United States District Court, S.D. New York
April 6, 2004.
THE ECONOMIST'S ADVOCATE, LLC, Plaintiff, -against- COGNITIVE ARTS CORP., INSEAD and INSEAD ONLINE, Defendants
The opinion of the court was delivered by: ROBERT SWEET, Senior District Judge
Defendants Insead and Insead Online (collectively, "Insead") have
moved for summary judgment against plaintiff Economist's Advocate, LLC
("EA"), pursuant to Fed.R.Civ.P. 56. Additionally, EA has moved for
summary judgment against Insead and defendant Cognitive Arts Corp.
("Cognitive Arts") on the First and Second Causes of Action in the
complaint or, in the alternative, for summary judgment against Insead on
the Third or Fourth Cause of Action. For the reasons set forth below,
Insead's summary judgment motion is denied, as is EA's summary judgment
motion against Insead. EA's summary judgment motion against Cognitive
Arts was previously granted, and a judgment entered. That judgment is
EA commenced this action on October 29, 2001. The instant motions were
marked fully submitted on November 13, 2003. Cognitive Arts submitted no
opposition to EA's motion and EA's motion was granted with regards to
Cognitive Arts on February 2, 2004. The Facts
The facts are set forth based upon the Local Rule 56.1 statements of EA
and Insead and supporting declarations and are undisputed except as noted
Insead, a business school based in Fountainebleau, France, owns 100% of
Insead Online, an entity which develops and sells educational content via
the Internet. Gabriel Hawawini ("Hawawini") has been Dean of Insead since
September 2000. Soumitra Dutta ("Dutta") was Dean of Technology at Insead
from September 1999 through August 2002 and is currently the Dean of
Executive Education at Insead. Jane Sommers-Kelly ("Sommers-Kelly") has
been the Director of Insead Online since May 2000 and had previously been
Director of Development at Insead.
EA is a limited liability corporation organized under the laws of the
State of Delaware with its principal place of business in Ponca City,
Oklahoma. EA has been engaged in executive training, including executive
training delivered over the Internet, and business consulting, and it has
used the enterprise trade name QED Learning.
Matthew Krepps ("Krepps") is the President of EA. He was an assistant
professor at Insead from January 1998 to May 2001. Cognitive Arts is an Illinois corporation with a principal place of
business in New York, New York at the time this action was filed.
Cognitive Arts is a for-profit commercial eLearning developer which
implements corporate training and learning systems that are delivered via
computer in either CD or web format. Edward Reiner ("Reiner") joined
Cognitive Arts in January 2001 as Executive Vice President of Business
Development and remained in that position until December 2001.
According to EA, Insead and EA worked together on the development of
online course materials from winter 1999 through April 2001. Insead
acknowledges that EA did work in connection with the development of
course materials, but claims that efforts were not intended to benefit
Insead and that Krepps intended to market courses to other universities.
The parties dispute as to whether or not Krepps and Insead entered into
Krepps engaged in business conversations with representatives of
Cognitive Arts as early as January 2000. EA claims Krepps entered into these discussions in fulfillment of EA's agreement
in principle to develop and market online courses with Insead. Insead
denies the existence of such an agreement and claims that Krepps sought
to identify a development partner for his own benefit, and not at the
request of Insead.
In September 2000, Krepps entered into a Joint Venture Agreement with
Cognitive Arts. This agreement states that EA and Cognitive Arts "will
form a joint venture (JV) for the purpose of developing and marketing
courses and modules for courses . . . that will be branded by Insead or
Insead Executive Education (IU), or other premium providers of management
education. The primary markets for these Courses will be students
attending IU Executive Education programs, other European Universities
and Management Schools, and corporations both in Europe and in the United
The Joint Venture Agreement contained an exclusivity clause prohibiting
Cognitive Arts from developing courses outside the agreement for any of
the institutions introduced to the joint venture, including Insead. This
restriction would function for the term of the joint venture plus two
The agreement further allocated costs and revenues from the joint
venture between Cognitive Arts and EA. It states:
CA [Cognitive Arts] and EA will split evenly all
net expense income for each of the Courses
developed by the joint venture, with 50% of net income being
allocated to each party. Each party, in
consideration for its 50% share of net income,
shall be required to furnish to the joint venture
half of the total costs allocable to the running
of the JV operations.
Additionally, the Joint Venture Agreement laid out the terms for
dissolution of the joint venture and the mechanism for Cognitive Arts and
EA to buy out each other's interests.
