The opinion of the court was delivered by: McMahon, District Judge.
OPINION AND ORDER GRANTING IN PART AND DENYING IN PART
PLAINTIFF'S AND DEFENDANTS' MOTIONS FOR SUMMARY JUDGMENT
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.
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:
We are asking for your support to help us go long
term. What we need is a royalty to exist of $.35 each
to you and Jack [Kirby] and then we can afford to go
forward in royalty for our new products. (Pl.Exh. 9.)
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
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. ...