The Honorable Shira A. Scheindlin, of the United States District Court for the… v. Old Navy UNITED STATES COURT OF APPEALS 1 2 FOR THE SECOND CIRCUIT 3 4 August Term,…

* The Honorable Shira A. Scheindlin, of the United
States District Court for the Southern District of New York,
sitting by designation.
10-573-cv
L-7 v. Old Navy
UNITED STATES COURT OF APPEALS 1
2
FOR THE SECOND CIRCUIT 3
4
August Term, 2010 5
6
7
(Argued: February 7, 2011 Decided: June 1, 2011) 8
9
Docket No. 10-573-cv 10
11
- - - - - - - - - - - - - - - - - - - - -x 12
13
L-7 DESIGNS, INC., 14
15
Plaintiff-Appellant, 16
17
- v.- 10-573-cv 18
19
OLD NAVY, LLC, 20
21
Defendant-Appellee. 22
23
- - - - - - - - - - - - - - - - - - - -x 24
25
Before: DENNIS JACOBS, Chief Judge, 26
PETER W. HALL, Circuit Judge, 27
SHIRA A. SCHEINDLIN, * District Judge. 28
29
30
Plaintiff-Appellant L-7 Designs appeals from a judgment 31
on the pleadings of the United States District Court for the 32
Southern District of New York (Denny Chin, Judge), entered 33

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2
on January 21, 2010, dismissing five counts asserted in L- 1
7's Complaint, each arising out of a Creative Services 2
Agreement entered into between L-7 Designs and Defendant- 3
Appellee Old Navy in September of 2007. We conclude that 4
the District Court erred in dismissing two of those counts 5
outright because L-7 plausibly alleged three bases for 6
breach of contract for failure to negotiate in good faith 7
(Count III) and wrongful termination (Count I). 8
Accordingly, we affirm in part and vacate in part the 9
District Court’s judgment, and we remand for further 10
proceedings; in so doing we reverse in part the order of the 11
District Court that dismissed the Complaint and reinstate 12
the Complaint to the extent provided in this Opinion. 13
14
FOR PLAINTIFF-APPELLANT: V IRGINIA R. R ICHARD (Lori J. Van 15
Auken on the briefs) 16
Winston & Strawn LLP 17
200 Park Avenue 18
New York, NY 10166 19
20
FOR DEFENDANT-APPELLEE: B RUCE P. K ELLER (Shannon R. Selden 21
on the brief) 22
Debevoise & Plimpton LLP 23
919 3rd Avenue 24
New York, NY 10022 25
26
27
28
29
30

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3
SHIRA A. SCHEINDLIN, District Court Judge: 1
2
Plaintiff-Appellant L-7 Designs (“L-7") appeals from a 3
judgment on the pleadings of the United States District 4
Court for the Southern District of New York (Denny Chin, 5
Judge), entered on January 21, 2010, dismissing five counts 6
asserted in L-7's Complaint (the “Complaint” or “Compl.”), 7
each arising out of a Creative Services Agreement (the 8
“Agreement”) entered into between L-7 and Defendant-Appellee 9
Old Navy (“Old Navy”) in September of 2007. We conclude 10
that the District Court erred in dismissing Count III 11
against Old Navy for failure to negotiate in good faith an 12
alleged agreement to develop and launch a TODD OLDHAM 13
branded line of merchandise (the “Branded Line”) to be sold 14
exclusively in Old Navy stores. The District Court also 15
erred in dismissing Count I for declaratory judgment that 16
Old Navy wrongfully terminated the parties’ Agreement under 17
which L-7's principal, Todd Oldham, was to provide design 18
services to Old Navy. Accordingly, we affirm in part and 19
vacate in part the District Court’s judgment, and we remand 20
for further proceedings; in so doing we reverse in part the 21
order of the District Court that dismissed the Complaint and 22
reinstate the Complaint to the extent provided in this 23
Opinion. 24

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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
BACKGROUND2
1
I. Materials Properly Considered on a Motion for Judgment 2
on the Pleadings 3
4
One of the critical issues in this appeal is whether 5
the District Court properly considered not only the 6
Complaint, Old Navy’s Answer, and the written documents 7
attached to the Complaint in deciding Old Navy’s Rule 12(c) 8
motion, but also five email exhibits to Old Navy’s 9
Counterclaims – exhibits that were “attached” to Old Navy’s 10
Answer only by virtue of the fact that its Answer and 11
Counterclaims were filed in the same document. L-7 argues 12
the District Court improperly considered the exhibits 13
without converting Old Navy’s 12(c) motion to one for 14
summary judgment, as required by Rule 12(d). 15
On a 12(c) motion, the court considers “the complaint, 16
the answer, any written documents attached to them, and any 17
matter of which the court can take judicial notice for the 18
factual background of the case.” Roberts v. Babkiewicz, 582 19
F.3d 418, 419 (2d Cir. 2009). “A complaint is [also] deemed 20
to include any written instrument attached to it as an 21
exhibit, materials incorporated in it by reference, and 22

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5
documents that, although not incorporated by reference, are 1
‘integral’ to the complaint.” Sira v. Morton, 380 F.3d 57, 2
67 (2d Cir. 2004) (citations omitted) (quoting Chambers v. 3
Time Warner, Inc., 282 F.3d 147, 153 (2d Cir. 2002)). There 4
is no question that the email exhibits were “attached” to 5
Old Navy’s Answer, even if they were only “part of” Old 6
Navy’s Counterclaims. See Fed. R. Civ. P. 10(c) (“a copy of 7
a written instrument that is an exhibit to a pleading is a 8
part of the pleading for all purposes”) (emphasis added). 9
Moreover, these emails – of which L-7 had notice well before 10
Old Navy attached them to its Answer (because L-7 sent or 11
received them) – were “integral” to the negotiation exchange 12
that L-7 identified as the basis for its Complaint. See 13
Sira, 380 F.3d at 67 (document not expressly cited in 14
complaint was “incorporated into the pleading because [it] 15
was integral to [plaintiff’s] ability to pursue” his cause 16
of action); Chambers, 282 F.3d at 153 (document “integral” 17
to complaint where complaint “relie[d] heavily upon its 18
terms and effect”) (quotation marks omitted); Cortec Indus., 19
Inc. v. Sum Holding L.P., 949 F.2d 42, 48 (2d Cir. 1991) 20
(necessity of translating motion into one under Rule 56 21
“largely dissipated” where plaintiff had “actual notice” of 22
information in documents and “relied upon [them] in framing 23