The parties dispute as to when Insead became aware of the Joint Venture
Agreement. EA claims that Krepps introduced Cognitive Arts to Insead as
EA's development partner less than 24 hours after the agreement was
During the fall of 2000, the joint venture developed several elementary
business courses for Insead.*fn2
In November 2000, Insead informed Krepps that its faculty members
should not enter into an agreement at odds with the interests of the
school, such as the Joint Venture Agreement. On November 21, 2000, Krepps
sent an email to Hawawini, Dean of Insead, proposing a solution. He
offered to separate from the joint venture in return for a mutually
agreeable fee from Cognitive Arts. Hawawini agreed to Krepps' solution
and asked Krepps to cancel the contract barring direct contact between Cognitive Arts
and Insead as soon as possible.
From December 2000 through April 2001, Krepps attempted to find a third
party to purchase his interest in the joint venture without success.
Krepps and Cognitive Arts then began discussing the terms of a
Termination Agreement, which would provide for EA's divestiture from the
joint venture. The parties dispute Insead's involvement in these
discussions, and Krepps claims, while Insead denies, that Insead agreed
to compensate EA for its investment. The parties agree, however, that
Krepps was informed that Insead would not be negotiating with him and
that he should negotiate with Cognitive Arts. After early May 2001,
Insead did not communicate directly with EA or Krepps.
In May 2001, Krepps resigned from his teaching post at Insead.
On May 11, 2001, Reiner from Cognitive Arts sent Krepps the first draft
of a Termination Agreement for his review. Cognitive Arts' cover letter
states that the draft Termination Agreement was sent on behalf of the
Board of Cognitive Arts and Insead. Drafts of the Termination Agreement
were exchanged between Krepps and Cognitive Arts from May to September
2001. Insead was included as a party to drafts of the Termination
Agreement. May and June drafts of the Termination Agreement provided for up-front
and royalty payments by Cognitive Arts to Krepps. Then, an August 8, 2001
version of the Termination Agreement ("Version Two") had both Cognitive
Arts and Insead listed in the payment section. On August 10, 2001, Krepps
signed Version Two, but Cognitive Arts and Insead did not. Reiner first
represented to Krepps that the parties were in agreement and then claimed
that only a few insubstantial changes needed to be made.
A subsequent version of the Termination Agreement ("Version Three")
included Insead in the payment section, but made payment contingent upon
Cognitive Arts entering into a development agreement with McGraw-Hill.
The parties dispute whether EA was sent this version of the agreement on
August 23 or August 26, 2001 and whether EA received an August 23 cover
letter, that indicated that Version Three was sent to Insead as the final
version of the agreement. Insead reviewed the terms of Version Three and
assented to it by signing and faxing the signature page to Cognitive Arts
on September 17, 2001. EA claims that Insead placed no restrictions on
what Reiner was permitted to do with the page that contained Insead's
signature. Neither Krepps nor Cognitive Arts signed Version Three.
From September 1 to September 4, 2003, Krepps and Reiner exchanged new
drafts of the agreement. The parties disagree as to whether Insead was
aware of these new drafts. Version Four, completed on September 4, 2003, made payment to Krepps
unconditionally due on September 17, 2001. Insead claims that it never
received a copy of Version Four or knew of its existence. By September
17, 2001, Krepps and Reiner both signed Version Four.
Reiner advised Krepps that he would be sending over Insead's signature
page for Version Four. Krepps requested that he send the entire agreement
Insead had agreed to, along with Insead's signature page. Reiner sent
Krepps a page containing Insead's signature, bearing a footer identifying
it as the signature page for Version Three, and attached it to Version
Four of the agreement, bearing a footer identifying it as Version Four.
Insead claims Cognitive Arts never notified them that Reiner and Krepps
executed Version Four, and they believed all parties executed Version
After the September 11, 2001 terrorist attacks, Cognitive Arts' New
York offices were closed down, the market for eLearning products slowed,
and McGraw-Hill became less interested in funding the venture. No
agreement was ever reached with McGraw Hill.
Krepps did not receive any up-front payment, as required under the
terms of Version Four. On September 27, 2001, Krepps sent Reiner and
Insead an email, pointing out that payment was ten days overdue as of the
date of the email and asking for an explanation. He received no response
from Insead, and Reiner assured him that there was no problem with payment. Krepps
reiterated his demand for payment to Reiner on October 8, 2001 `and
October 14, 2001. Insead and Cognitive Arts began to develop and market
course materials. Krepps filed the complaint in this action on October
29. 2001 against both Cognitive Arts and Insead, seeking damages for
breach of Version Four of the Termination Agreement.
