Court Opinion

ID: 3029988
Source: CourtListenerOpinion
Date Created: 2015-10-13 22:43:41.905998+00
Date Added: 2024-06-11T11:48:04.924761
License: Public Domain

United States Court of Appeals
                           FOR THE EIGHTH CIRCUIT
                                     ___________

                                     No. 02-1944
                                     ___________

Pure Country, Inc., doing business   *
as Pure Country Weavers,             *
                                     *
             Appellant,              * Appeal from the United States
                                     * District Court for the
     v.                              * Western District of Missouri
Sigma Chi Fraternity; Sigma Chi      *
Corporation,                         *
                                     *
             Appellees.              *
                                ___________

                              Submitted: September 12, 2002

                                   Filed: November 27, 2002
                                    ___________

Before McMILLIAN, BRIGHT and BOWMAN, Circuit Judges.
                           ___________

McMILLIAN, Circuit Judge.

       Pure Country, Inc., d/b/a Pure Country Weavers (hereinafter “Pure Country”),
appeals from a final order entered in the United States District Court for the Western
District of Missouri in favor of Sigma Chi Fraternity and Sigma Chi Corp.
(hereinafter together referred to as “Sigma Chi”) on Pure Country’s claims for
declaratory judgment and other forms of relief arising out of a dispute over Sigma
Chi’s trademark rights. Pure Country, Inc. v. Sigma Chi Fraternity, No. 01-0311-CV-
W-2-ECF (W.D. Mo. Mar. 11, 2002) (hereinafter “District Court Order”). For
reversal, Pure Country argues that the district court erred in (1) granting Sigma Chi’s
motion to dismiss for lack of standing and (2) denying, as moot, Pure Country’s
motion for leave to amend the complaint. For the reasons discussed below, we affirm
the district court’s order in part, reverse it in part, and remand the case to the district
court for further proceedings consistent with this opinion.

       Jurisdiction in the district court was based upon 28 U.S.C. §§ 1338, 2201.
Jurisdiction in this court is based upon 28 U.S.C. § 1291. The notice of appeal was
timely filed pursuant to Fed. R. Civ. P. 4(a).

                                      Background

        Pure Country brought this action against Sigma Chi on March 23, 2001,
asserting (1) a cause of action for civil contempt alleging that Sigma Chi had violated
a court-ordered consent decree, Phi Theta Delta v. J.A. Buchroeder & Co., No. 683
(W.D. Mo. Oct. 17, 1969) (Decree and Order of Dismissal) (hereinafter “1969
Consent Decree”), entered in the United States District Court for the Western District
of Missouri to resolve litigation brought by J.A. Buchroeder & Co. (“Buchroeder”)
against Sigma Chi Fraternity and another college fraternity (hereinafter referred to as
“the Buchroeder case”) and (2) a cause of action under 28 U.S.C. § 2201 seeking a
declaration that: Sigma Chi’s name and insignia are not protectable under state or
federal trademark law; Sigma Chi is barred under the 1969 Consent Decree from
taking certain actions including suing Pure Country for trademark violations; Sigma
Chi is barred by waiver, laches, or estoppel from seeking trademark protection; and,
even if Sigma Chi’s trademark is protectable, Pure Country did not infringe upon it.
In its complaint Pure Country alleged the following facts:

            [Pure Country] manufactures and sells afghans and tapestries, and
      has been in business in Polk County, North Carolina since 1988. [Pure
      Country] began creating and selling afghans with the Sigma Chi insignia
      to Sigma Chi members in June 1996. For approximately two years,
      [Pure Country] sold Sigma Chi afghans without any interference by

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      [Sigma Chi]. In 1998, Sigma Chi represented to [Pure Country] through
      its marketing agent, Affinity Marketing Consultants, Inc. (“Affinity”),
      that [Pure Country] could not sell its insignia goods without a license
      from Sigma Chi. Under pressure from [Sigma Chi] and without
      knowledge of the [1969 Consent Decree], [Pure Country] signed a
      licensing agreement with [Sigma Chi]. [Pure Country] terminated its
      licensing agreement in September 1999. [Sigma Chi] ha[s] since then
      repeatedly demanded that [Pure Country] either sign another licensing
      agreement or stop making afghans with the Sigma Chi insignia. [Sigma
      Chi] ha[s] also demanded that [Pure Country] pay [Sigma Chi] royalties
      on [Pure Country’s] sales of afghans with the Sigma Chi insignia.

Joint Appendix at 11-12 (Complaint, ¶ 11).

