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Division Six Sports, Inc. v. The Finish Line, Inc.

United States Court of Appeals, Seventh Circuit

June 27, 2019

Division Six Sports, Inc., Plaintiff-Appellant,
v.
The Finish Line, Inc., Defendant-Appellee.

          Argued May 23, 2019

          Appeal from the United States District Court for the Southern District of Indiana, Evansville Division. No. l:17-cv-03879 - Sarah Evans Barker, Judge.

          Before Bauer, Manion, and Brennan, Circuit Judges.

          MANION, CIRCUIT JUDGE.

         This case involves an alleged breach of contract between Plaintiff Division Six Sports, Inc. ("Division Six") and Defendant The Finish Line, Inc. ("Finish Line"). The district court dismissed the case for failure to state a claim, holding the contract was not in force at the time of the alleged breach. Division Six argues on appeal that the district court misinterpreted the contract's automatic renewal provision. For the reasons below and those explained in the district court's thorough analysis, we affirm.

         I. Background

         Finish Line is a large retailer of athletic shoes, apparel, and accessories. Through the course of its business, Finish Line generates a stock of surplus goods that includes aged merchandise (products that do not sell over time) and customer-returned merchandise. 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"). Paragraph 9 of the Agreement provided for an 18-month term "commencing on March 1, 2001" that could be extended by written agreement of the parties "prior to the expiration of the term or any extension thereof." See App'x A. Paragraph 9 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 (18) month term." Id.

         In 2002, the parties amended the Agreement (the "2002 Amendment"). One effect of this amendment was to modify Paragraph 9. The modification was set forth in a letter written by Finish Line, which stated:

Finish Line would be amenable to adding language to Paragraph 9 of the Purchase Agreement to reflect a three year (3) extension of the agreement (ie. [sic] through August 31, 2005). In addition, should Finish
Line not receive a bona fide, arm's length written offer from any third party at any time within six months of the end of said extended term, then the Agreement will automatically renew for an additional three (3) year extension.
Both parties further agree that no other provisions of the Agreement shall be modified by this letter, and that all other terms and conditions of the Agreement shall remain in full force and effect and are hereby reaffirmed by the parties.

         The Agreement was not re-drafted to reflect the language change contemplated in this letter. Instead, the letter itself served to memorialize the modification agreed to by the parties and was signed by both parties. The new extended term ran to the stated date of August 31, 2005, at which point it automatically renewed for a second three-year extension until August 31, 2008, all pursuant to the 2002 Amendment.[1]

         In September 2008, Finish Line proposed another amendment (the "2008 Amendment"), once again by letter. This letter included the following:

Finish Line would be amenable to adding language to Paragraph 9 of the Purchase Agreement to reflect a new five (5) year term extension, commencing September 1, 2008 and ending December 31, 2013 ... unless sooner terminated pursuant to any provisions of the Governing Agreements.
The 2008 Amendment further provided that "no other provisions of the Governing Agreements shall be modified by this ... Amendment, and that all other terms and conditions of the Governing Agreements shall remain in full force effect [sic] and are hereby reaffirmed by both parties."
Despite the 2008 Agreement's express ending date of December 31, 2013, Finish Line continued to ship products to Division Six in 2014. However, Finish Line 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. Finish Line asserted in response that the Agreement was no longer in effect, having terminated in December 2013 following the end of the 2008 Amendment's five-year extension.
Division Six filed suit in October 2017. Finish Line moved to dismiss for failure to state a claim, arguing the Agreement terminated at the end of 2013. In its complaint and in opposition to the motion to dismiss, however, Division Six claimed the Agreement had in fact automatically renewed for another three years at the end of 2013. Division Six argued the Agreement and its amendments created a perpetual self-renewal process ...

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