Insead launched the course materials on its website in mid-November
2001, and Insead and Cognitive Arts continued to develop and market
courses after January 2002.
The Summary Judgment Standard
Summary judgment is granted only if there is no genuine issue of
material fact, and the moving party is entitled to judgment as a matter
of law. Fed.R.Civ.P. 56(c); see generally 6 James Wm.
Moore, et al., Moore's Federal Practice ¶ 56.15 (2d ed.
1983). The court will not try issues of fact on a motion for summary
judgment, but, rather, will determine "whether the evidence presents a
sufficient disagreement to require submission to a jury or whether it is
so one-sided that one party must prevail as a matter of law."
Anderson v. Liberty Lobby. Inc., 477 U.S. 242, 251-52 (1986).
The moving party has the burden of showing that there are no material
facts in dispute, and the court must resolve all ambiguities and draw all reasonable inferences in favor of the
party opposing the motion. Bickhardt v. Ratner, 871 F. Supp. 613
(S.D.N.Y. 1994) (citing Celotex Corp. v. Catrett, 477 U.S. 317
(1986)). Thus, "[s]ummary judgment may be granted if, upon reviewing
the evidence in the light most favorable to the non-movant, the court
determines that there is no genuine issue of material fact and the movant
is entitled to judgment as a matter of law." Richardson v.
Selsky, 5 F.3d 616, 621 (2d Cir. 1993).
A material fact is one that would "affect the outcome of the suit under
the governing law," and a dispute about a genuine issue of material fact
occurs if the evidence is such that "a reasonable jury could return a
verdict for the nonmoving party." Anderson, 477 U.S. at 248;
R.B. Ventures, Ltd. v. Shane, 112 F.3d 54, 57 (2d Cir. 1997).
I. Breach of Contract Claim
"To succeed in a breach of contract claim, four elements must be
satisfied: the making of a contract, performance of the contract by the
plaintiff, breach of the contract by the defendant, and damages suffered
by the plaintiff." Coastal Aviation. Inc. v. Commander Aircraft
Co., 937 F. Supp. 1051, 1060 (S.D.N.Y. 1996). Here, dispute centers on the first element and on whether a valid
contract was entered into between EA and Insead. Instead claims it only
agreed to Version Three of the Termination Agreement, which did not
contain an unconditional payment provision, and that it never agreed to
Version Four. EA, however, argues that Cognitive Arts had actual and
apparent authority to bind Insead to Version Four of the Termination
Agreement under agency principles.
B. Cognitive Arts Served as Instead's Agent
in Negotiations with EA
Actual authority is created by a manifestations of a grant of authority
from the principal to the agent. Reiss v. Societe Centrale du Groupe
des Assurances Nationales, 235 F.3d 738, 748 (2d Cir. 2000)
(citations omitted); Minskoff v. American Express Travel Related
Servs. Co. Inc., 98 F.3d 703, 708 (2d Cir. 1996). "The consent for
actual authority may be either express or implied from `the parties words
and conduct as construed in light of the surrounding circumstances.'"
S & S Texfiles Int'l v. Steve Weave. Inc. No. 00 Civ.
8391, 2002 U.S. Dist. LEXIS 14742, at *23 (S.D.N.Y. Aug. 12, 2002)
(citations omitted). "` [I]mplied actual authority . . . is dependent on
verbal or other acts by a principal which reasonably give an appearance
at authority' in a manner that is `brought home to the agent.'"
Id. (citing Greene v. Hellman, 51 N.Y.2d 197, 204 (1980)). Here, Insead endowed Cognitive Arts with the authority to negotiate
with Krepps on its behalf. Insead did not communicate directly with
Krepps or EA during the entire negotiation process in which numerous
versions of the agreement were exchanged. In May 2001, Insead directed
Krepps to negotiate with Cognitive Arts.*fn3 Thereafter, Insead
communicated its position to Cognitive Arts, who conveyed it to Krepps.
