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INN CHU TRADING CO. v. SARA LEE CORP.

October 28, 1992

INN CHU TRADING CO., LTD., Plaintiff,
v.
SARA LEE CORPORATION and CHAMPION PRODUCTS, INC. Defendants.


Carter


The opinion of the court was delivered by: ROBERT L. CARTER

ROBERT L. CARTER, District Judge

 Plaintiff Inn Chu Trading Company, Ltd. ("Inn Chu") brings this diversity action against defendant Champion Products, Inc. ("Champion") alleging breach of contract and fraud, and against defendant Sara Lee Corporation ("Sara Lee") for aiding, abetting, and directing Champion's fraud and tortious interference with contractual relations. Defendants move to dismiss the complaint pursuant to Rule 12(b)(6), F.R.Civ.P., for failure to state a claim upon which relief can be granted, and under Rule 9(b), F.R.Civ.P., for failure to state fraud with particularity. In the alternative, defendants seek a stay of these proceedings pending the outcome of a related matter in New York State Supreme Court.

 For the purpose of deciding motions to dismiss under Rule 12(b)(6) and Rule 9(b), F.R.Civ.P., the factual allegations in the complaint must be accepted as true and construed in the light most favorable to the plaintiff. See, e.g., Joyce v. Joyce Beverages, Inc., 571 F.2d 703, 706 (2d Cir. 1978), cert. denied, 437 U.S. 905, 57 L. Ed. 2d 1135, 98 S. Ct. 3092 (1978); Luce v. Edelstein, 802 F.2d 49, 52 (2d Cir. 1986). *fn1"

 The complaint recites the following facts. In February 1987, Champion, a sports and leisure wear manufacturer, entered into a license agreement with Phoenix Integrated, Inc. ("Phoenix"), granting Phoenix an exclusive right to use the Champion trademark on footwear products ("License Agreement"). Later that year, plaintiff Inn Chu began financing Phoenix in its manufacture, purchase, sale, and distribution of the Champion merchandise.

 Plaintiff, Champion, and Phoenix ultimately executed an "Agreement and Addendum to License Agreement" (the "Addendum"), *fn2" and shortly thereafter, Inn Chu with certain affiliates acquired a majority interest in Phoenix.

 In the fall of 1990, executives of Champion and its corporate parent, Sara Lee, initiated discussions with Roberto Muller, then President of Phoenix, regarding Sara Lee's interest in purchasing Phoenix or its Champion license by the end of 1991. By June 1991, however, despite ongoing negotiations concerning the proposed acquisition, the complaint alleges that defendants were deceitfully plotting to deprive Phoenix of its license without any compensation. *fn3" In furtherance of this scheme, Lewis Frankfort, then Chief Executive Officer of Champion, met with David Mark Brown, a Phoenix employee. Frankfort secretly offered Brown employment, and Brown provided him with confidential information concerning sales of Champion sportswear to a Japanese company.

 The alleged deception culminated at a July 19, 1991 meeting at which Frankfort, Muller and the principals of Inn Chu discussed future prospects for Phoenix and its Champion license. Among other things, Frankfort related that Sara Lee wanted to buy Phoenix's license rights in 1991, and that defendants would assist Phoenix to expand its business. In reliance on these representations, Inn Chu invested an additional $ 3 million in Phoenix to fill outstanding footwear orders. Inn Chu now avers that defendants' July 19 statements "were false, were then known by [defendants] to be false, and were made with the intention of having plaintiff provide additional financing for Phoenix at a time when the defendants intended to terminate the . . . license, thereby destroying the value of plaintiff's investment[.]" Complaint P 34.

 Fully aware that Inn Chu was providing additional financing, and to perpetuate Inn Chu's false expectations, defendants allegedly scheduled a meeting to continue repurchase discussions in August, 1991. Frankfort canceled the August meeting and rescheduled it for September, 1991, which meeting he later canceled and rescheduled for October 7, 1991. On October 3, 1991, Champion abruptly terminated Phoenix's license, citing "unauthorized" sales in the United Kingdom, Japan, and elsewhere in breach of the License Agreement. Complaint Exh. C.

 I. The Contract Claims.

 Pursuant to Rule 12(b)(6), F.R.Civ.P., defendants move to dismiss count one of the complaint, which alleges that Champion breached the License Agreement and the Addendum, on the grounds that plaintiff lacks standing to sue under the License Agreement and that no provision in the Addendum was breached.

 The crux of Inn Chu's claim is that termination of Phoenix's license without proper justification and without notice or any opportunity for Phoenix to remedy the alleged contract violations constituted a breach of the Phoenix-Champion License Agreement. *fn4" Plaintiff asserts that it has standing to sue, even though it was not a party to the contract, because the Addendum guarantees Inn Chu the continued vitality of the License Agreement. *fn5" Whether the parties expected good faith performance of the Phoenix-Champion agreement to be an enforceable term of the Addendum is a question of fact which cannot be resolved at this stage. *fn6" For the purpose of the present motion, the court must accept as true Inn Chu's well-pleaded assertion that the parties so intended. See, Vista Co. v. Columbia Pictures Industries, Inc., 725 F. Supp. 1286, 1296 (S.D.N.Y. 1989) (Sand, J.). Thus, defendants' motion must be denied with respect to count one. *fn7"

 On the other hand, count one is clearly subject to dismissal insofar as it claims that Champion breached the Addendum by failing to provide plaintiff with notice and an opportunity to cure Phoenix's alleged breach. None of the provisions in the Addendum can be construed to require the notice or opportunity to remedy which Inn Chu found wanting. *fn8" The apparent basis for this claim is an alleged promise by then Champion President Roger Holland that he would notify plaintiff of any conduct by Phoenix which Champion considered harmful to the value of the license. *fn9" Holland's promise, supposedly made prior to execution of the Addendum, does not appear in the final writing. Since the relevant provisions of the Addendum are unambiguous, that promise is inadmissible and, for our purposes, irrelevant. See, e.g., International Klafter Co. v. Continental Casualty Co., 869 F.2d 96 (2d Cir. 1989).

 Defendants also move to dismiss, under Rule 12(b)(6), F.R.Civ.P., count two of the complaint, which alleges that Sara Lee intentionally and tortiously interfered with the License Agreement and procured ...


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