           Case: 19-12595    Date Filed: 01/08/2020   Page: 1 of 13


                                                           [DO NOT PUBLISH]


               IN THE UNITED STATES COURT OF APPEALS

                      FOR THE ELEVENTH CIRCUIT
                        ________________________

                              No. 19-12595
                          Non-Argument Calendar
                        ________________________

                   D.C. Docket No. 1:16-cv-00038-MHC


GOT I, LLC,
KIDS2, INC.,

                                      Plaintiffs-Counter Defendant-Appellants,

                                   versus

XRT, INC.,
DAVID EUGENE SILVERGLATE,

                                       Defendants-Counter Claimant-Appellees,

                       __________________________

                 Appeal from the United States District Court
                    for the Northern District of Georgia
                      _________________________

                              (January 8, 2020)

Before JORDAN, NEWSOM, and ANDERSON, Circuit Judges.

PER CURIAM:
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         Kids2, Inc. (“Kids2”) 1 initiated a declaratory judgment action in the district

court below, seeking to establish that it had not violated a royalty agreement that it

had contracted with XRT, Inc., and David Silverglate. Following several summary

judgment motions and a jury trial, Kids2 unsuccessfully sought to invoke the

attorneys’ fees provision in the royalty agreement, claiming that it was the

prevailing party within the meaning of the provision and therefore entitled to

attorneys’ fees. The district court determined that the result of the litigation was a

“mixed” outcome and that neither party was entitled to attorneys’ fees. Kids2

appeals. After reviewing the record and briefs, we reverse the district court’s

order.

                                   I. BACKGROUND

         On December 30, 2010, Kids2 purchased the assets of Rhino Toys, Inc.

Rhino had developed a number of toys, including the “Oball” line of products.

The royalty agreement between Kids2 and Rhino provided that Rhino would

receive $4.5 million as an up-front payment; that Rhino’s founder and CEO, David

Silverglate, would be employed by Kids2 for two years with a $200,000 annual

salary; and that Rhino would receive royalty payments for sales of (1) its existing

products, (2) new products derived from existing products or designed by


         1
        Following the docketing of this appeal, Kids2’s name was changed to its present form
from Kids II, Inc. It moved to amend the caption to reflect the name change and we granted the
motion on November 26, 2019.


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Silverglate, and (3) combined toys. After the asset purchase, Rhino reorganized

itself as XRT, Inc. (eX Rhino Toys), to collect the payments.

      Because the royalty payments were ultimately the reason that this

declaratory judgment action was initiated, we pause to note exactly how the

payments worked. First, for “existing products”—that is, products already

manufactured or created by Rhino at the time of Kids2’s acquisition—XRT was

paid a 5% royalty. Second, for “newly developed products”—those products that

were derived from “existing products” or that were developed by Silverglate

during his employment with Kids2—XRT was paid a 3% royalty. Third, and most

complicated, XRT was paid a variable royalty for “combined products,” which

were Kids2 products that incorporated or included an “existing product” or a

“newly developed product.” If the starting point for the “combined product” was

an “existing product,” the initial rate was at 5%; if the starting point was a “newly

developed product,” the initial rate was 3%. The applicable royalty for a

“combined product” was then discounted based on the product’s composition—the

more the product included Rhino products, the higher the royalty payment.

      The royalty agreement between Kids2 and Silverglate included a provision

providing that the prevailing party in any litigation would receive attorneys’ fees.

The provision states:

      17. ATTORNEY’S FEES. In the event of any dispute, action,
      arbitration, claim, or other proceeding brought by either party against

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      the other in connection with this Agreement, the prevailing party shall
      be entitled to recover all costs and expenses in connection with such
      dispute, arbitration, action, claim or other proceeding, including,
      without limitation, the fees and costs of its attorneys, whether or not
      such dispute, arbitration, action, claim or other proceeding proceeds to
      final resolution or judgment.

The provision does not define “prevailing party,” but the agreement further

provides, “The laws of Delaware shall control and govern the interpretation and

construction of this Agreement in all respects and this Agreement will be deemed

to have been made in the State of Delaware.”

