KIRBY v. COASTAL SALES ASS'N

The opinion of the court was delivered by: McMahon, District Judge.

Plaintiff Jack Kirby, doing business as USSA Corporation ("USSA"), asserts the following claims against Defendants Coastal Sales Association ("CSA"), International Strategic Alliances, Inc., and Retail Strategic Alliances, Inc.: (1) breach of a 1996 written contract between CSA and USSA; (2) breach of a 1995 oral contract between CSA and USSA; (3) declaratory judgment that the 1996 contract has not been terminated and remains in effect; and (4) declaratory judgment that the 1995 contract has not been terminated and remains in effect.

Kirby and Defendants have both moved for summary judgment both as to the case in its entirety, and in the alternative, as to particular Counterclaims and Affirmative Defenses discussed below. For the reasons that follow, Defendants' Motion is granted as to Plaintiff's First and Third Claims, and Plaintiff's Motion is granted with respect to Defendants' First, Second, and Third Counterclaims and claim for punitive damages, as well as Defendants' Third, Fourth, Fifth, Sixth, Seventh and Tenth Affirmative Defenses.

Background

This case arises out of the marketing of a compact folding chair known as the "What-A-Chair" by Plaintiff Kirby and his business associate, Lar Park-Lincoln. Kolon California Corporation ("Kolon California"), the manufacturer of the chair, approached Kirby sometime in 1994 with the idea of marketing the chair on the QVC network. In October 1994, Kolon California entered into a Product Representation Agreement ("the Kolon contract") with Reto, which appears to be a corporation of which Kirby was President, and Army Brat, Inc., another corporation, of which Park-Lincoln was President (although the copy of that contract provided in the record is signed only by Kirby). The Kolon contract gave Reto exclusive rights to sell the chairs to QVC. The contract also provided that Kolon California would pay Kirby and Park-Lincoln a commission of 10 percent of any sales of the "What-A-Chair" on QVC. CSA alleges that it was unaware of the existence of the Kolon contract when it negotiated its own contract with Kirby.

Meanwhile, in July 1994, Kirby and Park-Lincoln approached QVC directly about marketing the chairs on QVC. QVC suggested that they obtain an NFL license to enhance the marketability of the chairs by putting the NFL logo on them. Park-Lincoln contacted the NFL licensing department in August 1994, and received an encouraging response: the NFL recommended that she contact one of the NFL's current licensees and "piggyback" the marketing of the chairs on its license. Hence Plaintiff's involvement with Defendants. In September 1994, Kirby and Park-Lincoln approached Defendant CSA with the idea that CSA would apply for an NFL marketing license and allow them to "piggyback" on CSA's license, in return for which Kirby and Park-Lincoln would pay CSA a royalty. CSA, however, told Kirby and Park-Lincoln that CSA preferred to market the chair itself on QVC, and that it wanted Kirby and Park-Lincoln to receive a fixed royalty from CSA instead of Kolon.

The chronology of subsequent events is unclear, as neither party has identified the applicable dates. Apparently, at the same time CSA was negotiating with Kirby and Park-Lincoln, CSA (with Kirby's knowledge) was also negotiating to buy the chairs from Kolon California. To that end, CSA asked Kirby to introduce certain CSA executives to the Kolon America Corporation, which, like Kolon California, is a separately-incorporated subsidiary of the Kolon Group, in the hopes that CSA might be able to negotiate a more favorable price from Kolon America than that offered by Kolon California. That approach was ultimately unsuccessful, and CSA resumed its negotiations with Kolon California. On February 24, 1995, however, after CSA had made contact with Kolon America, Kolon America sent Kirby a fax offering to pay Reto a two percent commission on any dealings that Kolon America had with CSA. Kirby avers that he neither signed the document nor responded to it, nor did he ever receive any form of payment from Kolon America. CSA offers no proof to the contrary.

Meanwhile, CSA made an oral offer (exactly which CSA officer made the offer is unclear) to pay Kirby and Park-Lincoln $1.40 per chair sold, intended to represent 10 percent of CSA's wholesale price to QVC of approximately $14. On April 24, 1995, Kirby received a fax from Ed Tesher, CSA's Vice President, informing Kirby that CSA needed Kolon California's confirmation that the agreed-upon price for chairs was "$10.50 net, net, landed, per chair." He went on to note that "We also need to confirm the agreement between Lar and yourself as to build in for pricing." The terms of the oral agreement were memorialized in a letter from Park-Lincoln to Tesher dated May 19, 1995, which states that the royalty commissions were "payable to Jack [Kirby] and I," but goes on to state that the total commission was to be "divided equally between the following two corporations," which Park-Lincoln identified as USSA and Army Brat. Defendants do not dispute that an oral agreement had been reached by that point; however, neither Tesher nor any other officer of CSA signed the May 19 letter. After receiving a commitment from CSA, Kirby and Park-Lincoln assert that they terminated their contract with Kolon California — which Kirby states he carried out by drawing a line drawn through the agreement's operative terms — and thereby gave up their rights to receive royalties for the chairs from Kolon.

Kirby's involvement with Kolon, however, did not end. Kolon continued to manufacture the chairs for CSA, and when quality control problems arose in 1995, Kirby traveled to China in October 1995 to inspect the production of chairs at a Kolon factory there. Kirby split the cost of the trip with Park-Lincoln, and was never reimbursed by CSA. Moreover, as part of an effort to procure a deal between Kolon and CSA, Kirby persuaded Kolon to grant CSA a $100,000 credit line.

