Unpublished Disposition, 849 F.2d 1476 (9th Cir. 1988)

MEMORANDUM^* 

Appellant Motown sued appellee Mary Wilson to enjoin her use of its registered service mark, "The Supremes." On Motown's motion for summary judgment, the district court sua sponte entered summary judgment for Wilson relying on a 1979 mutual release settling a previous dispute between the parties, which the court interpreted to preclude any future suits over the service mark. Motown timely appealed, and we reverse. We also reverse the court's order imposing sanctions on both parties. We affirm the court's denial of Wilson's motion to amend her counterclaim.

The Supremes were a popular singing group in the sixties and seventies. Since 1974 Motown has owned the service mark "The Supremes." Mary Wilson was one of the original members of the group. She continues to perform, at times using "The Supremes" in connection with her performances.

In 1978, Motown sued Mary Wilson to enjoin her from using "The Supremes" on an upcoming international tour. In response, Wilson filed a complaint with the California Labor Commission seeking back wages and contesting Motown's ownership of the service mark. The parties ultimately settled the controversy by signing a new recording contract allowing Wilson to use the mark during her international tour, but acknowledging that she "ha [d] no right whatsoever to use the name 'Supremes' in any manner in connection with her professional endeavors or otherwise."

Shortly thereafter, the parties executed a release dismissing the two pending proceedings with prejudice. The first paragraph stated the release was "in relation" to the two proceedings, and then released the parties from "any and all claims, demands, obligations ... existing as of this date and arising out of or in any way connected with those claims alleged or which might have been alleged" in either proceeding. Paragraph five stated the parties would not institute any proceeding that was "based on, arising out of, or in connection with ... [an] action or cause of action that is the subject of this Agreement."

In 1986, Motown instituted the present action for trademark infringement complaining Wilson was again using "the Supremes" during her concert tours. Motown moved for summary judgment, based in part on the 1979 release which it contended confirmed Motown's exclusive right to the service mark. The district court denied Motown's motion, and sua sponte and without a hearing, granted summary judgment for Wilson holding as a matter of law that "Motown's present action is barred by the Mutual Release."

Motown moved for reconsideration. Wilson filed a motion to amend its counterclaim to include a claim for partial cancellation of the service mark. The court denied both motions and, again without a hearing, sanctioned both attorneys $500.00 on the ground that the motions presented nothing new. Relying on a provision of the release, the court also granted a motion by Wilson for attorney's fees.

Motown argues the court's sua sponte entry of summary judgment against Motown must be reversed because Motown was not afforded adequate notice or an opportunity to be heard. We do not reach this question because we conclude the court's interpretation of the release upon which the grant of summary judgment rested was clearly wrong.

* The release provides that California law governs its interpretation. We determine the question of the meaning of the release de novo. See James B. Lansing Sound, Inc. v. National Union Fire Ins. Co., 801 F.2d 1560, 1564 (9th Cir. 1986). The paramount rule of contract interpretation is that the mutual intent of the parties is to be given effect by reviewing the words of the contract, and the circumstances and conditions of its execution. Moss Dev. Co. v. Geary, 41 Cal. App. 3d 1, 13, 115 Cal. Rptr. 736 (1974). A subsidiary principle of California law, applicable here, is that when more than one contract relating to the same matter between the same parties are executed as "substantially one transaction" they are to be construed together. See Cal. Civil Code Sec. 1642; Nish Noroian Farms v. Agricultural Labor Relations Bd., 35 Cal. 3d 726, 735-36, 201 Cal. Rptr. 1 (1984); Nevin v. Salk, 45 Cal. App. 3d 331, 338, 119 Cal. Rptr. 370 (1975). Applying these principles, we conclude the district court erroneously interpreted the release as barring any future action between the parties over the service mark.

The release plainly specifies its purpose was to settle the pending proceedings. There is nothing in the words of the contract or the circumstances and conditions of its execution to indicate the parties intended the release to settle the pending proceedings, but allow Wilson to continue to infringe Motown's mark in the future.

The recording contract buttresses this conclusion. In the recording contract, Wilson expressly acknowledged she had no right to use the mark. Although Wilson correctly notes Motown is not suing on the recording contract, the rights established in the contract were expressly incorporated in the release. Even if this were not true, since the recording contract was executed during the same time period as the release, and formed essentially one settlement transaction, the two are to be construed together.

The district court considered the recording contract to be irrelevant because the period during which the performance provisions were to be effective had expired. Regardless of whether these provisions were still in force, however, the contract was relevant to interpreting the objectives of the release. Moreover, as Motown explains (and Wilson concedes), certain rights under the contract survive the term during which the performance provisions were in effect, and there is nothing to indicate Wilson's concession that she had no rights in the mark was not among them.

Wilson advances several theories to support the court's judgment, including claim preclusion, estoppel and an attack upon Motown's acquisition of the mark. These claims were not presented below and are unsupported by the record.

II

Because we reverse the summary judgment for Wilson, we vacate the award of attorney's fees to Wilson. Motown contends the district court erred by denying its motion for attorney's fees on Wilson's counterclaim. The district court did not expressly rule on the issue. In light of our decision, it will be open for further consideration on remand.

III

The court neither held a hearing nor provided notice of the possibility of sanctions before imposing sanctions on both parties. A district court has no "power to impose monetary sanctions pursuant to Fed. R. Civ. P. 11 ... without affording ... procedural due process" which at a minimum requires notice and an opportunity to show cause why sanctions are unwarranted. Tom Growney Equip., Inc. v. Shelley Irrigation Dev., Inc., 834 F.2d 833, 837 (9th Cir. 1987). We therefore vacate the sanctions award.

IV

Wilson cross-appeals the denial of her motion to amend her counterclaim. We review the denial of a motion to amend after responsive pleadings for an abuse of discretion. Amendments to add new theories when the supporting facts were previously available are regarded with disfavor. See Acri v. International Ass'n of Machinists & Aerospace Workers, 781 F.2d 1393, 1398 (9th Cir. 1986). Denial of the motion was not an abuse of discretion: the facts underlying the amendment were available to Wilson long prior to the proposed amendment, and granting the amendment would have prejudiced Motown by delaying the proceedings.

The summary judgment is reversed, the order awarding attorney's fees and the order imposing sanctions are vacated, the denial of the motion to amend is affirmed, and the case is remanded for further consideration consistent with this opinion. Costs shall be taxed against appellees.