Introduction

This appeal centers on whether a consulting firm is entitled to royalties on units manufactured after the contractual “initial term” ended. Strategy and Execution, Inc. (SEI) and Black Rifle Coffee Company, L.L.C. (Black Rifle) executed a four‑year Consulting Agreement beginning January 1, 2020. SEI claimed royalties on Ready‑to‑Drink (RTD) and energy products manufactured after the Agreement expired on January 1, 2024. The district court dismissed SEI’s claim to post‑termination royalties and denied leave to amend. The Fifth Circuit affirmed.

The core interpretive question was whether a royalty provision that applies to products “developed and manufactured during the initial term” extends to units manufactured after the term ends. SEI relied on the Agreement’s termination clause referencing “post‑termination compensation, commissions or royalties where applicable.” The Fifth Circuit held that this language preserves already‑accrued rights (such as payments triggered after termination), but does not independently create a right to royalties on products manufactured after the initial term.

The opinion provides practical guidance for drafting royalty provisions tied to product development and manufacturing timelines and clarifies how Texas law treats unambiguous contracts at the motion‑to‑dismiss stage, the parol‑evidence rule, and integration clauses.

Summary of the Opinion

• Holding on entitlement: The Agreement’s royalty provision unambiguously limits royalties to products “developed and manufactured during the initial term.” SEI is not entitled to royalties on units manufactured after January 1, 2024.
• Termination clause: The clause preserving “post‑termination compensation, commissions or royalties where applicable” does not create new post‑termination rights; it preserves rights that accrued during the term but are paid after termination (for example, when invoices arrive post‑termination).
• Procedural posture: Because the Agreement was attached to the complaint, the district court properly resolved the unambiguous contract language on a Rule 12(b)(6) motion; factual allegations contradicting the document’s plain text need not be credited.
• Leave to amend: Properly denied as futile. Texas law forbids using extrinsic evidence to interpret an unambiguous contract, and the Agreement contains an integration clause that independently bars reliance on prior negotiations.
• Scope of decision: Because the court held SEI had no entitlement to post‑termination royalties, it did not reach the parties’ dispute over how such royalties would be calculated.

Factual and Procedural Background

SEI, a consumer‑goods consultant, entered a Consulting Agreement with Black Rifle, a roaster/manufacturer of premium coffee blends, effective January 1, 2020. The Agreement had a four‑year “initial term” ending January 1, 2024. During the initial term, termination was only for cause; afterward, the relationship could continue subject to 90 days’ notice.

Compensation included $30,000 per month and—central here—a royalty provision for certain products:

“[S]pecific to any RTD beverages, energy drinks, or energy supplements developed and manufactured during the initial term of this Agreement, [Black Rifle] shall pay [SEI] a royalty of $0.02 for each unit of product manufactured by any manufacturing facility introduced to [Black Rifle] during the initial term of this Agreement, or through [SEI’s] direct efforts thereafter. The royalty shall be paid … within thirty (30) days of receipt of the manufacturer’s invoice by [Black Rifle].”

The Agreement also stated termination is “without prejudice to any right which shall have accrued to either Party … including the right for [SEI] to receive post‑termination compensation, commissions or royalties where applicable,” and included an integration clause.

SEI sued during the initial term for breach and anticipatory breach, and sought a declaration of entitlement to royalties on products manufactured after January 1, 2024. The district court dismissed the claim for post‑termination royalties and denied leave to amend. After the parties settled remaining claims, the court entered judgment for Black Rifle on the royalty issue. SEI appealed.