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3 All exhibits cited herein are exhibits to the
Complaint unless otherwise noted.
6
the complaint”). “Plaintiffs’ failure to include matters of 1
which as pleaders they had notice and which were integral to 2
their claim – and that they apparently most wanted to avoid 3
– may not serve as a means of forestalling the district 4
court's decision on [a 12(b)(6)] motion.” Cortec, 949 F.2d 5
at 44. For these reasons, in reviewing de novo Old Navy’s 6
motion for judgment on the pleadings, we draw all facts – 7
which we assume to be true unless contradicted by more 8
specific allegations or documentary evidence – from the 9
Complaint and from the exhibits attached thereto, 3 and we 10
also consider the emails attached to Old Navy’s 11
Counterclaims. See Blue Tree Hotels Inv. (Canada), Ltd. v. 12
Starwood Hotels & Resorts Worldwide, Inc., 369 F.3d 212, 222 13
(2d Cir. 2004) (discrediting allegation “belied” by letters 14
attached to the complaint); Hirsch v. Arthur Andersen & Co., 15
72 F.3d 1085, 1092 (2d Cir. 1995) (“General, conclusory 16
allegations need not be credited . . . when they are belied 17
by more specific allegations of the complaint.”). The facts 18
thus derived, viewed in the light most favorable to L-7, are 19
as follows. 20
21

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4 For example, Oldham entered into a licensing
agreement with Mattel, Inc. for a special collector’s
edition of a Barbie doll.
7
II. The Parties 1
L-7's principal, Todd Oldham, is a world famous artist, 2
fashion and graphic designer, photographer, writer, and 3
television personality. He formed L-7 in 1989 to manage his 4
design services and intellectual property rights, including 5
eight U.S. federal registrations for the mark TODD OLDHAM. 6
“[A] luminary in the fashion and design industry for over 7
twenty years,” Oldham is “considered one of the most 8
important designers of fashion and home furnishings working 9
today” and “the singular talent behind the internationally 10
famous TODD OLDHAM brand.” Compl. ¶ 8. For more than a 11
decade, Oldham and L-7 have collaborated on a variety of 12
TODD OLDHAM branded merchandise. 4
13
Old Navy, a subsidiary of Gap Inc., operates a chain of 14
retail apparel stores, with more than a thousand stores 15
throughout the United States and Canada. For at least the 16
last five years, Old Navy has been suffering declining 17
sales. One of its strategies for increasing sales has been 18
to increase its appeal to younger consumers. 19
20

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5 By its terms, the Agreement is governed by New
York law.
8
III. The Agreement 1
In the spring of 2007, L-7 approached Old Navy to 2
discuss the possibility of entering into a relationship with 3
L-7, and Old Navy, “enthusiastic about this possibility,” 4
ultimately requested that Oldham become the company’s new 5
Design Creative Director. Id. ¶ 26. In order to induce 6
Oldham to join Old Navy’s design team, Old Navy proposed to 7
introduce a TODD OLDHAM branded line of clothing, and to pay 8
royalties to L-7 in the form of five percent of the Branded 9
Line’s sales. Faced with continuing declining sales, Old 10
Navy pushed Oldham to enter into an agreement quickly so 11
that it could publicly announce both Oldham’s appointment as 12
Old Navy’s Design Creative Director and also the launching 13
of the Branded Line. 14
On September 21, 2007, the parties entered into the 15
Agreement, 5 under which L-7 was to perform certain 16
“Services” and provide certain “Deliverables,” as set forth 17
in a “Scope of Work” (the “SOW”) attached to the Agreement. 18
Agreement § 1. Under the SOW, Oldham would provide design 19
services for Old Navy for three years in exchange for an 20
annual “fee” of $2 million; in addition, Oldham would 21

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9
receive a guaranteed bonus of $0.5 million in year one and, 1
in years two and three, 1.25 percent of the year’s 2
incremental sales (not to exceed $6 million). SOW §§ 1, 2. 3
Section 5 provided that during the term of the Agreement, 4
“either party may terminate this Agreement, effective 5
immediately upon notice thereof, in the event of a material 6
breach of this Agreement that remains uncured after thirty 7
(30) days written notice of the breach to the other party.” 8
IV. The Licensing Agreement 9
Section 5 of the SOW, entitled “Todd Oldham Branded 10
Line,” provided as follows: 11
a. In September 2007, the parties will announce 12
publicly that Todd Oldham/[L-7] shall be 13
serving as Design Creative Director of Old Navy 14
and that it is the intent of the parties to 15
develop and launch a line of products that will 16
bear TODD OLDHAM Marks to be sold exclusively 17
at Old Navy stores at a future time. 18
19
b. [L-7] and Old Navy acknowledge and agree 20
that the specific terms and conditions related 21
to this proposed line of products bearing TODD 22
OLDHAM Marks are to be negotiated and agreed 23
upon by the parties in a separate agreement. 24
The parties plan to enter into a separate 25
agreement related to these products by October 26
1, 2008. 27
28
c. The parties agree that this separate 29
agreement will contain at least the following: 30
(1) royalty fees paid to [L-7] of 5% of Old 31
Navy’s retail sales for this particular line 32
only (not all Old Navy products) and (2) 33
agreement and final approval by both Old Navy 34

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10
and [L-7] as to the collections and products to 1
be sold by Old Navy. 2
3
On September 21, 2007, Old Navy announced via a press 4
release that it intended to launch the Branded Line. On 5
October 3, 2007, Monika Fahlbusch (the Old Navy executive 6
assigned to the Branded Line) emailed Vital Vayness (L-7's 7
representative) to “recommend we plan to begin [discussion 8
on the license agreement for the Branded Line] in our new 9
fiscal year – say in April? We have until October so there 10
is no rush . . . .” Ex. 19. Thereafter, L-7 and Oldham 11
performed their obligations under the Agreement, and Old 12
Navy executives publicly and privately praised Oldham’s 13
performance as Design Creative Director. 14
V. April-October 2008 Negotiations 15
On April 2, 2008, L-7 (Vayness) “initiated negotiations 16
to finalize” the licensing agreement for the Branded Line by 17
emailing Fahlbusch (Old Navy) L-7's standard form license 18
agreement and a term sheet that outlined a three-year 19
initial term and annual guaranteed minimum royalties (the 20
“April Proposal”). Compl. ¶ 44. The email suggested that 21
Old Navy “formulate [its] initial thoughts, needs and 22
objectives” and then “present to [Oldham] in [M]ay” while 23

