The opinion of the court was delivered by: Frank Maas, United States Magistrate Judge.
USDC SDNY DOCUMENT ELECTRONICALLY FILED
MEMORANDUM OPINION AND ORDER
Plaintiff The Barton Group, Inc. ("BGI") brought this breach of contract action in an effort to recover past and future sales commissions under a contract that it entered into in 2003 ("2003 Contract") with defendant NCR Corporation ("NCR"). The 2003 Contract required NCR to pay BGI a four percent sales commission with respect to certain products sold by NCR to McDonald's Corporation ("McDonald's" or "McD"). The case was tried before a jury over the course of five days in December 2010.*fn1 The key issue at trial was whether an NCR product known as "Receipt on Label" ("RoL") was subject to the 2003 Contract. Following several hours of deliberations, the jury returned a verdict in favor of BGI, finding that the 2003 Contract covered RoL. The jury awarded BGI damages in the amount of $8,018,667 for past and future sales commissions on NCR's sales of RoL to McDonald's in the United States.
NCR has now moved for judgment as a matter of law ("JMOL") under Rule 50(b), or, in the alternative, a new trial under Rule 59, of the Federal Rules of Civil Procedure. (ECF No. 48). In addition to opposing these motions, BGI seeks sales commissions on NCR's future international sales of RoL to McDonald's. Specifically, BGI has moved for a declaratory judgment that NCR's obligation to pay BGI commissions on future international sales of RoL to McDonald's under the 2003 Contract remains "in full force and effect." BGI further seeks an order of specific performance to compel NCR to pay commissions in the future on any such international sales. (ECF No. 51at 1).
For the reasons set forth below, both motions are denied.
Viewed in the light most favorable to BGI, the evidence at trial established as follows:
A. BGI's Relationship With McDonald's
BGI, through Lewis Barton ("Barton"), its sole owner and employee, provides consulting services to fast-food restaurants, particularly in the area of food packaging and food processing operations. BGI's clients have included McDonald's and Perseco, a company that undertakes purchasing for McDonald's. Barton's relationship with McDonald's dates back to the 1970s when he owned a company that supplied ketchup packets to McDonald's restaurants. Over the years, Barton has developed strong contacts with several different McDonald's departments. (Tr. 55-58, 72).*fn2
In the 1990s, Barton entered into a "handshake agreement" with McDonald's pursuant to which he could present new ideas to McDonald's for products or food preparation processes. Such access to McDonald's was valuable because McDonald's did not accept unsolicited ideas from the general public. Barton's involvement with several successful projects at McDonald's earned him a reputation as an innovator. These projects typically arose in one of three ways. First, Barton often generated his own ideas for cost-saving innovations by visiting and observing McDonald's franchises in operation. At other times, McDonald's would invite Barton to develop a solution to a particular problem that it had identified. Finally, third-party suppliers to McDonald's at times asked Barton to assist them with product development. (Id. at 62-68).
Despite its name, the handshake agreement between Barton and McDonald's was, in fact, reduced to writing several times, beginning in 1993. (Id. at 68; see PX 1).*fn3 These written agreements permitted Barton to have an audience with McDonald's managers but imposed no obligations on McDonald's. McDonald's also had no obligation to purchase products from third-party suppliers that worked with Barton. (Tr. 68-69, 84).
Since the 1990s, McDonald's has had a policy of shifting overhead costs, such as consultants' fees, to the supply chain. This meant that McDonald's would not pay BGI directly for its work. Instead, when Barton worked on projects involving third-party suppliers, McDonald's required that he be paid directly by the supplier. (Id. at 75). All of Barton's emails included a disclaimer explaining aspects of his relationship with McDonald's.*fn4 (Id. at85-86).
While the handshake agreement was in effect, Barton also entered into consulting arrangements with Perseco and specific departments within McDonald's. Like the handshake agreement, the Perseco agreement gave Barton the ability to present Perseco with cost-saving ideas and products. Perseco, however, paid Barton a stipend for his expenses. (Id. at 73-74). Similarly, in 2004, Barton entered into an oral consulting agreement with the McDonald's Innovation Center, which later was reduced to writing. The Innovation Center develops and tests new products and food-preparation processes before they are used in McDonald's restaurants. Under his agreement with the Innovation Center, Barton received a stipend to work on its projects. (Id. at 76-77, 82; see PX 170).
