     10-573-cv
     L-7 v. Old Navy

 1                     UNITED STATES COURT OF APPEALS
 2
 3                         FOR THE SECOND CIRCUIT
 4
 5                           August Term, 2010
 6
 7
 8      (Argued: February 7, 2011         Decided: June 1, 2011)
 9
10                          Docket No. 10-573-cv
11
12   - - - - - - - - - - - - - - - - - - - - -x
13
14   L-7 DESIGNS, INC.,
15
16                 Plaintiff-Appellant,
17
18            - v.-                                     10-573-cv
19
20   OLD NAVY, LLC,
21
22                 Defendant-Appellee.
23
24   - - - - - - - - - - - - - - - - - - - -x
25

26       Before:          DENNIS JACOBS, Chief Judge,
27                        PETER W. HALL, Circuit Judge,
28                        SHIRA A. SCHEINDLIN,* District Judge.
29
30

31       Plaintiff-Appellant L-7 Designs appeals from a judgment

32   on the pleadings of the United States District Court for the

33   Southern District of New York (Denny Chin, Judge), entered



          *
            The Honorable Shira A. Scheindlin, of the United
     States District Court for the Southern District of New York,
     sitting by designation.
 1   on January 21, 2010, dismissing five counts asserted in L-

 2   7's Complaint, each arising out of a Creative Services

 3   Agreement entered into between L-7 Designs and Defendant-

 4   Appellee Old Navy in September of 2007.   We conclude that

 5   the District Court erred in dismissing two of those counts

 6   outright because L-7 plausibly alleged three bases for

 7   breach of contract for failure to negotiate in good faith

 8   (Count III) and wrongful termination (Count I).

 9   Accordingly, we affirm in part and vacate in part the

10   District Court’s judgment, and we remand for further

11   proceedings; in so doing we reverse in part the order of the

12   District Court that dismissed the Complaint and reinstate

13   the Complaint to the extent provided in this Opinion.

14

15   FOR PLAINTIFF-APPELLANT:   VIRGINIA R. RICHARD (Lori J. Van
16                              Auken on the briefs)
17                              Winston & Strawn LLP
18                              200 Park Avenue
19                              New York, NY 10166
20
21   FOR DEFENDANT-APPELLEE:    BRUCE P. KELLER (Shannon R. Selden
22                              on the brief)
23                              Debevoise & Plimpton LLP
24                              919 3rd Avenue
25                              New York, NY 10022
26
27
28
29
30

                                  2
 1   SHIRA A. SCHEINDLIN, District Court Judge:
 2
 3       Plaintiff-Appellant L-7 Designs (“L-7") appeals from a

 4   judgment on the pleadings of the United States District

 5   Court for the Southern District of New York (Denny Chin,

 6   Judge), entered on January 21, 2010, dismissing five counts

 7   asserted in L-7's Complaint (the “Complaint” or “Compl.”),

 8   each arising out of a Creative Services Agreement (the

 9   “Agreement”) entered into between L-7 and Defendant-Appellee

10   Old Navy (“Old Navy”) in September of 2007.   We conclude

11   that the District Court erred in dismissing Count III

12   against Old Navy for failure to negotiate in good faith an

13   alleged agreement to develop and launch a TODD OLDHAM

14   branded line of merchandise (the “Branded Line”) to be sold

15   exclusively in Old Navy stores.   The District Court also

16   erred in dismissing Count I for declaratory judgment that

17   Old Navy wrongfully terminated the parties’ Agreement under

18   which L-7's principal, Todd Oldham, was to provide design

19   services to Old Navy.   Accordingly, we affirm in part and

20   vacate in part the District Court’s judgment, and we remand

21   for further proceedings; in so doing we reverse in part the

22   order of the District Court that dismissed the Complaint and

23   reinstate the Complaint to the extent provided in this

24   Opinion.

                                   3
 1                             BACKGROUND2

 2    I.   Materials Properly Considered on a Motion for Judgment
 3                          on the Pleadings
 4
 5         One of the critical issues in this appeal is whether

 6   the District Court properly considered not only the

 7   Complaint, Old Navy’s Answer, and the written documents

 8   attached to the Complaint in deciding Old Navy’s Rule 12(c)

 9   motion, but also five email exhibits to Old Navy’s

10   Counterclaims – exhibits that were “attached” to Old Navy’s

11   Answer only by virtue of the fact that its Answer and

12   Counterclaims were filed in the same document.       L-7 argues

13   the District Court improperly considered the exhibits

14   without converting Old Navy’s 12(c) motion to one for

15   summary judgment, as required by Rule 12(d).

16         On a 12(c) motion, the court considers “the complaint,

17   the answer, any written documents attached to them, and any

18   matter of which the court can take judicial notice for the

19   factual background of the case.”       Roberts v. Babkiewicz, 582

20   F.3d 418, 419 (2d Cir. 2009).       “A complaint is [also] deemed

21   to include any written instrument attached to it as an

22   exhibit, materials incorporated in it by reference, and


           2
              We set forth the pleadings in great detail to
     demonstrate the unusual amount of material the District
     Court had before it on this 12(c) motion.
                                     4
 1   documents that, although not incorporated by reference, are

 2   ‘integral’ to the complaint.”       Sira v. Morton, 380 F.3d 57,

 3   67 (2d Cir. 2004) (citations omitted) (quoting Chambers v.

 4   Time Warner, Inc., 282 F.3d 147, 153 (2d Cir. 2002)).       There

 5   is no question that the email exhibits were “attached” to

 6   Old Navy’s Answer, even if they were only “part of” Old

 7   Navy’s Counterclaims.   See Fed. R. Civ. P. 10(c) (“a copy of

 8   a written instrument that is an exhibit to a pleading is a

 9   part of the pleading for all purposes”) (emphasis added).

10   Moreover, these emails – of which L-7 had notice well before

11   Old Navy attached them to its Answer (because L-7 sent or

12   received them) – were “integral” to the negotiation exchange

13   that L-7 identified as the basis for its Complaint.      See

14   Sira, 380 F.3d at 67 (document not expressly cited in

15   complaint was “incorporated into the pleading because [it]

16   was integral to [plaintiff’s] ability to pursue” his cause

17   of action); Chambers, 282 F.3d at 153 (document “integral”

18   to complaint where complaint “relie[d] heavily upon its

19   terms and effect”) (quotation marks omitted); Cortec Indus.,

20   Inc. v. Sum Holding L.P., 949 F.2d 42, 48 (2d Cir. 1991)

21   (necessity of translating motion into one under Rule 56

22   “largely dissipated” where plaintiff had “actual notice” of

23   information in documents and “relied upon [them] in framing

                                     5
 1   the complaint”).     “Plaintiffs’ failure to include matters of

 2   which as pleaders they had notice and which were integral to

 3   their claim – and that they apparently most wanted to avoid

 4   – may not serve as a means of forestalling the district

 5   court's decision on [a 12(b)(6)] motion.”     Cortec, 949 F.2d

 6   at 44.   For these reasons, in reviewing de novo Old Navy’s

 7   motion for judgment on the pleadings, we draw all facts –

 8   which we assume to be true unless contradicted by more

 9   specific allegations or documentary evidence – from the

10   Complaint and from the exhibits attached thereto,3 and we

11   also consider the emails attached to Old Navy’s

12   Counterclaims.     See Blue Tree Hotels Inv. (Canada), Ltd. v.

13   Starwood Hotels & Resorts Worldwide, Inc., 369 F.3d 212, 222

14   (2d Cir. 2004) (discrediting allegation “belied” by letters

15   attached to the complaint); Hirsch v. Arthur Andersen & Co.,

16   72 F.3d 1085, 1092 (2d Cir. 1995) (“General, conclusory

17   allegations need not be credited . . . when they are belied

18   by more specific allegations of the complaint.”).     The facts

19   thus derived, viewed in the light most favorable to L-7, are

20   as follows.