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11
Fahlbusch (Old Navy), Vayness (L-7), and Old Navy’s attorney 1
“begin work on the language of the contract.” Ex. 17. 2
Commencing in May 2008, Old Navy made “material 3
representations” that were “false, as [L-7] subsequently 4
learned.” Compl. ¶ 47; accord Ex. 19. For example in May 5
of 2008, Fahlbusch (Old Navy) assured Vayness (L-7) that she 6
was “already working with our legal team on the licensing 7
agreement template.” Ex. 19. But throughout the late 8
spring and summer of 2008, L-7 repeatedly followed up with 9
Fahlbusch and Old Navy’s Executive Vice President, Douglas 10
Howe, seeking feedback on the April Proposal and on a 11
“redirection” Old Navy was taking in its “approach,” with 12
little or no followup. Exs. 19-20. During one meeting in 13
June of 2008 at which Oldham (L-7), Howe (Old Navy), and Tom 14
Wyatt (another Old Navy executive) were present, Old Navy 15
proposed postponing discussions of the Branded Line. 16
Nevertheless, on June 12, 2008, Vayness (L-7) indicated to 17
Fahlbusch (Old Navy) that “things are proceeding in the 18
right direction with the branded line.” Ex. 19. 19
In a late July 2008 email, Fahlbusch (Old Navy) 20
suggested that the reason for Old Navy’s delay in getting 21
back to L-7 was that “next steps” on the Branded Line 22
license would be “impacted by who is named President.” Id. 23

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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
Vayness (L-7) responded the same day, reminding Fahlbusch 1
(Old Navy) that “we have a provision in the contract calling 2
for the license agreement to be entered into by October 3
1 st .” Id. 4
On September 2, 2008, Vayness (L-7) emailed Fahlbusch 5
(Old Navy) seeking Old Navy’s feedback on the terms set 6
forth in L-7's April 2008 email, indicating that L-7 was 7
“ready to discuss [11 points] as early as possible.” Ex. 8
20. L-7 followed up with emails and telephone calls to 9
Fahlbusch (Old Navy) on September 7, 9, and 10, 2008. On 10
September 10, 2008, Fahlbusch (Old Navy) recommended that 11
Oldham start working “directly” with Howe “as it seems we 12
all have a different understanding of the numerous 13
conversations in recent months related to the branded line.” 14
Id. 15
On September 30, 2008, Wyatt (Old Navy) advised L-7 in 16
a telephone call for the first time that Old Navy wished to 17
postpone the signing of a license for the Branded Line 18
“‘indefinitely.’” Compl. ¶ 52 (quoting Wyatt). 6 In 19

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13
response, L-7 stated that it expected Old Navy to provide it 1
with definitive dates to restart negotiations, enter into 2
the licensing agreement, and launch the Branded Line, and 3
compensation for the postponement of the initial October 1, 4
2008 signing date. Old Navy failed to provide a response 5
within a week as promised. 6
VI. Fall 2008 Notice of Breach and Demand for Damages 7
On October 7, 2008, L-7 advised Old Navy’s in-house 8
counsel that Old Navy was in material breach of the 9
Agreement for failing to negotiate in good faith. See Ex. 10
23. Counsel for Old Navy responded a week later, stating 11
Old Navy’s view that the Agreement “does not obligate Old 12
Navy to enter into a separate license agreement for Todd 13
Oldham branded products” and that although Old Navy did not 14
“foreclose the possibility of engaging in discussions about 15
Todd Oldham branded products in the future if business 16
conditions permit, [Old Navy is] not currently in a position 17
to make a commitment to any such future discussions.” Ex. 18
24. The next day, Wyatt, then President of Old Navy, told 19
Oldham that Old Navy was “‘very, very sorry’ but because of 20
economic conditions, Old Navy could not follow through with 21
the promised license for a TODD OLDHAM branded line of 22

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14
apparel to be carried exclusively in Old Navy stores.” 1
Compl. ¶ 55. 2
After waiting thirty days from Old Navy’s receipt of L- 3
7's October 7th notice of breach, outside counsel for L-7 4
sent a letter to Old Navy requesting that Old Navy remedy 5
the damage to L-7 caused by Old Navy’s breach by (1) 6
compensating L-7 for lost royalties and reputational damages 7
(estimated at $75 million) and (2) paying Oldham his 8
expected fees for the second and third years of the 9
Agreement ($4 million). 10
VII. Old Navy’s December 2008 Response 11
On December 3, 2008, counsel for Old Navy responded, 12
denying that Old Navy was obligated to enter into a license 13
agreement or had failed to negotiate in good faith. Counsel 14
for Old Navy explained that, in the course of their 15
negotiations, 16
differences emerged in the parties’ positions, 17
including on such essential issues as the types 18
of products to be included in the line, how 19
many stores would be included in a launch, the 20
staffing necessary to support such a line, and, 21
most importantly, the timing of any such 22
launch. 23
24
Ex. 26. According to Old Navy’s counsel, “business 25
circumstances made an extensive launch in the immediate near 26
term unfeasible.” Id. Thereafter, from December 15, 2008 27

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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
to February 6, 2009, Old Navy engaged in “sham 1
negotiations,” falsely representing that it fully intended 2
to enter into a license agreement. Compl. ¶ 124. 3
VIII. The Old Navy January 2009 Proposal 4
The parties met once in December 2008 and several times 5
in January 2009 to “work out the details of the license 6
agreement,” a further draft of which L-7 supplied to Old 7
Navy on December 15, 2008. Compl. ¶ 60. On January 8, 8
2009, one hour before a scheduled conference call, Old Navy 9
proposed a launch at 100 Old Navy stores (“As you know, our 10
history of presenting third party-branded product in our 11
stores is relatively short . . .”); a one-year commitment 12
beginning in the spring of 2010; no additional personnel 13
resources; and a one-year projected royalty of $1.5 million 14
(“. . . our previous discussions have never contemplated any 15
royalty minimum guarantees, and, as a general rule, our 16
company has not and will not agree to minimum guarantees. 17
This has been consistent in all of our recent agreements.”) 18
(the “January Proposal”). Ex. 27. 19
IX. January 2009 Discussions 7
20