When Krepps attempted to speak to Insead directly, Insead would not
respond. Sommers-Kelly responded to Krepps through Reiner at times. The
cover letter of the first draft of the agreement sent in May 2001
indicated that it was being sent " [o]n behalf of the Board of Cognitive
Arts and Insead" and it "will be signed . . . by all parties." Insead
reviewed subsequent drafts of the agreement exchanged by Krepps and
Cognitive Arts, and Krepps learned of Insead's comments through Cognitive
Arts. Reiner's email to Krepps even cut and pasted portions of
Sommers-Kelly `s email with her thoughts on the agreement. Thus, through
Reiner's communications, terms in the agreement were inserted at Insead's
If Cognitive Arts did not have actual authority, it at least had
apparent authority to negotiate with Krepps on behalf of Insead. Apparent authority arises from "words or conduct of the
principal, communicated to a third party, that give rise to `the
appearance and belief that the agent possesses authority to enter into a
transaction. The agent cannot by his own acts imbue himself with apparent
authority." Fennel v. TLB Kent Co. 865 F.2d 498, 503 (2d
Cir. 1989) (quoting Hallock v. State, 485 N.Y.S.2d 510, 513
(1984)). "[A] principal may be estopped from denying apparent authority
if (1) the principal's intentional or negligent acts, including acts of
omission, created an appearance of authority in the agent, (2) on which a
third party reasonably and in good faith relied, and (3) such reliance
resulted in a detrimental change in position on the part of the third
party." Minskoff, 98 F.3d at 708.
Here, Insead refused to communicate with Krepps directly and Insead's
conduct created the appearance that Cognitive Arts had the authority to
negotiate on its behalf. Krepps' reliance on this conduct was reasonable.
The cover letter of the first draft of the agreement specifically
indicated that it was being sent on behalf of Cognitive Arts and Insead,
every draft of the agreement subsequently exchanged contemplated
signature by Insead, and Insead subsequently conveyed its comments
through Cognitive Arts. Krepps could not investigate Cognitive Arts'
authority further because Insead would not reply to his inquiries. Krepps
relied on Cognitive Arts' representations regarding Insead's positions in
the course of negotiations and in structuring the agreement. Insead claims that its refusal to talk to Krepps was not necessarily
due to agency, but rather its relations with Krepps had soured, Krepps
had resigned from Insead's faculty, and Insead feared suit by Krepps.
Sommers-Kelly testified that while Insead was willing to enter into a
Termination Agreement containing a release from Krepps, it did not do so
directly because it found Krepps to be "litigious and irrational"
(Sommers-Kelly Dep. at 133.)*fn4 Furthermore, as it was Cognitive Arts
who entered into the Joint Venture Agreement with Krepps, and not Insead,
it made sense that Cognitive Arts take on the responsibility of
negotiating a release. This does not negate Cognitive Arts' agency for
Insead in negotiations with Krepps, but rather strengthens it and
provides an explanation for why Insead chose this course of action.
C. EA Does Not Establish that
Had the Authority to Bind Insead to the Termination
Even if Cognitive Arts represented Insead in negotiations, it does not
follow that it had the authority to bind them to an agreement. Parties
routinely allow brokers, attorneys, or other third parties to negotiate
deals without granting the negotiators the authority to bind them. E.g.,
1058 Corp. v. Ergas, 571 N.Y.S.2d 706, 708 (1st Dep't 1991)
(broker authorized negotiate deal on behalf of building held not to have
authority to close deals without client's approval); Encyclopedia Brown Prods.,
Ltd. v. Home Box Office. Inc. 25 F. Supp.2d 395, 403-04 (S.D.N.Y.
1998) (attorney authorized to negotiate on behalf of production company
held not to have authority to bind client).
Here, any agency by Cognitive Arts did not extend to the authority to
bind Insead to the Termination Agreement. All of the drafts of the
Termination Agreement circulated by Cognitive Arts and EA included a
signature line for Insead and/or Insead Online and specifically indicated
that the signature would be provided by "Soumitra Dutta, Dean of
Technology." Thus, even if Cognitive Arts served as Insead's agent,
Cognitive Arts did not have the authority to sign an agreement on
Krepps himself has recognized this. He testified that Insead's
signature was required to enforce the agreement against Insead and that
Insead had to approve all material changes to the agreement. Thus, in an
email discussing Version Four of the Termination Agreement, Krepps asked
Reiner to have Sommers-Kelly or Dutta confirm that Insead signed off on
the new version of the agreement. Krepps also asked Reiner to fax the
complete agreement Insead had agreed to.