21


          3
              All exhibits cited herein are exhibits to the
     Complaint unless otherwise noted.
                                     6
 1                          II.     The Parties

 2       L-7's principal, Todd Oldham, is a world famous artist,

 3   fashion and graphic designer, photographer, writer, and

 4   television personality.      He formed L-7 in 1989 to manage his

 5   design services and intellectual property rights, including

 6   eight U.S. federal registrations for the mark TODD OLDHAM.

 7   “[A] luminary in the fashion and design industry for over

 8   twenty years,” Oldham is “considered one of the most

 9   important designers of fashion and home furnishings working

10   today” and “the singular talent behind the internationally

11   famous TODD OLDHAM brand.”      Compl. ¶ 8.   For more than a

12   decade, Oldham and L-7 have collaborated on a variety of

13   TODD OLDHAM branded merchandise.4

14       Old Navy, a subsidiary of Gap Inc., operates a chain of

15   retail apparel stores, with more than a thousand stores

16   throughout the United States and Canada.       For at least the

17   last five years, Old Navy has been suffering declining

18   sales.   One of its strategies for increasing sales has been

19   to increase its appeal to younger consumers.

20



          4
              For example, Oldham entered into a licensing
     agreement with Mattel, Inc. for a special collector’s
     edition of a Barbie doll.
                                      7
 1                          III.   The Agreement

 2       In the spring of 2007, L-7 approached Old Navy to

 3   discuss the possibility of entering into a relationship with

 4   L-7, and Old Navy, “enthusiastic about this possibility,”

 5   ultimately requested that Oldham become the company’s new

 6   Design Creative Director.     Id. ¶ 26.   In order to induce

 7   Oldham to join Old Navy’s design team, Old Navy proposed to

 8   introduce a TODD OLDHAM branded line of clothing, and to pay

 9   royalties to L-7 in the form of five percent of the Branded

10   Line’s sales.    Faced with continuing declining sales, Old

11   Navy pushed Oldham to enter into an agreement quickly so

12   that it could publicly announce both Oldham’s appointment as

13   Old Navy’s Design Creative Director and also the launching

14   of the Branded Line.

15       On September 21, 2007, the parties entered into the

16   Agreement,5 under which L-7 was to perform certain

17   “Services” and provide certain “Deliverables,” as set forth

18   in a “Scope of Work” (the “SOW”) attached to the Agreement.

19   Agreement § 1.    Under the SOW, Oldham would provide design

20   services for Old Navy for three years in exchange for an

21   annual “fee” of $2 million; in addition, Oldham would


          5
                 By its terms, the Agreement is governed by New
     York law.
                                      8
 1   receive a guaranteed bonus of $0.5 million in year one and,

 2   in years two and three, 1.25 percent of the year’s

 3   incremental sales (not to exceed $6 million).   SOW §§ 1, 2.

 4   Section 5 provided that during the term of the Agreement,

 5   “either party may terminate this Agreement, effective

 6   immediately upon notice thereof, in the event of a material

 7   breach of this Agreement that remains uncured after thirty

 8   (30) days written notice of the breach to the other party.”

 9                   IV.   The Licensing Agreement

10       Section 5 of the SOW, entitled “Todd Oldham Branded

11   Line,” provided as follows:

12            a. In September 2007, the parties will announce
13            publicly that Todd Oldham/[L-7] shall be
14            serving as Design Creative Director of Old Navy
15            and that it is the intent of the parties to
16            develop and launch a line of products that will
17            bear TODD OLDHAM Marks to be sold exclusively
18            at Old Navy stores at a future time.
19
20            b. [L-7] and Old Navy acknowledge and agree
21            that the specific terms and conditions related
22            to this proposed line of products bearing TODD
23            OLDHAM Marks are to be negotiated and agreed
24            upon by the parties in a separate agreement.
25            The parties plan to enter into a separate
26            agreement related to these products by October
27            1, 2008.
28
29            c. The parties agree that this separate
30            agreement will contain at least the following:
31            (1) royalty fees paid to [L-7] of 5% of Old
32            Navy’s retail sales for this particular line
33            only (not all Old Navy products) and (2)
34            agreement and final approval by both Old Navy

                                   9
 1            and [L-7] as to the collections and products to
 2            be sold by Old Navy.
 3
 4   On September 21, 2007, Old Navy announced via a press

 5   release that it intended to launch the Branded Line.      On

 6   October 3, 2007, Monika Fahlbusch (the Old Navy executive

 7   assigned to the Branded Line) emailed Vital Vayness (L-7's

 8   representative) to “recommend we plan to begin [discussion

 9   on the license agreement for the Branded Line] in our new

10   fiscal year – say in April?      We have until October so there

11   is no rush . . . .”    Ex. 19.    Thereafter, L-7 and Oldham

12   performed their obligations under the Agreement, and Old

13   Navy executives publicly and privately praised Oldham’s

14   performance as Design Creative Director.

15               V.   April-October 2008 Negotiations

16       On April 2, 2008, L-7 (Vayness) “initiated negotiations

17   to finalize” the licensing agreement for the Branded Line by

18   emailing Fahlbusch (Old Navy) L-7's standard form license

19   agreement and a term sheet that outlined a three-year

20   initial term and annual guaranteed minimum royalties (the

21   “April Proposal”).    Compl. ¶ 44.    The email suggested that

22   Old Navy “formulate [its] initial thoughts, needs and

23   objectives” and then “present to [Oldham] in [M]ay” while




                                      10
 1   Fahlbusch (Old Navy), Vayness (L-7), and Old Navy’s attorney

 2   “begin work on the language of the contract.”           Ex. 17.

 3       Commencing in May 2008, Old Navy made “material

 4   representations” that were “false, as [L-7] subsequently

 5   learned.”   Compl. ¶ 47; accord Ex. 19.          For example in May

 6   of 2008, Fahlbusch (Old Navy) assured Vayness (L-7) that she

 7   was “already working with our legal team on the licensing

 8   agreement template.”     Ex. 19.        But throughout the late

 9   spring and summer of 2008, L-7 repeatedly followed up with

10   Fahlbusch and Old Navy’s Executive Vice President, Douglas

11   Howe, seeking feedback on the April Proposal and on a

12   “redirection” Old Navy was taking in its “approach,” with

13   little or no followup.     Exs. 19-20.        During one meeting in

14   June of 2008 at which Oldham (L-7), Howe (Old Navy), and Tom

15   Wyatt (another Old Navy executive) were present, Old Navy

16   proposed postponing discussions of the Branded Line.

