our independent research that the

Georgia courts have not expressly sanctioned this method of issue

preclusion. See, e.g., Southmark Corp. v. Trotter, Smith & Jacobs,

212 Ga.App. 454, 442 S.E.2d 265, 266 (1994) (cautioning "as to the

semantical dangers which surround the term "judicial estoppel' and

similar matters of issue preclusion" and stating that the federal

common law concept of judicial estoppel used to preclude a party

from asserting a position inconsistent with one successfully

maintained in a prior judicial proceeding "has no exact equivalent

under Georgia law"), cert. denied, 1994 Ga. LEXIS 702 (Ga. May 5,

1994). It is even less certain that the Georgia courts would

embrace this notion under the particular facts of this case in
which the prior proceeding ended in a settlement. See

Konstantinidis v. Chen, 626 F.2d 933, 939 (D.C.Cir.1980) (declining

to apply judicial estoppel under District of Columbia law because

"[a] settlement neither requires nor implies any judicial

endorsement of either party's claims or theories").

We need not decide, however, whether OAA should be judicially

estopped from denying that Diamond was damaged by Topps' conduct.

The burden was on Diamond to prove how and to what extent it was

injured by Topps' distribution of the Garbage Pail Kids stickers.

Diamond could do this by (1) showing that Topps appropriated its

exclusive license, or (2) establishing that it was harmed by

Topps's activities even absent such appropriation. Diamond failed

on both counts.

 We find no error in the district court's determination that

the licensing agreement between Diamond and OAA extended only to

those items listed in Schedule "B" and that Topps, on account of

this, did not invade Diamond's exclusive domain. In Georgia,

[t]he cardinal rule in the construction of contracts is to

ascertain the intention of the parties. The language which

the parties have used will be looked to for the purpose of

finding that intention, which when it is once ascertained will

prevail over all other considerations, in determining the

nature of the agreement. The question remaining is whether

(the language) of the contract creates an ambiguity which may

be explained by parol [evidence]. A word or phrase is

ambiguous when it is of uncertain meaning and may be fairly

understood in more ways than one. Language which is

unambiguous will not be construed as ambiguous based on

extrinsic circumstances. Where the language of a contract is

plain and unambiguous, no construction is required or

permissible and the terms of the contract must be given an

interpretation of ordinary significance.

Race, Inc. v. Wade Leasing, Inc., 201 Ga.App. 340, 411 S.E.2d 56,

57 (1991) (quotation marks and citations omitted) (parentheses and
emphasis in the original).

The agreement here plainly states that Diamond's license

covers the articles specified in Schedule "B." Schedule "B" lists

four types of stickers and two types of sticker books, neither of

which encompass the sticker type of bubble gum trading card

marketed by Topps. In view of the contract's unambiguous

terminology, Diamond's contentions regarding the parties' course of

dealings are irrelevant.

 Because there was no invasion of Diamond's exclusive license,

it could recover a portion of the settlement proceeds only by

showing actual injury unrelated to appropriation as a result of

Topps' activities. To do so, it necessarily was required to show

some relationship between the distribution of Topps' Garbage Pail

Kids stickers and lost sales of its Cabbage Patch Kids products.

The district court's conclusion that there was no such correlation

is a finding of fact subject to the clearly erroneous standard of

review. Taylor Rental Corp. v. J.I. Case Co., 749 F.2d 1526, 1530

(11th Cir.1985) (appellate court reviews district court's

determination of damages for clear error).

The only evidence Diamond proffered on the subject of damages

was the testimony of Weston Anson, an expert in the licensing

industry. He postulated that Topps distributed the Garbage Pail

Kids merchandise pursuant to a de facto sublicense of Diamond's

exclusive license covering the whole category of stickers. He

contended, therefore, that Diamond was entitled to sublicensing

royalties, which he stated are generally split equally between the

licensor and the licensee. This theory of damages is completely
dependent upon a finding that Diamond's license extended to the

entire category of stickers, which we have determined was not the

case. Diamond produced no evidence of actual harm. The district

court's finding on the issue of damages is not clearly erroneous.

III. CONCLUSION

For the reasons stated herein, we hold that the district court

did not err in deciding the merits of this case favorably to OAA

and, accordingly, AFFIRM the court's judgment.