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Teevee Toons, Inc. v. Gerhard Schubert GMBH

August 22, 2006

TEEVEE TOONS, INC. (D/B/A TVT RECORDS) & STEVE GOTTLIEB, INC. (D/B/A BIOBOX), PLAINTIFFS,
v.
GERHARD SCHUBERT GMBH, DEFENDANT.



The opinion of the court was delivered by: Richard Conway Casey, United States District Judge

MEMORANDUM & ORDER

TeeVee Toons, Inc. and its affiliate Steve Gottlieb, Inc. ("Plaintiffs") brought this action against Gerhard Schubert GmbH ("Schubert"), claiming that Schubert improperly manufactured a packaging system commissioned by TeeVee Toons, Inc. ("TVT") and alleging breach of contract, fraud, and negligence. Schubert moves for an order granting summary judgment in Schubert's favor on Plaintiffs' claims. For the following reasons, Schubert's motion is GRANTED in part and DENIED in part.

I. BACKGROUND

In the early part of the 1990s, TVT record-company president and founder Steve Gottlieb ("Gottlieb") invented and patented a biodegradable-cardboard "flip-top" packaging called the "Biobox," which was designed to provide a secure, environmentally friendly way to package audio and video cassettes. (See United States Patent 5,361,898.) In 1994, Gottlieb began searching for a company that could develop a system capable of mass-producing the Biobox, and he settled on the German firm Schubert. At the time, Schubert marketed its products in the United States through an exclusive agency agreement with Rodico, Inc. ("Rodico"), a New Jersey--based company.

After protracted negotiations, TVT and Schubert entered into a written contract in February 1995 for Schubert to build a Biobox-production system ("February 1995 Quotation Contract"). Shortly thereafter, problems started accumulating. First, Schubert experienced delays that set the project back nearly two years. In 1997, when the Biobox-production system ("Schubert System") was finally finished and delivered to Cinram, Inc. ("Cinram")-the production facility in Richmond, Indiana that TVT had contracted with-the system malfunctioned frequently and severely.

Eventually, upset with the lack of progress made in curing the Schubert System's defects, TVT and its affiliate Steve Gottlieb, Inc. ("SGI") commenced this action in July 2000, asserting various contract and tort claims and claiming that they suffered millions of dollars in damages, including money paid to Schubert for the system and repairs, money spent on other technicians and equipment to try to fix or replace components, money spent to set up its production facility, money that will have to be spent to replace the facility, money spent on administration of the Biobox project, and lost profits. On March 28, 2002, the Court denied Schubert's motion to dismiss Plaintiffs' Complaint. TeeVee Toons, Inc. v. Gerhard Schubert GmbH, No. 00 Civ. 5189 (RCC), 2002 WL 498627, at *9 (S.D.N.Y. Mar. 29, 2002). Schubert now moves for an order granting summary judgment in Schubert's favor on Plaintiffs' contract and tort claims.

II. DISCUSSION

A. Summary Judgment Standard of Review

Summary judgment may be granted only "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." Fed. R. Civ. P. 56(c). Issues of fact are "genuine" when "the evidence is such that a reasonable jury could return a verdict for the nonmoving party," and such contested facts are "material" to the outcome of the particular litigation if the substantive law at issue so renders them. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). A court will grant summary judgment only when the non-movant "has failed to make a sufficient showing on an essential element of [its] case with respect to which [it] has the burden of proof." Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). When viewing the evidence, a court must assess the record in the light most favorable to the non-movant, resolving all ambiguities and drawing all reasonable inferences in that party's favor. Delaware & Hudson Ry. Co. v. Consol. Rail Corp., 902 F.2d 174, 177 (2d Cir. 1990). In particular,"[i]f, as to the issue on which summary judgment is sought, there is any evidence in the record from any source from which a reasonable inference could be drawn in favor of the nonmoving party, summary judgment is improper." Chambers v. TRM Copy Ctrs. Corp., 43 F.3d 29, 37 (2d Cir. 1994). Only when it is apparent that "no rational [trier of fact] could find in favor of the nonmoving party because the evidence to support its case is so slight" may a court grant summary judgment. Gallo v. Prudential Residential Servs., Ltd. P'ship, 22 F.3d 1219, 1223-24 (2d Cir. 1994); see also Anderson, 477 U.S. at 242-43 (noting that the role of the district court at the summary judgment stage is "not . . . to weigh the evidence and determine the truth of the matter but to determine whether there is a genuine issue for trial").