17   Nevertheless, on June 12, 2008, Vayness (L-7) indicated to

18   Fahlbusch (Old Navy) that “things are proceeding in the

19   right direction with the branded line.”           Ex. 19.

20       In a late July 2008 email, Fahlbusch (Old Navy)

21   suggested that the reason for Old Navy’s delay in getting

22   back to L-7 was that “next steps” on the Branded Line

23   license would be “impacted by who is named President.”            Id.

                                        11
 1   Vayness (L-7) responded the same day, reminding Fahlbusch

 2   (Old Navy) that “we have a provision in the contract calling

 3   for the license agreement to be entered into by October

 4   1st.”       Id.

 5           On September 2, 2008, Vayness (L-7) emailed Fahlbusch

 6   (Old Navy) seeking Old Navy’s feedback on the terms set

 7   forth in L-7's April 2008 email, indicating that L-7 was

 8   “ready to discuss [11 points] as early as possible.”       Ex.

 9   20.     L-7 followed up with emails and telephone calls to

10   Fahlbusch (Old Navy) on September 7, 9, and 10, 2008.        On

11   September 10, 2008, Fahlbusch (Old Navy) recommended that

12   Oldham start working “directly” with Howe “as it seems we

13   all have a different understanding of the numerous

14   conversations in recent months related to the branded line.”

15   Id.

16           On September 30, 2008, Wyatt (Old Navy) advised L-7 in

17   a telephone call for the first time that Old Navy wished to

18   postpone the signing of a license for the Branded Line

19   “‘indefinitely.’”     Compl. ¶ 52 (quoting Wyatt).6   In



             6
              The Complaint alleges that Howe, Old Navy’s then-
     executive vice president, expressed this to L-7. See Compl.
     ¶ 52. An October 7, 2008 email from Vayness (L-7) to Wyatt,
     however, indicates that Wyatt made the statement. See Ex.
     23.
                                     12
 1   response, L-7 stated that it expected Old Navy to provide it

 2   with definitive dates to restart negotiations, enter into

 3   the licensing agreement, and launch the Branded Line, and

 4   compensation for the postponement of the initial October 1,

 5   2008 signing date.      Old Navy failed to provide a response

 6   within a week as promised.

 7         VI.   Fall 2008 Notice of Breach and Demand for Damages

 8          On October 7, 2008, L-7 advised Old Navy’s in-house

 9   counsel that Old Navy was in material breach of the

10   Agreement for failing to negotiate in good faith.      See Ex.

11   23.     Counsel for Old Navy responded a week later, stating

12   Old Navy’s view that the Agreement “does not obligate Old

13   Navy to enter into a separate license agreement for Todd

14   Oldham branded products” and that although Old Navy did not

15   “foreclose the possibility of engaging in discussions about

16   Todd Oldham branded products in the future if business

17   conditions permit, [Old Navy is] not currently in a position

18   to make a commitment to any such future discussions.”      Ex.

19   24.     The next day, Wyatt, then President of Old Navy, told

20   Oldham that Old Navy was “‘very, very sorry’ but because of

21   economic conditions, Old Navy could not follow through with

22   the promised license for a TODD OLDHAM branded line of



                                      13
 1   apparel to be carried exclusively in Old Navy stores.”

 2   Compl. ¶ 55.

 3       After waiting thirty days from Old Navy’s receipt of L-

 4   7's October 7th notice of breach, outside counsel for L-7

 5   sent a letter to Old Navy requesting that Old Navy remedy

 6   the damage to L-7 caused by Old Navy’s breach by (1)

 7   compensating L-7 for lost royalties and reputational damages

 8   (estimated at $75 million) and (2) paying Oldham his

 9   expected fees for the second and third years of the

10   Agreement ($4 million).

11              VII.   Old Navy’s December 2008 Response

12       On December 3, 2008, counsel for Old Navy responded,

13   denying that Old Navy was obligated to enter into a license

14   agreement or had failed to negotiate in good faith.    Counsel

15   for Old Navy explained that, in the course of their

16   negotiations,

17             differences emerged in the parties’ positions,
18             including on such essential issues as the types
19             of products to be included in the line, how
20             many stores would be included in a launch, the
21             staffing necessary to support such a line, and,
22             most importantly, the timing of any such
23             launch.
24
25   Ex. 26.   According to Old Navy’s counsel, “business

26   circumstances made an extensive launch in the immediate near

27   term unfeasible.”   Id.   Thereafter, from December 15, 2008

                                    14
 1   to February 6, 2009, Old Navy engaged in “sham

 2   negotiations,” falsely representing that it fully intended

 3   to enter into a license agreement.     Compl. ¶ 124.

 4            VIII.    The Old Navy January 2009 Proposal

 5       The parties met once in December 2008 and several times

 6   in January 2009 to “work out the details of the license

 7   agreement,” a further draft of which L-7 supplied to Old

 8   Navy on December 15, 2008.    Compl. ¶ 60.   On January 8,

 9   2009, one hour before a scheduled conference call, Old Navy

10   proposed a launch at 100 Old Navy stores (“As you know, our

11   history of presenting third party-branded product in our

12   stores is relatively short . . .”); a one-year commitment

13   beginning in the spring of 2010; no additional personnel

14   resources; and a one-year projected royalty of $1.5 million

15   (“. . . our previous discussions have never contemplated any

16   royalty minimum guarantees, and, as a general rule, our

17   company has not and will not agree to minimum guarantees.

18   This has been consistent in all of our recent agreements.”)

19   (the “January Proposal”).    Ex. 27.

20                    IX.   January 2009 Discussions7


          7
              L-7's Complaint and exhibits attached thereto
     largely omit reference to the parties’ January 2009
     discussions. The “facts” set forth below are primarily
     drawn from the five email exhibits to Old Navy’s
                                     15
 1       Oldham responded immediately by email to Old Navy’s

 2   January Proposal:

 3            [Your projections] seem EXTREMELY uncommitted
 4            to me. This feels like an effort to absolve
 5            old navy's contractual responsibilities and not
 6            a commitment to build a new brand that was made
 7            to me when i joined and what you reiterated to
 8            me last month. 100 stores will not work. the
 9            1 million in launch dollars will not be
10            effective.    the one year commitment is too
11            brief as there are so many hiccups in launching
12            a brand . . . . i hope that we can get this
13            resolved but we are very far away from a
14            reasonable plan. the volume of work necessary
15            to bring a project of this scale to bloom is at
16            great odds with your financial projections.
17
18   Counterclaims Ex. A.   In the discussions that followed, L-7

19   asked for a minimum guarantee of $37.5 million for a

20   three-year term and then reduced the request to $20 million

21   for a two-year term.   On January 16, 2009, L-7 inquired of

22   Old Navy whether it had “made any changes to any of its

23   positions as stated [in the January Proposal].”   Id. Ex. E.