The fact that Insead relied on Cognitive Arts to conduct due diligence
into Krepps' expenses on behalf of the joint venture in June 2001 does
not indicate Cognitive Arts' authority to bind Insead. Drafts of the Termination Agreement, circulated before the due
diligence took place, provided that Cognitive Arts alone would make
payments to Krepps. It was thus logical for Cognitive Arts to conduct the
EA further highlights that Insead believed itself bound to Version
Three of the agreement where Insead did not transmit its signature
directly to Krepps and EA, but rather sent the signature page to
Cognitive Arts for transmission to Krepps. However, Cognitive Arts acted
simply as a transfer agent for the delivery of the signature and the
evidence does not establish that it had the authority to bind Insead to
an agreement. As Krepps testified, Cognitive Arts' role in transmitting
the signature page seemed to be about "logistics." (Krepps Dep. at 176.)
Insead agreed to be bound to Version Three because it signed it, not
because Cognitive Arts had the authority to bind it.
Additionally, Insead did not engage in misconduct that would have
reasonably misled Krepps to believe Cognitive Arts had the authority to
bind Insead to Version Four of Termination Agreement. To establish
apparent authority requires affirmatively misleading conduct on the part
of the purported principal. Associated Dry Goods Crop, v. Towers
Financial Corp. No. 88 Civ. 9178, 1989 U.S. Dist. LEXIS 12253, at
*10 (S.D.N.Y. Oct. 13, 1989) (finding no apparent authority for attorney
entering into a settlement agreement on behalf of client and holding that
"the fact that a client knows that negotiations are going on, yet does not
inform opposing counsel that his counsel's authority is limited, does not
change the outcome."); GE Capital Mortg. Serv., Inc. v. Tavlor,
228 A.D.2d 475, 475-76 (2d Dep't 1996) ("[Plaintiff] failed to produce
competent evidence of words or conduct of the [Defendant] that would give
rise to the appearance and belief that the [alleged agent] possessed
authority to enter into a transaction."). "While agents are often
successful in creating an appearance of actual authority by their own
acts and statements, such appearance does not create apparent authority."
Cooperative Agricole Groupement de Producteurs Bovins de l'Quest v.
Banesto Banking Corp. No. 86 Civ. 8921, 1989 U.S. Dist. LEXIS
8368, at *44-49 (S.D.N.Y. Jul. 19, 1989) (granting defendants' motion for
summary judgment because plaintiff failed to identify acts of the
principal that would create the alleged apparent authority in the third
party); Rozsa v. May Davis Group. Inc. 187 F. Supp.2d 123, 130
(S.D.N.Y. 2002) (holding an agent's purported relay of the principal's
directions not to "constitute representations or conduct directed by the
As Krepps' cases reflect, negotiators will only be found to have
apparent authority if the principal engaged in some misleading act beyond
directing the plaintiff to deal with the negotiator. In Seetransport
Wiking Trader Schiffarhtsgesellschaft MBH & Co. v. Republic of
Romania, 123 F. Supp.2d 174, 190 (S.D.N.Y. 2000), the Romanian
Prime Minister explicitly assured the plaintiff that the country's Minister of Finance had the authority to
negotiate and sign an agreement. In C.E. Towers Co. v. Trinidad and
Tobago (BWIA Int'l) Airways Corp., 903 F. Supp. 515 (S.D.N.Y. 1995),
the issue was whether defendant's Vice-President of North America who
negotiated and signed a deal had the apparent authority to bind his
employer. Defendant was found to have imbued its Vice-President with such
authority when after receiving an un-executed copy of the agreement,
which did not identify who should sign the document, the defendant
collected the Vice-President's signature and returned an executed
document to plaintiff.
Moreover, where an agent entirely abandons the interest of his
principal in favor of the agent's or a third party's interest, the
agent's conduct will not be imputed to the principal. Christopher S.
v. Douglaston Club. 713 N.Y.S.2d 542, 543 (2d Dep't 2000). Here, in
attaching Insead's Version Three signature page to Version Four,
Cognitive Arts abandoned Insead's interests. See Layola Fed. Sav.
& Loan Ass'n v. Fickline, 783 F. Supp. 620, 625 (M.D. Ga. 1992)
(holding that even if a party was a purported agent, "it stretches the
imagination to believe that his authority would be so extensive as to
allow him to substitute signature pages."). Although Cognitive Arts and
Insead had mutual interests in entering into a Termination Agreement with
EA, they were also separate parties with their own interests. At times,
Reiner told Krepps that Cognitive Arts was attempting to exact terms from Insead, and Krepps testified that Reiner made statements along the
lines of "[t]his is what we're hoping to get out of Insead."