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Counterclaims.
16
Oldham responded immediately by email to Old Navy’s 1
January Proposal: 2
[Your projections] seem EXTREMELY uncommitted 3
to me. This feels like an effort to absolve 4
old navy's contractual responsibilities and not 5
a commitment to build a new brand that was made 6
to me when i joined and what you reiterated to 7
me last month. 100 stores will not work. the 8
1 million in launch dollars will not be 9
effective. the one year commitment is too 10
brief as there are so many hiccups in launching 11
a brand . . . . i hope that we can get this 12
resolved but we are very far away from a 13
reasonable plan. the volume of work necessary 14
to bring a project of this scale to bloom is at 15
great odds with your financial projections. 16
17
Counterclaims Ex. A. In the discussions that followed, L-7 18
asked for a minimum guarantee of $37.5 million for a 19
three-year term and then reduced the request to $20 million 20
for a two-year term. On January 16, 2009, L-7 inquired of 21
Old Navy whether it had “made any changes to any of its 22
positions as stated [in the January Proposal].” Id. Ex. E. 23
Old Navy responded the next day: 24
To date, we have not been presented with any 25
comprehensive counteroffer and instead there 26
has been a [sic] insistence on large guaranteed 27
minimum payments that we have explained are 28
unacceptable and inconsistent with our business 29
plans and practices . . . . 30
31

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17
Id. Ex. D. Additional emails were exchanged, and on January 1
29, 2009, the parties held a conference call, during which 2
they agreed to talk again after speaking with their 3
respective “principals.” Ex. 28. The same day, L-7 emailed 4
Old Navy a “revised proposal” reflecting Oldham’s input on 5
the points discussed during the call. Id. 6
X. February 2009 Communications 7
Four days later, on February 2, 2009, Old Navy 8
responded to L-7's January 29th email, advising L-7 that 9
“despite our best efforts to negotiate an agreement that 10
would be reasonable and mutually acceptable, we have not 11
reached and will not be able to reach common ground on key 12
business terms,” reiterating that minimum guaranteed 13
payments were “inconsistent with our business plans and 14
practices.” Id. Vayness (L-7) responded the same day, 15
explaining his “surprise” at Old Navy’s email given that the 16
January 29, 2009 call was “completely amicable, polite, 17
professional, and [] friendly” and that none of the points 18
discussed during that call “was left off as a deal breaker.” 19
Id. The email went on to list items as to which L-7 20
contended there was agreement (“number of stores,” 21
“products,” “timeline and term,” “marketing,” “royalty 22
rate,” and “territory”); items that it was “now prepared” to 23

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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
accept, including no minimum guaranteed royalties; two 1
points that needed clarification (“personnel” and 2
“development budget”); and one issue “to be agreed to,” 3
namely ownership of “designs.” 8 Id. On February 6, 2009, 4
Old Navy advised L-7 that material “open issues” remained, 5
and that, in light of the nature of the negotiations, Old 6
Navy did not believe that a “collaborative partnership” 7
could be established. Compl. ¶ 62. 8
XI. Old Navy’s Termination of the Agreement 9
On February 18, 2009, L-7 commenced this lawsuit 10
against Old Navy, filing under seal a complaint alleging 11
breach of contract, breach of the implied duty of good faith 12
and fair dealing, and fraud. Two days later, on February 13
20, 2009, counsel for Old Navy sent L-7 a letter terminating 14
the Agreement (“Termination Letter”) on the grounds that L-7 15
had 16
materially breached the [Agreement] by filing a 17
lawsuit against Old Navy, by failing to provide 18
meaningful input on design processes and 19
procedures, by failing to participate 20
meaningfully in meetings with the Old Navy 21

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19
creative team and by otherwise failing to 1
perform its obligations under the [Agreement]. 2
3
Ex. 29. Old Navy did not provide L-7 with an opportunity to 4
cure its alleged breaches. Prior to the February 20th 5
Termination Letter, Old Navy had voiced no complaints about 6
Oldham’s performance under the Agreement; instead, he was 7
continuously praised. 8
9
PROCEDURAL HISTORY 10
L-7 filed its first complaint in the District Court on 11
February 18, 2009, under seal. On April 17, 2009, L-7 filed 12
under seal the amended Complaint at issue in this appeal, 13
adding claims for (I) wrongful termination and (II) trade 14
disparagement to its claims for (III) breach of contract, 15
(IV) breach of the implied covenant of good faith and fair 16
dealing, and (V) fraud. Old Navy filed its Answer and 17
Counterclaims on May 1, 2009, and L-7 filed a Reply on May 18
8, 2009. Old Navy’s motion for judgment on the pleadings 19
was fully submitted on August 21, 2009. On September 9, 20
2009, the District Court stayed depositions and ruled that 21
“a new discovery cut-off will be set after the pending [Rule 22
12(c)] motion is decided.” Special Appendix to L-7 23
Appellate Brief (“L-7 App. Brief”) at 66. In an opinion 24

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9 We affirm this portion of the District Court’s
dismissal of Count III.
20
dated January 19, 2010, it granted Old Navy’s motion, 1
dismissing L-7's Complaint with prejudice. It issued a 2
slightly amended opinion on January 21, 2010. L-7 moved to 3
amend the judgment and replead two weeks later. The 4
District Court denied L-7's motion in an opinion dated 5
February 16, 2010. 6
I. Motion for Judgment on the Pleadings 7
A. Count III: Breach of Contract for Failure to Negotiate 8
in Good Faith 9
10
The District Court first dismissed L-7's claim for 11
breach of contract for Old Navy’s failure to enter into the 12
licensing agreement. 9 It nonetheless concluded that Section 13
5 of the SOW “undoubtedly did create [an] obligation on the 14
part of the parties to negotiate a license agreement in good 15
faith,” L-7 Designs, Inc. v. Old Navy, LLC, No. 09 Civ. 16
1432, 2010 WL 157494, at *8 (S.D.N.Y. Jan. 19, 2010). 17
However, it found that the “record” of the “detailed 18
documentation of the negotiations between Old Navy and L-7 19
over the anticipated license agreement,” combined with the 20
detailed allegations of the Complaint, “show, unequivocally, 21
that L-7's claim that Old Navy failed to negotiate in good 22

