The opinion of the court was delivered by: Hon. Harold Baer, Jr., United States District Judge
Plaintiff Gayle Martz Inc. ("GMI" or "Plaintiff") brought this action on October 27, 2008 for trademark infringement and dilution, breach of contract and breach of fiduciary duty against Defendants Sherpa Pet Group LLC ("SPG"), Tim R. Ford ("Ford") and Kevin T. Sheridan ("Sheridan") (collectively, "Defendants"), who acquired the GMI business and obtained licenses to use the SHERPA trademarks.*fn1 Defendants filed an answer and third-party complaint, joining Gayle Martz ("Martz"), the owner of GMI, and Sam J. Nole ("Nole"), GMI's accountant (collectively "Third-Party Defendants"), that asserted claims for professional malpractice, fraudulent and negligent misrepresentation, breach of contract and tortious interference. Defendants also filed counterclaims against GMI for fraudulent misrepresentation, negligent misrepresentation,breach of contract and breach of the implied covenant of good faith and fair dealing. The parties have filed cross motions for partial summary judgment. Defendants seek summary judgment on all of GMI's claims against them; GMI seeks summary judgment on its claim for injunctive relief and Defendants' counterclaims; and the Third-Party Defendants seek summary judgment on all of Defendants' third-party claims. For the reasons set forth below, Defendants' motion for summary judgment is denied and the consolidated motion of GMI and the Third-Party Defendants for summary judgment is granted in part.
GMI is a company that designed, manufactured and sold travel products for pet owners. In connection with this business, GMI owns the SHERPA trademarks. In early 2007, GMI hired Ford and Sheridan as CEO and CFO, respectively. Martz then decided that she wanted to sell GMI, but that she wanted to remain involved in public relations and marketing for the business. She negotiated a transaction with Ford and Sheridan whereby a new company, SPG, would be formed to take over GMI's daily operations, and would license the right to use the SHERPA trademarks. The crux of the transaction was that SPG was to acquire certain assets and assume certain liabilities, and to the extent the value of the assets exceeded the liabilities, SPG would pay for them withpromissory notes to GMI. Based on preliminary figures in March 2007, the purchase price was estimated at $500,000.
On March 30, 2007, the parties signed a Term Sheet that set forth the categories and values of the assets that SPG would acquire, and the categories and values of the liabilities it would assume. The Term Sheet stated that "[a]ll dollar amounts... are as of 12/31/06 and will be adjusted to reflect the actual balances at the time of closing." Defendants assert that they later learned that the values for assets and liabilities that they obtained from GMI's accounting system, on which they based their calculation of the purchase price, were materially inaccurate and materially overstated the value of GMI's assets by at least $1 million.
The parties agreed that they would later execute more formal documents, and that final financial statements and supporting schedules would be completed at a later date. On April 27, 2007,documents (the "Transaction Documents") that would effectuate the transfer of assets and liabilities, the license of the right to use the SHERPA trademarks and brand name, and define the relationship between Martz and SPG going forward were signed. At that time, the financial statements and schedules that were to accompany the Transaction Documents had not yet been completed. Even so, the parties executed what they characterize as the "most significant" of the Transaction Documents, the Asset Purchase Agreement ("APA"), which delineated the details of SPG's acquisition of GMI's assets and assumption of its liabilities and provided for a purchase price of $520,000 to be paid by three separate promissory notes to GMI.*fn2 Throughout the APA, reference was made to certain schedules that purportedly would set forth the "specific items" that would comprise the assets and liabilities that were subject to the parties' agreement; however, the schedules were largely blank or incomplete. Defendants argue that the parties agreed that the schedules would be completed by GMI before SPG's obligation to pay the purchase price would arise; however, GMI contends that to complete the schedules would have been a ministerial act that was wholly within the purview of the Defendants. The schedules were never completed, nor were the April 30, 2007 financial statements that were expressly referenced in the APA. Plaintiff contends that the financial statements could not be completed because Defendants refused to turn over books and records that would have been necessary to finalize the financial statements; Defendants, on the other hand, maintain that they turned over a copy of the entire accounting system and did not prevent GMI or its accountant from obtaining any information.*fn3
The Transaction Documents included a Product License Agreement ("PLA") that sets out the terms and conditions of SPG's right to use the SHERPA trademarks on their pet travel products and a Brand License Agreement ("BLA") that sets out the terms and conditions of SPG's use of the Sherpa brand name. Each of the license agreements was for a term of 99 years and granted to SPG an exclusive license to use the Sherpa name and SHERPA trademarks. The PLA and BLA both provided for termination upon thirty days' notice in the event of a material breach of any provision, term or condition in the agreements by SPG. Upon termination, SPG was to cease using the marks and/or brand name "as soon as is commercially feasible." The PLA and BLA provided for royalty fees to be paid to GMI and required SPG to submit to GMI written monthly reports that summarized the total net sales of products sold for that month, along with the corresponding royalty payments owed to GMI.