      Sigma Chi moved to dismiss the complaint for failure to state a claim upon
which relief may be granted. In support of its motion, Sigma Chi argued that Pure
Country, as a non-party to the 1969 Consent Decree, lacked standing to assert rights
under the 1969 Consent Decree. Sigma Chi did not file an answer to the complaint.

       While Sigma Chi’s motion to dismiss was pending, Pure Country filed a
“Motion to File Amended Pleading and to Add Additional Parties.” Pure Country
also filed, along with its motion, a proposed amended complaint. The amended
complaint contains new plaintiffs and defendants, modifications to the original facts
and causes of action, and two new causes of action. In its motion to amend the
complaint, Pure Country asserted: “Rule 15(a) Fed. R. Civ. P., provides that a party
may amend its pleading before a responsive pleading is filed ‘only by leave of court
or by written consent of the adverse party, and leave shall be freely given when
justice so requires.’” Joint Appendix at 32 (Plaintiff’s Motion to File Amended
Pleadings and to Add Additional Parties at 1).

     The district court thereafter granted Sigma Chi’s motion to dismiss the original
complaint on grounds that Pure Country was essentially attempting to assert rights

                                         -3-
under the 1969 Consent Decree but lacked standing to do so because Pure Country
was not a party to the 1969 Consent Decree and is not an intended third-party
beneficiary under the 1969 Consent Decree. District Court Order at 6-11. The
district based its conclusion that Pure Country is not an intended third-party
beneficiary on language in the 1969 Consent Decree indicating that the decree
applies to the specific parties in the Buchroeder case and to “them only.” See id. at
8 (citing 1969 Consent Decree (introductory paragraph and ¶ 3)). In the same order,
the district court denied as moot Pure Country’s motion to file the amended complaint
and to add parties. See id. at 11. This appeal followed.

                                     Discussion

Denial of motion for leave to amend complaint

       As stated above, before Sigma Chi had served Pure Country with an answer to
the original complaint and while Sigma Chi’s motion to dismiss the original
complaint was pending, Pure Country filed a motion to amend the complaint and to
add parties. Pure Country attached a proposed amended complaint to its motion to
amend. The district court denied Pure Country’s motion to amend on the ground that
it had become moot as a result of the district court’s grant of Sigma Chi’s motion to
dismiss. Pure Country now argues on appeal that the district court erroneously denied
its motion to amend because, under Fed. R. Civ. P. 15(a), it could amend its
complaint once as a matter of course at any time before a responsive pleading was
served by Sigma Chi1 and a motion to dismiss is not a “responsive pleading.” Pure
Country further asserts that the right to amend includes the right to add causes of
action and facts as well as the right to add parties. See Brief for Appellant at 21-23.

      1
        The first sentence of Fed. R. Civ. P. 15(a) provides: “A party may amend the
party’s pleading once as a matter of course at any time before a responsive pleading
is served . . . .”

                                         -4-
       In response, Sigma Chi recognizes that, ordinarily under Fed. R. Civ. P. 15(a),
a plaintiff may amend its complaint once as a matter of course before a responsive
pleading is filed. However, Sigma Chi contends that, by filing a motion to amend the
complaint, rather than simply filing the amended complaint, Pure Country invoked
the district court’s discretionary authority to deny Pure Country permission to amend
the complaint. Therefore, Sigma Chi concludes, the district court’s denial of the
motion to amend is reviewed merely for an abuse of discretion, and none occurred.

       To begin, we disagree with Sigma Chi’s suggestion that the mere act of filing
a motion to amend or seeking leave to amend negates the otherwise applicable “as a
matter of course” language of Rule 15(a). In other words, seeking leave to amend
does not, by itself, invoke the district court’s discretionary authority to deny leave if
the amendment would otherwise fall within the purview of the first sentence of
Rule 15(a). In the present case, however, Pure Country did not merely file a motion
for leave to amend the complaint and either implicitly or explicitly rely on the “as a
matter of course” language of Rule 15(a). Rather, in its motion to amend, Pure
Country expressly quoted and relied upon a different part of the rule. As stated,
above, Pure Country argued to the district court in its motion to amend: “Rule 15(a)
Fed. R. Civ. P., provides that a party may amend its pleading before a responsive
pleading is filed ‘only by leave of court or by written consent of the adverse party,
and leave shall be freely given when justice so requires.’”2 Joint Appendix at 32
(Plaintiff’s Motion to File Amended Pleadings and to Add Additional Parties at 1).
In other words, Pure Country specifically asked the district court to apply a legal
standard that is completely different from the one it now urges us to apply on appeal.
Under the particular circumstances of the present case, we review the district court’s
failure to apply the correct legal standard only for plain error because Pure Country

      2
       The second sentence of Fed. R. Civ. P. 15(a) provides: “Otherwise a party
may amend the party’s pleading only by leave of court or by written consent of the
adverse party; and leave shall be freely given when justice so requires.”

