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Marathon v. Creative Designs International

March 16, 2011

MARATHON PROJECTS LTD., PLAINTIFF,
v.
CREATIVE DESIGNS INTERNATIONAL, LTD. DEFENDANT.



The opinion of the court was delivered by: Robert P. Patterson, Jr., U.S.D.J.

OPINION AND ORDER

Plaintiff Marathon Projects Ltd. ("Marathon") moves for summary judgment on the Amended Complaint and dismissal of each counterclaim brought by Defendant Creative Designs International, LTD. ("CDI").

BACKGROUND

Plaintiff Marathon is a corporation organized under the laws of the State of New Jersey, whose principal place of business is in Midland Park, NJ. (Pl.'s Local Rule 56.1 Statement of Undisputed Facts ("Pl.'s Rule 56.1 Statement") at ¶ 1.)*fn1 Defendant CDI is a corporation that was organized in 2005 under the laws of the State of Delaware, originally under the name of "JPI/VII Acquisition Corp.," with a principal place of business in Pennsylvania. (Pl.'s Rule 56.1 Statement at ¶ 4.) CDI is a wholly owned subsidiary of JAKKS Pacific, Inc., a publicly held corporation. (Id. at ¶ 5.)

Marathon is in the business of seeking out and obtaining licensing opportunities, both as an agent to licensors and as a manufacturer's licensing consultant to licensees, for the use of intellectual property. (Id. at ¶ 2.) On September 20, 1984, Marathon entered into a consulting agreement with a Pennsylvania corporation, Creative Design International, Ltd ("CDI-PA"), via a letter agreement. (Decl. of Craig Kalter ("Kalter Decl."), Ex. 1.) Marathon consulted on behalf of CDI-PA pursuant to that agreement and its subsequent amendments until November 15, 2005, when Marathon and CDI-PA executed an Amended and Restated Consulting Agreement (the "ARCA"). (Decl. of Craig Kalter at ¶ 5; Decl. of Larry Miller ("Miller Decl."), Ex. A.) The ARCA, like earlier consulting agreements between Marathon and CDI-PA, provides that Marathon agrees to "evaluate, negotiate and secure, whenever possible, licensing and merchandising rights for properties, characters, names, logos, that would be used on Products produced by [CDI-PA] and its affiliates." (Id. at ¶ 2.) The ARCA further provides that CDI-PA will pay commissions to Marathon "based solely on [CDI-PA]'s Net Sales of Products under all relevant Property License Agreements." (Id. at ¶ 3(a).) The ARCA states that:

In the event this Agreement is terminated pursuant to Paragraph 4 below, all Commissions relating to all Commissionable Property License Agreements shall continue to be earned by [Marathon] and shall be payable by [CDI-PA] and continue in full force and effect, notwithstanding such termination of this Agreement, for each Commissionable Property License Agreement, until the earlier occur of:

(i) The termination date of the respective Commissionable Property License Agreement, or

(ii) With respect to:

a. Continuing Property License Agreements, nine (9) years after the termination date of this Agreement,

b. Additional Property License Agreements, eight (8) years after the December 31st in the first year in which Products were shipped under each such Additional Property License Agreement, and

c. Post-Termination Property License Agreements, eight (8) years after the December 31st in the first year in which Products were shipped under each such Post-Termination Property License Agreement (Miller Decl., Ex. A at ¶ 3(f).)

The ARCA states that it remains in force until December 31, 2006, whereupon CDI-PA and Marathon could agree to extend the agreement, in writing. (Id. at ¶ 4.) The ARCA also provides that it "shall be interpreted under the laws of the State of New York, and shall inure to the benefit of the parties hereto, their assigns, successors, and legal representatives." (Id. at ¶ 9.)*fn2

On January 18, 2006, JPI/VII Acquisition Corp. purchased substantially all of the assets and liabilities of CDI-PA through an "Asset Purchase and Sale Agreement" (the "APA"). (Pl.'s 56.1 Statement at ¶ 10; Miller Decl., Ex. D.) The APA provides that CDI-PA "shall and hereby agrees to assign.and JAKKS US [JPI/VII's parent company] shall and hereby agrees to assume and discharge.only the following liabilities and obligations.(A) All obligations of the Company arising or first coming due after the Effective Time under the U.S. Included Contracts." (Miller Decl., Ex. D § 2(c)(ii). (emphasis added)) In their memorandums of law, the parties agree that under the definitions provided in the APA, as well as under Schedule 4.13(a) to the APA, the ARCA is a "U.S. Included Contract" and accordingly was assigned to JAKKS US by CDI-PA. (Pl.'s Mem. in Supp. at 5; Def.'s Mem. in Opp. at 5.) The APA also states that "Following the closing date, Purchasers.agree to discharge in accordance with their terms, the Assumed Obligations." (Miller Decl., Ex. D at § 11.8,) and that "The parties shall take all reasonably necessary steps and actions to provide Purchasers with the benefits of such Included Contracts, and to relieve Sellers of the performance and other obligations thereunder arising after the Effective Time." (Id. at § 11.10(b).) The Effective Time is defined as "11:59 p.m. on the Closing Date." (Id. at § 10.1) In conjunction with the APA, JPI/VII acquired the name Creative Designs International, Ltd., and CDI-PA, to the extent it remained a going concern, agreed not to use name "Creative Designs." (Miller Decl., Ex. D at § 11.16.) Geoffrey Greenberg served as President of both CDI-PA prior to the acquisition and as President of Defendant CDI from the date of the acquisition until December, 2008. (Pl's 56.1 Statement at ¶ 36.)