In approximately May 2008, Defendants ceased making any payments to GMI, including interest payments on the promissory notes or royalty payments under the PLA and BLA. They also ceased to produce to GMI the sales reports they were obligated to provide under the PLA and BLA. As a result, on September 12, 2008, GMI sent a letter to SPG giving notice of its intent to terminate the PLA and BLA, stating that the agreements would terminate thirty days from the date of the letter. Defendants made no attempt to cure their default, and continued to use the SHERPA trademarks and brand name following the official termination of the agreements in October 2008.
II. LEGAL STANDARD ON MOTION FOR SUMMARY JUDGMENT
A motion for summary judgment must be granted if the moving party shows "there is no genuine issue as to any material fact" and it "is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(c). In considering a motion for summary judgment, the Court must view the evidence in the light most favorable to the non-moving party. See Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255 (1986). Summary judgment should be granted "against a party who fails to make a showing sufficient to establish the existence of an element essential to that party's case, and on which that party will bear the burden of proof at trial." Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986). In showing the existence of a genuine issue of material fact, "the non-moving party may not rely on mere conclusory allegations nor speculation, but instead must offer some hard evidence showing that its version of the events is not wholly fanciful." Golden Pac. Bancorp v. F.D.I.C., 375 F.3d 196, 200 (2d Cir. 2004); see also Matsushita Elec. Industrial Co. v. Zenith Radio Corp., 475 U.S. 574, 586-87 (1986) (finding party opposing summary judgment "must do more than simply show that there is some metaphysical doubt as to the material facts"). Rather, he "must come forward with evidence sufficient to allow a reasonable jury to find in [his] favor." Brown v. Henderson, 257 F.3d 246, 252 (2d Cir. 2001); see also Fed. R. Civ. P. 56(e) ("When a motion for summary judgment is made and supported as provided in [the] rule,... the adverse party's response... must set forth specific facts showing that there is a genuine issue for trial.") (emphasis added). The facts must be presented in a form that would be admissible at trial. Major League Baseball Props., Inc. v. Salvino, Inc., 542 F.3d 290, 309 (2d Cir. 2008). Even if the parties dispute material facts, summary judgment must be granted "unless there is sufficient evidence favoring the nonmoving party for a jury to return a verdict for that party." Id.
III. DEFENDANTS' MOTION FOR SUMMARY JUDGMENT
1. Parties' Intent Regarding a Purchase Price Adjustment
Defendants' main argument in support of their motion for summary judgment is that they cannot be liable for their failure to pay the purchase price under the APA (and, presumably, for their failure to pay on the promissory notes) because their payment obligation never arose. Specifically, Defendants argue that, as evidenced by the Term Sheet and other pre-APA negotiations among the parties, the parties' intent was to adjust the purchase price after the financial statements were finalized and the schedules to the APA were updated. In sum, Defendants contend that the parties intended that the adjustment of the purchase price, as based on the schedules and financial statements, was a condition precedent to their payment obligation under the APA. GMI argues principally that the parties' intent should be gleaned from the APA without regard to extrinsic evidence, and the APA nowhere contains language relating to a readjustment of the purchase price. Rather, GMI's position is that the APA shows the parties' intent that the purchase price stated in the agreement would be paid, and all assets would be acquired and all liabilities assumed, without any adjustment after the closing. GMI also contends that, although it is clear from the unambiguous language of the APA that the completion of the financial statements was intended to be a condition precedent, Defendants cannot rely on the failure of that condition because they acted to prevent its completion.
Under New Jersey law,*fn4 the Court's goal in interpreting a contract is "to ascertain the intention of the parties." Driscoll Constr. Co., Inc. v. New Jersey, 371 N.J. Super. 304, 313 (App. Div. 2004). In determining that intent, courts are instructed to "consider many factors, including the document itself and the surrounding circumstances." K. Woodmere Assocs., L.P. v. Menk Corp., 316 N.J. Super. 306, 316 (App. Div. 1998). The interpretation or construction of a contract is usually a legal question for the court that is suitable for a decision on summary judgment; however, "where there is uncertainty, ambiguity or the need for parol evidence in aid of interpretation, then the doubtful provision should be left to the jury." Id. at 313-314; Great Atl. & Pac. Tea Co., Inc. v. Checchio, 335 N.J. Super. 495, 502 (App. Div. 2000); see also Jaasma v. Shell Oil Co., 412 F.3d 501, 507 (3d Cir. 2005) (applying New Jersey Law). New Jersey takes an expansive view on the parol evidence rule, and allows consideration of extrinsic evidence to help ascertain the parties' intent, even when the contract is unambiguous. E.g., Checchio, 335 N.J. Super. at 501 (quoting Atlantic N. Airlines, Inc. v. Schwimmer, 12 N.J. 293 (1953)); Dontzin v. Myer, 301 N.J. Super. 501, 507 (App. Div. 1997). Indeed, as the New Jersey Supreme Court recently held, courts are permitted "a broad use of extrinsic evidence" to "uncover the true meaning of contractual terms." Conway v. 287 Corp. Ctr. Assocs., 187 N.J. 259, 270 (2006). However, extrinsic evidence may not be used to contradict or vary an otherwise unambiguous contract. E.g., id.; Dontzin, 301 N.J. Super. at 507.