Moreover, EA had a duty to investigate the validity of Cognitive Arts'
apparent authority to bind Insead before concluding that Version Four was
in force. There is a duty to investigate an agent's apparent authority
when (1) facts and circumstances put the third party on notice; (2) the
transaction is extraordinary; or (3) the novelty of the transaction
alerts the third party to the danger of fraud. Herbert Constr. Co.
v. Continental Ins. Co., 931 F.2d 989, 996 (2d Cir. 1991). Here,
Reiner had proven himself to be untrustworthy; Version Four differed
significantly from Version Three; and the footers indicated Insead's
agreement to Version Three, not Version Four.
The parties dispute whether or not EA was on notice of Insead's
objection to non-contingent payment to Krepps. Although this is
unresolved, it is clear that Version Three of the agreement differs
significantly from Version Four, which provides for up-front,
non-contingent payment to Krepps.
Moreover, Krepps' interactions with Reiner regarding Version Two of the
agreement put Krepps on notice that Reiner was not to be trusted. Krepps
signed Version Two when Reiner falsely notified him that Cognitive Arts
and Insead had agreed to it. Then, Reiner claimed that only certain insubstantial changes needed to
be made, but significant changes were made in Version Three'.
Additionally, Reiner sent Krepps Insead's signature page with a Version
Three footer. EA tries to minimize the significance of this by noting
that document footers were not unique identifiers and that different
versions created sometimes had the same document footer. However, EA does
not contest that different footers always indicated different versions of
the agreement and that Version Four of the agreement had a Version Four
In fact, to a certain extent, EA recognized its duty to investigate
whether Insead had agreed to Version Four of the Termination Agreement.
EA asked Reiner to fax the entire agreement Insead agreed to. However, he
did not further investigate the discrepancies in the footers. Although
Insead was avoiding contact with Krepps, Krepps' email merely indicated
that the parties had reached an agreement.
The parties disagree on whether or not EA can show detrimental reliance
that it was harmed by Cognitive Arts' representation that Insead
had assented to Version Four of the agreement. Insead argues that EA
cannot demonstrate that it could have found another buyer or improved its position in any way had it
known on September 17, 2002 that Insead had not agreed to Version Four
and that by November 13, 2001 EA was aware that an agreement had been
reached and, nonetheless, failed to sell its interest between November
2000 and May 2001. EA claims Insead's failure in marketing the course
drastically reduced the prospective value of its interest. Therefore a
factual dispute exists with respect to detrimental reliance.
D. A Factual Dispute Exists as to Insead's
Ratification of Version Four of the Agreement
"Ratification of the acts of an agent only occurs where the principal
has full knowledge of all material facts and takes some action to affirm
the agent's actions." Prisco. v. New York, 804 F. Supp. 518, 523
(S.D.N.Y. 1992). The assent necessary to demonstrate ratification "must
be clearly established and may not be inferred from doubtful or equivocal
acts or language." Holm v. C.M.P. Sheet Metal, Inc. 89 A.D.2d 229,
233, 455 N.Y.S.2d 429, 432 (4th Dep't 1982).
In support of Insead's ratification of Version Four of the Agreement,
EA points to Insead's failure to respond to Krepps' September 27, 2001
email and to its continued development and marketing of courses after
January 2002. On September 27, 2001, Krepps sent Reiner and Insead an
email notifying them that payment was ten days overdue and asking for an
explanation. EA does not establish that Insead was fully informed of all the circumstances
surrounding Version Four of the Termination Agreement and, in fact,
Insead claims not to have even been aware of its existence.
However, continued development and marketing of the courses after
January 2002 and after Krepps filed his complaint in this action on
October 29, 2001, presents an issue of fact as to ratification. Insead
claims that it continued to develop the courses based upon its ownership
of intellectual property contained in the courses and its belief that
Version Three of the Termination Agreement was enforceable. According to
Insead, when it first learned about the attachment of a Version Three
signature page to Version Four, it attributed this to Krepps and not
Reiner. It is thus unclear when Insead had "full knowledge or all
material facts" and learned the full extent of Reiner's conduct.
Prisco, 804 F. Supp. at 523. Summary judgment is thus
inappropriate on EA's contract claims.
