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October 30, 2000


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


Plaintiff, a citizen of Florida, is the holder of design patents on a number of hair accessories commonly known as "scrunchies." She brings this contract action against Claire's Stores, Inc. ("Stores"), a Delaware corporation headquartered in Florida, and its wholly owned subsidiary, Claire's Boutiques, Inc. ("Boutiques"), also a Delaware corporation but headquartered in Illinois. The complaint asserts two claims for relief. The first alleges breach of a written license agreement by Boutiques and the second breach of an alleged oral agreement by Stores in that each defendant allegedly failed to pay royalties due under the agreements on "products covered by [plaintiff's] patents" and failed to submit to royalty audits. Defendants have counterclaimed for a declaration that plaintiff's design patents are invalid.

The action was removed to this Court by defendants on the ground that plaintiff's claims depend upon a determination of the scope of plaintiff's patents and therefore lie within the exclusive jurisdiction of the federal courts, a proposition which plaintiff does not dispute. The matter now is before the Court on (1) defendants' motion to transfer the action to the Southern District of Florida pursuant to 28 U.S.C. § 1404(a), (2) plaintiff's cross-motion for partial summary judgment determining that (i) plaintiff and Stores have a valid oral agreement as alleged in the complaint, (ii) plaintiff and Boutiques have a valid written agreement pursuant to which Boutiques is obliged to pay royalties for both foreign and domestic sales of her licensed designs, (iii) defendants will not be heard to assert the invalidity of plaintiff's patents, and (iv) defendants breached their respective agreements with plaintiff by failing to permit her to audit their books and records, and (3) defendants' cross-motion for summary judgment dismissing plaintiff's second claim for relief and determining that the U.S. license agreement covers only sales of products in the United States.

In order fairly to evaluate the transfer motion, which requires consideration of the relative convenience to parties and witnesses of litigating this case here or in Florida, it is useful to determine whether any of the partially dispositive motions are meritorious, as only then can the Court focus on what really must be litigated further. Accordingly, the Court first takes up the parties' cross-motions.

Partial Summary Judgment Motions

The Oral Contract Claim

Plaintiff, in advance of discovery, seeks a determination that the oral agreement alleged in her claim against Stores exists and is valid. Stores contends that the contract was incapable by its terms of performance within one year and therefore is barred by the Statute of Frauds.*fn1 In any case, it argues, there is a triable issue of fact as to the existence of the alleged contract.

The terms of the alleged oral agreement were that "if [Stores] were to sell any of [plaintiff's] patented products outside the United States, it would pay [plaintiff] royalties on those sales in accordance with the terms set forth in the [written] License Agreement" between Boutiques and plaintiff.*fn2 Neither the alleged oral agreement nor the written agreement to which it allegedly referred stipulated any duration. And while the written License Agreement provided for termination by written agreement of the contracting parties, that adds nothing, as all contracts are terminable by mutual consent of the contracting parties. This alleged agreement thus comes within D & N Boening, Inc. v. Kirsch Beverages, Inc.,*fn3 which makes clear that an oral agreement of indefinite duration is barred by Section 5-701 unless it may be performed fully within one year. Termination by breach or, by necessary implication, by mutual consent is not performance.

Plaintiff nevertheless contends that defendants have partially performed and judicially admitted the existence of the oral agreement, either of which would be sufficient to take the alleged contract out of the Statute of Frauds.

Plaintiffs' judicial admission contention is without merit. Plaintiff relies on Section 5-701, subd. b.3(c), of the New York General Obligations Law, which provides that an admission of the existence of a contract in a "pleading, testimony or otherwise in court . . ." is sufficient evidence of the making of the contract. But plaintiff overlooks the fact that Section 5-701, subd. b, applies only to "qualified financial contracts" as there defined.*fn4 The alleged contract here at issue is not a qualified financial contract within the meaning of the statute.*fn5 And putting aside this inapplicable statute, even a clear admission*fn6 in unsigned testimony in an unrelated arbitration proceeding would not take the contract out of the Statute of Frauds.*fn7

The part performance argument is no more meritorious. Although part performance often will take an otherwise unenforceable contract out of the Statute of Frauds, this principle does not apply to a contract that is unenforceable because it is incapable of performance within one year.*fn8

Accordingly, defendants' motion for partial summary judgment dismissing the second claim for relief is granted on the ground that it is barred by the Statute of Frauds.

Plaintiff's Motion With Respect to Royalties on Foreign Sales

Plaintiff next seeks summary judgment determining that Boutiques is obliged to pay it a royalty pursuant to a written license agreement on all sales of products embodying plaintiff's designs, irrespective of where ...

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