Kirby is precluded from bringing this action under California
Business and Professions Code § 17918, which bars a person
transacting business under a fictitious name from maintaining an
action on any contract made in that fictitious name, until that
person duly files a fictitious name statement. Kirby admittedly
did not file a fictitious name statement in California until at
or about the time he commenced this lawsuit.
There are two problems with Defendants' argument. The first is
that Kirby can only prevail on this claim if he is able to
convince a jury that he, not USSA, was the contraparty to the
1995 oral agreement (since, if USSA was the party, the suspension
of its charter meant that the purported oral agreement with it is
also voidable). If Kirby prevails on that contention, then he
will not be maintaining the action "on any contract made in that
fictitious name," and therefore, he will not fall within the
literal terms of the statute.
The second problem is that the prohibition on maintaining an
action imposed by Business and Professions Code § 17918 deals
only with one's capacity to resort to the courts, not one's
capacity to create an enforceable right. The bar to suit
disappears once the fictitious name certificate is filed; unlike
the suspension of a corporate charter, failure to file such a
certificate does not preclude corporate capacity to contract or
render an agreement voidable, as does Bank and Corporation Tax
Law § 23304.1(a). By filing his certificate Kirby eliminated the
bar to maintaining suit. He did not, however, eliminate the
problem that will arise if the jury finds that USSA, not Kirby
himself, made the 1995 oral agreement. That problem, because it
touches on the corporation's capacity to enter into any contract
at all, cannot be fixed by a belated filing under § 17918.
Defendants also seek dismissal of this claim on the ground
that, in order to induce CSA to enter into the 1995 agreement,
Kirby "fraudulently misrepresented and concealed the fact that he
was employed by Kolon as its representative at that time." (Ans.
¶ 18.) They base this defense on Kirby's alleged failure to
disclose the existence of two contracts that Defendants assert to
have been in effect between Kolon and Kirby at the time CSA
contracted with Kirby: the October 1994 Product Representation
Agreement between Reto (another Kirby corporation) and Kolon
California, and the alleged agreement by Kolon America to pay
Reto two percent commissions on dealings between Kolon and CSA.
Defendants state that they would not have contracted with Kirby —
in the event this Court finds that a valid contract was formed —
had they so known.
Insofar as Defendants rely on the alleged agreement with Kolon
America, this defense has no merit. Defendants, despite months of
discovery, have not offered this Court a scintilla of evidence to
support their contention that Kirby actually entered into any
such arrangement. In particular, they offer no evidence to
counter Kirby's assertion that he never accepted a dime from
Kolon America — an assertion that negates any inference that he
accepted Kolon America's offer to enter into a business
arrangement with him.
As for the 1994 Product Representation Agreement with Kolon
California, Kirby avers that he terminated that contract when he
and Park-Lincoln reached agreement with CSA on the terms of the
1995 oral contract. That agreement does not provide a termination
date, but allows Kolon to terminate the contract on 30 days
notice if Kirby or Park-Lincoln should fail to secure any sales
after one year. The agreement is silent as to how it may be
terminated by Kirby and Park-Lincoln. Kirby claims that he
terminated the Kolon agreement by drawing lines through its
operative terms. Defendants argue that this act is insufficient
as a matter of law to effect termination of a contract, but fail
to cite me to any applicable California law,
which controls the interpretation of the Kolon agreement.
The 1994 Kolon agreement does, however, seem to fall within the
ambit of California Civil Code § 1700, which provides:
The intentional destruction, cancellation, or
material alteration of a written contract, by a party
entitled to any benefit under it, or with his
consent, extinguishes all the executory obligations
of the contract in his favor, against parties who do
not consent to the act.
Under California law, then, mutilation of a contract by one of
the parties to the contract does not result in the contract's
termination, but rather, eliminates the mutilating party's
entitlement to performance by the other party. Thus, Kirby's act
is not dispositive of the question of termination. However, the
mutilation of the contract document (which is not contested) is
evidence tending to show that Kirby intended for his arrangement
with Kolon California to end.
As additional support for his assertion that the Kolon
agreement was terminated, Kirby avers that (1) he never received
any further payments from Kolon after he contracted with CSA, and
(2) CSA would have been unable to negotiate the price of $9.65
per chair that it paid to Kolon California if Kolon had still
been obligated to pay Kirby commissions, because CSA would have
had to pay an additional ten percent to Kolon to cover the
commissions. These factors — especially the cessation of
commission payments — strongly suggest that Kirby did indeed
terminate the contract. CSA has not disputed Kirby's assertions.
In the face of this undisputed evidence, no reasonable juror
could draw any inference other than that the 1994 Product
Representation Agreement was terminated in favor of the oral
contract with CSA.