Detailed Analysis

1) Precedents and Authorities Cited

• United States ex rel. Riley v. St. Luke’s Episcopal Hospital, 355 F.3d 370, 377 (5th Cir. 2004): When a plaintiff attaches a contract to the complaint, the court may consider it on a motion to dismiss and need not accept allegations that contradict the contract’s plain terms. The Fifth Circuit relied on Riley to affirm the district court’s resolution of the contract’s unambiguous language at the pleading stage.
• Rollins v. Home Depot USA, 8 F.4th 393 (5th Cir. 2021): Addresses forfeiture stemming from inadequate briefing. The panel noted Black Rifle’s forfeiture argument but, after identifying some briefing on entitlement, reached the merits.
• Williams v. Integon National Insurance Co. and Terry Black’s Barbecue v. State Automobile Mutual, 22 F.4th 450, 459 (5th Cir. 2022): Confirm de novo review for both Rule 12(b)(6) dismissals and denials of leave to amend when based on futility.
• Seagull Energy E & P, Inc. v. Eland Energy, Inc., 207 S.W.3d 342, 345 (Tex. 2006): Texas contract interpretation prioritizes the parties’ intent as expressed in the contract’s text. This principle anchored the court’s textual focus on “developed and manufactured during the initial term.”
• Farmers Group, Inc. v. Geter, 620 S.W.3d 702, 709 (Tex. 2021): Interpretation of an unambiguous contract is a question of law for the court. The panel applied this in resolving the royalty clause as a matter of law.
• Piranha Partners v. Neuhoff, 596 S.W.3d 740, 749 (Tex. 2020): Texas courts do not consider extrinsic evidence to interpret an unambiguous instrument. This supported the futility of SEI’s proposed amendments regarding pre‑contract negotiations and understandings.

2) The Court’s Legal Reasoning

Textual gatekeeper: “developed and manufactured during the initial term.” The royalty clause identifies the covered products as those “developed and manufactured during the initial term.” The panel treated this as the controlling gateway condition for royalty entitlement. Because both development and manufacturing must occur during the initial term, units manufactured after January 1, 2024 fall outside the scope of the royalty grant. The court observed that SEI “offers no alternative” reading consistent with the text.

The “manufactured by any manufacturing facility introduced … or through SEI’s direct efforts thereafter” phrase does not expand the timeframe. SEI’s argument largely focused on how to calculate royalties “for each unit of product manufactured by any manufacturing facility introduced to [Black Rifle] during the initial term … or through [SEI’s] direct efforts thereafter.” The panel did not need to parse this phrase’s internal grammar because the threshold entitlement clause—“developed and manufactured during the initial term”—foreclosed royalties for units manufactured after the term. In other words, even if a facility was introduced during the term (or through SEI’s later direct efforts), the product itself must still be both developed and manufactured during the initial term to trigger royalties.

Termination clause preserves accrued rights; it does not create new ones. SEI pointed to the termination provision preserving “post‑termination compensation, commissions or royalties where applicable.” The court characterized this as an accrual‑preservation clause rather than a substantive grant. It protects rights that accrued during the term (e.g., the manufacturing of covered units) even if payment is triggered and made after termination—such as when the manufacturer’s invoice is received post‑termination. The clause’s “where applicable” language underscores that post‑termination payments are due only if a royalty right arose under the Agreement’s substantive terms.

Payment trigger versus entitlement: the invoicing provision. The Agreement requires royalty payment “within thirty (30) days of receipt of the manufacturer’s invoice.” The panel read this in harmony with the entitlement clause: invoices may arrive and payment may be due after termination, but only for units that were “developed and manufactured during the initial term.” The invoicing provision governs timing of payment, not the temporal scope of entitlement.

Unambiguous contract can be resolved on a motion to dismiss. Because the Agreement was attached to the complaint, its terms were part of the pleadings. Under Riley, the court could disregard factual allegations inconsistent with the Agreement’s plain text and resolve the interpretive issue at the Rule 12(b)(6) stage.

No amendment to add extrinsic evidence. SEI sought to amend to add allegations about “pre‑Agreement negotiations and understandings.” The panel affirmed denial of leave to amend as futile. Under Texas law and Piranha Partners, extrinsic evidence cannot be used to vary or interpret an unambiguous integrated agreement. The Agreement’s integration clause independently foreclosed reliance on prior negotiations.

3) Practical Impact and Forward‑Looking Implications

Clear drafting is essential if royalties are meant to continue post‑termination. This decision underscores that where a royalty clause ties entitlement to production “during the initial term,” courts will not infer a right to royalties for post‑term manufacturing absent explicit language. Parties who intend royalties to continue for products manufactured after the term should say so unambiguously.

• For licensors/consultants (SEI’s position): Use survival language that explicitly covers post‑termination manufacture, for example: “Royalties shall accrue on units manufactured during the term and thereafter for so long as any Covered Product is manufactured by Company or its licensees.”
• For companies (Black Rifle’s position): If the commercial intent is to cabin royalties to the term, retain time‑bounded qualifiers like “developed and manufactured during the initial term,” and avoid survival language that could be read to create new post‑termination rights.

