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SONY FINANCIAL SERVICES v. MULTI VIDEO GROUP

January 18, 2005.

SONY FINANCIAL SERVICES, LLC, Plaintiffs,
v.
MULTI VIDEO GROUP, LTD., RHINOCEROS VISUAL EFFECTS & DESIGN, LLC and COOL BEANS DIGITAL AUDIO, INC., Defendants. MULTI VIDEO GROUP, LTD. and RHINOCEROS VISUAL EFFECTS & DESIGN, LLC, Plaintiffs, v. SONY ELECTRONICS, INC., Defendant.



The opinion of the court was delivered by: GABRIEL GORENSTEIN, Magistrate Judge

REPORT AND RECOMMENDATION

These are two diversity actions that have been consolidated for pretrial purposes pursuant to Fed.R.Civ.P. 42(a). See Order, filed February 23, 2004 (Docket #42 in 1730).*fn1 In one action (04 Civ. 1321), plaintiffs Multi Video Group, Ltd. ("Multi Video") and Rhinoceros Visual Effects & Design, LLC ("Rhinoceros") filed suit against defendant Sony Electronics, Inc. ("Sony Electronics") alleging breach of contract ("Sony Electronics action"). Sony Electronics now moves to dismiss the complaint pursuant to Fed.R.Civ.P. 12(b)(1) or 12(b)(3), or in the alternative, for summary judgment under Fed.R.Civ.P. 56. In the other action (03 Civ. 1730), plaintiff Sony Financial Services, LLC ("Sony Financial") filed suit against defendants Multi Video for breach of a lease agreement and against Rhinoceros and Cool Beans Digital Audio, Inc. ("Cool Beans") for breach of two guaranties ("Sony Financial Action"). In that case, Sony Financial has moved for summary judgment pursuant to Fed.R.Civ.P. 56. For the following reasons, both Sony Electronics' and Sony Financial's motions for summary judgment should be granted.

I. BACKGROUND

  A. Factual Background

  1. The Beta-Test Site Arrangement

  Multi Video is a corporation organized under the laws of the State of New York. Complaint, filed Feb. 17, 2004 ("Complaint") (Docket #1 in 1321), ¶ 3. Multi Video is engaged in the business of "video and film post-production services, including editing, graphics and related activities." Id. Rhinoceros is a limited liability company with offices in New York City. Id. ¶ 4. Multi Video is a "managing member of Rhinoceros with a substantial equity ownership" interest in Rhinoceros. Id. ¶ 4. David Binstock is the President and CEO of Multi Video, as well as the managing member of Rhinoceros and Cool Beans, which is now known as Tonic Digital Equipment, LLC. Affidavit of David Binstock, filed Sept. 29, 2004 ("Binstock Aff.") (Docket # 77 in 1730), ¶ 1. Multi Video is the sole principal in Tonic Digital Equipment, LLC. Id.

  In the summer of 1999, Sony Electronics approached Multi Video and proposed installing certain state-of-the-art video equipment known as the "Edit Suite" and "Telecine Suite" (or "Vialta Telecine Suite") on Multi Video's premises. See Binstock Aff. ¶ 2; Affidavit of Anthony Manzo ("Manzo Aff.") (annexed to Sony Financial Service LLC's Notice of Motion for Summary Judgment (Docket #65 in 1730) ("Sony Fin. Notice of Motion")). Under this arrangement, Multi Video would "act as a beta test site" for the equipment so that Sony Electronics could "test, upgrade, modify and tailor the equipment `in the field,' . . . with the goal of selling such equipment to other companies in the industry." Binstock Aff. ¶¶ 2, 4. A "beta" test is the "second phase of technology testing" for an experimental product. See Complaint at 3 n. 2. After a product has been through the first, or "alpha," test, but before it is ready for the market, the beta test occurs, at which time the product is made available to select members of the intended audience who use the product and provide feedback. See id. Multi Video asserts that following the beta test, "Multi Video would be given the opportunity to purchase the Telecine and related equipment." Binstock Aff. ¶ 5. Sony Electronics also "agreed to service and maintain the Telecine and related editing equipment" and keep the equipment "in consistent working condition." Id. ¶ 7.