B. Automatic Sandwich Wrap Project
While he was providing consulting services to Perseco, Barton became aware of an inefficiency regarding McDonald's existing sandwich wrappers. At that time, each McDonald's sandwich had its own unique wrapper which included the sandwich's name. As the McDonald's sandwich line expanded, it became difficult for the food preparers to manage so many different wrappers. Barton suggested installing a printer in every restaurant that would permit the name of the sandwich to be printed, in realtime, on a generic wrapper when the customer placed an order. The generic wrapper, which displayed only the McDonald's logo, would thus be used for every sandwich, obviating the need for separate wrappers for each sandwich type. This concept became known as the "Automatic Sandwich Wrap Project" ("ASW Project"). Barton later modified his proposal by suggesting that, in addition to the name of the sandwich, the customer's special-order instructions*fn5 be printed on the wrapper. (Tr. 87-89).
Perseco and the McDonald's engineering group responded positively to the ASW Project and authorized Barton to continue working on it. (Id. at 90). The engineering group became involved because of the need to place new printers in McDonald's restaurants. (See id.). As a consequence, BGI and the McDonald's engineering group entered into an oral agreement for the ASW Project independent of BGI's other consulting agreements with McDonald's. (Id. at 92-93). McDonald's also directed Barton to work with NCR, a McDonald's supplier, to develop a printer for the ASW Project.*fn6 Jean Lane ("Lane"), an NCR sales representative, became Barton's primary contact for the ASW Project. (Id. at 93, 414).
On September 10, 2002, NCR and BGI entered into a contract concerning the ASW Project ("2002 Contract"), pursuant to which NCR appointed BGI as its "exclusive sales agent" with McDonald's for that project.*fn7 (PX 12). The 2002 Contract required that NCR pay BGI a five percent "business generation commission" on sales, licensing, and royalty fees arising out of the ASW Project.(Id.).
Prior to signing the 2002 Contract, NCR had internal discussions about whether it was feasible for NCR to work with McDonald's on the ASW Project without having an agreement with BGI. In an email to Lane and other NCR employees, Paul Samson ("Samson"), an in-house lawyer at NCR, explained BGI's position vis-a-vis McDonald's and its third-party vendors, such as NCR. (PX 10). Samson stated that Lew [Barton] does not have an exclusive arrangement with McD; that is, he cannot require on behalf of McD that NCR enter into this arrangement in order for NCR to do business with McD on this project or any other. . . . BGI will not represent our interests exclusively; it is dealing with all vendors and seeking fee agreements that, we are told, are substantially similar. . . . BGI is vendor agnostic and will be paid no matter which vendor wins the deal. (Id. at 2). In a reply email to Samson, Lane wrote that "McDonald's will not go around BGI and work directly with NCR on [the ASW Project,] and if [NCR] tried it would be seen as NCR being unethical in this deal." (Id. at 1). Lane stated further that McDonald's had expressed a "willingness to cover the additional 5%" cost related to BGI's commission. (Id.).
The ASW Project eventually proved not to be commercially viable due to the high cost of acquiring the printer. (Tr. 99).
1. Development of the Sticky Label Project
After the ASW Project failed, Barton sought other alternatives that might enable McDonald's to avoid using preprinted sandwich wrappers. One such proposal involved printing a label in realtime containing the sandwich name and any special-order instructions and attaching it to a generic wrapper. This became known as the "Sticky Label Project." (See id. at 99-102).
In addition to addressing the inefficiencies arising out of the use of preprinted sandwich wrappers, the Sticky Label Project solved a problem related to special-order sandwiches. At that time, McDonald's utilized a cumbersome two-step process for preparing sandwiches with special-order instructions. First, the customer's special-order instructions were printed on a piece of receipt paper known as a "grill slip."*fn8
Second, after making the sandwich and wrapping it in a preprinted sandwich wrapper, the food preparer manually attached the grill slip to the wrapper with a round, red adhesive sticker bearing the McDonald's logo. Barton's sticky label concept collapsed those two steps into a single operation. Thus, both the customers' special-order instructions and the names of the sandwiches they had ordered would be printed on pressure-sensitive adhesive paper immediately after the orders were placed. Because the labels had an adhesive backing, food preparers would be able to attach them directly to the sandwich wrapper, thereby eliminating the need to use a separate sticker.*fn9 (Id. at 99-100). The sticky labels also would allow McDonald's to wrap its sandwiches with generic wrappers instead of preprinted wrappers. (See PX 33).