II. Quasi-Contract Claims
A. EA's Quasi-Contract Claims Are Note
Barred by the Joint Venture Agreement
EA additionally raises two quasi-contract claims, maintaining its
entitlement to payment under the doctrines of quantum meruit and unjust
enrichment. "A `quasi contract only applies in the absence of an express agreement,
and is not really a contract at all, but rather a legal obligation
imposed in order to prevent a party's unjust enrichment."
Clark-Fitzpatrick, Inc. v. Long Island Rail Road Co. 70 N.Y.2d 382,
388 (1987). Thus, quasi-contract claims are barred "where the suing
party has fully performed on a valid written agreement, the existence of
which is undisputed, and the scope of which clearly covers the dispute
between the parties." Id. at 389.*fn6
Insead argues that EA's quasi-contract claims are barred by the Joint
Venture Agreement. However, the Joint Venture Agreement only covers the
internal operations and financial structure of the joint venture and does
not address the provision of services to and compensation by outside
entities, such as Insead. The Joint Venture Agreement was solely between
EA and Cognitive Arts, and Insead was not a signatory to it.*fn7 B. A Factual Dispute Exists with Respect to
EA's Claims of Quantum Meruit and Unjust Enrichment
"To recover in quantum meruit, a party `must establish performance of
his services in good faith, acceptance of the services by persons to whom
such services were rendered, expectation of compensation, and the
reasonable value of such services.'" Weinrich v. Sandhaus,
850 F. Supp. 1169, 1185 (S.D.N.Y. 1994) (citations omitted); accord
Freedman v. Pearlman, 271 A.D.2d 301, 304, 706 N.Y.S.2d 405, 408
(1st Dep't 2000).
An unjust enrichment claim, while a separate cause of action, requires
that the plaintiff establish similar elements: (1) performance of
services by plaintiff; (2) the defendant accepts and benefits from the
services performed by plaintiff; and (3) the defendant under principles
of equity and good conscience should not be permitted to keep the value
of the services without restitution to the plaintiff. Wiener v.
Lazard Feres & Co. 241 A.D.2d 114, 119-20, 672 N.Y.S.2d 8, 12
(1st Dep't 1998).
Here, EA claims to have performed the following services for Insead
between October 1999 and April 2001: conducted industry research and
identified market opportunities, organized and managed a 3 day
conference, created and delivered a conference presentation in London,
arranged and conducted interviews at an Insead-sponsored conference, and
conducted and taped executive interviews in San Francisco, New York, and
Boston. According to EA, Insead accepted and enjoyed the benefits of EA's recording of the January 2000
conference and organization of executive interviews by utilizing these
videotaped sessions in online learning proposals to at least two
prospective clients and that EA's contributions are embodied in the work
product produced by Insead and Cognitive Arts.
EA further claims to have reasonably expected compensation for these
services. EA cites to the April 14, 2000 letter from Insead to Krepps,
which confirmed that the parties "may collaborate," provided agreement is
reached on certain terms and conditions, in support of its expectation of
an eventual "formal" agreement and compensation. EA further points to the
lengthy negotiation of a release from the Joint Venture Agreement at
Insead's request, which centered around appropriate compensation to EA
for its services. In the many drafts exchanged, the parties always
contemplated that Insead would sign the Termination Agreement.
However, a dispute exists as to the services actually performed for and
accepted by Insead and what is the proper measurement of their value.
Insead claims that EA performed its services for the joint venture and
not for Insead and disputes EA's valuation of the services. Insead does
not have to compensate EA for services performed to further its own aims
or those of the joint venture. However, if Insead benefitted from EA's services, EA
should receive compensation.*fn8
III. Vacatur of the February 2, 2004 Judgment
In a judgment dated February 2, 2004 and entered on February 17, 2004
("the February Judgment"), EA's summary judgment motion was granted with
regards to Cognitive Arts. For the reasons set forth below, the February
Judgment is hereby vacated.
Within this Circuit, "there can be no question" that a district court
has the power to vacate its own judgment. See Fort Knox Music Inc.
v. Baptiste, 257 F.3d 108, 110-11 (2d Cir. 2001). As the Second
Circuit has had recent occasion to explain:
Rule 60(b) of the Federal Rules of Civil Procedure
allows the district court to grant relief from a
judgment for "any . . . reason justifying relief
from the operation of the judgment." Fed.R. Civ.
P. 60(b)(6). While normally such relief is
sought by motion of a party, see
Fed.R.Civ.P. 60(b), nothing forbids the court to grant
such relief sua sponte.
