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BASQUIAT v. SAKURA INTERNATIONAL

July 5, 2005.

GERARD BASQUIAT, as Administrator, of the Estate of Jean-Michel Basquiat, Deceased, Plaintiff,
v.
SAKURA INTERNATIONAL, Defendant.



The opinion of the court was delivered by: GERARD E. LYNCH, District Judge

OPINION AND ORDER

Plaintiff, Gerard Basquiat, Administrator of the Estate of Jean-Michel Basquiat ("Basquiat"), brings this common-law fraud action against Sakura International ("Sakura"). Plaintiff alleges that he was fraudulently induced into signing and renewing a licensing agreement based on certain misrepresentations made by defendant about its distribution networks and past royalty payments. Defendant now moves for summary judgment against plaintiff, arguing that the record demonstrates that it did not make these representations, and even if it had, that plaintiff could not have reasonably relied on the statements. The Court held oral argument on the summary judgment motion on May 4, 2005. The motion will be granted in part and denied in part.*fn1 BACKGROUND

  On May 22, 2002, Gerard Basquiat, Administrator of the Estate of Jean-Michel Basquiat, a critically-acclaimed artist who died at a young age, entered into a license agreement ("Initial Agreement") with Sakura, a Japanese company that predominantly does business in Southeast Asia. (Ideriha Aff. ¶ 1.) The Basquiat-Sakura relationship commenced when Taro Ideriha, President and Chief Executive Officer of Sakura, requested that Ulrick Trojaborg, an employee of the Estate of Keith Haring ("Haring Estate"), contact Basquiat's agent, David Stark, director of the Art Media Group, a licensing and merchandising company. (Trojaborg Aff. ¶ 15.) Stark and Trojaborg knew each other from when they both worked at the Haring Estate, and Stark was also a member of the Board of Directors of the Haring Foundation. (Trojaborg Aff. ¶ 9.) Sakura was a licensee of the Haring Estate.

  At the initial meeting in October 2001, Stark and Greg Irikura, an attorney with Art Media Group, represented Basquiat. Trojaborg and Ideriha represented Sakura. (Stark Tr. 28.) The Sakura representatives expressed interest in exhibiting Jean-Michel Basquiat's artwork and licensing his artwork for use in merchandise. (Irikura Decl. ¶ 3.) Basquiat contends that he relied on two statements made by Sakura at the meeting. First, the Sakura representatives stated that Sakura did not pay royalties to any of their licensors. (Compl. ¶ 8.) Ideriha explained that Sakura did not have an accounting system in place that would accommodate royalty payments (Irikura Decl. ¶ 6), but Basquiat later learned that the Haring Estate had received royalties through a licensing agreement with Sakura. Second, Basquiat claims Sakura declared that it only sold its product through small boutiques, and had a distribution similar to Basquiat's other licensees, Gingham and Fotofolio, who also do business in Japan. (Compl. ¶ 8; D. Mem. 5.) Basquiat later discovered that Sakura sold much larger quantities of merchandise.

  Sakura agreed to pay Basquiat a flat fee of $100,000 in return for the right to reproduce thirty-six Basquiat artworks on certain articles of clothing, such as T-shirts. (D. Mem. Ex. B; Ideriha Aff. ¶¶ 2-3.) At the time, Basquiat believed that Sakura did not expect to make large profits from the sale of the clothing, and viewed the payment a marketing expense for Sakura, as Jean-Michel Basquiat's art would bring cachet to the company (Irikura Decl. ¶ 5). Defendant asserts that all parties understood the fee to be high because the license was viewed as an investment by Ideriha. (Trojaborg Decl. ¶ 23.) The term of the Initial Agreement commenced on July 1, 2002, and continued through December 31, 2003. The contract also contained an accounting provision, whereby Sakura would provide a financial statement every six months regarding the number of products sold. The Initial Agreement also included an option for Sakura to renew the license agreement with Basquiat. (See D. Mem. Ex. B ¶ 4, 11.)