As a fallback position, Kirby argues that CSA was aware of his
Agreement with Kolon at the time he and Park-Lincoln entered into
the 1995 agreement with CSA, as evidenced by a letter from
Park-Lincoln to Tesher dated September 28, 1994, informing Tesher
that "Jack [Kirby] and I are splitting a 10% commission on these
chairs." Although that letter makes no specific mention of Kolon,
Kirby reasons that CSA must have realized that the commission was
being paid by the manufacturer of the chairs, which was Kolon.
At a minimum, the letter demonstrates that CSA was aware that
Kolon was the manufacturer (as it was engaged in negotiations
with Kolon for sale of the chairs) and that Kirby was receiving a
commission from someone. This gave rise to a duty on CSA's part
to make some further inquiry about the particulars of this
commission. Where "the facts which are the subject of the alleged
misrepresentation are not exclusively within the [aggrieved
party's] knowledge and [that party] could have readily
ascertained the truth regarding those facts, the burden is on the
latter to make the relevant inquiries . . . or he [or she] will
not be heard to complain that he [or she] was induced to enter
into the transaction by misrepresentations." Dero v. Gardner,
700 N.Y.S.2d 507, 508-09 (N.Y.App. Div.3d Dept. 1999) (quotations
omitted). C.f. IFD Constr. Corp. v. Corddry Carpenter Dietz and
Zack, 253 A.D.2d 89, 685 N.Y.S.2d 670, 673 (N.Y.App. Div. 1st
Dept. 1999) (no negligent misrepresentation claim where a party
had means to discover true nature of transaction "by the exercise
of ordinary intelligence") (quotations omitted). Here, CSA was
undisputedly aware of facts that were more than sufficient to put
it on notice of the likelihood that Kirby had been receiving
commissions from Kolon California pursuant to a contract, and
could easily have ascertained the legal nature of Kirby's
relationship with Kolon before contracting with him. CSA's
failure to inquire thus provides an additional ground for denying
Defendants' motion for summary judgment on the basis of
fraudulent inducement by Kirby.
Additionally, Defendants seek summary judgment based on
fraudulent inducement arising from another alleged
misrepresentation. Specifically, they allege that Park-Lincoln
fraudulently represented to CSA that the What-A-Chair design was
patented by giving Tesher a promotional brochure for another
chair known as the "Bottom-Bumper Insta-Chair," and that Kirby
defrauded CSA by remaining silent despite his knowledge of
Defendants claim that the brochure passed along by Park-Lincoln
represented the "Bottom-Bumper" chair's design as patented. Their
fraud allegation appears to rest on the premise that the
Bottom-Bumper and the What-A-Chair share the same design, but
they have failed to provide any evidence so showing. Defendants'
only evidence of a fraudulent misrepresentation of patent
protection by Park-Lincoln or Kirby consists of: (1) Tesher's
averment that Park-Lincoln told Tesher and Levine that "the
product" was patented (Tesher Aff. ¶ 9); (2) Kirby's testimony
that Park-Lincoln prepared a brochure for the Bottom-Bumper
chair, and that he knew that the Bottom-Bumper was in fact not
patented (Kirby Dep. at 120-21); and (3) a fax cover sheet from
Kirby to "Ed or Eric" dated only as "7/5," with no year
specified, which identified as the subject of the fax the "Kolon
& Towpak patent," and listed four "Points to Cover" that have no
apparent connection to any patent (attached as Exhibit F to Vort
Declaration).*fn2 The Bottom-Bumper brochure neither makes
reference to the What-A-Chair nor gives any indication (other
than the designation of Kirby and Park-Lincoln as contacts) that
the two chairs are in any way related (attached as Exhibit A to
Declaration of Ed Tesher). Indeed, on this record it is
impossible to understand what the relationship is between the
Bottom-Bumpers and the What-A-Chairs, or why the former's patent
status was relevant to CSA's decision to do business with Kirby.
The fax cover sheet does nothing to even suggest a
misrepresentation by Kirby that the What-A-Chair was protected by
a patent, and the non-specific statement in Tesher's affidavit is
insufficient to avoid summary judgment.
Finally, Defendants assert that Kirby lacks capacity to bring
this claim (assuming that it is his claim to bring, and not the
corporation's), in that USSA has not obtained a license to
transact business in the State of New York as required under
Section 1312(a) of the New York Business Corporation Law. Because
I have determined that only Kirby as an individual, and not USSA,
has standing to bring this action, the defense of Section 1312(a)
Because of the Court's inability to determine who the
contracting party was on the 1995 oral agreement, summary
judgment on Kirby's Second Claim is denied.
