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Richard I. Spiece Sales Co., Inc. v. Levi Strauss North America

Court of Appeals of Indiana

October 27, 2014

RICHARD I. SPIECE SALES CO., INC. d/b/a SPIECE SALES CO., INC., Appellant-Defendant/Counterclaim Plaintiff,
v.
LEVI STRAUSS NORTH AMERICA, Appellee-Plaintiff/Counterclaim Defendant

Page 346

APPEAL FROM THE WABASH CIRCUIT COURT. The Honorable Robert R. McCallen III, Judge. Cause No. 85C01-1110-CC-829.

ATTORNEYS FOR APPELLANT: EMILY C. GUENIN-HODSON, MARK C. GUENIN, Guenin Law Office, P.C., Wabash, Indiana.

ATTORNEYS FOR APPELLEE: STEVEN L. JACKSON, Faegre Baker Daniels LLP, Fort Wayne, Indiana; ANNE K. RICCHIUTO, KATRINA M. GOSSETT, Faegre Baker Daniels LLP, Indianapolis, Indiana.

KIRSCH, Judge. BAKER, J., and ROBB, J., concur.

OPINION

Page 347

KIRSCH, Judge

Following a bench trial, Richard I. Spiece Sales Co., Inc., doing business as Spiece Sales Co., Inc. (" Spiece" ), appeals the trial court's judgment in favor of Levi Strauss North America (" LS & CO." ) on LS & CO.'s complaint on account and on Spiece's counterclaim. On appeal, Spiece raises six issues which we consolidate and restate as whether the trial court's findings of fact and conclusions thereon, in support of LS & CO. and against Spiece, are clearly erroneous.[1]

We affirm.

Page 348

FACTS AND PROCEDURAL HISTORY

LS & CO. is an international corporation that manufactures and distributes products worldwide; the primary products at issue in this case are Levi's jeans. Spiece, a domestic corporation owned by Tom Spiece (" Tom" ), is a retail operation that sells mainly sportswear and is a retail partner of LS & CO. In addition to LS & CO. products, Spiece sells products from other manufacturers, including, Lee, Dickies, Wrangler, Carhartt, Cinch, and Haggar. The instant case arises from LS & CO.'s March 2011 termination of Spiece's online sales privileges.

The parties' relationship began in 1978, when Spiece was approved to sell Levi's jeans in Spiece's two Indiana stores. LS & CO. conveyed its approval by sending Tom a letter, dated October 9, 1978 (" 1978 letter" ), which stated in part, " I would like to take this opportunity to welcome you as a new account of the Jeanswear Division of Levi Strauss & Co.," and reminded Tom of certain LS & CO. " policies specifically regarding account selection and distribution." Joint Ex. 24 (Vol. VII).[2] During the 1980s and 1990s, Spiece made investments designed to increase its sales of Levi's jeans, including purchasing a fifty-foot-tall pair of inflatable Levi's jeans, traveling to Egypt to shoot a commercial promoting its brick and mortar stores, and staging a promotion where Tom was shot out of a canon with a pair of Levi jeans in his mouth. Tr. at 213-14.

LS & CO. products were sold to Spiece only on a purchase order and acceptance basis throughout the United States.[3] LS & CO.'s Terms & Conditions of Sale (" Terms of Sale" ) stated:[4]

THE DELIVERY OF A PURCHASE ORDER TO LEVI STRAUSS & CO. (" LS & CO." ) BY AN AUTHORIZED U.S. AND U.S. TERRITORIES RETAILER (" CUSTOMER" ) FOR THE PURPOSE OF PURCHASING LS & CO. PRODUCTS CREATES NO OBLIGATION ON THE PART OF LS & CO. UNLESS OR UNTIL ACCEPTED. ACCEPTANCE OF A PURCHASE ORDER IS EXPRESSLY CONDITIONAL UPON CUSTOMER'S AGREEMENT WITH THE FOLLOWING:

J.E. 96 (Vol. IX); Appellee's App. at 326.[5] The conditions described in the Terms of Sale pertained to purchase orders, product resale, shipping, claims, invoicing, and credit. Under the category " Purchase Orders," the language specifically stated, " Each shipment by LS & CO. to the Customer, whether in whole or partial fulfillment of any Customer purchase order or related confirmation, constitutes a separate sale, obligating the Customer to pay LS & CO. for the contents of that shipment." J.E. 96 (Vol. IX); Appellee's App. at 326. The trial court found that LS & CO. accepted Spiece's purchase orders " conditioned on" Spiece: " 1) compl[ying] with all applicable LS & CO. policies; and 2) paying for the products it received." Appellant's App. at 28.

Page 349

In 2000, Spiece applied to LS & CO. for approval to sell Levi's jeans online. LS & CO. approved Spiece's request and conveyed that approval by sending a letter, dated December 5, 2000 (" 2000 letter" ), to Mark Campbell, Spiece's computer specialist, stating, " We are pleased to inform you that your site, www.denimexpress.com, meets our on-line selling criteria. You are now authorized to sell LS & CO. products on your web site." J.E. 44 (Vol. VIII). The 2000 letter also provided that, due to the Internet's dynamic nature, LS & CO. would revise its online selling policies from time to time, and that it was Spiece's responsibility to comply with the policies " to remain in good standing as an authorized on-line retailer of LS & CO. products." Id. Thereafter, Spiece began selling LS & CO. products through www.denimexpress.com.