  In the fall of 2003, the parties discussed renewing the licensing agreement. On behalf of Basquiat, Stark requested overdue accountings required by the licensing agreement, but did not receive them. Basquiat contends that Stark asked Trojaborg whether there had been any material changes in Sakura's business arrangements, and was told that there were none. (P. Mem. 2; Stark Tr. 68.) Sakura intended to exercise its option to renew the licence agreement, but since it sought to modify the agreement to include "polo shirts" as a permissible product, the parties renegotiated an enhanced $120,000 flat fee. (D. Mem. Exs. B, D.) Despite not having received any accountings from Sakura, Basquiat signed the renewed agreement ("Renewal Agreement") on September 22, 2003. The term of the Renewal Agreement commenced on January 1, 2004, and continued through June 30, 2005. (D. Mem. Ex. D.)

  On December 16, 2003, Basquiat received the first accounting from Sakura. Basquiat contends that it was only then that he learned for the first time that Sakura had sold over one million units of Basquiat-licensed clothing, primarily through Uniqlo, a Japanese clothing chain analogous to The Gap, with over 600 stores. (P. Mem. 3; see Stark Decl. Ex. F.) Sakura contends, however, that Basquiat had long been aware of the distribution to Uniqlo because Basquiat had earlier pre-approved images to be displayed on Basquiat T-shirts to be sold in Uniqlo stores. (Trojaborg Aff. ¶¶ 38-43; see D. Mem. Exs. F-J.)

  Basquiat claims that if a standard royalty rate had been included in the agreement, Basquiat would have received over $1 million in total (compared to $220,000 in flat fee payments). (Stark Decl. ¶ 10.) Basquiat subsequently filed suit in this Court.

  DISCUSSION

  I. Legal Standard

  Summary judgment must be granted where "there is no genuine issue as to any material fact and . . . the moving party is entitled to a judgment as a matter of law." Fed.R.Civ.P. 56(c). A fact is "material" if it "might affect the outcome of the suit under the governing law," and an issue of fact is genuine where "the evidence is such that a reasonable jury could return a verdict for the nonmoving party." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). On a motion for summary judgment, the evidence must be viewed in the light most favorable to the nonmoving party, and the Court must resolve all ambiguities and draw all reasonable inferences in its favor. Id. at 255; Cronin v. Aetna Life Ins. Co., 46 F.3d 196, 202 (2d Cir. 1995). To defeat summary judgment, however, the nonmoving party "must do more than simply show that there is some metaphysical doubt as to the material facts." Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586 (1986). "[C]onclusory allegations or unsubstantiated assertions" will not suffice. Scotto v. Almenas, 143 F.3d 105, 114 (2d Cir. 1998). Rather, the nonmoving party must "set forth specific facts showing that there is a genuine issue for trial." Fed.R.Civ.P. 56(e). See Matsushita, 475 U.S. at 587 ("Where the record taken as a whole could not lead a rational trier of fact to find for the non-moving party, there is no genuine issue for trial.") (internal quotation marks omitted).

  To state a claim for fraud under New York law, plaintiff must show that: (1) the defendant made a material false representation; (2) the defendant intended to defraud the plaintiff; (3) the plaintiff reasonably relied upon the representation; and (4) the plaintiff suffered damage as a result of such reliance. Eternity Global Master Fund, Ltd. v. Morgan Guar. Trust Co. Of N.Y., 375 F.3d 168, 186-87 (2d Cir. 2004). The party alleging fraud must also satisfy the requirements of Fed.R.Civ.P. 9(b), which provides that plaintiff must: (1) specify the statements that were fraudulent; (2) identify the speaker; (3) state where and when the statements were made; and (4) explain why the statements were fraudulent. Acito v. IMCERA Group, 47 F.3d 47, 51 (2d Cir. 1995).

  II. The Initial Agreement

  Plaintiff alleges that he was fraudulently induced into a licensing agreement with Sakura, and that Sakura made two false representations during the negotiations for the Initial Agreement: (1) that Sakura had never entered a royalty-based licensing agreement; and (2) that Sakura had only sold to small retail boutiques similar to Basquiat's other Japanese licensees, Gingham and Fotofolio. Plaintiff presents evidence, which Sakura does not dispute, that Sakura had in fact paid royalties to one artist, the Haring Estate. Plaintiff also contends that Sakura's distribution was not small, pointing to evidence of their substantial sales to Uniqlo, a large clothing store chain in Japan.*fn2 Plaintiff argues that defendant had a duty to disclose the truth of its royalty arrangements with ...


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