24   Old Navy responded the next day:

25            To date, we have not been presented with any
26            comprehensive counteroffer and instead there
27            has been a [sic] insistence on large guaranteed
28            minimum payments that we have explained are
29            unacceptable and inconsistent with our business
30            plans and practices . . . .
31




     Counterclaims.
                                   16
 1   Id. Ex. D.    Additional emails were exchanged, and on January

 2   29, 2009, the parties held a conference call, during which

 3   they agreed to talk again after speaking with their

 4   respective “principals.”    Ex. 28.   The same day, L-7 emailed

 5   Old Navy a “revised proposal” reflecting Oldham’s input on

 6   the points discussed during the call.     Id.

 7                   X.   February 2009 Communications

 8         Four days later, on February 2, 2009, Old Navy

 9   responded to L-7's January 29th email, advising L-7 that

10   “despite our best efforts to negotiate an agreement that

11   would be reasonable and mutually acceptable, we have not

12   reached and will not be able to reach common ground on key

13   business terms,” reiterating that minimum guaranteed

14   payments were “inconsistent with our business plans and

15   practices.”   Id.    Vayness (L-7) responded the same day,

16   explaining his “surprise” at Old Navy’s email given that the

17   January 29, 2009 call was “completely amicable, polite,

18   professional, and [] friendly” and that none of the points

19   discussed during that call “was left off as a deal breaker.”

20   Id.   The email went on to list items as to which L-7

21   contended there was agreement (“number of stores,”

22   “products,” “timeline and term,” “marketing,” “royalty

23   rate,” and “territory”); items that it was “now prepared” to

                                     17
 1   accept, including no minimum guaranteed royalties; two

 2   points that needed clarification (“personnel” and

 3   “development budget”); and one issue “to be agreed to,”

 4   namely ownership of “designs.”8      Id.   On February 6, 2009,

 5   Old Navy advised L-7 that material “open issues” remained,

 6   and that, in light of the nature of the negotiations, Old

 7   Navy did not believe that a “collaborative partnership”

 8   could be established.     Compl. ¶ 62.

 9             XI.   Old Navy’s Termination of the Agreement

10         On February 18, 2009, L-7 commenced this lawsuit

11   against Old Navy, filing under seal a complaint alleging

12   breach of contract, breach of the implied duty of good faith

13   and fair dealing, and fraud.     Two days later, on February

14   20, 2009, counsel for Old Navy sent L-7 a letter terminating

15   the Agreement (“Termination Letter”) on the grounds that L-7

16   had

17              materially breached the [Agreement] by filing a
18              lawsuit against Old Navy, by failing to provide
19              meaningful input on design processes and
20              procedures,   by    failing   to    participate
21              meaningfully in meetings with the Old Navy



           8
               Citing this email, L-7 alleges in the Complaint
     that “[o]n February 2, 2009, L-7 . . . accepted Old Navy's
     January 8, 2009 proposal in its entirety.” Compl. ¶ 61. As
     the text of the email makes clear, however, this was not
     quite so.
                                     18
 1              creative team and by otherwise failing to
 2              perform its obligations under the [Agreement].
 3
 4   Ex. 29.    Old Navy did not provide L-7 with an opportunity to

 5   cure its alleged breaches.    Prior to the February 20th

 6   Termination Letter, Old Navy had voiced no complaints about

 7   Oldham’s performance under the Agreement; instead, he was

 8   continuously praised.

 9

10                           PROCEDURAL HISTORY

11       L-7 filed its first complaint in the District Court on

12   February 18, 2009, under seal.       On April 17, 2009, L-7 filed

13   under seal the amended Complaint at issue in this appeal,

14   adding claims for (I) wrongful termination and (II) trade

15   disparagement to its claims for (III) breach of contract,

16   (IV) breach of the implied covenant of good faith and fair

17   dealing, and (V) fraud.    Old Navy filed its Answer and

18   Counterclaims on May 1, 2009, and L-7 filed a Reply on May

19   8, 2009.    Old Navy’s motion for judgment on the pleadings

20   was fully submitted on August 21, 2009.       On September 9,

21   2009, the District Court stayed depositions and ruled that

22   “a new discovery cut-off will be set after the pending [Rule

23   12(c)] motion is decided.”    Special Appendix to L-7

24   Appellate Brief (“L-7 App. Brief”) at 66.       In an opinion


                                     19
 1   dated January 19, 2010, it granted Old Navy’s motion,

 2   dismissing L-7's Complaint with prejudice.    It issued a

 3   slightly amended opinion on January 21, 2010.     L-7 moved to

 4   amend the judgment and replead two weeks later.     The

 5   District Court denied L-7's motion in an opinion dated

 6   February 16, 2010.

 7              I.   Motion for Judgment on the Pleadings

 8    A.   Count III: Breach of Contract for Failure to Negotiate
 9                            in Good Faith
10
11         The District Court first dismissed L-7's claim for

12   breach of contract for Old Navy’s failure to enter into the

13   licensing agreement.9   It nonetheless concluded that Section

14   5 of the SOW “undoubtedly did create [an] obligation on the

15   part of the parties to negotiate a license agreement in good

16   faith,”   L-7 Designs, Inc. v. Old Navy, LLC, No. 09 Civ.

17   1432, 2010 WL 157494, at *8 (S.D.N.Y. Jan. 19, 2010).

18   However, it found that the “record” of the “detailed

19   documentation of the negotiations between Old Navy and L-7

20   over the anticipated license agreement,” combined with the

21   detailed allegations of the Complaint, “show, unequivocally,

22   that L-7's claim that Old Navy failed to negotiate in good



           9
              We affirm this portion of the District Court’s
     dismissal of Count III.
                                    20
 1   faith is not plausible.”     Id.        First, based on the fact that

 2   “the parties exchanged numerous telephone calls and emails

 3   and, as L-7 acknowledged, progress in the negotiations was

 4   made,” it concluded that Old Navy “negotiated for some ten

 5   months.”   Id.     Although “the parties seemed to reach an

 6   impasse and negotiations broke down” in the fall of 2008,

 7   “the parties resumed talks and met several times in December

 8   2008 and January 2009” before L-7 rejected Old Navy’s

 9   January Proposal.      Id.

10       Second, the District Court concluded that because “L-7

11   was making extraordinarily high demands,” it was “not

12   surprising that Old Navy resisted these demands,” noting

13   that at the agreed-upon five percent royalty rate “some $200

14   million in sales of Todd Oldham branded products would had

15   to have been generated in one year to generate” even the

16   reduced royalty request proposed by L-7 ($20 million over

17   two years).      Id.

18       Third, L-7's only non-conclusory, specific “allegation”

19   was “its assertion that Old Navy decided to ‘renege’ on its

20   own January 8, 2009, proposal, and that this decision ‘is

21   itself damning evidence of [Old Navy’s] bad faith.’”          Id. at

22   *9 (quoting L-7's Memorandum of Law in Opposition to Old

23   Navy’s Motion for Judgment on the Pleadings (“L-7 12(c)

                                        21
 1   Opp.”) at 23).     But, the District Court concluded, the

 2   emails attached to Old Navy’s Counterclaims rendered this

 3   assertion “not plausible” because they showed that “L-7's

 4   purported acceptance of the January 8th proposal on February

 5   2, 2009, clearly was not [] an acceptance of the proposal

 6   ‘in its entirety.’”     Id. (quoting Compl. ¶ 61).