      Several years later, Silverglate believed that Kids2 had changed the way that

it calculated its royalty payments and was underpaying him. He retained counsel,

who sent a letter to Kids2, asserting that it owed him more than $200,000 in

royalty payments. In response, Kids2 initiated the instant declaratory judgment

action in the Northern District of Georgia. XRT responded by adding a

counterclaim for material breach of the contract, seeking more than $100 million in

damages—in other words, it sought an immediate payout of the 75-year term of the

Royalty Agreement.

      During the course of litigation, the parties filed cross-motions for summary

judgment on the issue of whether a product is properly classified as a “newly

developed product” because it uses a trademark. The district court denied XRT’s

motion and granted Kids2’s on March 16, 2017, determining that “a product




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cannot be classified as a Newly Developed Product under the Royalty Agreement

based solely on the use of a trademark.”

      Later, Kids2 moved for partial summary judgment on the issue of whether it

committed a material breach of the royalty agreement. After concluding that

“Plaintiffs made an initial payment of over $4,450,000, applied a reasonable

construction of the ambiguous Royalty Agreement, paid at least 71% of royalties

owed, sought a judicial declaration defining their obligations under the agreement

when a dispute understandably arose, continued to pay royalties, and escrowed

royalty payments Defendants refused to accept after terminating the agreement,”

the district court concluded that “Plaintiff did not commit a material breach of the

Royalty Agreement” and granted Kids2 partial summary judgment on that ground

on February 27, 2018. In that same order, however, the district court denied

Kids2’s motion for summary judgment on the basis that it had not committed a

partial breach, concluding that the “Royalty Agreement is ambiguous and there

exists significant genuine issues of material fact regarding the proper classification

of products under the Royalty Agreement.”

      Kids2 and XRT filed a proposed consolidated pretrial order, each separately

submitting certain issues to be tried. However, the district court framed the issues




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for the jury to decide in a manner not contested on appeal. 2 Interrogatories with

regard to each of the 55 products were submitted to the jury in the form of two

questions: (1) “Have Plaintiffs GOT I/Kids II shown by a preponderance of the

evidence that this product is a Combined Product?”; and (2) “Have Defendants

XRT/Silverglate shown by a preponderance of the evidence that this product is a

Newly Developed Product?” The instructions further provided that “You may

select only one ‘Yes,’ but may select two ‘Nos[.]’” In other words, the jury

would be asked to indicate, product-by-product, if the plaintiffs met their burden, if

the defendants met their burden, or if neither party had met their burden.

       The jury ultimately determined that Kids2 had met its burden on 50 of the 55

products, and that XRT had met its burden on 5 of the 55 products. All told,

including the pretrial judgments, this meant that Kids2 met its burden on 51 of the

57 products, while XRT met its burden on 6 of the 57. The district court ordered

$107,184.47 in damages to XRT.

       Following the trial, Kids2 sought a declaration that it, as a “prevailing

party,” was entitled to attorney’s fees under the contractual provision, while XRT

sought a declaration that neither party was the prevailing party. The district court

ultimately determined that neither party had prevailed.


       2
          Though the dispute initially involved 57 contested products, 2 of them were not submitted
to the jury—Kids2 received a judgment as a matter of law on one of the products, and it stipulated
to judgment on another.


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      The Court cannot rule that Plaintiffs are the prevailing party. Plaintiffs
      identified the issues to be tried as whether they “breached the Royalty
      Agreement” by misclassifying certain products. Because the jury found
      that certain products were miscategorized, Plaintiffs breached the
      Royalty Agreement. Although Plaintiffs previously prevailed at
      summary judgment on whether there was a material breach of the
      agreement, the outcome of this case was mixed and neither party
      prevailed. While Defendants prevailed as to the classification of a small
      number of products, the fact remains that Plaintiffs did not prevail on
      their declaratory judgment asserting that they properly categorized all
      products. The amounts awarded in damages is not relevant to this
      inquiry.

Kids2 timely appealed to us on the issue of attorney’s fees.

                                  II. DISCUSSION

      As an initial matter, the parties disagree about the appropriate standard of

review. XRT argues that we should review the district court’s denial of attorney’s

fees for abuse of discretion, while Kids2 argues that we should review it de novo.