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21
faith is not plausible.” Id. First, based on the fact that 1
“the parties exchanged numerous telephone calls and emails 2
and, as L-7 acknowledged, progress in the negotiations was 3
made,” it concluded that Old Navy “negotiated for some ten 4
months.” Id. Although “the parties seemed to reach an 5
impasse and negotiations broke down” in the fall of 2008, 6
“the parties resumed talks and met several times in December 7
2008 and January 2009” before L-7 rejected Old Navy’s 8
January Proposal. Id. 9
Second, the District Court concluded that because “L-7 10
was making extraordinarily high demands,” it was “not 11
surprising that Old Navy resisted these demands,” noting 12
that at the agreed-upon five percent royalty rate “some $200 13
million in sales of Todd Oldham branded products would had 14
to have been generated in one year to generate” even the 15
reduced royalty request proposed by L-7 ($20 million over 16
two years). Id. 17
Third, L-7's only non-conclusory, specific “allegation” 18
was “its assertion that Old Navy decided to ‘renege’ on its 19
own January 8, 2009, proposal, and that this decision ‘is 20
itself damning evidence of [Old Navy’s] bad faith.’” Id. at 21
*9 (quoting L-7's Memorandum of Law in Opposition to Old 22
Navy’s Motion for Judgment on the Pleadings (“L-7 12(c) 23

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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
Opp.”) at 23). But, the District Court concluded, the 1
emails attached to Old Navy’s Counterclaims rendered this 2
assertion “not plausible” because they showed that “L-7's 3
purported acceptance of the January 8th proposal on February 4
2, 2009, clearly was not [] an acceptance of the proposal 5
‘in its entirety.’” Id. (quoting Compl. ¶ 61). 6
Fourth, because “insisting on ‘terms to the point of 7
impasse’ [is] not sufficient to show bad faith,” L-7 could 8
not argue that “Old Navy’s refusal to agree to a minimum 9
guarantee [was] evidence of bad faith.” Id. (citing Venture 10
Assocs. Corp. v. Zenith Data Sys. Corp., 96 F.3d 275, 279 11
(7th Cir. 1996)). 10
12
B. Count I: Wrongful Termination 13
The District Court also dismissed Count I – a request 14
for declaratory judgment (1) that Old Navy failed to provide 15
(i) written notice of its claims of breach or (ii) 30 days’ 16
opportunity to cure any claimed breach; (2) that the 17
Termination Letter did not effect a termination of the 18

-- 22 of 41 --

23
Agreement; and (3) that Old Navy wrongfully terminated the 1
Agreement in retaliation for L-7's lawsuit against it. The 2
District Court offered three reasons why “the claim fails as 3
a matter of law,” 2010 WL 157494, at *9. First, “Old Navy 4
did provide written notice of termination.” Id. at *10 5
(citing the Termination Letter). Second, while 6
acknowledging Old Navy’s admission that it failed to provide 7
a 30-day cure period, the District Court found that it was 8
relieved of this obligation because, for two reasons, notice 9
of cure would have been futile. Initially, the District 10
Court reasoned, “[i]t is difficult to imagine that Oldham 11
could perform [his] duties after he sued Old Navy.” Id. 12
(citing Allbrand Discount Liquors, Inc. v. Times Square 13
Stores Corp., 399 N.Y.S.2d 700, 701 (2d Dep’t 1977), for the 14
proposition that “when one party ‘will not live up to the 15
contract, the aggrieved party is relieved from the 16
performance of futile acts’”). In particular, 17
Oldham could not very well continue to help Old 18
Navy creatively, including with respect to 19
public relations matters, while pursuing a 20
lawsuit against Old Navy. ([Agreement] § 1). 21
Among other things, Oldham was supposed to, 22
under the [Agreement], “[m]otivate, inspire, 23
coach, and share vision, insight and passion 24
with Old Navy’s creative team,” and he was 25
supposed to “[p]rovide input” to Old Navy’s 26
president and leadership team. ( Id.). 27
28

-- 23 of 41 --

24
Id. Notice of breach would also have been futile, the 1
District Court reasoned, because “[e]ven a withdrawal of the 2
complaint – and it is highly unlikely that L-7 would have 3
withdrawn the complaint if Old Navy had sent L-7 a notice to 4
cure – would not have undone the harm caused by the public 5
filing of a lawsuit against Old Navy.” Id. Third, Count I 6
failed because “even assuming the failure to give a cure 7
period was a breach, in the context here it surely was not a 8
material one.” Id. 9
After then dismissing Counts II and V of the Complaint 10
for trade disparagement and fraud, the District Court 11
granted Old Navy’s motion for judgment on the pleadings and 12
dismissed L-7's claims with prejudice. Judgment was entered 13
in favor of Old Navy on January 21, 2010. 14
II. Motion to Amend and Replead 15
L-7 filed a motion to amend the judgment and replead on 16
February 5, 2010 “based on information contained in 17
documents produced by Old Navy following the close of 18
briefing” on the Rule 12(c) motion. L-7 Motion to Amend and 19
Replead at 1. The District Court denied the motion, 20
reasoning that L-7 had already had “two bites at the apple, 21
as it has already filed two complaints”; “the request is 22
untimely, as L-7 has had the documents for months” yet 23

-- 24 of 41 --

25
“never indicated a desire to amend its amended complaint 1
prior to the granting of the motion for judgment on the 2
pleadings”; and, because “the additional documents L-7 now 3
seeks to rely on” would not change the District Court’s 4
conclusions, “the proposed amendment therefore would be 5
futile.” L-7 Designs, Inc. v. Old Navy, LLC, No. 09 Civ. 6
1432, 2010 WL 532160, at *2 (S.D.N.Y. Feb. 16, 2010). L-7 7
filed a timely notice of appeal on February 17, 2010. 8
9
DISCUSSION 10
I. Motion for Judgment on the Pleadings 11
A. Standard of Review 12
We review de novo a district court’s decision to grant 13
a motion for judgment on the pleadings pursuant to Rule 14
12(c). See Hayden v. Paterson, 594 F.3d 150, 160 (2d Cir. 15
2010). In deciding a Rule 12(c) motion, we “employ[] the 16
same . . . standard applicable to dismissals pursuant to 17
[Rule] 12(b)(6). Thus, we will accept all factual 18
allegations in the [C]omplaint as true and draw all 19
reasonable inferences in [Plaintiff’s] favor.” Johnson v. 20