 7       Fourth, because “insisting on ‘terms to the point of

 8   impasse’ [is] not sufficient to show bad faith,” L-7 could

 9   not argue that “Old Navy’s refusal to agree to a minimum

10   guarantee [was] evidence of bad faith.”     Id. (citing Venture

11   Assocs. Corp. v. Zenith Data Sys. Corp., 96 F.3d 275, 279

12   (7th Cir. 1996)).10

13                 B.    Count I: Wrongful Termination

14       The District Court also dismissed Count I – a request

15   for declaratory judgment (1) that Old Navy failed to provide

16   (i) written notice of its claims of breach or (ii) 30 days’

17   opportunity to cure any claimed breach; (2) that the

18   Termination Letter did not effect a termination of the



          10
              The District Court then concluded that, because
     Count IV (breach of the implied duty of good faith and fair
     dealing) was “essentially identical” to Count III “as both
     are based on the allegation that Old Navy failed to
     negotiate a license agreement in good faith,” Count IV
     failed to state a claim “[f]or the [same] reasons.” 2010 WL
     157494, at *9.
                                     22
 1   Agreement; and (3) that Old Navy wrongfully terminated the

 2   Agreement in retaliation for L-7's lawsuit against it.        The

 3   District Court offered three reasons why “the claim fails as

 4   a matter of law,” 2010 WL 157494, at *9.     First, “Old Navy

 5   did provide written notice of termination.”     Id. at *10

 6   (citing the Termination Letter).     Second, while

 7   acknowledging Old Navy’s admission that it failed to provide

 8   a 30-day cure period, the District Court found that it was

 9   relieved of this obligation because, for two reasons, notice

10   of cure would have been futile.     Initially, the District

11   Court reasoned, “[i]t is difficult to imagine that Oldham

12   could perform [his] duties after he sued Old Navy.”     Id.

13   (citing Allbrand Discount Liquors, Inc. v. Times Square

14   Stores Corp., 399 N.Y.S.2d 700, 701 (2d Dep’t 1977), for the

15   proposition that “when one party ‘will not live up to the

16   contract, the aggrieved party is relieved from the

17   performance of futile acts’”).     In particular,

18            Oldham could not very well continue to help Old
19            Navy creatively, including with respect to
20            public relations matters, while pursuing a
21            lawsuit against Old Navy. ([Agreement] § 1).
22            Among other things, Oldham was supposed to,
23            under the [Agreement], “[m]otivate, inspire,
24            coach, and share vision, insight and passion
25            with Old Navy’s creative team,” and he was
26            supposed to “[p]rovide input” to Old Navy’s
27            president and leadership team. ( Id.).
28

                                  23
 1   Id.   Notice of breach would also have been futile, the

 2   District Court reasoned, because “[e]ven a withdrawal of the

 3   complaint – and it is highly unlikely that L-7 would have

 4   withdrawn the complaint if Old Navy had sent L-7 a notice to

 5   cure – would not have undone the harm caused by the public

 6   filing of a lawsuit against Old Navy.”        Id.   Third, Count I

 7   failed because “even assuming the failure to give a cure

 8   period was a breach, in the context here it surely was not a

 9   material one.”     Id.

10         After then dismissing Counts II and V of the Complaint

11   for trade disparagement and fraud, the District Court

12   granted Old Navy’s motion for judgment on the pleadings and

13   dismissed L-7's claims with prejudice.        Judgment was entered

14   in favor of Old Navy on January 21, 2010.

15                    II.     Motion to Amend and Replead

16         L-7 filed a motion to amend the judgment and replead on

17   February 5, 2010 “based on information contained in

18   documents produced by Old Navy following the close of

19   briefing” on the Rule 12(c) motion.        L-7 Motion to Amend and

20   Replead at 1.    The District Court denied the motion,

21   reasoning that L-7 had already had “two bites at the apple,

22   as it has already filed two complaints”; “the request is

23   untimely, as L-7 has had the documents for months” yet

                                        24
 1   “never indicated a desire to amend its amended complaint

 2   prior to the granting of the motion for judgment on the

 3   pleadings”; and, because “the additional documents L-7 now

 4   seeks to rely on” would not change the District Court’s

 5   conclusions, “the proposed amendment therefore would be

 6   futile.”     L-7 Designs, Inc. v. Old Navy, LLC, No. 09 Civ.

 7   1432, 2010 WL 532160, at *2 (S.D.N.Y. Feb. 16, 2010).      L-7

 8   filed a timely notice of appeal on February 17, 2010.

 9

10                                DISCUSSION

11                I.   Motion for Judgment on the Pleadings

12                          A. Standard of Review

13       We review de novo a district court’s decision to grant

14   a motion for judgment on the pleadings pursuant to Rule

15   12(c).     See Hayden v. Paterson, 594 F.3d 150, 160 (2d Cir.

16   2010).     In deciding a Rule 12(c) motion, we “employ[] the

17   same . . . standard applicable to dismissals pursuant to

18   [Rule] 12(b)(6).     Thus, we will accept all factual

19   allegations in the [C]omplaint as true and draw all

20   reasonable inferences in [Plaintiff’s] favor.”      Johnson v.




                                      25
 1   Rowley, 569 F.3d 40, 43 (2d Cir. 2009) (quotation marks and

 2   citation omitted).11

 3       In Ashcroft v. Iqbal, the Supreme Court set forth a

 4   “two-pronged approach” to evaluate the sufficiency of a

 5   complaint.    129 S. Ct. at 1949-50.   “First, although a court

 6   must accept as true all of the allegations contained in a

 7   complaint, that tenet is inapplicable to legal conclusions,

 8   and threadbare recitals of the elements of a cause of

 9   action, supported by mere conclusory statements, do not

10   suffice.”    Harris v. Mills, 572 F.3d 66, 72 (2d Cir. 2009)

11   (quotation marks and alterations omitted).     “Second, only a

12   complaint that states a plausible claim for relief survives

13   a motion to dismiss, and determining whether a complaint

14   states a plausible claim for relief will . . . be a



          11
              We note that, as plaintiffs carefully heed the
     admonition to support “legal conclusions” with factual
     allegations – lest they be deemed “conclusory” and therefore
     denied a presumption of truthfulness, Ashcroft v. Iqbal, 129
     S. Ct. 1937, 1950 (2009) – trial judges, and appellate
     judges who review their determinations, are constantly faced
     with the task of evaluating competing inferences to be drawn
     from those facts. In this sense, Iqbal and Bell Atlantic
     Corp. v. Twombly, 550 U.S. 544, 586 (2007), have rendered
     even more important (and more difficult) both trial judges’
     adherence to the most fundamental pleading principles –
     namely, accepting as true all factual allegations and
     drawing all reasonable inferences from those facts in
     plaintiffs’ favor – and appellate judges’ subsequent de novo
     review of the decisions of the district courts.
                                    26
 1   context-specific task that requires the reviewing court to

 2   draw on its judicial experience and common sense.”          Id.