On December 31, 2006, Defendant CDI and Marathon executed an amendment to the ARCA, extending its terms through December 31, 2007. (Miller Decl., Ex. C.) This agreement was signed by Geoffrey Greenberg, President on behalf of CDI, and Craig Kalter, President on behalf of Marathon. (Id.) On December 25, 2007, CDI and Marathon executed a second amendment to the ARCA, extending its terms through December 31, 2008. (Id.) This amendment was also signed by Geoffrey Greenberg and Craig Kalter. (Id.) It is undisputed that Marathon continued to provide services to CDI through December 31, 2008. (Pl.'s 56.1 Statement at ¶ 33; Def.'s Reply to Pl.'s 56.1 Statement at ¶ 33.) From the date of the acquisition through the quarter ended March 31, 2009, CDI continued to pay commissions to Marathon from its sales of licensed products.*fn3 (Id. at ¶ 38.) Following Geoffrey Greenberg's resignation as President of CDI at the end of 2008, CDI has refused to pay commissions to Marathon for the period commencing April 1, 2009 to date, and contends that it does not owe any such commissions. (Id. at ¶ 39; Def.'s Reply to Pl.'s 56.1 Statement at ¶ 39.)

On March 17, 2010, Marathon filed a complaint in this Court asserting claims for breach of contract and unjust enrichment. On March 19, 2010, an Amended Complaint was filed, asserting the same causes of action. On April 30, 2010, CDI filed an Answer to the Amended Complaint that also asserted a Counterclaim for return of funds mistakenly paid to Marathon following CDI's acquisition of CDI-PA. The Counterclaim also seeks entry of a declaratory judgment that CDI is no longer obligated to pay commissions to Marathon. Plaintiff moved for summary judgment and sanctions pursuant to 28 U.S.C. § 1927 on August 25, 2010. Plaintiff's 28 U.S.C. § 1927 motion alleges that Defendant's counterclaim is vexatious and improper. Plaintiff also moved for sanctions under Rule 11 on September 21, 2010, alleging that Defendant's claims of mistake are frivolous and that Defendant's counsel misrepresented the facts of the case. CDI filed papers in opposition on October 1, 2010, and on October 4, 2010, cross-moved for partial summary judgment on its counterclaim for declaratory relief. Marathon filed a reply brief in support of its motion and in opposition to the cross-motion on October 5, 2010, and CDI filed a reply in favor of its cross-motion on October 12, 2010. Oral argument was held on February 24, 2011.

DISCUSSION

In support of its motion for summary judgment, Marathon contends that, in conjunction with its purchase of CDI-PA, CDI assumed CDI-PA's obligation to pay Marathon commissions on sales of licensed products pursuant to the ARCA. Marathon contends that the plain language of the ARCA and the APA unambiguously establish that CDI is bound by the terms of the ARCA. In the alternative, Marathon urges that if the contractual language is ambiguous, applying the rule of practical construction determines the case in its favor. CDI contends that the contractual language of the ARCA unambiguously binds CDI-PA to pay commissions to Marathon on its sales of licensed products, but does not obligate CDI to pay Marathon commissions on its CDI's sales of such products. CDI argues that the assumption of the obligations of the ARCA reflected in the APA referred only to CDI's obligation to pay commissions on any sales made by CDI-PA following the acquisition, but that CDI was never obligated to pay commissions to Marathon on its own sales. CDI also contends that its counterclaim for return of payments mistakenly made should not be dismissed because its allegation of mistake presents an issue of fact. Marathon argues that the counterclaim is made subject to dismissal by reason of New York's voluntary payments doctrine. Finally, Marathon contends that Defendant's pleading of mistake in light of the clear language of the contracts and certain emails circulated by Defendant's lawyers was a deliberate misrepresentation to the court and sanctionable under 28 U.S.C. § 1927 and Fed. R. Civ. P. 11.

For the reasons stated below, Marathon's motion for summary judgment on its breach of contract claim is granted, and Defendant's counterclaims are dismissed. ...


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