-- 25 of 41 --

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
Rowley, 569 F.3d 40, 43 (2d Cir. 2009) (quotation marks and 1
citation omitted). 11
2
In Ashcroft v. Iqbal, the Supreme Court set forth a 3
“two-pronged approach” to evaluate the sufficiency of a 4
complaint. 129 S. Ct. at 1949-50. “First, although a court 5
must accept as true all of the allegations contained in a 6
complaint, that tenet is inapplicable to legal conclusions, 7
and threadbare recitals of the elements of a cause of 8
action, supported by mere conclusory statements, do not 9
suffice.” Harris v. Mills, 572 F.3d 66, 72 (2d Cir. 2009) 10
(quotation marks and alterations omitted). “Second, only a 11
complaint that states a plausible claim for relief survives 12
a motion to dismiss, and determining whether a complaint 13
states a plausible claim for relief will . . . be a 14

-- 26 of 41 --

27
context-specific task that requires the reviewing court to 1
draw on its judicial experience and common sense.” Id. 2
(quotation marks and alteration omitted). “The plausibility 3
standard is not akin to a probability requirement, but it 4
asks for more than a sheer possibility that a defendant has 5
acted unlawfully.” Iqbal, 129 S. Ct. at 1949 (quotation 6
marks omitted). Plausibility thus depends on a host of 7
considerations: the full factual picture presented by the 8
complaint, the particular cause of action and its elements, 9
and the existence of alternative explanations so obvious 10
that they render plaintiff’s inferences unreasonable. See 11
id. at 1947-52. 12
B. Counts II, IV, and V 13
We affirm the District Court’s dismissal of the trade 14
disparagement and common law fraud claims substantially for 15
the reasons articulated by the District Court. We also 16
affirm dismissal of the claim for breach of the implied duty 17
of good faith and fair dealing, but for a different reason. 18
See infra note 18. 19
C. Count III: Breach of Contract for Failure to Negotiate 20
in Good Faith 21
22
1. Applicable Law 23
24

-- 27 of 41 --

28
Under New York law parties who enter into binding 1
preliminary agreements, such as Section 5 of the SOW, 2
“accept a mutual commitment to negotiate together in good 3
faith in an effort to reach final agreement . . . .” 4
Teachers Ins. & Annuity Ass’n of Am. v. Tribune Co., 670 F. 5
Supp. 491, 498 (S.D.N.Y. 1987). These agreements do not 6
commit the parties to reach their ultimate contractual 7
objective; instead, such agreements create an “obligation to 8
negotiate the open issues in good faith in an attempt to 9
reach the . . . objective within the agreed framework.” 10
Adjustrite Sys., Inc. v. GAB Bus. Servs., Inc., 145 F.3d 11
543, 548 (2d Cir. 1998) (quotation marks omitted). This 12
obligation bars a party from “renouncing the deal, 13
abandoning the negotiations, or insisting on conditions that 14
do not conform to the preliminary agreement.” Tribune, 670 15
F. Supp. at 498. 16
“In effect, an agreement to agree buys a party an 17
assurance that the transaction will falter only over a 18
genuine disagreement, thus allowing a party strapped for 19
time or money to go ahead with arrangements with a 20
sufficient degree of confidence in the outcome.” P.A. 21
Bergner & Co. v. Martinez, 823 F. Supp. 151, 156 (S.D.N.Y. 22
1993); see also Penguin Grp. (USA) Inc. v. Steinbeck, No. 06 23

-- 28 of 41 --

29
CV 2438, 2009 WL 857466, at *2 (S.D.N.Y. Mar. 31, 2009) 1
(“The linchpin of negotiation is not that one side 2
capitulates to the other, but that there is a good faith, 3
honest, articulation of interests, positions, or 4
understandings.”); Venture Assocs. Corp., 96 F.3d at 278 5
(“The parties may want assurance that their investments in 6
time and money and effort will not be wiped out by the other 7
party’s foot-dragging or change of heart or taking advantage 8
of a vulnerable position created in the negotiation.”). 9
“[T]he parties may abandon the transaction as long as they 10
have made a good faith effort to close the deal and have not 11
insisted on conditions that do not conform to the 12
preliminary writing.” Adjustrite, 145 F.3d at 548. 13
To state a claim for breach of contract for failure to 14
negotiate in good faith, a plaintiff must “allege the 15
specific instances or acts that amounted to the breach”; 16
“generalized allegations and grievances” will not suffice to 17
survive a motion for judgment on the pleadings. U.S. ex 18
rel. Smith v. New York Presbyterian Hosp., No. 06 Civ. 4056, 19
2007 WL 2142312, at *16 (S.D.N.Y. July 18, 2007); accord 20
Prospect St. Ventures I, LLC v. Eclipsys Solutions Corp., 21
804 N.Y.S.2d 301, 302 (1st Dep’t 2005). 22

-- 29 of 41 --

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
Although lost profits are not available where no 1
agreement is reached, see Goodstein Constr. Corp. v. City of 2
New York, 80 N.Y.2d 366, 374 (1992), out-of-pocket costs 3
incurred in the course of good faith partial performance are 4
appropriate, see Arcadian Phosphates, Inc. v. Arcadian 5
Corp., 884 F.2d 69, 74 n.2 (2d Cir. 1989). 6
2. Application 7
L-7 stated a plausible claim that Old Navy breached its 8
obligation to negotiate the license agreement in good faith. 9
The three bases alleged for this claim were that Old Navy 10
(1) “failed to participate in negotiations from April 2008 11
to December 15, 2008 and never provided a single substantive 12
comment with respect to the draft license at any time in 13
2008,” L-7 12(c) Opp. at 5; 12 (2) made “repeated material 14
representations that it would negotiate the terms of the 15
license agreement in good faith,” which L-7 subsequently 16
learned were “false,” Compl. ¶ 47; and (3) “proposed terms 17
it knew to be in bad faith and economically unfair to [L-7], 18
believing they would be rejected, and then reneged when [L- 19
7] did accept,” L-7 12(c) Opp. at 23. These are legally 20