After reviewing our precedent, Kids2 is correct. While it is true that some of our

cases have said that, generally, we review a district court’s grant or denial of

attorney’s fees for abuse of discretion, see, e.g., In re Application to Adjudge

Trinity Indus., 876 F.2d 1485, 1495 (11th Cir. 1989), we note that this

determination was made in the context of Rule 11 sanctions, not in the context of a

contractual attorney’s fee provision.

      When it comes to reviewing the denial of contractual attorney’s fees,

“[b]ecause contract interpretation is a question of law, we review the district

court’s interpretation of the contract and subsequent denial of attorneys’ fees de

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novo.” Johnson Enters. of Jacksonville v. FPL Group, 162 F.3d 1290, 1329 (11th

Cir. 1998). In our embrace of broad common-law principles, we have uniformly

held that “[c]ontract interpretation is a legal question subject to de novo review by

this Court,” BankAtlantic v. Blythe Eastman Paine Webber, Inc., 955 F.2d 1467,

1477 (11th Cir. 1992), and it logically follows, then, that when we interpret a

contractual provision providing for attorney’s fees, the interpretation of that

provision, along with its application, are questions of law, which we review de

novo. Accordingly, we review the district court’s decision anew, as if it had not

been heard before and no decision had been rendered.

      We begin by noting that, because the contract at issue provided that “[t]he

laws of Delaware shall control and govern the interpretation and contraction of this

Agreement in all respects,” we apply Delaware law to interpret its provisions. See

Koch Bus. Holdings, LLC v. Amoco Pipeline Holding Co., 554 F.3d 1334, 1338

(11th Cir. 2009). Delaware law provides that “the proper interpretation of

language in a contract is question of law.” Allied Capital Corp. v. GC-Sun

Holdings, L.P., 910 A.2d 1020, 1030 (Del. Ch. 2006). “When interpreting a

contract, a court’s task is to ‘satisfy the reasonable expectations of the parties at the

time they entered into the contract.’” Alliance Data Sys. Corp. v. Blackstone




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Capital Parties V L.P., 963 A.2d 746, 760 (Del. Ch. 2009) (quoting Liquor Exch.,

Inc. v. Tsaganos, 2004 WL 2694912, at *2 (Del. Ch. Nov. 16, 2004).3

       The attorneys’ fees provision in the Royalty Agreement is relatively

straightforward. It provides:

       In the event of any dispute, action, arbitration, claim, or other
       proceeding brought by either party against the other in connection with
       this Agreement, the prevailing party shall be entitled to recover all costs
       and expenses in connection with such dispute, arbitration, action, claim
       or other proceeding, including, without limitation, the fees and costs of
       its attorneys, whether or not such dispute, arbitration, action, claim or
       other proceeding proceeds to final resolution or judgment.

By using the term “prevailing party,” “the parties can be presumed to have

intended that the term would be applied by the court as it has traditionally done

so.” Brandin v. Gottlieb, 2000 WL 1005954, at *28 (Del. Ch. July 13, 2000). 4 In

determining which party is “prevailing,” Delaware courts apply a context-specific

test to determine what the “main issue” was, and which party prevailed on that

“main issue.” See Comrie v. Enterasys Networks, Inc., 2004 WL 5466650, at *2

(Del. Ch. Apr. 27, 2004). In other words, “To achieve predominance, a litigant

should prevail on the case’s ‘chief issue.’” 2009 Caiola Family Trust v. PWA,



       3
         We note that Delaware courts allow parties to cite unpublished opinions as precedent.
See New Castle Cty. v. Goodman, 461 A.2d 1012, 1013 (Del. 1983) (“[L]itigants before this Court
may cite Orders as precedent so long as they comply with the dictates of Rule 14(b)(vi).”).
       4
          Both parties agree that under Delaware law, this contractual provision relating to
prevailing party attorneys’ fees is an “all-or-nothing” proposition. Comrie, 2004 WL 5466650, at
*2.