After Spiece was authorized to sell LS & CO products online, it not only had to comply with the Terms of Sale, but also LS & CO's policies regarding Retail Selling on the Internet (" Internet Policies" or " RSOTI" ). LS & CO.'s 2000 Internet Policies were amended in 2002, 2008, and 2010. Except as otherwise discussed below, the pertinent provisions of each of those policies remained the same. The Internet Policies contained directives aimed at protecting LS & CO.'s trademarks and restricting their overuse by LS & CO.'s retail partners like Spiece. Appellee's App. at 233, 241, 301, 352. LS & CO. Internet Policies required sellers to feature brands other than LS & CO.'s brand on their websites and refrain from using LS & CO.'s logos and trademarks to imply that the site was owned or managed by LS & CO. Id. Again, LS & CO. reserved the right to change its policies and " to withdraw its authorization to sell online at any time." Appellee's App. at 236, 244, 305, 353. The trial court found that the Internet Policies, generally, " provided that LS & CO. retained the sole and exclusive right to control its customers['] use of LS & CO.'s trademark(s) as a design element on the interior and exterior of customers' store(s), on customers' Internet selling site(s) or in customers' advertising and promotional efforts." Appellant's App. at 30.

One of the ways that Spiece directed customers to its Denim Express website was through online marketing. Debra Nguyen, digital marketing specialist for LS & CO., testified regarding the use of " Google as a search engine and the process by which LS & CO., as well as other vendors, sell on-line." Appellant's App. at 30. " Google is the titan in the industry of search engines and complying with their criteria is necessary to utilize Google as a search engine. . . . LS & CO. derived great benefits from ensuring not only its compliance with Google policies, but its customers['] compliance as well." Id. at 30-31.

Spiece used two techniques in its marketing--paid searches, " where advertisers can . . . bid for placements" on the Internet, and a natural search technique called " key word stuffing." Tr. at 79, 86. Key word stuffing is done to enhance a natural search ranking through the excessive use of copy or text on a website with the goal of manipulating the search engine indexing. Id. at 88. Key word stuffing was disfavored by Google, who often punished those engaged in that practice. Id. at 86.

In 2008, LS & CO.'s Internet Policies included a new section addressing " Digital Marketing," which prohibited retail partners from engaging in key word stuffing and bidding on Levi's trademark terms (such as Levi's® and 501® ) as part of a paid search. Tr. at 107-08; Appellee's App. at 303-04. LS & CO. placed no restrictions on a retailer's ability to buy

Page 350

non-trademarked terms (such as denim or jeans) to use in online ads. Tr. at 108-09.

On June 20, 2008, Laura Castellanos (the LS & CO. salesperson for Spiece's account) sent an email to Campbell informing him that Spiece was in violation of the 2008 Internet Policies. Castellanos attached to the email a copy of the 2008 Internet Policies " with highlighted captions of the areas [LS & CO.] ha[d] identified in violation." J.E. 94 (Vol. IX). Through this, LS & CO. notified Spiece that it was in violation of those policies. Spiece remedied some of the violations, but on September 9, 2008, the Vice President of Levi.com took screenshots of Denim Express's website to illustrate how Spiece still had violations pertaining to paid searches and key word stuffing. J.E. 97 (Vol. IX).

In May 2010, Spiece's owner, Tom, emailed a Senior Sales Director at LS & CO. to complain about the prohibition on Spiece being able to purchase LS & CO.'s trademarks as paid search terms. Appellee's App. at 355. By late 2010, Spiece had fallen behind on its inventory payments to LS & CO. and remained that way through and after its eventual termination. Appellee's App. at 361-80. LS & CO. continued to document violations of the Internet Policies through early 2011, by which time Tom had explicitly informed LS & CO. representatives that he " would not comply" with the Internet Policies. Tr. at 520; J.E. 131 (Vol. X).

In mid-March 2011, Spiece received written and oral notice that its authorization to sell LS & CO. products online had been revoked. Tr. at 588; Appellant's App. at 57; Appellee's App. at 161. Because Spiece had made a large purchase at the end of 2010, LS & CO. informed Spiece it would consider a one-time return of that merchandise. Tr. at 590-92; Appellee's App. at 384. Such offer was dependent on Spiece providing LS & CO. with a detailed list of inventory so that LS & CO. could place a monetary value on the return. Tr. at 591; Appellee's App. at 384. Spiece never provided that detailed inventory; instead, it kept the merchandise, but paid for only part of it. Tr. at 591-92; Appellant's App. at 384. In April 2011, one week after issuing the inventory return offer to Spiece, LS & CO. contacted Spiece about its still-outstanding balance and warned that if Spiece continued to refuse to pay, LS & CO. would begin a formal collection process. Id. at 156-57. Spiece's account was ultimately referred to collections, resulting in this lawsuit. Id. at 403.

On August 4, 2011, LS & CO. filed a complaint on account, claiming that Spiece owed LS & CO. $321,778.48 for goods and services supplied to Spiece, but for which Spiece had not paid. Spiece filed its answer and affirmative defenses. Seven months later, Spiece filed an eight-count counterclaim alleging that LS & CO. had: (1) breached its contract with Spiece; (2) breached its implied warranty of merchantability; (3) violated Indiana's Deceptive Franchise Practices Act (" Franchise Act" ); (4) committed fraud; (5) committed constructive fraud; (6) committed tortious interference with Spiece's contractual rights and ...


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