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PLAYBOY ENTERPRISES INT'L. v. ON LINE ENTERTAINMENT

March 29, 2004.

PLAYBOY ENTERPRISES INTERNATIONAL, INC., PLAYBOY ENTERTAINMENT GROUP, INC. and PLAYBOY.COM, INC., Plaintiffs, -against- ON LINE ENTERTAINMENT, INC. and MARIO CAVALLUZZO, Defendants


The opinion of the court was delivered by: DAVID TRAGER, District Judge

MEMORANDUM AND ORDER

Background

The plaintiffs in this action are Playboy Enterprises International, Inc. ("PEII"), Playboy Entertainment Group, Inc. ("PEGI") and Playboy.com (collectively "plaintiffs"). PEII is a Delaware corporation with its principal place of business located in Chicago, Illinois. PEII is an international multimedia entertainment company that publishes Playboy magazine. PEGI is a Delaware corporation and is a wholly owned subsidiary of PEII. Playboy.com is a Delaware corporation and is a wholly owned subsidiary of PEII. The defendants are On Line Entertainment, Inc. ("OLE") and Mario Cavalluzzo ("Cavalluzzo") (collectively "defendants"). OLE is a New York corporation with its principal place of business located in Elmont, New York. Cavalluzzo is a citizen of the State of New York residing within the Eastern District of New York who directs and controls the business activities of OLE. Page 2

  PEII through its wholly owned subsidiary, PEGI, is the producer of a cable television series entitled "Sex Court," which airs on the subscription television services "Playboy TV," which is broadcast in the United States, and "Playboy TV Networks," which is broadcast internationally. PEGI is also the producer of a video cassette compilation bearing the Sex Court mark, which is distributed for sale throughout the United States and internationally via the <playboy.com> web site, which is owned and operated by plaintiff Playboy.com.

  In their complaint, plaintiffs alleged that defendants have sought improperly to profit from Playboy's investment in marketing the Sex Court trademark. Plaintiffs claimed that OLE registered the Internet domain name <sexcourt.com> after the Sex Court series became popular and the name and mark Sex Court became associated in the public mind with plaintiffs' television series. Plaintiffs further alleged that defendants began using and continued to use the <sexcourt.com> domain name in connection with an Internet Web site that is, in fact, unrelated to Playboy or the Sex Court series, but attempted to convey to Internet users that it is connected to the television series. Plaintiffs suggested that defendants attempted to lure Internet users seeking information about the Sex Court television show and to then entice users to link to sexually explicit commercial Internet sites that charge subscription fees for access to their contents. Thus, plaintiffs alleged that "defendants seek simultaneously to trade off of the goodwill the SEX COURT mark has come to enjoy among consumers, and to reduce the value of that goodwill by improperly associating that name with services from unrelated sources." Complaint, ¶ 8. The action resulted in the commencement of a jury trial in this district on April 7, 2003. Page 3

  On April 9, 2003, prior to the conclusion of the jury trial, defendants entered into a Settlement Agreement ("April 9 settlement agreement") with plaintiffs. That same day, both parties' counsel presented and affirmed an accompanying Permanent Injunction Upon Consent Against Defendants to the court. The injunction was signed by counsel for both parties, and was entered by the court on April 10. On April 16, defendants served upon plaintiffs a Notice of Motion requesting "an Order (1) setting aside the April 9, 2003 settlement agreement; (2) vacating the April 10 consent injunction and judgment; and (3) setting a date for a new trial, in the interest of justice, on the basis of mistake, duress, misrepresentation and fraud." On April 21, plaintiffs submitted a cross-motion by letter requesting that the docket entries be sealed. On April 23, plaintiffs submitted a cross-motion for an order to show cause requesting that the court enforce the Permanent Injunction and Settlement Agreement by: (1) ordering Mr. Cavalluzzo to immediately deliver all rights, passwords and title to the <www.sexcourt.com> and <www.pamelaandersonlee.net> domain names to Playboy; and (2) to pay Playboy's costs and attorneys' fees associated with the preparation of the papers related to the cross motion. Memorandum of Law in Support of Playboy's Motion for an Order to Show Cause ("PL Mem. of Law for OSC") 1-2. Page 4

  Discussion

  (1)

 
Motion to Set Aside Settlement, Vacate Consent Judgment and Order a New Trial
  Defendants' Memorandum of Law is limited to conclusory statements, general statements of law, and appeals to the "interests of justice," yet fails to advance clearly delineated legal arguments. Defendants' brief states that "[a] settlement agreement should be set aside if it is induced by fraud, collusion, mistake, accident, intimidation, coercion or duress." Memorandum of Law in Support of Counterclaimants* Motion to Set Aside April 9 Settlement ("Def. Mem. of Law") 1. The cases cited by defendants in support of this assertion state that settlement agreements must be construed under general principles of contract law. See, e.g. Dowries v. O'Connell, 103 F. Supp.2d 579, 582 (E.D.N.Y. 2000) ("Settlement agreements are contracts and must therefore be construed according to general principles of contract law."); see also Willgerodt v. Hohri, 953 F. Supp. 557, 561 (S.D.N.Y. 1997); Hest v. New Amsterdam Casualty, 268 F. Supp. 623 (D.S.C. 1967). Accordingly, defendants request "that the settlement agreement be set aside due to mistake, misrepresentation, duress and Playboy's fraudulent use of the [March] consent injunction . . . to induce settlement." Def. Mem. of Law 4.

