Court Opinion

ID: 9494843
Source: CourtListenerOpinion
Date Created: 2023-08-05 15:48:25.756064+00
Date Added: 2024-06-11T17:56:39.673626
License: Public Domain

ROVNER, Circuit Judge,
dissenting in part.
I believe the majority has strayed beyond the bounds of Rule 12(b)(6) in affirming the dismissal of Beanstalk’s breach of contract claim, and I therefore respectfully dissent. At this stage of the proceedings, we must accept all factual allegations in the complaint and draw all reasonable inferences from those facts in favor of the plaintiff. Leatherman v. Tarrant County Narcotics Intelligence and Coordination Unit, 507 U.S. 163, 164, 113 S.Ct. 1160, 122 L.Ed.2d 517 (1993); Slaney v. The International Amateur Athletic Federation, 244 F.3d 580, 597 (7th Cir.2001), cert. denied, — U.S. -, 122 S.Ct. 69, 151 L.Ed.2d 35 (2001); Camp v. Gregory, 67 F.3d 1286, 1290 (7th Cir.1995), cert. denied, 517 U.S. 1244, 116 S.Ct. 2498, 135 L.Ed.2d 190 (1996). We are obliged to allow the case to proceed unless it appears beyond doubt that the plaintiff can prove no set of facts in support of its claim which would entitle it to relief. Pokuta v. Trans World Airlines, Inc., 191 F.3d 834, 839 (7th Cir.1999). The majority proceeds down two paths to conclude that Beanstalk’s claim fails as a matter of law, but I believe that, at most, these paths lead to the conclusion that the contract is ambiguous, and we must therefore look to extrinsic evidence to determine the intention of the contracting parties.
We all seem to agree that, when read literally, the contract clause defining “License Agreement” would include AM General’s sale of its Hummer business, including the “Hummer” and “Humvee” trademarks, to General Motors. The majority holds that we may disregard the literal interpretation of a single clause whenever (1) this literal reading would produce absurd results, or (2) when the isolated clause takes on a different meaning when viewing the contract as a whole. I have no quarrel with either proposition as a correct statement of the law of contracts in Indiana, the relevant jurisdiction here. However, I do not agree that a literal interpretation of the defined term “License Agreement” would necessarily lead to absurd results. Moreover, when the contract is read as a whole, that term is at worst ambiguous. Under these circumstances, dismissal for failure to state a claim is inappropriate because there may be some set of facts that Beanstalk could prove which would entitle it to relief.
*865I foresee two problems with the application of the “absurd results” rule in this case. First, and most importantly, we come to this case not after trial or even on summary judgment after a full and fair airing of the relevant facts through discovery, but rather on a motion to dismiss. It is probably no coincidence that nearly every case on which the majority relies for the “absurd results” rule is on appeal from either a summary judgment ruling or a trial. See USA Life One Ins. Co. of Indiana v. Nuckolls, 682 N.E.2d 534, 536 (Ind.1997) (summary judgment); Haworth v. Hubbard, 220 Ind. 611, 44 N.E.2d 967, 968 (1942) (trial); Merheb v. Illinois State Toll Highway Authority, 267 F.3d 710, 711 (7th Cir.2001) (summary judgment); Funeral Financial Systems v. United States, 234 F.3d 1015, 1017 (7th Cir.2000) (summary judgment); Grun v. Pneumo Abex Corp., 163 F.3d 411, 419 (7th Cir.1998), cert. denied, 526 U.S. 1087, 119 S.Ct. 1496, 143 L.Ed.2d 651 (1999) (summary judgment); Rhode Island Charities Trust v. Engelhard Corp. 267 F.3d 3, 4 (1st Cir.2001); Catalina Enterprises, Inc. Pension Trust v. Hartford Fire Ins. Co., 67 F.3d 63, 64 (4th Cir.1995), cert. denied, 517 U.S. 1105, 116 S.Ct. 1321, 134 L.Ed.2d 473 (1996) (summary judgment); Dispatch Automation, Inc. v. Richards, 280 F.3d 1116, 2002 WL 221755 at *1 (7th Cir. Feb.11, 2002) (summary judgment). In the one case decided on a motion to dismiss, the motion was denied and that denial affirmed, meaning the case was allowed to move forward to discovery and trial. See Outlet Embroidery Co. v. Derwent Mills, 254 N.Y. 179, 172 N.E. 462 (1930) (Cardozo, C.J.). The value of discovery in these circumstances cannot be overstated. Beanstalk, in making a cross-motion for summary judgment, submitted an affidavit which calls into question the majority’s conclusion that a literal reading of the “License Agreement” provision leads to an absurd result. In the affidavit, Beanstalk reveals, and AM General does not dispute, that shortly before AM General sold the Hummer business to General Motors, AM General asked Beanstalk to modify the contract. In particular, AM General sought to expressly exclude certain types of transactions relating to the transfer of rights in the trademark, including “agreements between [AM General] and any individual or entity, for the purpose of producing motor vehicles or