                                          -5-
clearly waived its right to rely on that standard. On that question alone, we find no
plain error.

       However, in denying Pure Country’s motion to amend the complaint, the
district court did not exercise any discretion based upon the interests of justice.
Instead, the district court ignored Pure Country’s motion to amend, granted Sigma
Chi’s motion to dismiss the original complaint, and then denied Pure Country’s
motion to amend the complaint as moot. That approach, as a procedural matter, was
plainly erroneous. If anything, Pure Country’s motion to amend the complaint
rendered moot Sigma Chi’s motion to dismiss the original complaint. See, e.g.,
Standard Chlorine of Delaware, Inc. v. Sinibaldi, 821 F. Supp. 232, 239-40 (D. Del.
1992) (holding that the plaintiff’s filing of an amended complaint rendered the
defendants’ motion to dismiss the original complaint moot). We therefore reverse the
district court’s denial of Pure Country’s motion to amend the complaint, and we
remand the matter to the district court with instructions to reconsider the motion
under the discretionary standard asserted by Pure Country. In order to permit the
district court to reconsider the motion to amend the complaint, we also vacate the
district court's dismissal of the original complaint; however, we do so subject to the
possibility that the claims in question may again be dismissed by the district court
following its ruling on the motion to amend.

Standing to enforce the 1969 Consent Decree

        Pure Country additionally argues on appeal that the district court erred in
holding that it lacks standing to enforce the 1969 Consent Decree because it was not
a party to the 1969 Consent Decree and is not an intended third-party beneficiary of
the 1969 Consent Decree. At oral argument, the parties urged this court to address
this standing issue, even if we were to reverse the district court’s denial of the motion
to amend the complaint, because it is material to the viability of claims in the
amended complaint as well as the original complaint. Given that this standing issue

                                          -6-
has been fully briefed and argued by the parties, that it is bound to recur, and that it
presents a pure question of law, we will address it now in the interest of judicial
economy. Accord City of Timberlake v. Cheyenne River Sioux Tribe, 10 F.3d 554,
559 (8th Cir. 1993) (where court could have reversed the district court’s order without
considering personal jurisdiction issue raised by the appellees, nevertheless deciding
that: “[b]ecause the appellees' contention presents a question of law, however, we will
address it now in the interest of judicial economy.”), cert. denied, 512 U.S. 1236
(1994).

       Pure Country’s standing argument is based primarily upon the following
language in the 1969 Consent Decree:

      Sigma Chi Fraternity and Sigma Chi Corporation agree that, except as
      to actions against other fraternal groups, they, nor any of them, will not
      bring or threaten or aid in bringing any suit or action against any jewelry
      or insignia goods manufacturer, distributor, retailer, or salesman based
      on any claim of infringement of any purported trademark claimed by
      said fraternit[y], or upon any claim of unfair competition based on use
      of any purported trademark and that they, nor any of them, will not
      recommend or denominate any solely authorized, exclusive source or
      sources of supply for any jewelry or insignia goods.

1969 Consent Decree ¶ 1 (emphasis added). In light of the language emphasized
above, Pure Country argues that the 1969 Consent Decree confers legal rights upon
a whole class of persons (i.e., “any jewelry or insignia goods manufacturer,
distributor, retailer, or salesman”), not just the parties to the 1969 Consent Decree.
Pure Country argues that the district court’s narrow construction – precluding Pure
Country from having standing to enforce the 1969 Consent Decree – cannot be
justified without rendering the above-quoted language meaningless, which is contrary
to applicable rules of contract interpretation. As to the district court’s legal
conclusion that Pure Country is, at best, only an incidental beneficiary of the 1969
Consent Decree, Pure Country argues that the circumstances surrounding the