In this case, the APA states a specific purchase price of $520,000 and also makes explicit reference to certain schedules that were to contain the "specific" assets to be acquired and liabilities to be assumed. Defendants assert that, once the Court views the totality of the circumstances, including extrinsic evidence such as the Term Sheet, it is clear that the parties intended to adjust the stated purchase price once the schedules were finalized. Although GMI argues that the language of the contract setting forth the purchase price and the lack of a provision for readjustment are unambiguous, this contention alone does not preclude the Court from consulting extrinsic evidence to determine the parties' intent, so long as that extrinsic evidence does not work to vary or contradict the terms of the contract. See Conway, 187 N.J. at 270; Checchio, 335 N.J. Super. at 501.
GMI also contends that consideration of extrinsic evidence is precluded due to an integration clause in the APA.*fn5 Defendants, relying on Garden State Plaza Corp. v. S.S. Kresge Co., 78 N.J. Super. 485 (App. Div. 1963), argue that the integration clause must be ignored, as they are considered under New Jersey law to be void as contrary to public policy. Defendants appear to misinterpret the holding of Garden State in this regard. In that case, the court considered the effect of an integration clause that, among other things, precluded the consideration of "previous negotiations, arrangements, agreements and understandings... [to] be used to interpret or construe this lease." The court found that this clause, if given effect, would forbid the use of any negotiation materials in construing the lease. Garden State, 78 N.J. Super. at 500. Thus, the court found in effect that the integration clause, if given effect, would preclude it from considering extrinsic evidence to determine the intent of the parties, which runs contrary to established New Jersey law, as discussed above. The merger clause at issue in this case, on the other hand, does not expressly preclude the Court from following New Jersey's law with respect to the consideration of extrinsic evidence to determine intent with respect to the APA, it merely precludes the Court from considering any different or contradictory agreements prior to the execution of the APA. Although the difference is subtle, it is significant here. Indeed, this result is buttressed by the fact that numerous courts have found, post-Garden State, that merger clauses may be considered in determining the parties' intent in drafting a contract. See, e.g., S. Megga Telecommc'ns Ltd. v. Lucent Techs., Inc., No. 96-357-SLR, 1997 U.S.Dist. LEXIS 2312, at *22-23 (D.N.J. Feb. 14, 1997); In re Steel Wheels Transport, LLC, No. 06-15377 (DHS), 2009 Bankr. LEXIS 998, at *13 (D.N.J. Bankr. Jan. 29, 2009).
However, GMI's contention that the merger clause is conclusive evidence that the contract is fully integrated likewise does not comport with the case law. Although courts applying New Jersey law have taken different approaches to the question of whether an integration clause such as the one at issue in this case precludes entirely the consideration of extrinsic evidence, it appears that the majority approach is that "[a]lthough a contract with a merger clause is strong evidence that the parties intended the writing to be the complete and exclusive agreement between them, it is not dispositive." S. Megga, 1997 U.S. Dist. LEXIS 2312 at *22-23. Moreover, the existence of an integration clause "alone does not change the determination of whether ambiguous language exists." In re Steel Wheels, 2009 Bankr. LEXIS 998 at *13.
Here, although there is an integration clause, express reference to schedules that were left blank creates an inherent ambiguity as to the parties' intent with respect to the purchase price to be paid under the APA. When the extrinsic evidence is viewed with an eye toward understanding the parties' intent, in conjunction with the existence of blank schedules that were referred to in the APA as containing the "specific" assets and liabilities that were the subject of the parties' agreement, there is a genuine question of material fact as to whether the parties might have intended that the purchase price would be readjusted under an updated valuation of assets and liabilities, which were to be included on the schedules and the completed financial statements. As a consequence, there is a genuine issue of material fact as to whether the parties intended that the completion of the APA schedules was to be a condition precedent to Defendants' payment obligation under the APA.*fn6 Anotherissue of material fact iswhose responsibility it was to complete the ...