7th Circuit: Finish Line, resale company’s breach dispute rightly tossed

A shoe resale company couldn’t convince the 7th Circuit Court of Appeals that its contract with Indianapolis-based Finish Line Inc. was breached, or that the language of the parties’ agreement was ambiguous and provided for an extension.

In 2001, athletic shoe retailer Finish Line entered into a partnership agreement with Division Six Sports, which specializes in the resale of both aged and customer-returned athletic wear products. The agreement provided that Division Six would have the exclusive right to purchase aged and customer-returned merchandise from Finish Line, and that its 18-month term 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 the 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 before the term’s expiration. If Finish Line didn’t accept the offer, then its agreement with Division Six would automatically renew for another 18-months.

Over the course of its partnership, Finish Line twice requested to extend the length of each term — three years in a 2002 amendment, and five years in a 2008 amendment. Although the parties agreed to the extensions, they never redrafted the agreement to reflect them. Instead, Finish Line’s request letter itself served to memorialize the modification agreed to by the parties and was signed by both.

Despite the 2008 agreement’s express ending date of Dec. 31, 2013, Finish Line continued to ship products to Division Six in 2014. However, it eventually stopped dealing with Division Six and began dealing with other parties instead. In January 2015, Division Six wrote to Finish Line asserting its exclusive right under the agreement to purchase Finish Line’s surplus products, but the retailer asserted the agreement was no longer in effect, having terminated in December 2013 after the end of the 2008 amendment’s five-year extension.

Division Six sued and Finish Line moved to dismiss for failure to state a claim. The Southern District Court granted the motion to dismiss, finding that the agreement did not provide for perpetual self-renewal. It held that the agreement expired in 2013 because the 2008 amendment did not provide for any automatic extension.

The district court further rejected Division Six’s alternative argument that the contract was ambiguous about automatic renewal, refusing to consider Division Six’s extrinsic evidence of Finish Line’s continued shipments in 2014 after the agreement had allegedly expired and that the final result of the amended agreement required one final automatic renewal after December 2013.

The 7th Circuit Court of Appeals affirmed the lower court’s decision in Division Six Sports, Inc. v. Finish Line, Incorporated,19-1070, finding it properly dismissed the case.

In addressing Division Six’s ambiguity argument, the 7th Circuit found the company’s interpretation of the agreement and its amendments unreasonable. It noted that nothing in the amendments evidenced an intent to strike out the language relating to the previous terms’ lengths or the dates to which the terms were anchored.

“Nor do the amendments say anything about adding the word ‘extended’ to change the meaning of Paragraph 9 the way Division Six has proposed,” Circuit Judge Daniel A. Manion wrote. “The 2002 Amendment expressly defined the extended term it created and anchored it to the beginning date of September 2002. It then created an automatic extension provision that applied to a specific term, i.e. ‘said extended term,’ not any extended term. Division Six’s proposed interpretation ignores this.

“The only reasonable interpretation is that each automatic renewal provision applied to the specific term or extension to which it was expressly attached,” Manion continued. “Because the Agreement is clear and unambiguous, Divisions Six’s extrinsic evidence (that Finish Line continued to perform in 2014) is irrelevant and cannot be considered. There was no automatic extension provided for following the 2008 Amendment extension.”

Thus, the 7th Circuit concluded the agreement was no longer in force after December 2013 and that Finish Line did not commit a breach when it began dealing with third parties.

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