Barton began working with NCR on the Sticky Label Project in May 2003. (Tr. 103). In May and June 2003, Barton and NCR discussed how to incorporate the Sticky Label Project into the 2002 Contract, which related only to the ASW Project. Samson, the NCR in-house lawyer, suggested that NCR and BGI enter into a new contract concerning the Sticky Label Project. (Id. at 112-13). To help frame their discussions, Barton sent Samson (and copied Lane on) an email containing a list of definitions relevant to the ASW and Sticky Label Projects.*fn10 (Id. at 113; see PX 33). The email informed Samson that, after Barton had proposed the sticky label idea to Lane, Lane learned that McDonald's independently was exploring a similar idea. Barton noted, however, that McDonald's idea did "not fully cover [his] concept." (PX 33). Barton's email requested confirmation from NCR that the Sticky Label Project was covered under the 2002 Contract.*fn11 (Id.).
In September 2003, NCR and BGI entered into the 2003 Contract, which covered the ASW Project,*fn12 Sticky Label Project, and another new project, called the "Alternative Project." (PX 63). The 2003 Contract defined the Sticky Label Project as "an alternative to the ASW Project that uses a different technological approach comprised of a print-on-demand pressure-sensitive label manually applied to a sandwich wrapper or box that replaces a direct thermal receipt/pre-printed label application." (Id. at 1). The "Alternative Project" involved "potentially converg[ing] the ASW and Sticky Label Projects into an alternative project incorporating some or all elements of [the two projects]." (Id.). Samson drafted this definition of the Alternative Project after he and Barton discussed the possibility that there could be applications for the sticky labels that were not subsumed within the definition of the Sticky Label Project. Although the 2003 Contract does not describe the Alternative Project as a "catch-all" provision, Barton testified that this was the purpose for its inclusion in the 2003 Contract. (Tr. 120-21; see id. at 196, 249).
The 2003 Contract appointed BGI as NCR's "exclusive sales agent" for the ASW, Sticky Label, and Alternative Projects with McDonald's, but reduced BGI's sales commission from five percent to four percent. (PX 63 ¶¶ 1, 1.1, 6). The 2003 Contract further stated that "[i]f NCR [was] awarded all or part of the ASW, Sticky Label, or Alternative Project at a time when BGI [was] serving as NCR's sales agent under [the 2003 Contract], this [Contract] shall automatically renew for additional 12 month terms until such time as NCR is no longer supplying any goods or services to McD on the ASW, Sticky Label, or Alternative Project." (Id. ¶ 4).
In the 2003 Contract, like the 2002 Contract, BGI made several representations and warranties.*fn13 (Id. ¶ 2). Among other things, BGI represented and warranted that "BGI has [a] sales agreement with [McDonald's] ('BGI-McD Agreement') for the ASW Project" and that "[t]he BGI-McD Agreement specifically authorizes BGI to enter into commission agreements, such as this [Contract], with proposed vendors." (Id.). BGI further represented and warranted that it had disclosed "it[s] proposed commission arrangements to [McDonald's]." (Id.).
A choice-of-law provision in the 2003 Contract stated that its "interpretation and enforcement . . . shall be governed by the substantive law of the State of New York." (Id. ¶ 11).
On September 3, 2003, one day before Barton signed the 2003 Contract, he emailed Samson and Lane, stating, "I want to be sure that we all understand one issue."*fn14 (PX 61; see Tr. 125). With respect to that issue, BGI's warranty that it had a sales agreement with McDonald's, (see PX 63 ¶ 2), Barton explained,That agreement is not in writing. That agreement has been expressed to me as their (MCD's) requirement for my compensation. Jean Lane has been at a meeting (with Perseco) where that agreement has been discussed. I want your assurance that you understand this: i.e. that the "agreement" is not in writing and that your "agent" Jean Lane has been satisfied that such an agreement exists. (PX 61). The meeting to which Barton referred was held after BGI and Samson reached an agreement in principle with respect to BGI's compensation for the sticky labels. (See Tr. 126).
A few minutes after Barton sent his email to Samson, Samson wrote a one-sentence reply, which stated, "Lew, this is holdover language from the earlier agreement." (PX 61). Barton understood this to mean that the issue had been discussed "the last time around," and that Samson understood BGI's arrangement with McDonald's and found it acceptable. (Tr. 126).
3. Presentation to Perseco and McDonald's
By September 2003, when BGI and NCR signed the 2003 Contract, Barton and Lane had introduced the sticky label concept to Perseco in July 2003. (PX 50; Tr. 128-30). Perseco reacted positively, encouraging Barton and NCR to continue working on the project. (Tr. 130). Thereafter, through his contacts at McDonald's, Barton arranged a meeting at the McDonald's Innovation Center. (Id. at 133). Barton targeted the Innovation Center because, as part of McDonald's global corporate umbrella, it developed products and processes that could be used in all of McDonald's domestic and international restaurants. (Id. at 136; see id. at 77). During the meeting with McDonald's Innovation Center personnel, Barton and Lane presented two versions of the sticky labels, one with a linered backing ("linered labels") and one without a liner ("linerless labels"). The Innovation Center liked the linerless labels and began to test them. (Id. at 135-37, 150). Barton attended the testing of the linerless labels, working closely with several Innovation Center employees; Lane also frequently attended meetings at the Innovation Center. (Id. at 154-55). Although NCR had a pre-existing relationship with certain departments within McDonald's, (see id. at 414-15), Barton introduced Lane to several Innovation Center employees with whom she had not previously worked. (Id. at 136).
