A reseller of athletic apparel entered into a contract with a large retailer to resell aged and customer-returned athletic wear products. The agreement contained a right of refusal and other provisions, including an automatic extension provision. The agreement was extended several times over a period of 14 years. The parties continued to deal with each other after the final expiration, but eventually, the retailer pulled out of the arrangement. The reseller sued, arguing that the retailer’s behavior in continuing to sell it product served to extend the term of the agreement. The district court disagreed and dismissed the case. The appellate panel affirmed, finding that the contract was not ambiguous and that the reseller’s interpretation of the agreement was not reasonable.
Finish Line Sports is a large retailer of athletic shoes, apparel, and accessories. Division Six specializes in the resale of both aged and customer-returned athletic wear products. In 2001, Finish Line and Division Six entered an agreement by which Division Six received the exclusive right to purchase aged and customer-returned merchandise from Finish Line. The agreement provided for an 18-month term that could be extended by written agreement of the parties prior to the expiration of the term or any extension thereof. The agreement also gave Division Six a right of first refusal if Finish Line received a bona fide arms-length offer from a third party to purchase its surplus merchandise within six months prior to the term’s expiration. If Finish Line did not receive such an offer, the agreement would automatically renew for an additional eighteen-month term.
The agreement was eventually extended twice, resulting in a new termination date of December 2013. The agreement itself was never re-drafted, rather all extensions were memorialized in letters from Finish Line to Division Six. Despite the expiration of the agreement in 2013, Finish Line continued to ship products to Division Six in 2014. However, later that year, Finish Line stopped dealing with Division Six and began dealing with other parties. In 2015, Division Six wrote Finish Line asserting its right of first refusal under the original agreement. Finish Line responded by claiming that the agreement expired in December 2013, and so the right of first refusal was no longer in effect. Division Six eventually sued in October 2017. Finish Line moved to dismiss, and the district court granted Finish Line’s motion. Division Six then appealed.
The appellate panel began by finding that the language of the contract was not ambiguous. Citing Vincennes Univ. ex rel. Bd. of Trs. v. Sparks, the panel stated that a contract is not ambiguous merely because the parties disagree as to its proper construction, rather a contract will be found to be ambiguous only if reasonable persons would differ as to the meaning of its terms. Division Six then argued that because the amendments each purported to add language to the agreement while leaving all other terms in full force and effect, the modified agreement could reasonably be understood to strike out and replace incongruous language related to term lengths and automatic extensions. Division Six argued this would allow for a final automatic extension after December 2013.
The panel rejected this argument. The panel stated that ordinarily, the intent to add elements to an agreement does not also involve deleting other elements. The panel stated that Division Six’s argument would require the court to read into the parties’ agreement the idea that the automatic extension provision was revived and reapplied after the 2008 Amendment’s five-year extension. The panel found that this was not a reasonable interpretation of the agreement. The panel, therefore, affirmed the decision of the district court.
You can view the decision here.
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