B. Lack of Standing by Plaintiff Steve Gottlieb, Inc.

Although Schubert does not dispute that TVT has standing for the claims asserted in Plaintiffs' Complaint, Schubert contends that SGI lacks standing for each of the claims. A plaintiff without standing cannot maintain an action. See Warth v. Seldin, 422 U.S. 490, 498 (1975) (noting that the doctrine of standing addresses the question of "whether the [plaintiff] is entitled to have the court decide the merits of the dispute or of particular issues"). The doctrine of standing involves both constitutional and prudential considerations. For the following reasons, the Court agrees with Schubert that SGI lacks standing to maintain any of the claims in the Complaint, and grants Schubert's motion for summary judgment as against SGI.

The constitutional basis for the standing requirement derives from Article III of the United States Constitution, which instructs that the judicial power extends only to cases or controversies, U.S. Const. art. III, § 2, and requires (1) that a plaintiff have suffered an "injury in fact" (an actual or imminent invasion of a concrete and particularized "legally protected interest") (2) that is fairly traceable to the challenged action of the defendant and (3) will likely be redressed by the requested relief, Lujan v. Defenders of Wildlife, 504 U.S. 555, 560-61 (1992).

Even if a plaintiff satisfies the constitutional requirements of standing, "a court may nevertheless deny standing for prudential reasons." Lamont v. Woods, 948 F.2d 825, 829 (2d Cir. 1991). Prudential considerations, which are not mandated by Article III but nevertheless act as "rules of judicial 'self-restraint,' . . . suggest that a plaintiff generally may not rest his claim on the legal rights of a third-party." Sullivan v. Syracuse Hous. Auth., 962 F.2d 1101, 1106 (2d Cir. 1992) (citations omitted); see also Wight v. Bankamerica Corp., 219 F.3d 79, 86 (2d Cir. 2000) ("Foremost among the prudential requirements is the rule that a party must 'assert his own legal rights and interests, and cannot rest his claim to relief on the legal rights or interests of third parties.'" (quoting Warth, 422 U.S. at 499)).

In determining SGI's standing to assert the claims presented in the Complaint, the Court recognizes that it must "accept as true all material allegations of the complaint, and construe the complaint in favor of the complaining party," Warth, 422 U.S. at 501, but also that it may consider such other facts and circumstances as may be evident from the record, Gladstone Realtors v. Bellwood, 441 U.S. 91, 110 n.22 (1979).

1. Lack of Standing by Steve Gottlieb, Inc. on the Breach-of-Contract Claims

SGI lacks standing to assert the breach-of-contract claims in the Complaint-which all center on the written February 1995 Quotation Contract entered into between TVT and Schubert for the Schubert System-because SGI lacks a "legally protected interest" in the February 1995 Quotation Contract such that the injury-in-fact requirement of Article III standing is not met. (See, e.g., Compl. ¶ 24 (asserting that the February 1995 Quotation Contract was "between TVT and Schubert"); id. ¶¶ 64, 68 (alleging that "TVT and Schubert entered into a valid contract for the design, construction and delivery of a Biobox production system" but that "[t]he Biobox production system that Schubert delivered to the plaintiffs did not conform with the parties' contract").)

As a general rule, absent status as an intended third-party beneficiary, one may sue on a contract only if one is a party to that contract. 3 Farnsworth, Farnsworth on Contracts § 10.1 (2d ed. 2001); Cauff, Lippman & Co. v. Apogee Fin. Group, Inc., 807 F. Supp. 1007, 1020 (S.D.N.Y. 1992) ("A person who is not a party to the contract may bring an action for breach of contract if she or he is an intended beneficiary, and not merely an incidental beneficiary of the contract."); see also Bochese v. Town of Ponce Inlet, 405 F.3d 964, 981 (11th Cir. 2005) (holding that a plaintiff, a non-party to the contract at issue, failed to establish Article III standing to sue to enforce the contract because he was not "an intended third-party beneficiary of the rescinded agreement").