                                          -7-
formation of the 1969 Consent Decree, and the written consent decree itself, support
the conclusion that the parties to the 1969 Consent Decree intended to benefit any
jewelry or insignia goods manufacturer, not just those who were then parties. Pure
Country explains that, at the time the 1969 Consent Decree was entered, several
trademark-related lawsuits were pending against Sigma Chi, in addition to the
Buchroeder case; therefore, it is reasonable to conclude that the parties to the 1969
Consent Decree agreed to an injunction that would permanently resolve all such
litigation, existing and future. As to the district court’s reliance upon the two
passages in the 1969 Consent Decree indicating that it applies to the parties to the
1969 Consent Decree and to “them only,” see 1969 Consent Decree introductory
paragraph and ¶ 3, Pure Country reads those references as identifying the parties
bound by the 1969 Consent Decree, not its intended beneficiaries. Finally, Pure
Country argues that the district court erred in assuming that it could not look beyond
“the four corners” of the 1969 Consent Decree to extrinsic evidence. Pure Country
cites United States v. Knote, 29 F.3d 1297, 1299 (8th Cir. 1994) (Knote), for the
proposition that a court must interpret the meaning of a written consent decree by
reference to the context in which consenting parties operated, and their surrounding
circumstances, particularly where (as here) the written decree is facially ambiguous.
The extrinsic evidence in this case, Pure Country argues, supports the conclusion that
the parties to the 1969 Consent Decree intended literally to include “any jewelry or
insignia goods manufacturer, distributor, retailer, or salesman” in the class of
beneficiaries.

      Upon careful review, we disagree with Pure Country’s standing argument. As
the district court explained, strangers to a consent decree generally do not have
standing to enforce a consent decree. See Blue Chip Stamps v. Manor Drug Stores,
421 U.S. 723, 750 (1975); Data Processing Fin. & Gen. Corp. v. Int’l Bus. Machs.
Corp., 430 F.2d 1277 (8th Cir. 1970) (per curiam), aff’g Control Data Corp. v. Int’l
Bus. Machs. Corp., 306 F. Supp. 839 (D. Minn. 1969). In order for a third party to
be able to enforce a consent decree, the third party must, at a minimum, show that the

                                         -8-
parties to the consent decree not only intended to confer a benefit upon that third
party, but also intended to give that third party a legally binding and enforceable right
to that benefit. See SEC v. Prudential Sec., Inc., 136 F.3d 153, 159 (D.C. Cir. 1998)
(“The test is not . . . only whether the contracting parties intended to confer a benefit
directly on the third parties, but also whether the parties intended the third party to
be able to sue to protect that benefit.”). This standard applies whether or not the
government is a party to the consent decree. See id.

       When construing a consent decree, courts are guided by principles of contract
interpretation and, where possible, will discern the parties’ intent from the
unambiguous terms of the written consent decree, read as a whole. In the present
case, Pure Country takes one paragraph in the 1969 Consent Decree out of context
and, based upon that paragraph, reads into the document a benefit conferred upon
“any jewelry or insignia goods manufacturer, distributor, retailer, or salesman.”
When the document is read in its entirety, however, it is clear that the parties did not
intend to confer upon such a broad class of persons any benefit at all – much less a
legally enforceable benefit. The 1969 Consent Decree expressly provides that it
“appl[ies] to Phi Delta Theta Fraternity, Sigma Chi Fraternity and Sigma Chi
Corporation and J.A. Buchroeder & Co. and to their respective successors, assigns,
officers, directors, agents, attorneys, employees and members, but to them only.”
1969 Consent Decree ¶ 3 (emphasis added). Thus, even if the parties to the 1969
Consent Decree did intentionally confer a benefit upon a class of third party
beneficiaries, the scope of that class of third party beneficiaries is explicitly defined
in the consent decree itself. The words “any jewelry or insignia goods manufacturer
[etc.]” make sense only when read in conjunction with that definition. Pure Country
is not a successor, assign, officer, director, agent, attorney, employee or member of
Phi Delta Theta Fraternity, Sigma Chi, or Buchroeder. Accordingly, we conclude, as
the district court did, that Pure Country is not an intended beneficiary of the 1969
Consent Decree.

                                          -9-
       Finally, we note that our conclusion comports with Knote, cited by Pure
Country. In Knote, 136 F.3d at 1300, we explained that, “even when interpreting the
meaning of a consent decree ‘as written,’ we are not to ignore the context in which
the parties were operating, nor the circumstances surrounding the order.” In the
present case, we have interpreted the 1969 Consent Decree in a manner that is
consistent with its original context and surrounding circumstances. Moreover, Knote
emphasizes the importance of affording deference to the court that actually entered
the consent decree in question. See id. In the present case, like in Knote, see id. at
1299 n.5, the district court that interpreted the consent decree is the same court that
originally entered the consent decree. Therefore, Knote inclines us further to adopt
the district court’s interpretation of the 1969 Consent Decree, not to reject it.

      For the reasons stated, we affirm the district court’s holding that Pure Country
does not have standing to enforce the 1969 Consent Decree.

                                     Conclusion

       The order of the district court is affirmed in part and reversed in part, and the
case is remanded to the district court for further proceedings consistent with this
opinion.

      A true copy.

             Attest:

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

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