Addressing issues relating to jurisdiction, contract enforceability, and trademarks, the US Court of Appeals for the First Circuit concluded that two schools that used similar names had a valid and enforceable settlement agreement obligating one school to pay for the other to change its name. The Commonwealth School, Inc. v. Commonwealth Academy Holdings LLC, Case No. 20-1112 (1st Cir. Apr. 14, 2021) (Selya, J.)

It came to the attention of a Boston private school, The Commonwealth School (the School), that a more recently founded private school in Springfield, Massachusetts, was operating under a similar name, Commonwealth Academy (the Academy). In 2016, the School brought suit against the Academy under the federal Lanham Act, claiming that the School had a trademark on its “Commonwealth School” name, and that “Commonwealth Academy” infringed on that trademark. The parties entered into settlement mediation, and agreed that the School would pay the Academy $25,000 and in return, the Academy would change its name to “Springfield Commonwealth Academy.”

The district court issued an order that a settlement was reached. Three years passed, and the Academy took steps to change its name in promotional materials and on its website. But the School would not pay the Academy because it claimed the Academy still had the “Commonwealth Academy” name appearing prominently on its students’ basketball jerseys. At a hearing to resolve the dispute, the district court reversed its earlier order: the parties had not actually reached a settlement agreement because there had been no “meeting of the minds” for contract formation, despite the other steps the Academy took to fulfill the agreement. The district court dismissed the case because neither party showed the cause to reopen the case. The Academy appealed, arguing that the district court erred in refusing to enforce the settlement agreement.

The First Circuit addressed three main issues on appeal: (1) whether there was appellate jurisdiction to hear the appeal, (2) whether the district court had subject matter jurisdiction to hear the initial settlement agreement dispute, and (3) on the merits, whether the settlement agreement was a validly formed contract.

The First Circuit concluded it had jurisdiction to review the district court’s dismissal order. Generally, under the final judgment rule, only final decisions are appealable. But here, the order at issue was merely interlocutory, meaning it was issued during the course of litigation. The Academy claimed the order was in fact reviewable because the order resulted in the case’s dismissal, and thus it should fall under the merger doctrine exception, where interlocutory orders merge into final judgments. The Court considered this in the context of the School’s failure to prosecute, and whether the order actually fell under an exception to the exception – i.e., where dismissal is based on a failure to prosecute, it does not fall under the merger doctrine. In its analysis, the Court considered the policy considerations underlying the merger doctrine: to preserve the integrity of the final judgment rule by preventing any reward for bad faith tactics. Here, the School, as the plaintiff, would be expected to prosecute the action, while the Academy, as the defendant, sought the appeal and would have no recourse for appellate review if not for the order merging with the final judgment. The Court reasoned that there must be an opportunity for the Academy to appeal the dismissal as it would be unfair if control over an appeal resided solely with the plaintiff; i.e., the plaintiff could choose not to proceed, wait for a dismissal based on failure to prosecute, and have that dismissal be final and unreviewable. Thus, because the exception to the merger doctrine did not apply, the Court found that the merger doctrine prevailed over the final judgment rule and the Court had jurisdiction to review the dismissal.

On the issue of the district court’s subject matter jurisdiction, the First Circuit concluded that the district court retained jurisdiction over enforcing the settlement agreement (even after initially dismissing the case) when it entered a dismissal order having a grace period, and neither party objected to the district court’s jurisdiction over enforcement of the settlement.

Finally, as to the merits of the case, the First Circuit concluded that the district court erred in finding that there was no contract due to no “meeting of the minds.” To form a valid contract under federal common law, the parties must mutually assent as to all material terms. Courts frequently look to parties’ post-negotiation conduct to determine what parties meant and whether there was a mutual agreement to the terms.

The School argued that Academy’s use of the name on the jerseys did not comply with the settlement agreement, and on that basis argued the parties must not have been under the same understanding of the terms of the agreement. The First Circuit disagreed, explaining that the inquiry was not one of contract formation, but rather of contract performance. The parties complied with the majority of the terms of the contract: the Academy took steps to change its name on public-facing outlets, and the School put the money in escrow in anticipation of satisfaction of the agreement. The parties’ conduct evidenced their intent to enter into and carry out the settlement agreement. As such, the Court concluded that there was a valid and enforceable settlement agreement. The only issue that remained was whether the contract was adequately performed when the Academy did not make changes to the name on team jerseys. The Court remanded the matter for the district court to enforce the settlement agreement.