Plaintiffs do not directly allege in their Complaint, and the record does not suggest, that SGI was a party to the February 1995 Quotation Contract. The indisputable evidence demonstrates that SGI did not exist as a corporation until 1997, well after the formation of the February 1995 Quotation Contract. Secretary of State records indicate that SGI was incorporated in Delaware in September 1997 and authorized to do business in New York and Indiana in October 1997. (See Bennett Decl. Supp. Ex. A (Delaware Certificate of Incorporation for SGI filed Sept. 29, 1997; New York State Dep't Record certifying that SGI filed an application for authority to do business in New York on Oct. 15, 1997; Indiana Sec'y State Record certifying that SGI filed for certificate of authority there on Oct. 17, 1997).) And SGI only "filed income tax returns starting with tax year 1997." (Bennett Decl. Supp. ¶ 11 (citing "documents produced by Plaintiffs").) Thus, SGI cannot be said to be a party to the February 1995 Quotation Contract because that document pre-existed SGI.

Further, SGI is not an intended third-party beneficiary to the February 1995 Quotation Contract. Because SGI did not exist at the time of contract formation, and because Schubert had no reason to anticipate SGI's creation, SGI cannot be such a beneficiary. See Mortise v. United States, 102 F.3d 693, 697 (2d Cir. 1996) (holding that a third party cannot be intended beneficiary if one of the contracting parties does not know of the third party's existence). And SGI cannot rest its contract claims on the legal rights and interests of TVT. See Warth, 422 U.S. at 499; Sullivan, 962 F.2d at 1106; Wight, 219 F.3d at 86. Because SGI is neither a party to the February 1995 Quotation Contract nor an intended third-party beneficiary to the Contract, SGI lacks a legally enforceable right in the contract at issue and therefore lacks Article III standing to assert the contract claims asserted in Plaintiffs' Complaint.

2. Lack of Standing by Steve Gottlieb, Inc. on the Negligence Claim

Because Plaintiffs' negligence claim is based on the February 1995 Quotation Contract between TVT and Schubert, SGI lacks standing to assert the negligence claim for the same reasons that SGI lacks standing to assert the breach-of-contract claims. Plaintiffs allege that Schubert failed to live up to the "duty to exercise the reasonable care and prudence that is customary in the high-speed packaging industry . . . [w]ith respect to the design, development, and manufacture of the Biobox system." (Compl. ¶¶ 108-109.) Plaintiffs' negligent-provision-of-contractual-services theory is, by its very terms, however, contractual in nature. Plaintiffs claim that "SGI is indisputably a proper plaintiff for the negligence action because some of the service and installation contracts created in 1997 and afterward were between [SGI] and Schubert," such that SGI has standing to assert negligence as related to those contracts. (See Pls.' Mem. Opp'n at 24.) But neither the Complaint nor the record make any mention of such "service and installation contracts," and for the aforementioned reasons, SGI lacks a legally protected interest in the February 1995 Quotation Contract and cannot rest its negligence claim on the legal rights or interests of TVT.

3. Lack of Standing by Steve Gottlieb, Inc. on the Fraud Claim

SGI lacks standing to assert the fraud claim (fraudulent inducement) at issue because the constitutional requirements of Article III standing are not met. Plaintiffs allege that Schubert fraudulently induced "TVT to rely on [Schubert's] representations, to enter into a contract with Schubert for the Biobox production system." (Compl. ¶ 103.) Plaintiffs' fraud claim requires, inter alia, that each plaintiff justifiably relied on the misrepresentations at issue. See Cofacredit, S.A. v. Windsor Plumbing Supply Co., 187 F.3d 229, 239 (2d Cir. 1999). There is no allegation in the Complaint that SGI directly relied on any misrepresentations by Schubert, all of which allegedly occurred before the August 1997 delivery of the Schubert System and before SGI came into existence. And because SGI did not exist at the time of the alleged misrepresentations, it cannot be said to have relied on them (justifiably or not), and thus it cannot be shown that SGI has suffered a concrete and particularized injury in fact. And, again, SGI cannot rest its fraudulent inducement claim on the legal rights or interests of TVT. See Warth, 422 U.S. at 499; Sullivan, 962 F.2d at 1106; Wight, 219 F.3d at 86.