The What-A-Chair evidently sold well on QVC. In February 1996, Tesher sent a letter to Park-Lincoln seeking agreement from her and Kirby to the terms of a new contract, including the reduction by half of the royalties payable to them. Tesher implied that it was in their interest to assent, writing:

Kirby claims that he, Park-Lincoln, and CSA had discussed the possibility of extending the product's life cycle by developing new product lines, for example, selling the chair with the logo of the NFL or individual NFL teams. The offer was repeated in a follow-up e-mail sent by Eric Levine, CSA's President, to Park-Lincoln in March 1996. On May 19, 1996, Kirby, as President of USSA, and Levine, as President of CSA, signed the Royalty Agreement ("the 1996 agreement"), which provides that "First Party [named in the contract as CSA] markets a product sold under the trade name What A Chair, What An Ottoman, and The Double Chair, as well as any new chairs (First Party's Product)." (1996 agreement ¶ 1.) Kirby argues that the "any new chairs" language in this provision obligates CSA to pay him a royalty on sales of all seating products developed by CSA from the original What-A-Chair design.

Paragraph 8 of the agreement provides that royalties were to be paid in the following amounts: What-A-Chair, at $.35 per unit; What-An-Ottoman, at $.30 per unit; and Double What-A-Chair, at $.45 per unit. The contract also provides that the initial term of the agreement as amended would run from March 1, 1996 to December 31, 1996, and was renewable thereafter upon 60 days notice prior to the end of the "Initial Term" or any "renewal term." The agreement further states that it "shall be construed and enforced in accordance with the laws of the state of New York."

On November 11, 1998, Defendants gave Kirby written notice of termination; Kirby denies that this notice was effective on the basis that Defendants failed to provide the 60 days notice as called for under the contract. He claims that Defendants have breached the agreement by: (1) paying smaller royalties per unit than called for under the agreement; (2) recalculating and adjusting downward royalties previously paid in accordance with the agreement; (3) failing to provide timely information about sales; (4) paying on less than the total number of units sold; (5) making delinquent payments; (6) failing to account for arbitrary reserves for "returns"; (7) failing to pay royalties for certain classes of chairs; and (8) failing to include the sales of Defendants International Strategic Alliances, Inc. and Retail Strategic Alliances, Inc. Kirby alleges damages in the amount of $275,000.

Defendants have brought a number of Counterclaims seeking return of all moneys paid to Kirby under the 1995 and 1996 contracts. The claims they have designated in the Joint Pretrial Order do not include all of the claims raised in their briefs, but taken together, they include: (1) fraud-in-the-inducement based on Kirby's failure to disclose that he was employed by Kolon, that he had a pre-existing agreement to collect commissions from Kolon for sales of the What-A-Chair, and that he had a second agreement with Kolon America for payment of a commission in exchange for all orders placed by CSA with Kolon America; (2) breach of fiduciary duty based on the same non-disclosure; and (3) fraudulent inducement based on Park-Lincoln's alleged misrepresentation that the What-A-Chair's design was patented. They have also raised a number of Affirmative Defenses that are discussed below.

Standard for Summary Judgment

Summary judgment is appropriate where there are no genuine issues of material fact and the movant is entitled to judgment as a matter of law. See Fed. R.Civ.P. 56(c); Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247-50, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). A genuine issue for trial exists if, based on the record as a whole, a reasonable jury could find in favor of the non-movant. See Liberty Lobby, 477 U.S. at 248, 106 S.Ct. 2505. In making its determination, the court must resolve all ambiguities and draw all reasonable inferences in favor of the non-movant. See id. at 255, 106 S.Ct. 2505. To defeat summary judgment, the non-moving party must go beyond the pleadings and "must do more than simply show that there is some metaphysical doubt as to the material facts." Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986).

Defendants' Motion for Summary Judgment

Defendants have moved for summary judgment on Kirby's Complaint. Each of his Claims is discussed in turn:

(1) First Claim — Breach of 1996 Contract

Defendants first argue that no valid contract was formed between CSA and USSA or Kirby in 1996, because USSA lacked capacity to contract. It is undisputed that USSA's corporate charter was suspended at the time Kirby signed the agreement. Defendants have produced a Westlaw printout of a Dun & Bradstreet Report indicating that USSA's charter was suspended by the California Franchise Tax Board on July 1, 1988, that the corporation was decertified by the California Secretary of State on June 7, 1988, and that a Secretary of State Suspension occurred on May 17, 1988. (Attached as Exhibit B to Declaration of Robert A. Vort.) There is no mention of any reinstatement or re-certification in that Report. Kirby's counsel acknowledged at oral argument that the corporation was not in good standing in California, and he has not contradicted CSA's evidence demonstrating that USSA was not in good standing when the 1996 agreement was signed.

Under California law, a corporation whose charter has been suspended for delinquent license tax payments lacks the capacity to enter into contracts. See Van Landingham v. United Tuna Packers, 189 Cal. 353, 208 P. 973, 976 (1922). Any contract made by the corporation while its charter is in suspension is voidable "at the instance of any party to the contract other than the taxpayer." See California Bank and Corporation Tax Law § 23304.1(a). While the agreement states that New York law governs its enforceability, New York cannot fail to accord full faith and credit to the limitations on corporate capacity imposed by California law on a California corporation. See U.S. Const. art. IV, § 1; 36 Am.Jur.2d Foreign Corporations § 88 (1968) ("other states in which the rights, powers, duties, or liabilities of the corporation are called into question are required by the Federal Constitution to give full faith and credit to . . . laws of the state of origin in determining the powers of the corporation"). Thus, it would appear that the First Claim for Relief must be dismissed.

Kirby responds that, even if USSA lacked capacity to contract, he has standing to enforce the contract in his individual capacity. Indeed, he goes further: he claims that he, not USSA, was the actual contraparty to the 1996 agreement. Kirby has no choice but to make this argument. Under New York law, where a party to a contract signs the document only in his capacity as corporate officer, he may not maintain an action on the contract in his individual capacity. ...