-- 30 of 41 --

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
cognizable theories for breach of the duty to negotiate in 1
good faith. Moreover, drawing all reasonable inferences in 2
L-7's favor, the non-conclusory allegations in L-7's 3
Complaint, combined with the exhibits attached thereto, 4
render each one plausible. 13
5
First, L-7 plausibly alleged that Old Navy – who in 6
June of 2008 proposed postponing negotiations – was engaged 7
in dilatory tactics from April 2008 until December 15, 2008, 8
during which time it failed to provide any substantive 9
comments on L-7's draft license agreement. The emails 10
exchanged between Vayness (L-7) and Fahlbusch (Old Navy) 11
from April 2008 until September 10, 2008 – when Fahlbusch 12
finally “recommend[ed]” that Vayness and Oldham work 13
“directly with [Howe] in terms of the branded line,” Ex. 21 14
– support the plausible inference that Fahlbusch was 15
repeatedly putting L-7 off for undisclosed or pretextual 16

-- 31 of 41 --

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
reasons (discussed further below). The mere exchange of 1
telephone calls and emails – most of which were initiated by 2
L-7 (according to L-7's exhibits) and some of which Old Navy 3
did not respond to (according to L-7's uncontradicted 4
allegations) – does not make the inference that “Old Navy 5
negotiated for some ten months,” 2010 WL 157494, at *8, so 6
obvious that L-7's opposing inference of dilatory tactics is 7
rendered implausible. 14
8
Similarly, whether or not L-7 agreed to Old Navy’s 9
alleged request to postpone discussions in June of 2008 – a 10
question of fact left open by the pleadings 15 – that would 11

-- 32 of 41 --

(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
not defeat L-7's allegations that Old Navy was engaged in 1
dilatory tactics. “[A]ssuming the pleaded facts to be true 2
and read[ing those facts] in [L-7's] favor,” 3
Sepúlveda-Villarini v. Dep’t of Educ. of Puerto Rico, 628 4
F.3d 25, 30 (1st Cir. 2010) (Souter, J.), it suggests the 5
converse – that L-7, eager to execute the licensing 6
agreement on terms as favorable to it as possible, and 7
trusting that its negotiating partner in good faith believed 8
a postponement of discussions would be mutually 9
advantageous, was negotiating in good faith. It is 10
reasonable to infer that, once L-7 became suspicious of what 11
it believed to be dilatory tactics on Old Navy’s part, it 12
took a firmer stance, clarifying that while Old Navy may 13
have “thought that [Oldham] agreed to postpone the 14
finalizing of an agreement,” the “idea of postponing 15
immediate discussions” was merely “discussed,” and that the 16
parties should work to ensure that the Agreement did not 17
“become breached,” Ex. 22. 18

-- 33 of 41 --

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
Second, L-7 plausibly alleged that, commencing in May 1
2008, Old Navy made repeated material representations that 2
L-7 subsequently learned were false, such as Fahlbusch’s 3
(Old Navy’s) assurances to Oldham that she was already 4
working with Old Navy’s legal team on the licensing 5
agreement template, or her multiple promises to get back to 6
L-7, which either never happened or only occurred after 7
substantial delay. 16 L-7's Complaint also suggests that, 8
instead of revealing “its true purpose, which was to avoid 9
entering into the license agreement as required under the 10
[Agreement],” Compl. ¶ 121 (emphasis added), Old Navy 11
advanced pretextual reasons for its decision to delay 12
negotiations (economic conditions) and, ultimately, to cut 13
off negotiations (L-7's insistence on minimum guaranteed 14
royalties). See Teachers Ins. & Annunity Assoc. of Am. v. 15
Butler, 626 F. Supp. 1229, 1233-34 (S.D.N.Y. 1986) 16
(upholding a finding of bad faith, after a six-day non-jury 17
trial, where evidence suggested that defendant “deliberately 18
intended” not to close on an agreement that was no longer 19

-- 34 of 41 --

35
“economically favorable” to it due to a decline in interest 1
rates, “seiz[ing] on” other terms of the agreement “as a 2
pretext for not going forward with” it at the eleventh 3
hour). That Old Navy’s “true purpose” was to avoid 4
negotiating at all can be inferred from the fact that Old 5
Navy informed L-7 (1) that it wished to postpone the signing 6
of a license indefinitely, (2) that it could not make a 7
commitment to any discussions, and, ultimately, (3) that it 8
“could not follow through with the promised license,” Compl. 9
¶ 55. 10
Moreover, L-7's Complaint and the exhibits attached 11
thereto support the inference that Old Navy’s purported 12
reasons for withdrawing from negotiations – i.e., that 13
minimum guaranteed royalties were “inconsistent with [Old 14
Navy’s] business plans and practices,” Ex. 28 – were 15
pretextual. As of December 3, 2008, minimum guaranteed 16
royalties were not one of the four “essential issues” on 17
which “differences [had] emerged in the parties’ positions” 18
according to Old Navy, Ex. 26 (describing “the timing of 19
[the] launch” as the “most important[]” issue); and assuming 20
the truth of L-7's uncontradicted documentary evidence, none 21
of the points that had “yet to be resolved” after the 22
January 29th conference call – including minimum guaranteed 23

-- 35 of 41 --

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
royalties – “was left off as a deal breaker” to L-7, Ex. 28. 1
Third, L-7 plausibly alleged that Old Navy’s January 2
Proposal was designed to be “economically unfair” to L-7 so 3
that L-7 would reject it, pointing to Old Navy’s “reneging” 4
on its offer when L-7 ultimately signaled – after several 5
counteroffers – that it would accept the bulk of the January 6
Proposal. See L-7 12(c) Opp. at 23. While the District 7
Court concluded as a matter of law that L-7 did not “accept” 8
Old Navy’s January Proposal, we are inclined to see a fact 9
question as to whether L-7 plausibly alleged that Old Navy’s 10
January Proposal was designed to elicit L-7's rejection. 11
See Venture Assocs., 96 F.3d at 280 (business owner would be 12
acting in bad faith if its purpose in demanding more than 13
prospective buyer would pay “was to induce [prospective 14
buyer] to back out of the deal”). Whether or not L-7 15
“rejected key terms of Old Navy’s” January Proposal or “made 16
a series of counter-demands” before attempting to resurrect 17
it, 2010 WL 157494, at *9, 17 the well-pled fact remains 18