  2. The System Sale Agreement

  In order to enter into the beta testing arrangement, Multi Video, through Binstock, signed a System Sale Agreement with Sony Electronics effective October 28, 1999. See System Sale Agreement, dated Aug. 26, 1999 ("SSA") (reproduced as Ex. B to Notice of Motions to Supplement the Record, or to Dismiss, Transfer, or for Summary Judgment, filed Sept. 1, 2004 (Docket #21 in 1321) ("Sony Elec. Notice of Motion")). The SSA consisted of both the agreement and the annexed schedules. See id. § 1(i). The SSA "provides for the development, delivery, installation, and sale of the System . . . by [Sony Electronics] and the purchase of the System . . . by [Multi Video]." Id. § 2. The SSA also provides that "[a]ll references . . . to the `purchase' or `sale' of the System shall be understood by the parties to mean the purchase or sale of the Equipment and the Work and the licensing of the software by/to [Multi Video]." Id. "Equipment" is defined under the SSA as "all products, equipment, materials, and accessories furnished by Sony [Electronics] and listed on Schedule A. . . ." Id. § 1(iii). "Schedule A," which was annexed to the SSA, specifically lists as equipment the "HD Edit System" and the "HD Telecine System." Schedule A (reproduced as Ex. B to Sony Elec. Notice of Motion), at 1, 5. "Work," as it is defined in the SSA, refers to the services provided by Sony Electronics under the SSA concerning "the design, engineering and installation of the System. . . ." See SSA § 1(vi); Schedule B (reproduced as Ex. B to Sony Elec. Notice of Motion), at 1. Schedule B also provides that Sony Electronics will be responsible for managing all stages of the design, engineering and installation of the System. See Schedule B at 1, 3.

  The SSA defines the manner in which Multi Video is to accept the equipment upon delivery and Sony Electronics' obligations to Multi Video if the equipment does not conform to the requirements of the SSA. See SSA § 11. The SSA defines "Substantial Completion" as "that stage in the delivery of the System when same is operational and ready for use." Id. § 1(ix). The SSA outlines the procedure by which Multi Video is to accept or reject the equipment. See id. § 11. It states that once Sony Electronics has provided Multi Video with notice of substantial completion, Multi Video must determine whether the equipment conforms to the requirements of the SSA. See id. At that point, Multi Video may either accept the equipment or reject the equipment in "good faith" by giving Sony Electronics notice thereof. See id. If the equipment is rejected by Multi Video, Sony Electronics is thereafter obligated to "diligently work to correct any deficiencies noted" as to any portion rejected by Multi Video. Id. This procedure is repeated until Multi Video indicates that it is accepting the equipment. See id.

  The SSA specifically provides, under the heading "Prevailing Terms," as follows:
If any purchase order, acceptance or other document is used by [Multi Video] in connection with the purchase of the System, then notwithstanding any provisions therein contained to the contrary, the terms of all such documents shall be governed by the provisions of [the SSA] and any terms thereof which are inconsistent, different from, or in addition to, the provisions of [the SSA] shall be null and void and of no force or effect.
Id. § 3 (emphasis added). The SSA also contains an integration clause, which provides that it "supersedes, terminates, and otherwise voids any and all prior written and/or oral agreements between the parties with respect to the System." Id. § 21(j). In addition, the SSA contains a no-oral-modifications clause providing that it "may be modified only by a written instrument signed by both parties, making specific reference to [the SSA] and to the changes to be made." Id.

  The SSA also contains a provision designating California as the exclusive forum for disputes between the parties, see id. § 21(g), and also provides that any dispute arising under the agreement must be brought within two years of the accrual of the cause of action, id. § 19.

  3. The Lease Agreements

  Multi Video was free to obtain financing to purchase the equipment provided under the SSA from an entity other than Sony Financial. Manzo Aff. ¶ 5; see Multi Video Group Ltd.'s, Rhinoceros Visual Effects & Design, LLC's and Cool Beans Digital Audio, Inc.'s Opposition to Sony Financial Services, LLC's Statement Pursuant to Local Civil Rule 56.1, filed Sept. 29, 2004 (Docket #79 in 1730) ("MV Sony Fin. 56.1"), ¶¶ 9-11. Nonetheless, Multi Video utilized Sony Financial to finance the transaction. Id. Thus, in November 1999, shortly after the effective date of the SSA, Multi Video executed a Master Lease Agreement with Sony Financial. See Master Lease Agreement, signed by Multi Video Nov. 16, 1999 and signed by Sony Financial Jan. 27, 2000 (reproduced as Ex. A to Affidavit of Jeffrey L. Friesen, filed Sept. 1, 2004 (Docket #68 in 1730) ("Friesen Aff.") ("Lease")); MV Sony Fin. 56.1 ¶ 1. The purpose of the Lease was to finance the transaction between Sony Electronics and Multi Video. See Manzo Aff. ¶ 2. Sony Electronics was not a party to the Lease. Id. ¶ 3.