 3   (quotation marks and alteration omitted).          “The plausibility

 4   standard is not akin to a probability requirement, but it

 5   asks for more than a sheer possibility that a defendant has

 6   acted unlawfully.”        Iqbal, 129 S. Ct. at 1949 (quotation

 7   marks omitted).   Plausibility thus depends on a host of

 8   considerations: the full factual picture presented by the

 9   complaint, the particular cause of action and its elements,

10   and the existence of alternative explanations so obvious

11   that they render plaintiff’s inferences unreasonable.             See

12   id. at 1947-52.

13                        B.     Counts II, IV, and V

14         We affirm the District Court’s dismissal of the trade

15   disparagement and common law fraud claims substantially for

16   the reasons articulated by the District Court.          We also

17   affirm dismissal of the claim for breach of the implied duty

18   of good faith and fair dealing, but for a different reason.

19   See infra note 18.

20    C.   Count III: Breach of Contract for Failure to Negotiate
21                            in Good Faith
22
23                              1.   Applicable Law
24



                                         27
 1       Under New York law parties who enter into binding

 2   preliminary agreements, such as Section 5 of the SOW,

 3   “accept a mutual commitment to negotiate together in good

 4   faith in an effort to reach final agreement . . . .”

 5   Teachers Ins. & Annuity Ass’n of Am. v. Tribune Co., 670 F.

 6   Supp. 491, 498 (S.D.N.Y. 1987).   These agreements do not

 7   commit the parties to reach their ultimate contractual

 8   objective; instead, such agreements create an “obligation to

 9   negotiate the open issues in good faith in an attempt to

10   reach the . . . objective within the agreed framework.”

11   Adjustrite Sys., Inc. v. GAB Bus. Servs., Inc., 145 F.3d

12   543, 548 (2d Cir. 1998) (quotation marks omitted).     This

13   obligation bars a party from “renouncing the deal,

14   abandoning the negotiations, or insisting on conditions that

15   do not conform to the preliminary agreement.”   Tribune, 670

16   F. Supp. at 498.

17       “In effect, an agreement to agree buys a party an

18   assurance that the transaction will falter only over a

19   genuine disagreement, thus allowing a party strapped for

20   time or money to go ahead with arrangements with a

21   sufficient degree of confidence in the outcome.”     P.A.

22   Bergner & Co. v. Martinez, 823 F. Supp. 151, 156 (S.D.N.Y.

23   1993); see also Penguin Grp. (USA) Inc. v. Steinbeck, No. 06

                                  28
 1   CV 2438, 2009 WL 857466, at *2 (S.D.N.Y. Mar. 31, 2009)

 2   (“The linchpin of negotiation is not that one side

 3   capitulates to the other, but that there is a good faith,

 4   honest, articulation of interests, positions, or

 5   understandings.”); Venture Assocs. Corp., 96 F.3d at 278

 6   (“The parties may want assurance that their investments in

 7   time and money and effort will not be wiped out by the other

 8   party’s foot-dragging or change of heart or taking advantage

 9   of a vulnerable position created in the negotiation.”).

10   “[T]he parties may abandon the transaction as long as they

11   have made a good faith effort to close the deal and have not

12   insisted on conditions that do not conform to the

13   preliminary writing.”   Adjustrite, 145 F.3d at 548.

14       To state a claim for breach of contract for failure to

15   negotiate in good faith, a plaintiff must “allege the

16   specific instances or acts that amounted to the breach”;

17   “generalized allegations and grievances” will not suffice to

18   survive a motion for judgment on the pleadings.     U.S. ex

19   rel. Smith v. New York Presbyterian Hosp., No. 06 Civ. 4056,

20   2007 WL 2142312, at *16 (S.D.N.Y. July 18, 2007); accord

21   Prospect St. Ventures I, LLC v. Eclipsys Solutions Corp.,

22   804 N.Y.S.2d 301, 302 (1st Dep’t 2005).



                                   29
 1       Although lost profits are not available where no

 2   agreement is reached, see Goodstein Constr. Corp. v. City of

 3   New York, 80 N.Y.2d 366, 374 (1992), out-of-pocket costs

 4   incurred in the course of good faith partial performance are

 5   appropriate, see Arcadian Phosphates, Inc. v. Arcadian

 6   Corp., 884 F.2d 69, 74 n.2 (2d Cir. 1989).

 7                         2.   Application

 8       L-7 stated a plausible claim that Old Navy breached its

 9   obligation to negotiate the license agreement in good faith.

10   The three bases alleged for this claim were that Old Navy

11   (1) “failed to participate in negotiations from April 2008

12   to December 15, 2008 and never provided a single substantive

13   comment with respect to the draft license at any time in

14   2008,” L-7 12(c) Opp. at 5;12 (2) made “repeated material

15   representations that it would negotiate the terms of the

16   license agreement in good faith,” which L-7 subsequently

17   learned were “false,” Compl. ¶ 47; and (3) “proposed terms

18   it knew to be in bad faith and economically unfair to [L-7],

19   believing they would be rejected, and then reneged when [L-

20   7] did accept,” L-7 12(c) Opp. at 23.    These are legally



          12
              See also L-7 12(c) Opp. at 23 (Old Navy “fail[ed]
     to engage [L-7] in negotiations on the licence with [L-7]
     for more than one year.”).
                                  30
 1   cognizable theories for breach of the duty to negotiate in

 2   good faith.   Moreover, drawing all reasonable inferences in

 3   L-7's favor, the non-conclusory allegations in L-7's

 4   Complaint, combined with the exhibits attached thereto,

 5   render each one plausible.13

 6       First, L-7 plausibly alleged that Old Navy – who in

 7   June of 2008 proposed postponing negotiations – was engaged

 8   in dilatory tactics from April 2008 until December 15, 2008,

 9   during which time it failed to provide any substantive

10   comments on L-7's draft license agreement.   The emails

11   exchanged between Vayness (L-7) and Fahlbusch (Old Navy)

12   from April 2008 until September 10, 2008 – when Fahlbusch

13   finally “recommend[ed]” that Vayness and Oldham work

14   “directly with [Howe] in terms of the branded line,” Ex. 21

15   – support the plausible inference that Fahlbusch was

16   repeatedly putting L-7 off for undisclosed or pretextual


          13
              Citing Adjustrite, 145 F.3d at 548, Defendant
     argues that the District Court could find, as a matter of
     law based on Old Navy’s proposal of terms “consistent with”
     Section 5 of the SOW, that it negotiated in good faith.
     However, the only term specified in the September 2007
     agreement with which Old Navy’s proposal could have
     “conform[ed]” was the five percent royalty fee. That the
     January Proposal included this royalty provision does not
     establish as a legal matter that it acted in good faith,
     especially in light of L-7’s well-pled allegations that the
     January negotiations were designed to induce L-7's
     rejection.
                                    31
 1   reasons (discussed further below).   The mere exchange of