-- 36 of 41 --

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
that, when L-7 finally acquiesced to Old Navy’s insistence 1
on no minimum guaranteed royalties and appeared willing to 2
accept an offer substantially on Old Navy’s terms, Old Navy 3
balked. In light of the (1) documentary evidence that Old 4
Navy’s first proposal for the Branded Line did not come 5
until January of 2009, after the intervention of outside 6
counsel; (2) allegations that Old Navy’s sluggish 7
negotiations from December 15, 2008 to February 6, 2009 were 8
a “sham,” Compl. ¶ 124; (3) documentary evidence that L-7 9
was slowly retreating from and ultimately abandoned its 10
insistence on minimum guaranteed royalties, a supposed 11
sticking point for Old Navy; and (4) allegations that, under 12
new management and in a deteriorating retail environment, 13
Old Navy had decided it did not want to close any deal with 14
Oldham, the Complaint raised the plausible inference that 15
Old Navy’s January Proposal was designed to elicit L-7's 16
rejection. For all of these reasons, L-7 stated a claim for 17
breach of contract for failure to negotiate in good faith. 18
18

-- 37 of 41 --

underlying contract.”).
38
D. Count I: Wrongful Termination 1
L-7 stated a claim for declaratory judgment for all 2
three prongs of Count I. First, L-7 stated a claim for 3
declaratory judgment that Old Navy failed to comply with the 4
notice and cure provisions of the Agreement. Before either 5
party could terminate the Agreement, section 5 required (1) 6
notice of a material breach, (2) 30 days’ opportunity to 7
cure, (3) failure to cure the material breach, and (4) 8
notice of termination. See Agreement § 5. But Old Navy’s 9
Termination Letter provided only notice of termination – 10
effective immediately – without providing L-7 with notice of 11
its alleged breaches and 30 days’ opportunity to cure. Old 12
Navy conceded as much in its motion for judgment on the 13
pleadings. See Old Navy’s Memorandum of Law in Support of 14
Motion for Judgment on the Pleadings at 23. Therefore, this 15
claim should have survived. 16
Second, for the same reasons, L-7's claim for 17
declaratory judgment that the Termination letter did not 18
effect a termination of the Agreement should have survived. 19
Third, L-7 stated a claim for declaratory judgment that 20
Old Navy wrongfully terminated the Agreement. Old Navy 21

-- 38 of 41 --

39
notified L-7 that it had “materially breached the 1
[Agreement] by [(1)] filing a lawsuit against Old Navy” and 2
(2) by failing to satisfy certain unspecified performance 3
obligations. Ex. 29. “[B]ringing suit to determine the 4
meaning of an agreement is not a breach of that agreement 5
absent some explicit contractual provision that the party 6
will not bring suit.” Prudential Equity Grp., LLC v. 7
Ajamie, 538 F. Supp. 2d 605, 611-12 (S.D.N.Y. 2008). 8
Moreover, as L-7 explained to the District Court, “none of 9
the vague, unspecified issues mentioned in the Termination 10
Letter had been previously raised with L-7. . . . To the 11
contrary, Mr. Oldham had been repeatedly and widely praised 12
by Gap and Old Navy executives and staff throughout his Old 13
Navy tenure.” L-7 App. Brief at 50 (citing multiple 14
allegations in, and documentary evidence supporting, the 15
Complaint). Old Navy made no argument, and pointed to no 16
evidence, contradicting these well-pled facts. Therefore, 17
accepting L-7's allegations as true and drawing every 18
inference in its favor, L-7 plausibly alleged that it was in 19
compliance with the Agreement, which was therefore 20
wrongfully terminated. 21
The District Court dismissed Count I upon its 22
determination that Old Navy had no duty to provide L-7 with 23

-- 39 of 41 --

40
an opportunity to cure because such cure would have been 1
futile. (Of course, if the alleged grounds for L-7's 2
termination did not constitute breach or material breach, 3
then it is irrelevant whether L-7 could have “cured.”) 4
Thus, the District Court concluded that Oldham was unlikely 5
to have been able to “perform [his] duties after he sued Old 6
Navy” and unlikely to have withdrawn his complaint if Old 7
Navy had sent a notice of breach. But this appears to be 8
speculative. That conclusion, and the conclusion that 9
withdrawal of the complaint could not have “undone the harm 10
caused by the public filing of a lawsuit against Old Navy,” 11
2010 WL 157494, at *10 (emphasis added), rests on the public 12
nature of the litigation. However, it is undisputed that 13
both of L-7's complaints were filed under seal. For all of 14
these reasons, Count I survives Old Navy’s 12(c) motion as a 15
matter of law. 16
II. Motion to Amend the Judgment and Replead 17
We generally review motions for reconsideration under 18
an “abuse of discretion” standard. See Devlin v. Transp. 19
Commc’n Int’l Union, 175 F.3d 121, 131-32 (2d Cir. 1999). 20
However, a denial of leave to amend that is based on a legal 21
interpretation, such as for futility, is reviewed de novo. 22
See Gorman v. Consol. Edison Corp., 488 F.3d 586, 592 (2d 23

-- 40 of 41 --

19 We affirm the District Court’s denial of L-7’s
motion for leave to replead trade disparagement and fraud.
41
Cir. 2007); Littlejohn v. Artuz, 271 F.3d 360, 362 (2d Cir. 1
2001). 2
The District Court erred in denying L-7's motion for 3
leave to replead its bad faith negotiation claim based on 4
futility. 19 However, in light of our finding that Count III 5
stated a claim for relief, this error was harmless because 6
that Count of L-7's April 17, 2009 Complaint is reinstated. 7
CONCLUSION 8
For the foregoing reasons, we affirm in part and vacate 9
in part the District Court’s judgment, and we remand for 10
further proceedings; in so doing we reverse in part the 11
order of the District Court that dismissed the Complaint and 12
reinstate Count I and Count III (on the three bases 13
discussed in this Opinion). 14

-- 41 of 41 --