Id. at 111 (citing International Controls Corp. v.
Vesco, 556 F.2d 665
, 668 n.2 (2d Cir. 1977)); cf. Sea Spray
Holdings, Ltd. v. Pali Financial Group, Inc., 269 F. Supp.2d 356,
365 (S.D.N.Y. 2003) (vacating a default judgment sua sponte under
Rule 60(b)(6)); N.A.A.C.P. v. Acusport Corp., 216 F. Supp.2d 59, 61
(E.D.N.Y. 2002) (noting that a district court may act sua
sponte and reconsider its own orders in light of changed
circumstances). See generally United States v. Pauley, 321 F.3d 578,
581 n.1 (6th Cir. 2003) ("Circuits are split on the question whether
a district court may grant Rule 60(b) relief sua sponte. The
Tenth Circuit agrees with our view that such relief is impermissible. The
Second, Fourth, Fifth, and Ninth Circuits have held that such sua
sponte relief is permissible.") (internal citations omitted).
A district court may thus vacate a judgment sua sponte,
provided the parties have notice. See International Controls
Corp. 556 F.2d at 668 n.2 ("[T]he district court . . . had
power to decide sua sponte whether its judgment should be vacated,
provided all parties had notice. . . .") (citations omitted). Notice
of this Court's intention to vacate the February Judgment was provided
to EA on March 24, 2004, and EA thereafter submitted a letter
asserting its entitlement to summary judgment.
EA's motion for summary judgment against Cognitive Arts was granted in
the February Judgment due to lack of opposition. It is the law of this
Circuit, however, that "even when a nonmoving party chooses the perilous
path of failing to submit a response to a summary judgment motion, the
district court may not grant the motion without first examining the
moving party's submission to determine if it has met its burden of demonstrating that no
material issue of fact remains for trial" and that summary judgment is
appropriate as a matter of law. Amaker v. Foley, 274 F.3d 677,
681 (2d Cir. 2001). See also Holtz v. Rockefeller & Co.
Inc., 258 F.3d 62, 74 n.1 (2d Cir. 2001); Booker v. Federal
Reserve Bank of New York, Nos. 01 Civ. 2290 (DC) & 01 Civ. 2291
(DC), 2003 WL 1213148, at *12 (S.D.N.Y. Mar. 17, 2003); Mattel Inc.
v. Pitt, 229 F. Supp.2d 315, 320 (S.D.N.Y. 2002). It was therefore
error to issue the February Judgment without' first determining whether
EA had met its burden on its unopposed motion for summary judgment on its
contract claims against Cognitive Arts.*fn9
As discussed above, four elements must be shown to establish a breach
of contract: "the making of a contract, performance of the contract by
the plaintiff, breach of the contract by the defendant, and damages
suffered by the plaintiff." Coastal Aviation. Inc. 937 F. Supp.
at 1060. To determine whether EA has satisfied these four elements,
and in the absence of an opposition by Cognitive Arts, the facts set
forth by EA in its Local Rule 56.1 statement are taken as true for the
purposes of this motion. See LeSane v. Hall's Sec. Analyst,
Inc. 239 F.3d 206, 211 (2d Cir. 2001); Baker v. Dorfman,
239 F.3d 415, 422 (2d Cir. 2000) (citing Gubitosi v. Kapica, 154 F.3d 30, 31
n.1 (2d Cir. 1998)). Where, however, "the record does not support the
asser-tions made in a Local Rule 56.1 statement, those assertions should
be disregarded and the record reviewed independently." Holtz,
258 F.3d at 74 (citation omitted).
As set forth elsewhere in this opinion, the record demonstrates the
existence of certain factual disputes as to whether Version Four
constitutes a valid contract entered into by EA, Cognitive Arts and
Insead. Although these factual disputes center on whether Insead agreed
to Version Four rather than whether Cognitive Arts so agreed, their
existence precludes a grant of summary judgment to EA on its contract
claims against Cognitive Arts in the absence of any showing that some or
all of Version Four may be separately enforceable by EA against Cognitive
Arts. This conclusion requires the vacatur of the February Judgment
pursuant to Fed.R.Civ.P. 60(b)(6).
For the reasons set forth, Insead's summary judgment motion is denied,
as is EA's summary judgment motion against Insead. The February 2, 2004 judgment granting EA's motion against
Cognitive Arts is hereby vacated.
It is so ordered.