Schubert's motion for summary judgment is therefore GRANTED to Schubert as against SGI on the ground that SGI lacks standing to assert the contract and tort claims asserted in Plaintiffs' Complaint. Plaintiffs request, in a footnote, that "in the event the Court dismisses SGI" as a plaintiff, as it now has, "that the Complaint be amended nunc pro tunc, pursuant to Fed. R. Civ. P. 21, to substitute Mr. Gottlieb, in his individual capacity, as party plaintiff to allow recovery for, inter alia, the decreased value of the Biobox patent." (Pls.'s Mem. Opp'n at 24 n.19.) Rule 21 of the Federal Rules of Civil Procedure provides that "[p]arties may be dropped or added by order of the court on motion of any party or of its own initiative at any stage of the action and on such terms as are just." Fed. R. Civ. Pro. 21. The Court declines. For one, Plaintiffs' suggestion that Gottlieb be substituted for SGI hardly cures the problem, as the February 1995 Quotation Contract was not with Gottlieb individually any more than it was with SGI. In addition, it would hardly be just to add Gottlieb as an individual plaintiff at this late date, well after the end of discovery, to require reopening discovery to permit inquiry, for example, into Gottlieb's personal involvement. Further, to require the additional time and resources would be, by Plaintiffs' own admission, unnecessary, as TVT, which remains a plaintiff in this action, is wholly owned by Gottlieb himself. (See Pls.' Mem. Opp'n at 24 (arguing that SGI "like TVT is 100% owned by Mr. Gottlieb himself").)

C. TVT's Contract Claims

1. Choice of Law

TVT's contract claims are governed by the United Nations Convention on Contracts for the International Sale of Goods, Apr. 11, 1980, S. Treaty Doc. No. 98-9 (1983), 1489 U.N.T.S. 3, 19 I.L.M. 668 (1980) ("CISG" or "Convention"), which "applies to contracts of sale of goods between parties whose places of business are in different States . . . when the States are Contracting States." CISG art. 1(1)(a), 19 I.L.M. at 672. TVT's place of business is in the United States (in New York) and Schubert's place of business is in Germany (in Crailsheim). Both the United States and Germany are contracting states. See United Nations Comm'n on Int'l Trade Law (UNCITRAL), Status: 1980 United Nations Convention on Contracts for the International Sale of Goods (2005), at http://www.uncitral.org/uncitral/en/uncitral_texts/sale_goods/1980CISG_status.html (last visited Aug. 16, 2006) (listing the parties to the CISG, including the United States and Germany); see also St. Paul Guardian Ins. Co. v. Neuromed Med. Sys. & Support, GmbH, No. 00 Civ. 9344 (SHS), 2002 WL 465312, at *3 (S.D.N.Y. Mar. 26, 2002) (noting that "both the U.S. and Germany are Contracting States" to the CSIG and that "Germany has been a Contracting State since 1991").

Further, none of the exceptions to CISG applicability is present. Article 2 of the CISG provides that the "Convention does not apply to sales: (a) of goods bought for personal, family or household use . . . ; (b) by auction; (c) on execution or otherwise by authority of law; (d) of stocks, shares, investment securities, negotiable instruments or money; (e) of ships, vessels, hovercraft or aircraft; [or] (f) of electricity." CISG art. 2, 19 I.L.M. at 672. None of the enumerated exceptions of Article 2 exists here. Article 3 provides that the "Convention does not apply in contracts in which the preponderant part of the obligations of the party who furnishes the goods consists in the supply of labour or services," CISG art. 3(2), 19 I.L.M. at 672, but "the preponderant part of the obligations" here pertains to the manufactured Schubert System, not labor or other services. Article 5's prohibition against CISG application to actions sounding in personal injury likewise does not block CISG application in this matter. See CISG art. 5, 19 I.L.M. at 673 ("This Convention does not apply to the liability of the seller for death or personal injury caused by the goods to any person."). Article 6 provides that "[t]he parties may exclude the application of this Convention or, subject to article 12, derogate from or vary the effect of any of its provisions," CISG art. 6, 19 I.L.M. at 673, but neither party chose, by express provision in the contract at issue, to opt out of the application of the CISG. See also Delchi Carrier SpA v. Rotorex Corp., 71 F.3d 1024, 1028 n.1 (2d Cir. 1995) (holding that when an "agreement is silent as to choice of law, the Convention applies if both parties are located in signatory nations" unless the parties have ...


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