  The Lease has two parts, one for the Edit Suite and one for the Telecine Suite, which were reflected in two separate equipment schedules. MV Sony Fin. 56.1 ¶ 8. In addition, Rhinoceros and Cool Beans each executed guaranty agreements in favor of Sony Financial. See id. ¶ 16. Binstock was authorized to execute each guaranty. Id. ¶ 17.

  4. The Dealings Between the Parties

  In March 2000, the equipment that is the subject of the Lease and the SSA was delivered to Multi Video and installed. See Deposition of David Binstock (reproduced as Ex. R to Sony Fin. Notice of Motion) ("Binstock Dep."), at 89-90. On March 24, 2000, Multi Video signed the Notice of Substantial Completion as contemplated by the SSA. See SSA § 11; Binstock Dep. at 91. On or about September 27, 2000, Multi Video signed a second Notice of Substantial Completion. See Notice of Substantial Completion, dated Sept. 27, 2000 (reproduced as Ex. C to Friesen Aff.) ("Notice of Substantial Completion"), at 2. The purpose of the Notice of Substantial Completion was to verify that certain equipment had been installed and was operational. See id. at 1-2. The Notice of Substantial Completion also gave Multi Video the opportunity to acknowledge that certain equipment had not been installed or was not operational, and to list such equipment on a separate document. See id. The September 2000 Notice of Substantial Completion contained no exceptions. See id. at 1-2.

  Multi Video contends that after signing the September 2000 Notice of Substantial Completion, the equipment broke down on "multiple" occasions. Binstock Aff. ¶ 21. Thereafter, Multi Video was assured by Sony Electronics that the equipment would be made operable despite the breakdowns, but Sony Electronics "was never able to maintain the equipment in reliable working condition." Id.

  Nonetheless, on November 15, 2000, Multi Video signed a Delivery and Acceptance Certificate. See Binstock Dep. at 38; Delivery and Acceptance Certificate (annexed as Ex. A to Friesen Aff.) ("Certificate"). The Certificate states that, upon delivery of the equipment to Multi Video, the equipment "has been examined and/or tested and is in good operating order and condition and is in all respects satisfactory to [Multi Video] and as represented, and that said [e]quipment has been accepted . . . and complies with all requirements of [Multi Video]." Certificate ¶ 1. Multi Video again asserts that there continued to be "numerous breakdowns and deficiencies" with the equipment, Binstock Aff. ¶ 22, and that despite Sony Electronics' assurances, it was "never able to render the equipment in dependable and consistent working condition." Id.

  After Multi Video signed the Certificate, Sony Financial performed its obligation under the Lease by paying Sony Electronics. See MV Sony Fin. 56.1 ¶¶ 29-30. On November 7, 2000 Multi Video signed an Equipment Schedule. Equipment Schedule Number: 608740 (annexed as Ex. A to Friesen Aff.) ("Equipment Schedule"). The Equipment Schedule provided that any representations made by Sony Electronics or any of its representatives would not "affect [Multi Video] or [Sony Financial's] rights or obligations" to perform under the Lease. See Equipment Schedule.

  Multi Video made three up-front payments on the Telecine Suite portion of the Lease on October 31, 2000; November 15, 2000; and December 6, 2000. See Deposition of Patricia Paul at 178-79, 181 (annexed as Ex. S to Sony Fin. Notice of Motion) ("Paul Dep."). Multi Video was not required to make another payment on the Telecine portion of the Lease until more than a year later, or December 29, 2001. See Manzo Aff. ¶ 6; Sony Financial Services, LLC's Statement Pursuant to Local Civil Rule 56.1 (annexed to Sony Fin. Notice of Motion) ("Sony Fin. 56.1"), ¶ 44; Amortization Schedule (annexed as Ex. A to Sony Fin. Notice of Motion) ("Amortization Schedule"), at 1. Beginning on that date and continuing through September 29, 2006, Multi Video was required to make a number of monthly payments in the amount of $50,631.38. See Amortization Schedule at 1-2. None of these payments was ever made. Manzo Aff. ¶ 6; Sony Fin. 56.1 ¶ 45.*fn2