Accrual‑preservation clauses are not substantive grants. Common termination provisions that preserve “post‑termination” payments typically protect payment of rights earned before termination. They do not extend the scope of what is compensable unless the Agreement’s operative grant does so.

Attachment of the contract invites early resolution. When plaintiffs attach the agreement to their complaint, courts can adjudicate clear contract language on a motion to dismiss. Litigants should be prepared for early dismissal if the contract unambiguously defeats their theory.

Integration and the parol‑evidence rule limit amendment. In Texas, if the contract is unambiguous and integrated, attempts to add negotiation history via amendment are typically futile. The better strategy is to ground arguments in the text and recognized interpretive canons.

Persuasive, though unpublished. The decision is not designated for publication under 5th Cir. R. 47.5. It nevertheless tracks well‑settled Texas contract principles and will be persuasive in similar disputes, especially those involving time‑bounded royalty grants and accrual‑preservation clauses.

Complex Concepts, Simplified

• Entitlement vs. payment timing: A contract may define when a right arises (entitlement) and separately define when payment is due (e.g., upon invoice). Payment can be due after termination, but only if the entitlement arose under the contract’s substantive terms.
• Accrual‑preservation clauses: Phrases like “without prejudice to any right which shall have accrued” ensure that rights earned before termination survive and remain enforceable even after the contract ends.
• Integration clause: States that the written contract is the entire agreement. Under Texas law, such a clause generally bars reliance on prior or contemporaneous oral agreements to change or interpret unambiguous terms.
• Parol‑evidence rule (Texas): Courts will not consider outside evidence to interpret unambiguous contracts. Extrinsic evidence can clarify context only if the text is ambiguous—and even then, it cannot contradict the writing.
• Initial term vs. renewal/extension: Many agreements have a fixed “initial term” and then allow continuation or termination on notice. If compensation is tied to the initial term, parties must expressly extend it for post‑term periods.
• “Developed and manufactured during the initial term”: This type of qualifier limits royalty coverage to products both developed and manufactured before a set end date. It excludes units manufactured afterward.
• Motion to dismiss and attached contracts: If a contract is attached to a complaint, courts can decide pure questions of law about unambiguous terms at the pleading stage, without discovery.

Drafting Takeaways

• If ongoing royalties are intended, include explicit survival language such as:
  • “Royalties shall accrue and be payable on all Covered Products developed during the term and manufactured during and after the term.”
  • “This royalty obligation survives termination for the life of the Covered Products and applies to all units manufactured by Company or its affiliates or licensees.”
• Define “Covered Products” and whether coverage depends on development, commercialization, or manufacturing milestones.
• Separate “entitlement” provisions from “payment mechanics,” and ensure termination and survival provisions align with entitlement.
• Avoid potential ambiguity in modifiers such as “thereafter.” Specify what “thereafter” refers to (e.g., “thereafter manufactured,” “thereafter introduced,” or “thereafter invoiced”).
• Confirm that integration clauses do not inadvertently lock out the parties’ intended meanings; the more integrated the contract, the more critical it is to draft the entitlement precisely.

What the Court Did Not Decide

• The court did not decide how to calculate royalties for post‑termination periods because it found no entitlement to them.
• The court did not parse in detail the grammatical scope of the phrase “or through SEI’s direct efforts thereafter,” because the threshold limitation—“developed and manufactured during the initial term”—resolved the case.
• The opinion did not address any claim for royalties on products both developed and manufactured during the initial term but invoiced afterward beyond confirming that the termination clause preserves such payments.

Conclusion

The Fifth Circuit affirmed dismissal of SEI’s claim to royalties on units manufactured after the Agreement’s initial term, holding that the royalty grant—limited to products “developed and manufactured during the initial term”—unambiguously forecloses post‑termination manufacturing‑based royalties. The termination clause preserves accrued rights (including royalty payments triggered post‑termination) but does not create a new post‑termination royalty entitlement. Denial of leave to amend was proper given the parol‑evidence rule and the Agreement’s integration clause.

In broader context, the opinion reinforces settled Texas law: courts enforce unambiguous contract language as written, decline to graft post‑termination obligations absent clear text, and disregard extrinsic evidence to vary integrated agreements. For practitioners, the drafting lesson is direct: if the parties want royalties to continue after the term, say so expressly. If they want royalties to end with the term, retain precise time‑bounded qualifiers and align termination and payment provisions accordingly.