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THE ECONOMIST'S ADVOCATE LLC v. COGNITIVE ARTS CORP.

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

OPINION

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 hereby vacated.

Prior Proceedings

  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 below.

  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 an agreement.*fn1

  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 States."

  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 years.

  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 executed.

  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 ...


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