  Part II § 14 of the Lease also provides that Sony Financial may "accelerate under the Lease and any other agreement" between Sony Financial and Multi Video "all sums" that are due and "the discounted value . . . of those that will become due." Lease Pt. II § 14. Further, the Lease states that each accelerated sum shall have a discounted or present value "computed at 6% per annum." Id. Pt. II, § 15. Sony Financial accelerated the sums due pursuant to Part II § 14 of the Lease on March 13, 2003, the same date it filed its complaint in this matter. Manzo Aff. ¶ 7. The sum of the payments that Multi Video failed to pay from December 2001, when it was obligated to begin making payments, until the last payment missed prior to acceleration was $759,470.70. See id. Taking into consideration Sony Financial's right to accelerate under the Lease, the value of the sums that became due at the time the complaint was filed is $2,005,269.65. Id. ¶ 8. In addition, the Lease provides for collection charges in the event a payment is missed. Lease Pt. II § 12. The sum of the collection charges owed to Sony Financial through the date of acceleration was $172,146.69. Manzo Aff. ¶ 9. The sum of all damages calculated under the Lease is $2,936,887.04. Id. ¶ 10. Under the terms of both the Lease and the guaranties, Sony Financial is also entitled to attorneys' fees. Sony Fin. 56.1 ¶¶ 55-56.

  B. The Claims and Motion in the Sony Electronics Action

  In the Sony Electronics action, Multi Video has asserted a breach of contract claim against Sony Electronics, contending that Sony Electronics breached what it terms a "Beta Test Site Agreement" (also referred to herein as a "BTSA") by failing to appropriately service the Vialta Telecine video editing equipment, which Multi Video alleges never functioned as it was supposed to. See Complaint ¶¶ 29-33.

  On March 15, 2004, Sony Electronics filed a motion to dismiss or, in the alternative, for summary judgment in the Sony Electronics action. Notice of Motions to Dismiss or for Summary Judgment, filed March 15, 2004 (Docket #5 in 1321). Because, following briefing on this motion, both parties indicated that further discovery might be necessary, this Court denied Sony Electronics' motion without prejudice to re-filing the motion following the completion of discovery on August 10, 2004. See Report and Recommendation, dated August 9, 2004 (Docket #13 in 1321), at 3-4, 7, adopted by Order, filed Sept. 8, 2004 (Docket #24 in 1321). On September 1, 2004, Sony Electronics filed the instant motion to dismiss or, in the alternative, for summary judgment. Sony Elec. Notice of Motion at 1-2. The central dispute raised by the motion is whether the SSA governs the relationship between Sony Electronics and Multi Video with respect to Multi Video's claims in this case. Multi Video, in opposing Sony Electronics' motion, relies entirely upon the agreement it refers to as the "Beta Test Site Agreement," which it describes as "encompass[ing] the various writings, agreements and representations surrounding Sony Electronics' installation and lease . . . of certain Telecine and other editing equipment to Multi Video for use in its post-production and video editing business." Multi Video Group Ltd. and Rhinoceros Visual Effects & Design, LLC's Memorandum of Law in Opposition to Motions to Supplement the Record, or to Dismiss, Transfer, or for Summary Judgment, filed Sept. 29, 2004 (Docket #26 in 1321) ("MV Sony Elec. Mem."), at 1, 10. Multi Video maintains that the SSA and the Lease with Sony Financial were merely "preliminary" agreements entered into prior to entering into the overarching BTSA, which it asserts is the "governing agreement" between the parties. Id. at 10.

  In contrast, Sony Electronics maintains that there is no "enforceable contract for the provision of the equipment by Sony Electronics other than the [SSA] itself." Memorandum of Law in Support of Motions to Supplement the Record, or to Dismiss, Transfer or for Summary Judgment, filed Sept. 1, 2004 (Docket #23 in 1321) ("Sony Elec. Mem."), at 20. In other words, Sony Electronics contends that the SSA is not "part of" a larger, more "overarching" enforceable contract. Id. Rather, Sony Electronics relies entirely upon the SSA, arguing that "[t]he evidence shows that the [SSA] is the written, integrated contract by which Sony Electronics agreed to install the equipment that is the subject of Multi Video['s] . . . claim." Id. at 13. According to Sony Electronics, regardless of whether or not the BTSA exists, the provisions of the SSA, including its forum selection clause, apply to Multi Video's breach of contract claim and require that this action be dismissed. See id. at 20.