 2   telephone calls and emails – most of which were initiated by

 3   L-7 (according to L-7's exhibits) and some of which Old Navy

 4   did not respond to (according to L-7's uncontradicted

 5   allegations) – does not make the inference that “Old Navy

 6   negotiated for some ten months,” 2010 WL 157494, at *8, so

 7   obvious that L-7's opposing inference of dilatory tactics is

 8   rendered implausible.14

 9       Similarly, whether or not L-7 agreed to Old Navy’s

10   alleged request to postpone discussions in June of 2008 – a

11   question of fact left open by the pleadings15 – that would


          14
              Nor is the inference that “progress in the
     negotiations was made,” 2010 WL 157494, at *8, so obvious
     from L-7's June 12th email that “things are proceeding in
     the right direction with the branded line” that L-7's
     reasonable, opposing inference must be discredited. Drawing
     all reasonable inferences in L-7's favor, and taking into
     account its allegations that Old Navy was stalling, the June
     12th email suggests that L-7, frustrated with Old Navy’s
     non-responsiveness, was politely encouraging Old Navy to
     entertain L-7's proposals, while communicating its view that
     the parties still had a long way to go.
          15
              In the “Facts” section of its opinion, the
     District Court stated that “Old Navy wanted to postpone the
     launch [of the Branded Line] and L-7 was prepared to do so,
     from October 1, 2008, to February 1, 2009.” 2010 WL 157494,
     at *2. However, in making this factual determination, it
     cited a draft email from Vayness (L-7) to Howe (Old Navy) on
     Oldham’s behalf. See Ex. 22 (entitled “2nd draft e mail to
     [Howe]”). The email Vayness (L-7) actually sent states only
     his “underst[anding]” that Howe “thought that [Oldham] had
     agreed to postpone the finalizing of an agreement.” Id.
                                  32
 1   not defeat L-7's allegations that Old Navy was engaged in

 2   dilatory tactics.   “[A]ssuming the pleaded facts to be true

 3   and read[ing those facts] in [L-7's] favor,”

 4   Sepúlveda-Villarini v. Dep’t of Educ. of Puerto Rico, 628

 5   F.3d 25, 30 (1st Cir. 2010) (Souter, J.), it suggests the

 6   converse – that L-7, eager to execute the licensing

 7   agreement on terms as favorable to it as possible, and

 8   trusting that its negotiating partner in good faith believed

 9   a postponement of discussions would be mutually

10   advantageous, was negotiating in good faith.   It is

11   reasonable to infer that, once L-7 became suspicious of what

12   it believed to be dilatory tactics on Old Navy’s part, it

13   took a firmer stance, clarifying that while Old Navy may

14   have “thought that [Oldham] agreed to postpone the

15   finalizing of an agreement,” the “idea of postponing

16   immediate discussions” was merely “discussed,” and that the

17   parties should work to ensure that the Agreement did not

18   “become breached,” Ex. 22.



     (emphasis added). The draft email written by Oldham’s
     representative about a June meeting for which he (the
     representative) was not present and where “the idea of
     postponing the discussion . . . was discussed” does not
     establish, at the motion for judgment on the pleadings
     stage, that “L-7 was prepared” to postpone the launch of the
     Branded Line by four months, 2010 WL 157494, at *2.
                                   33
 1       Second, L-7 plausibly alleged that, commencing in May

 2   2008, Old Navy made repeated material representations that

 3   L-7 subsequently learned were false, such as Fahlbusch’s

 4   (Old Navy’s) assurances to Oldham that she was already

 5   working with Old Navy’s legal team on the licensing

 6   agreement template, or her multiple promises to get back to

 7   L-7, which either never happened or only occurred after

 8   substantial delay.16   L-7's Complaint also suggests that,

 9   instead of revealing “its true purpose, which was to avoid

10   entering into the license agreement as required under the

11   [Agreement],” Compl. ¶ 121 (emphasis added), Old Navy

12   advanced pretextual reasons for its decision to delay

13   negotiations (economic conditions) and, ultimately, to cut

14   off negotiations (L-7's insistence on minimum guaranteed

15   royalties).   See Teachers Ins. & Annunity Assoc. of Am. v.

16   Butler, 626 F. Supp. 1229, 1233-34 (S.D.N.Y. 1986)

17   (upholding a finding of bad faith, after a six-day non-jury

18   trial, where evidence suggested that defendant “deliberately

19   intended” not to close on an agreement that was no longer


          16
              A reasonable inference to draw from Old Navy’s
     lack of communication and failure to supply counter-
     proposals or comments – on a draft license agreement that
     Old Navy’s legal team was supposedly “already working” on as
     early as May 2008 – is that Fahlbusch’s (Old Navy’s)
     representation was false.
                                   34
 1   “economically favorable” to it due to a decline in interest

 2   rates, “seiz[ing] on” other terms of the agreement “as a

 3   pretext for not going forward with” it at the eleventh

 4   hour).   That Old Navy’s “true purpose” was to avoid

 5   negotiating at all can be inferred from the fact that Old

 6   Navy informed L-7 (1) that it wished to postpone the signing

 7   of a license indefinitely, (2) that it could not make a

 8   commitment to any discussions, and, ultimately, (3) that it

 9   “could not follow through with the promised license,” Compl.

10   ¶ 55.

11       Moreover, L-7's Complaint and the exhibits attached

12   thereto support the inference that Old Navy’s purported

13   reasons for withdrawing from negotiations – i.e., that

14   minimum guaranteed royalties were “inconsistent with [Old

15   Navy’s] business plans and practices,” Ex. 28 – were

16   pretextual.   As of December 3, 2008, minimum guaranteed

17   royalties were not one of the four “essential issues” on

18   which “differences [had] emerged in the parties’ positions”

19   according to Old Navy, Ex. 26 (describing “the timing of

20   [the] launch” as the “most important[]” issue); and assuming

21   the truth of L-7's uncontradicted documentary evidence, none

22   of the points that had “yet to be resolved” after the

23   January 29th conference call – including minimum guaranteed

                                   35
 1   royalties – “was left off as a deal breaker” to L-7, Ex. 28.

