The opinion of the court was delivered by: SPATT
MEMORANDUM DECISION AND ORDER
This diversity, breach of contract lawsuit arises out of two written contracts between the defendants, Bodyonics, Inc., Great Earth Companies, Inc. and Phoenix Laboratories, Inc. (collectively, "Bodyonics" or the "defendants"), and the plaintiffs, Michael O'Hearn and Melinda Midajah O'Hearn ("the O'Hearns" or "the plaintiffs"), professional body builders and fitness models who the defendants hired to endorse and promote their products. At issue is the O'Hearns' motion to dismiss the defendants' counterclaims pursuant to Rule 12(b)(6) of the Federal Rules of the Civil Procedure. The defendants' counterclaims include: breach of contract (first and second counterclaims); breach of the implied covenant of good faith and fair dealing (third and fourth counterclaims); breach of fiduciary duty (fifth and sixth counterclaims); and contract rescission based on the O'Hearns' alleged oral misrepresentations (seventh and eighth counterclaims).
Familiarity with all prior opinions is presumed and will not be reiterated.
The following facts are derived from the pleadings and contracts at issue; except where indicated otherwise, they are not in dispute.
The O'Hearns, a married couple residing in California, are accomplished body builders and fitness models. Michael O'Hearn has garnered numerous honors, most recently, the "Mr. Natural Universe" title in December 1997. Mr. O'Hearn's wife, Melinda Midajah O'Hearn, is primarily employed as a professional fitness model.
The defendants are Delaware corporations with principal places of business in Hicksville, New York, and are engaged in the businesses of manufacturing, distributing, marketing and selling vitamins and nutritional supplements throughout the United States.
Bodyonics entered into two separate, virtually identical contracts, one with each of the O'Hearns. Both agreements provided for a two-year term, beginning on April 1, 1997. By the terms of these contracts, the O'Hearns agreed to endorse and promote Bodyonics' products by, among other things, making personal appearances at power lifting shows and other public events. The O'Hearns also agreed to permit Bodyonics to use their names, signatures and photographs in connection with the marketing, promotion, advertisement and sale of its products. In exchange for these services, Bodyonics agreed to pay Mr. and Mrs. O'Hearn monthly base compensations of $ 6,000.00 and $ 1,000.00 a month, respectively, payable on the first day of the month. Bodyonics also promised to pay Mr. O'Hearn an amount equal to 2% of its gross sales, payable quarterly, for the duration of the contracts. The contracts further required Bodyonics to provide the O'Hearns with vitamins and nutritional products for their "personal use."
The contracts contained a termination clause, which provided that Bodyonics could unilaterally terminate the contracts for "just cause," which included circumstances where the O'Hearns: (1) were charged with or convicted of a crime or violation; (2) suffered from severe physical or mental incapacity that rendered them unable to perform their duties under the contracts; or (3) became involved in any actual or alleged conduct, act or omission that would, in the reasonable judgment of Bodyonics, adversely affect Mr. O'Hearn's reputation as a power lifter, or Mrs. O'Hearn's reputation as a fitness model, or render their continued endorsements unsuitable.
Finally, the contracts allowed for a six month "run-off" period, during which time Bodyonics could continue the "approved use of any printed, audio, film or video material of every description originally produced during the term, or as the term may have been extended" after the completion of the two-year term.
By a summons and complaint filed on February 17, 1998, the plaintiffs initiated this lawsuit against the defendants, alleging a single cause of action for breach of contract. According to the complaint, the O'Hearns performed all of their obligations under their contracts, while Bodyonics repeatedly breached the agreements by making inadequate and late payments, failing to supply the required substantiation of quarterly sales, and sending a series of letters, beginning January 7, 1998, demanding termination of the contracts.
In an answer filed on March 5, 1998, the defendants asserted counterclaims against the O'Hearns for breach of contract, breach of the implied covenant of good faith and fair dealing, and breach of fiduciary duty. Thereafter, the O'Hearns evidently served an amended complaint on the defendants, containing three additional claims: an alleged violation of New York Civil Rights Law § 51; an alleged violation of the Lanham Act § 43(a); and unfair competition.