  Defendants are correct that a settlement agreement should be construed as a contract. See Goldman v. Commissioner, 39 F.3d 402, 405 (2d Cir. 1994) (holding that a "settlement agreement constituted a contract" and that "general principles of contract law must govern its interpretation."); Torres v. Walker, 356 F.3d 238, 245 (2d Cir. 2004) ("Settlement agreements are contracts and must therefore be construed according to general principles of contract law.") (quoting Red Ball Interior Demolition Corp. v. Palmadessa, 173 F.3d 481, 484 (2d Cir. 1999)). Page 5

  The April settlement agreement contains a choice of law provision stating that the "Agreement shall be governed by, and construed and interpreted in accordance with, the substantive laws of the State of New York, without regard to conflicts or choice of law principles." Giocanda Decl. Ex. A (April settlement agreement) ¶ 18. Thus, New York contract law governs.*fn1 Under New York law, "[o]nly where there is cause sufficient to invalidate a contract, such as fraud, collusion, mistake or accident, will a party be relieved from the consequences of a stipulation made during litigation." Hallock v. State, 64 N.Y.2d 224, 230, 474 N.E.2d 1178, 485 N.Y.S.2d 510 (N.Y. 1984); see also Downes, 103 F. Supp.2d at 582 ("The court will set aside or modify the terms of a settlement reached in open court only upon a showing of good cause, such as fraud, collusion, mistake, accident, or lack of authority."). Page 6

  Although defendants do not explicitly invoke Rule 60(b) of the Federal Rules of Civil Procedure in their initial brief, Plaintiffs' Memorandum of Law responds to defendants by arguing that defendants fail to meet the requirements of Rule 60(b). Plaintiffs' Memorandum of Law in Opposition to Defendants' Motion to Set Aside the Settlement Agreement ("Pl. Mem. of Law") at 1, 2, 4, 7, 16. In their Reply, defendants argue that they are "moving in the first instance to set aside the settlement agreement under contract law, due to specific allegations of misconduct by Playboy and other circumstances," and that after the settlement is vacated, Rule 60(b) permits vacation of the consent judgment. Defendants' Reply Memorandum of Law 3. Both the contract law arguments and the Rule 60(b) arguments are analyzed below.

  As noted, although defendants' memorandum of law is not presented as a series of discrete arguments, the arguments in the memorandum break down into two. First, defendants argue that the settlement agreement should he set aside based on fraud, misrepresentation, duress, or mistake since plaintiffs "intentionally and impermissibly" made reference during cross examination of Mr. Cavalluzzo to the March 2003 permanent injunction by stipulation, in breach of the March 2003 settlement agreement ("March settlement agreement"), so as "to poison [the jury's] opinion of Mr. Cavalluzzo." Def. Mem. of Law 2, Alternatively, also based on this alleged breach of the March settlement agreement, defendants argue that the April 9 settlement should be set aside because had the court had access to a copy of the March settlement agreement on April 9, when the cross examination of Mr. Cavalluzzo took place, "the Court seeing that Playboy had impermissibly poisoned the jury, would no doubt have granted a mistrial and likely would have awarded costs to Mr. Cavalluzzo." Def. Mem. of Law 3. Page 7

  Second, defendants argue that the settlement should be set aside because they entered into the settlement agreement under duress and that following the Court's admonition of defense counsel, "Playboy acted swiftly to coerce Cavalluzzo into settlement, utilizing his weakened position to induce a settlement with him that would not otherwise have been reached." Def. Mem. of Law 4. Defendants state several additional grounds for setting aside the settlement based on the above facts, namely collusion, accident, intimidation, and coercion. Def. Mem. of Law 1, 4. Only plaintiffs' second argument based on the court's admonition of defense counsel may fairly be characterized as coercion, though for these purposes the analysis for coercion and duress are the same and both are dealt with in section (1)(b) below. With regard to the remaining claims, defendants have failed to make even a prima facie showing in support of their conclusory allegations of collusion, accident, or intimidation.

 (a) Alleged Breach of March Settlement Agreement

  Defendants contend that during the cross examination of Mr. Cavalluzzo on April 9, plaintiffs breached the March settlement agreement by "intentionally and impermissibly" making reference in front of the jury to the permanent injunction by stipulation agreed to by the parties as part of the March settlement. Def. Mem. of Law 2. Defendants argue that this constituted a breach of the provision of the March settlement agreement by which the parties agreed that the settlement and injunction "shall not be used as evidence at trial." Giocanda Decl. Ex. C. Defendants further contend that plaintiffs "used this illegally obtained upper hand as a sword to persuade Mr. Cavalluzzo to dramatically change his settlement position." Def. Mem. of Law 2. Defendants conclude that "[i]t would be inequitable to allow Playboy to benefit by its ...


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