 2       Third, L-7 plausibly alleged that Old Navy’s January

 3   Proposal was designed to be “economically unfair” to L-7 so

 4   that L-7 would reject it, pointing to Old Navy’s “reneging”

 5   on its offer when L-7 ultimately signaled – after several

 6   counteroffers – that it would accept the bulk of the January

 7   Proposal.   See L-7 12(c) Opp. at 23.   While the District

 8   Court concluded as a matter of law that L-7 did not “accept”

 9   Old Navy’s January Proposal, we are inclined to see a fact

10   question as to whether L-7 plausibly alleged that Old Navy’s

11   January Proposal was designed to elicit L-7's rejection.

12   See Venture Assocs., 96 F.3d at 280 (business owner would be

13   acting in bad faith if its purpose in demanding more than

14   prospective buyer would pay “was to induce [prospective

15   buyer] to back out of the deal”).   Whether or not L-7

16   “rejected key terms of Old Navy’s” January Proposal or “made

17   a series of counter-demands” before attempting to resurrect

18   it, 2010 WL 157494, at *9,17 the well-pled fact remains



          17
              The District Court concluded that L-7's requests
     for minimum guaranteed royalties constituted
     “extraordinarily high demands” to which Old Navy’s
     resistence was “not surprising,” 2010 WL 157494, at *8. But
     L-7 argues, and we are inclined to agree, that this factual
     determination was made without the benefit of discovery or
     expert testimony.
                                   36
 1   that, when L-7 finally acquiesced to Old Navy’s insistence

 2   on no minimum guaranteed royalties and appeared willing to

 3   accept an offer substantially on Old Navy’s terms, Old Navy

 4   balked.   In light of the (1) documentary evidence that Old

 5   Navy’s first proposal for the Branded Line did not come

 6   until January of 2009, after the intervention of outside

 7   counsel; (2) allegations that Old Navy’s sluggish

 8   negotiations from December 15, 2008 to February 6, 2009 were

 9   a “sham,” Compl. ¶ 124; (3) documentary evidence that L-7

10   was slowly retreating from and ultimately abandoned its

11   insistence on minimum guaranteed royalties, a supposed

12   sticking point for Old Navy; and (4) allegations that, under

13   new management and in a deteriorating retail environment,

14   Old Navy had decided it did not want to close any deal with

15   Oldham, the Complaint raised the plausible inference that

16   Old Navy’s January Proposal was designed to elicit L-7's

17   rejection.   For all of these reasons, L-7 stated a claim for

18   breach of contract for failure to negotiate in good faith.18


          18
              Because L-7's claim for breach of the implied
     covenant of good faith and fair dealing (Count IV) is based
     on the same facts as its claim for breach of contract, it
     should have been dismissed as redundant. See Harris v.
     Provident Life & Accident Ins. Co., 310 F.3d 73, 81 (2d Cir.
     2002); Fasolino Foods Co. v. Banca Nazionale del Lavoro, 961
     F.2d 1052, 1056 (2d Cir. 1992) (“[B]reach of [the duty of
     good faith and fair dealing] is merely a breach of the
                                   37
 1                 D.   Count I: Wrongful Termination

 2       L-7 stated a claim for declaratory judgment for all

 3   three prongs of Count I.     First, L-7 stated a claim for

 4   declaratory judgment that Old Navy failed to comply with the

 5   notice and cure provisions of the Agreement.     Before either

 6   party could terminate the Agreement, section 5 required (1)

 7   notice of a material breach, (2) 30 days’ opportunity to

 8   cure, (3) failure to cure the material breach, and (4)

 9   notice of termination.     See Agreement § 5.   But Old Navy’s

10   Termination Letter provided only notice of termination –

11   effective immediately – without providing L-7 with notice of

12   its alleged breaches and 30 days’ opportunity to cure.        Old

13   Navy conceded as much in its motion for judgment on the

14   pleadings.   See Old Navy’s Memorandum of Law in Support of

15   Motion for Judgment on the Pleadings at 23.     Therefore, this

16   claim should have survived.

17       Second, for the same reasons, L-7's claim for

18   declaratory judgment that the Termination letter did not

19   effect a termination of the Agreement should have survived.

20       Third, L-7 stated a claim for declaratory judgment that

21   Old Navy wrongfully terminated the Agreement.      Old Navy



     underlying contract.”).
                                     38
 1   notified L-7 that it had “materially breached the

 2   [Agreement] by [(1)] filing a lawsuit against Old Navy” and

 3   (2) by failing to satisfy certain unspecified performance

 4   obligations.     Ex. 29.   “[B]ringing suit to determine the

 5   meaning of an agreement is not a breach of that agreement

 6   absent some explicit contractual provision that the party

 7   will not bring suit.”      Prudential Equity Grp., LLC v.

 8   Ajamie, 538 F. Supp. 2d 605, 611-12 (S.D.N.Y. 2008).

 9   Moreover, as L-7 explained to the District Court, “none of

10   the vague, unspecified issues mentioned in the Termination

11   Letter had been previously raised with L-7. . . .      To the

12   contrary, Mr. Oldham had been repeatedly and widely praised

13   by Gap and Old Navy executives and staff throughout his Old

14   Navy tenure.”     L-7 App. Brief at 50 (citing multiple

15   allegations in, and documentary evidence supporting, the

16   Complaint).     Old Navy made no argument, and pointed to no

17   evidence, contradicting these well-pled facts.      Therefore,

18   accepting L-7's allegations as true and drawing every

19   inference in its favor, L-7 plausibly alleged that it was in

20   compliance with the Agreement, which was therefore

21   wrongfully terminated.

22       The District Court dismissed Count I upon its

23   determination that Old Navy had no duty to provide L-7 with

                                      39
 1   an opportunity to cure because such cure would have been

 2   futile.    (Of course, if the alleged grounds for L-7's

 3   termination did not constitute breach or material breach,

 4   then it is irrelevant whether L-7 could have “cured.”)

 5   Thus, the District Court concluded that Oldham was unlikely

 6   to have been able to “perform [his] duties after he sued Old

 7   Navy” and unlikely to have withdrawn his complaint if Old

 8   Navy had sent a notice of breach.     But this appears to be

 9   speculative.     That conclusion, and the conclusion that

10   withdrawal of the complaint could not have “undone the harm

11   caused by the public filing of a lawsuit against Old Navy,”

12   2010 WL 157494, at *10 (emphasis added), rests on the public

13   nature of the litigation.     However, it is undisputed that

14   both of L-7's complaints were filed under seal.     For all of

15   these reasons, Count I survives Old Navy’s 12(c) motion as a

16   matter of law.

17             II.   Motion to Amend the Judgment and Replead

18       We generally review motions for reconsideration under

19   an “abuse of discretion” standard.     See Devlin v. Transp.

20   Commc’n Int’l Union, 175 F.3d 121, 131-32 (2d Cir. 1999).

21   However, a denial of leave to amend that is based on a legal

22   interpretation, such as for futility, is reviewed de novo.

23   See Gorman v. Consol. Edison Corp., 488 F.3d 586, 592 (2d

                                     40
 1   Cir. 2007); Littlejohn v. Artuz, 271 F.3d 360, 362 (2d Cir.

 2   2001).

 3       The District Court erred in denying L-7's motion for

 4   leave to replead its bad faith negotiation claim based on

 5   futility.19   However, in light of our finding that Count III

 6   stated a claim for relief, this error was harmless because

 7   that Count of L-7's April 17, 2009 Complaint is reinstated.

 8                             CONCLUSION

 9       For the foregoing reasons, we affirm in part and vacate

10   in part the District Court’s judgment, and we remand for

11   further proceedings; in so doing we reverse in part the

12   order of the District Court that dismissed the Complaint and

13   reinstate Count I and Count III (on the three bases

14   discussed in this Opinion).




          19
              We affirm the District Court’s denial of L-7’s
     motion for leave to replead trade disparagement and fraud.
                                   41