  Thus, Sony Electronics has now moved to dismiss Multi Video's complaint on the ground that the forum selection clause contained in the SSA required that the instant action be brought in either a federal or state court in California. See SSA § 21(g); Sony Elec. Notice of Motion at 2. Alternatively, Sony Electronics seeks to transfer the instant action to the United States District Court for the Northern District of California pursuant to 28 U.S.C. § 1406(a) on the same grounds. Sony Elec. Notice of Motion at 2. Sony Electronics has also moved for summary judgment on the grounds that under the SSA, Multi Video's claims are time-barred and its remedies are limited. See SSA §§ 17, 19; Sony Elec. Notice of Motion at 2. Because Sony Electronics' motion for summary judgment may be resolved based on the applicability of the SSA's forum selection clause alone, it is unnecessary to reach Sony Electronics' contractual-limitations-period and limitation-of-remedies arguments.

  C. The Claims and Motion in the Sony Financial Action

  In the Sony Financial action, Sony Financial alleges that Multi Video breached the Lease by failing to make all requisite payments. See Amended Complaint, filed Mar. 26, 2003 (Docket #7 in 1730), ¶¶ 24-26. In its amended complaint, Sony Financial also alleged that Rhinoceros and Cool Beans breached their guaranties by not making payments on the Lease when Multi Video failed to do so. See id. ¶¶ 31-34. On August 31, 2004, Sony Financial moved for summary judgment with respect to its claims against Multi Video, Rhinoceros and Cool Beans. See Sony Fin. Notice of Motion at 1-2. In response to Sony Financial's motion for summary judgment, Multi Video "disputes that the Master Lease is the governing agreement between the parties." MV Sony Fin. 56.1 ¶ 1. Rather, according to Multi Video, the Lease was "merely ancillary" and "[was] not to have any legal effect" until after the beta test was successfully completed. Multi Video Group Ltd., Rhinoceros Visual Effects & Design, LLC and Cool Beans Digital Audio, Inc.'s Memorandum of Law in Opposition to Plaintiff's Motion for Summary Judgment, filed Sept. 29, 2004 (Docket #76 in 1730) ("MV Sony Fin. Mem."), at 2. According to Multi Video, "neither the Lease, the equipment schedule nor the guaranties govern the agreement between the parties as the [L]ease was only to govern a prospective sale in the event the beta test proved successful." MV Sony Fin. 56.1 ¶ 16. Multi Video contends that the successful completion of the beta test was a condition precedent to the Lease's applicability, see id. ¶ 1, and that the beta test failed because Sony Electronics "was never able to render the equipment in dependable and consistent working condition," id. ¶ 24. According to Multi Video, therefore, it justifiably never commenced payment on the Lease for the Telecine Suite "because the beta test did not prove successful." Id. ¶ 48.

  II. APPLICABLE LEGAL PRINCIPLES

  A. Sony Electronics' and Sony Financial's Motions

  As noted, Sony Electronics has moved to dismiss Multi Video's complaint pursuant to Fed.R.Civ.P. 12(b)(1) and Fed.R. Civ. P. 12(b)(3) in part on the ground that the forum selection clause contained in SSA § 21(g) required that the instant action be brought in either a federal or state court in California. Sony Elec. Notice of Motion at 1-2.*fn3 Alternatively, Sony Electronics has moved to transfer the instant action to the United States District Court for the Northern District of California pursuant to 28 U.S.C. § 1406(a) on the same ground. Sony Elec. Notice of Motion at 2. Given that Sony Electronics has moved in the alternative under Fed.R.Civ.P. 56 and that both parties have followed the procedures governing such motions, the Court will treat this motion as one for summary judgment.

  In the Sony Financial action, Sony Financial has moved for an order granting summary judgment on its claims against Multi Video, Rhinoceros and Cool Beans. See Sony Fin. Notice of Motion at 1-2. Sony Financial also seeks a judgment "declaring that it is entitled to attorney[s'] fees and costs" pursuant to the terms of the agreements at issue and that it be permitted to present proof of such fees and costs. Id. at 2.

  B. Law Governing Motions for Summary Judgment

  Fed.R.Civ.P. 56(c) provides that summary judgment is appropriate "if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." See also Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986). A material issue is a "dispute? over facts that might affect the outcome of the suit under the governing law." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). A genuine issue of material fact exists "if the evidence is such that a reasonable jury could return a verdict for the nonmoving party." Id. Thus, "`[a] reasonably disputed, legally essential issue ...


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