motor vehicle parts and accessories, even if rights in the [trademarks] are licensed, transferred, or otherwise involved in such agreements.” R. 24, Exhibit B, at ¶ 1(c). In other words, AM General seems to have well understood the contract to include the sale of its Hummer business, and wished to avoid paying Beanstalk 35% of the value of the trademarks in the sale. Beanstalk declined to make this change, and now, even though both of the parties seem to have assumed the contract covered, or potentially covered the sale to GM, the majority finds this to be an absurd conclusion. See R. 24, Exhibit C. Certainly it might have been poor judgment for AM General to have agreed to this term, and AM General no doubt wishes to disown this language now that it is in litigation. But we do not normally protect parties from the consequences of entering into bad deals except when the contract is unconscionable and the party being held to it is unsophisticated. Operating Engineers Local 139 Health Benefit Fund v. Gustafson Const. Corp., 258 F.3d 645, 650 (7th Cir.2001) (“People generally are held to the agreements they sign and are not permitted to fob them off as ‘boilerplate’ without invoking fraud, unconscionability, or mutual mistake as a ground for walking away from their contract.”). I doubt AM General needs our protection.
Second, in the absence of discovery, the majority substitutes its own “cultural understanding,” its own “cultural back*866ground,” and its own general knowledge of the commercial world for a defined term in the contract, a dubious proposition at best. Judges are trained in law, not business, and however cosmopolitan we may be about the world of commerce, I think it an unwise practice to substitute our general knowledge of the business world for the express terms of a contract, especially in the absence of any discovery that might elucidate the parties’ true intent. Beanstalk’s affidavits reveal not only that AM General sought to change the terms of the contract to exclude the sale at issue here, but also that in early negotiations, Beanstalk explained to AM General that it expected a share of any license agreements that internal employees of AM General negotiated. See R. 24, at ¶ 4. The majority dismisses Beanstalk’s interpretation of this term, arguing that this would be paying double for the same services. On this 12(b)(6) motion, however, we have no idea what the parties bargained for. Beanstalk could well have accepted a smaller commission than it normally obtains in order to get a cut of the in-house business. Beanstalk has argued on appeal that, because it was generally increasing the value of the trademarks, it was entitled to a share of any transfer of rights in the trademarks, whether or not it was directly involved in negotiating the deal. This explanation is not so absurd that Beanstalk should lose its claim as a matter of law, before we even allow discovery. Indeed, it is not absurd at all. Remember that at this stage of the proceedings, we must sustain the complaint unless it appears beyond doubt that the plaintiff can prove no set of facts in support of its claim which would entitle it to relief.
Finally, even when reading the contract as a whole, I believe the language is at worst ambiguous. The majority deftly points out various terms in the contract that render Beanstalk’s interpretation suspect. I agree that when reading the contract as a whole, Beanstalk’s claim is weak, and indeed might not survive summary judgment. But Rule 12(b)(6) is not a substitute for summary judgment, and we must avoid the temptation to weed out weak claims by bending the Federal Rules of Civil Procedure past the breaking point. We have acknowledged that the Federal Rules, drafted at a time when our courts were less busy, may not have kept up with the realities of the growth of federal litigation. Jackson v. Marion County, 66 F.3d 161, 153 (7th Cir.1995). We noted an increasing tendency to bend the Rules to dispose of cases on summary judgment that formerly would have gone to trial, and to dismiss on the pleadings cases that would have gotten at least as far as summary judgment. Id. We drew the line in Jackson to make clear that we will not interpolate a requirement of fact pleading into the federal rules. I believe we should similarly draw the line here to require discovery on the intentions of the contracting parties rather than substituting our own cultural understanding for ambiguous contract terms. Although there is a tension between the definition of License Agreement and other provisions of the contract, it is not for us to resolve that tension on a motion to dismiss. Therefore, I respectfully dissent from the majority’s affirmance of the dismissal of Beanstalk’s breach of contract claim. I join the majority’s opinion on the unjust enrichment and tortious interference claims.