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LLC, 2015 WL 6007596, at *33 (Del. Ch. Oct. 14, 2015) (quoting W. Willow-Bay

Court, LLC v. Robino-Bay Court Plaza, LLC, 2009 WL 458779, at *9 (Del. Ch.

Feb. 23, 2009)). In some situations, “there can be more than one ‘chief’ or core

issue in a case, and where . . . the parties split on two equally core issues, neither

can be said to have ‘prevailed’ so as to trigger the contractual entitlement to fee-

shifting in the License Agreement.” Mrs. Fields Brand, Inc. v. Interbake Foods

LLC, 2018 WL 300454, at *3 (Del. Ch. Jan. 5, 2018).

      In approaching this issue, we find it helpful to contextualize the underlying

litigation. The events preceding Kids2’s filing of the complaint are largely

undisputed. Silverglate believed that Kids2 was making inadequate royalty

payments to him, so he sent a demand letter asserting that he was entitled to around

$200,000 in royalty payments. Kids2, feeling that it did not owe Silverglate any

such payments, initiated the litigation. It sought a declaration that it had complied

with its obligations under the Agreement and the “past due royalties and royalty

rates alleged” by Silverglate were “inconsistent with the parties[’] obligations

under the Royalty Agreement.” Silverglate and XRT responded by filing a

counterclaim for $100 million—in essence, seeking to have the end-value of the

Royalty Agreement realized immediately because of Kids2’s breach.

      Throughout the litigation, the scope of relief sought by XRT and Silverglate

significantly narrowed—the district court granted Kids2 summary judgment on



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whether toys produced under a Rhino trademark were “newly developed product”

and partial summary judgment on whether it had committed a “material breach” of

the Agreement, though it denied Kids2 summary judgment on whether it had

committed a “partial breach” of the Agreement. Then, at trial, the combined

determinations by the court and the jury led to the outcome that Kids2 had properly

classified, and made royalty payments on, 51 of 57 disputed toys. This led to an

award of $107,184.47 to XRT and Silverglate—which, we note, is a sharp

reduction from the defendants’ various demands prior to and during litigation.

      To determine whether Kids2 is entitled to contractual attorneys’ fees, we

must first determine what the “core” or “chief” issue in the litigation was. The

district court essentially concluded that the core issue in this litigation was whether

Kids2 breached the Royalty Agreement with XRT. Because the jury verdict

determined that Kids2 had partially breached the Agreement with regard to a small

number of products, the district court concluded, “the outcome of the case was

mixed.”

      We conclude that the district court erred in its analysis of this “prevailing

party” contract issue. It is true that one of the core issues in the case was whether,

and the extent to which, Kids2 breached the Royalty Agreement by misclassifying

products. With regard to that issue, the result of this litigation was that Kids2 did

misclassify 6 out of the 57 products. But the jury also found that Kids2 properly



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classified 51 of the 57 products, thus endorsing the position of Kids2 and rejecting

the position of XRT. In other words, XRT prevailed with regard to 6 products;

Kids2 prevailed with regard to 51 products. We conclude that, even with regard to

this one core issue, Kids2 achieved predominance, notwithstanding its minor

breach with respect to 6 out of 57 products. Moreover, there were at least two

other core issues—whether there was a material breach entitling XRT to an

acceleration of royalties and $100 million in damages, and whether the mere use of

the Oball trademark dictated a “Newly Developed Product” classification—and

Kids2 won both outright. Applying Delaware law, we think it is clear that Kids2

achieved predominance in the litigation, and is the “prevailing party.”

Accordingly, Kids2 is entitled to “prevailing party” status and to collect attorneys’

fees.

                                 III. CONCLUSION

        In sum, we conclude that, pursuant to the attorney’s fee provision in the

Royalty Agreement it signed with XRT and Silverglate, Kids2 is entitled to

“recover all costs and expenses incurred in connection with” the underlying

litigation. Our review of Delaware law makes it clear that Kids2 prevailed on all

of the “core” issues in the case and therefore achieved “predominance” in the

litigation. The district court’s decision to the contrary is incorrect as a matter of

law.



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      The district court’s order is REVERSED. This case is REMANDED to the

district court for further proceedings consistent with this opinion.




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