The defendants' amended answer contains the original counterclaims and two additional ones. The first and second counterclaims, for breach of contract against Michael and Melinda O'Hearn, respectively, allege that the O'Hearns failed to appear at scheduled appearances, arrived late to or left early from other appearances, and refused to honor the defendants' request that they make certain appearances. In addition, the breach of contract counterclaims allege that the O'Hearns sold photographs of themselves at trade shows without the defendants' permission, and allowed their photographs to appear in magazines, such as "Muscle and Fitness," and "Iron Man" without the defendants' permission, without endorsing the defendants' products and for their own economic benefit. The breach of contract counterclaims also allege that the O'Hearns sold the products provided to them for "personal use."
As noted above, the third and fourth counterclaims are for breach of the implied covenant of good faith. These claims allege that the O'Hearns acted in bad faith when they refused to attend certain promotional events on behalf of Bodyonics for the proffered reason that it conflicted with their training for various competitions and other obligations.
The fifth and sixth counterclaims are for breach of fiduciary duty. These counterclaims stem from the defendants' allegations regarding the O'Hearns' selling of products that Bodyonics provided to them for their "personal use," and "permitting [their] likeness to be used to promote the products of competitors of Bodyonics."
The seventh and eighth counterclaims, for contract rescission, center on Bodyonics' contention that the O'Hearns "fraudulently induced Defendants to enter into the . . . Agreement[s] by falsely representing to Defendants [their] year round availability to attend trade shows, store openings and other events as Defendants might designate. . . . [the O'Hearns] assured Defendants of [their] year round availability and Defendants relied on such assurances since such availability was fundamental to [their] performance of the . . . . Agreement[s]."
A. Standard of Review: The Plaintiffs' 12(b)(6) Motion to Dismiss the Defendants' Counterclaims
On a motion to dismiss for failure to state a claim, the Court should dismiss the counterclaims pursuant to Rule 12(b)(6) if it appears beyond doubt that the defendants can prove no set of facts in support of their counterclaims which would entitle them to relief." S.E.C. v. U.S. Environmental, Inc., F.3d , 1998 U.S. App. LEXIS 21416, 1998 WL 559027 (2d Cir. August 25, 1998); Northrop v. Hoffman of Simsbury, Inc., 134 F.3d 41 (2d Cir. 1997)(quoting Conley v. Gibson, 355 U.S. 41, 45-46, 78 S. Ct. 99, 101-02, 2 L. Ed. 2d 80 ). It is not the Court's function to weigh the evidence that might be presented at a trial; instead, the Court must merely determine whether the counterclaims are legally sufficient. Goldman v. Belden, 754 F.2d 1059, 1067 (2d Cir. 1985). Thus, the Court must accept the allegations of the counterclaims as true, and construe all reasonable inferences in favor of the defendants. Connell v. Signoracci, 153 F.3d 74 (2d Cir. 1998); Leeds v. Meltz, 85 F.3d 51, 53 (2d Cir. 1996); LaBounty v. Adler, 933 F.2d 121, 123 (2d Cir. 1991).
The Court is mindful that under the modern rules of pleading, a defendant asserting a counterclaim need only provide "a short and plain statement of the claim showing that the pleader is entitled to relief", Fed. R. Civ. P. 8(a)(2), and that "all pleadings shall be so construed as to do substantial justice", Fed. R. Civ. P. 8(f). The issue before the Court on a Rule 12(b)(6) motion "is not whether a [defendant] will ultimately prevail, but whether the claimant is entitled to offer evidence to support the claim." Villager Pond, Inc. v. Town of Darien, 56 F.3d 375, 378 (2d Cir. 1995), cert. denied, 117 S. Ct. 50, 136 L. Ed. 2d 14, (1996). Recovery may appear remote and unlikely on the face of the pleading, but ...