(3) Third Claim — Declaratory Judgment That the 1996 Agreement
Remains in Effect
Since the parties' 1996 contract is voidable, this claim must
(4) Fourth Claim — Declaratory Judgment That the 1995
Agreement Remains in Effect
The viability of this Claim depends upon whether Kirby can
maintain his Second Claim. Even if Kirby is able to prove that
he, and not his corporation, was the contraparty to the 1995
contract, he may not be able to extend the reach of that
agreement to the time period following his new deal made in 1996
and now voided. Unfortunately, the parties have not begun to
brief this complicated issue; it certainly cannot be resolved on
the record presently before me.
(1) First Counterclaim — Fraudulent Inducement
Defendants have asserted a Counterclaim for fraudulent
inducement to contract based on the same allegations they raised
in their Motion for Summary Judgment — i.e., Kirby's failure to
disclose his contractual relationship with Kolon and
Park-Lincoln's alleged misrepresentation that the What-A-Chair
was patented. Both Kirby and Defendants have moved for summary
judgment on this Counterclaim. As discussed above, Defendants
have come forward with no evidence whatsoever that Kirby's 1994
contract with Kolon California was in effect at the time CSA
contracted with USSA or that Kirby or Park-Lincoln made any
fraudulent misrepresentations as to the existence of a patent for
the What-A-Chair. Furthermore, Defendants failed to investigate
the Kolon contract despite the fact that CSA was on inquiry
notice of that contract's existence. Defendants' First
Counterclaim is therefore dismissed.
(2) Second Counterclaim — Lack of Consideration
Defendants next bring a Counterclaim for unjust enrichment on
the ground that the 1995 and 1996 agreements are unsupported by
consideration and thus unenforceable. Of course, I need not reach
this claim with respect to the 1996 agreement, as I have already
found that the 1996 agreement has been voided.
Kirby argues that the relinquishment of his right to receive
commissions under the 1994 Kolon agreement constituted legal
detriment and therefore provided consideration for the 1995 oral
agreement with CSA. As discussed above, Defendants have failed to
raise a question of fact as to whether the Kolon agreement
remained in effect when CSA entered into the 1995 agreement with
Kirby, and thus, there is no basis upon which to conclude that
the termination of the Kolon agreement did not supply
consideration for the 1995 agreement. Accordingly, Defendants'
Second Counterclaim is dismissed.
(3) Third Counterclaim — Fraudulent Inducement
It is unclear from Defendants' pleading how this Counterclaim
differs from their First. The Third Counterclaim alleges that
Kirby fraudulently led CSA to believe that Kirby represented USSA
rather than Kolon. To the extent that this claim is based upon
the existence of a Kolon contract binding Kirby at the same time
Kirby contracted with CSA, it is duplicative of the First
Counterclaim and must meet with the same fate.
In their opposition papers, Defendants state that their
Counterclaims are further based on a breach of fiduciary duty
theory — i.e., that Kirby, as an agent of both Kolon and CSA,
impermissibly served two masters. While it is true that an agent
owes a fiduciary duty to his principal, Defendants have failed to
show that an agency relationship was formed between CSA and Kirby
by virtue of their agreement to pay royalties to Kirby or USSA.
The agreement did not confer on Kirby or USSA any express or
implied power to bind CSA. And of course, parties to a contract,
without more, are not fiduciaries. See Northeast Gen. Corp. v.
Wellington Advertising, Inc., 82 N.Y.2d 158, 164-65,
604 N.Y.S.2d 1, 624 N.E.2d 129 (N.Y. 1993). Defendants' breach of
fiduciary duty claim therefore fails as a matter of law, and
their Third Counterclaim is dismissed.
(4) Defendants' Claim for Punitive Damages
As all of their Counterclaims are dismissed, Defendants no
longer have a basis for punitive damages. This claim is
Kirby's Motion to Strike Defendants' Affirmative Defenses
In addition to his Motion for Summary Judgment on Defendants'
Counterclaims, Kirby has moved to strike Defendants' Third,
Fourth, Fifth, Sixth, Seventh, and Tenth Affirmative Defenses.
(1) Third Affirmative Defense — Failure to Secure License to
Do Business in New York
As discussed above, because Kirby has standing to bring this
action only as an individual, the licensing requirement of New
York CPLR § 1312(a) does not apply to this action. Defendants'
Third Affirmative Defense is therefore stricken.
(2) Fourth Affirmative Defense — 1995 Agreement Void under
N.Y.G.O.L. § 15-701
Defendants originally raised the affirmative defense that New
York General Obligations Law § 15-701, which deals with the
non-discharge of a surety by failure or refusal of a creditor to
sue the principal debtor, rendered the 1995 oral agreement void.
Defendants abandoned this defense in the parties' Joint Pre-Trial
Order. Their Fourth Affirmative Defense is therefore stricken.