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G. GOLDEN ASSOCS. OF OCEANSIDE v. ARNOLD FOODS CO.

December 5, 1994

G. GOLDEN ASSOCIATES OF OCEANSIDE, INC. and GERALD GOLDEN, Plaintiffs, against ARNOLD FOODS COMPANY, INC., Defendant.


The opinion of the court was delivered by: JOANNA SEYBERT

 SEYBERT, District Judge:

 Before the Court on diversity jurisdiction is a dispute arising out of an assignment of certain technical information and trademarks. Plaintiffs, G. Golden Associates of Oceanside, Inc. ("Golden Associates") and Gerald Golden, the sole shareholder of Golden Associates, allege that defendant, Arnold Foods Company, Inc. ("Arnold"), breached, improperly terminated and tortiously interfered with an agreement, dated August 1, 1983 (the "Agreement"), between plaintiffs and Devonsheer Melba Corporation ("Devonsheer"), defendant's predecessor-in-interest. Under the Agreement, Golden Associates assigned to Devonsheer, in exchange for ongoing sales commissions, technical information necessary to produce a flat bread product and the trademarks "La Crunch" and "La Crunch Une" used by plaintiffs in marketing the product. Plaintiffs claim that defendant, which received assignment of the Agreement from Devonsheer in 1985, wrongfully ceased production of the flat bread product when in February 1989, its parent company, CPC International Inc. ("CPC"), purchased JJ Flats, Inc., a company that had been commercially producing a popular flat bread product under its own name. Defendant has moved for summary judgment, arguing that its parent company's purchase of JJ Flats did not breach, improperly terminate or tortiously interfere with the Agreement. Plaintiffs have opposed defendant's motion and also asked the Court to issue an order pursuant to Fed. R. Civ. P. 56(d) to the effect that no material issue for trial exists regarding defendant's obligation to pay commissions on all flat bread products sold, regardless of whether the products were made using the technical information supplied by plaintiffs.

 BACKGROUND

 In 1983, Golden and his wholly owned company, Golden Associates, developed, produced, and marketed a thin flat bread product under the trademarks "La Crunch" and "La Crunch Une." In the spring of that year, Richard Kaufman, Chief Executive Officer of Devonsheer, expressed to Golden an interest in purchasing the technical information used to make the product and the trademarks "La Crunch" and "La Crunch Une." After several meetings, the parties contracted on August 1, 1983 to transfer to Devon sheer the trademarks and the technical information. The arrangement was exclusive; Section 2 of the Agreement prohibited plaintiffs from transferring or licensing the technical information or trademarks to third parties.

 In exchange for this arrangement, Section 3(a) of the Agreement required that "purchaser [Devonsheer] shall pay and deliver to Seller [Golden Associates] sales commissions of one and three-quarters (1 3/4%) percent of the net sales proceeds received by Purchaser from sales of the Products." The term "Products" was defined, together with other terms, in an initial recital to the Agreement:

 
WHEREAS, Seller possesses technical information and know-how (the "Technical Information") relating to the production and manufacture of food products which look similar to the thin, crispy crust of 'french bread' from which the dough has been removed (the "Products") and is the sole owner and proprietor of the trademarks "La Crunch Une" and "La Crunch" which it has used in connection with sales of the Products.

 Section 6 of the Agreement, which sets forth the degree of discretion Devonsheer was granted in manufacturing, distributing and selling flat breads, is key to the instant dispute. That provision states as follows,

 
Seller [Golden Associates] and Golden acknowledge that Purchaser's [Devonsheer's] knowledge and experience in the methods of manufacture, distribution and sale of goods similar to the Products places Purchaser [Devonsheer] in the position of determining how the Products can best be manufactured, distributed and sold for the mutual benefit of Seller [Golden Associates] and Purchaser (Devonsheer]. Accordingly, Seller [Golden Associates] and Golden agree that Purchaser [Devonsheer] shall have complete and total discretion in determining the manner and extent to which it will manufacture, distribute, sell or promote the Products, and grant licenses of its rights.

 Section 7 of the Agreement contains a non-competition clause, precluding plaintiffs from selling any goods "similar to or competitive with the Products, without the express written consent of Purchaser [Devonsheer]." No comparable clause applies to Devonsheer or any transferee of its interests.

 Under Section 14 of the Agreement, Golden Associates was given the right to re-acquire the technical information and trademarks being transferred for nominal consideration, under the following conditions:

 
(a) the net sales proceeds received by Purchaser [Devonsheer] from sales of the Products do not exceed the rate of $ 500,000 per annum at any time on or after five years from the date of this Agreement;
 
(b) Purchaser [Devonsheer] gives notice exercising such option within the thirty (30) day period commencing with the date on which the net sales proceeds do not exceed such rate at any time on or after five years from the date of this Agreement.

 According to defendant, net sales under the Agreement exceeded $ 500,000 only in 1986, declined to $ 373,080 in 1987, and ceased entirely after 1987 when the sole remaining customer ceased placing orders. Defendant alleges that it paid Golden Associates ...


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