The results of the sticky label tests at the Innovation Center were positive. McDonald's modified Barton's original idea, however, using preprinted wrappers to identify the sandwiches, such that, for certain types of sandwiches, the sticky label would list only the customer's special-order instructions. McDonald's favored this approach because it retained a sense of brand identity for its signature sandwiches, such as the Big Mac. (Id. at 137).
As a next step, McDonald's expanded the testing of the linerless sticky labels to a few McDonald's restaurants. Barton was involved with the testing and served as a troubleshooter. (Id. at 166, 168). Following those tests, the Innovation Center requested that Lane create a business case for the Sticky Label Project. At McDonald's, a "business case" was an internal document prepared using a template to help the company assess whether a particular product had an economic justification; it was an "essential step" in the product development process. (Id. at 169-70). McDonald's eventually approved the business case for the Sticky Label Project, which gave Barton and NCR the "green light" to move ahead. (Id. at 173).
In 2006, Barton presented the Sticky Label Project to owners and operators at McDonald's Worldwide Convention in Florida. (Id. at 173-74). This was a significant step in the development of the sticky labels because it meant that the McDonald's Innovation Center believed that the product was "ready to be exposed to [its] worldwide operators." (Id. at 177). Indeed, there was a "tremendous response" from the operators after Barton demonstrated the printer and labeling process. (Id. at 175).
Sometime in 2008, McDonald's gave final approval for the product to be rolled out in all of its restaurants. (Id. at 179).
4. Disclosure Regarding the 2003 Contract
At any "initial meeting" that Barton had with McDonald's concerning a particular project, he made it his practice to inform McDonald's of any compensation agreements that he had with third-party suppliers. (Id. at 185-86). In connection with the Sticky Label Project, Barton informed McDonald's in writing on several occasions that NCR had agreed to pay him sales commissions on sticky label sales. (See id.; PX 79 (letter from Barton to John Hayes, Senior Director, McDonald's Corp., dated Dec. 11, 2003); PX 87 (email from Barton to Kenneth Koziol of the McDonald's Innovation Center, dated May 17, 2004, stating that BGI's "arrangement with NCR is a 4% commission on sales")). NCR also understood that BGI had a relationship with McDonald's. (See Tr. 416 (Lane understood that BGI's agreement with McDonald's allowed BGI to bring "people" to McDonald's, and that BGI would be compensated by those "people")).
5. Other Applications for the Sticky Label Project
While the sticky labels were being tested at the Innovation Center, Barton realized that a smaller version of them could be used for applications other than sandwiches, such as the labeling of drive-through orders and special-order coffee drinks. (Id. at 152-53; see id. at 403). Before Barton suggested these additional applications, McDonald's had been labeling coffee cups by hand with a grease pencil. (Id. at 193). After Barton informed Lane of the possible new applications, NCR tested the use of a narrower version of the sticky labels on coffee cups. (Id. at 194-95; see PX 174).
Because the sticky labels were too wide for coffee cups, Mark Keeton ("Keeton"), an NCR engineer, used a belt sander to reduce the width of a roll of sticky labels, so that NCR and McDonald's could use them in the initial testing phases. (Tr. 403-04). When Barton inquired whether his newly-conceived coffee and drive-through applications for the sticky labels were covered under the 2003 Contract, Lane confirmed that they were. (Id. at 191-93, 197).
D. NCR's Commission Payments to BGI and NCR's Termination of the 2003 Contract
In 2004 and 2005, during the testing phase of the Sticky Label Project, McDonald's made purchases of small quantities of sticky labels from NCR, for which BGI received commissions. (Id. at 374-75; see PX 190). According to Lane, NCR paid those commissions based on its "business decision" that the 2003 Contract covered the linerless sticky labels that NCR was selling to McDonald's. (Tr. 487-88; see PX 113 (email from Lane to Keeton, dated Feb. 28, 2005, reflecting Lane's belief that Barton was "covered on linerless [labels]")). Because the product was in a testing phase, the quantities involved, and therefore the payments, were small. (Tr. 375).
Subsequently, "[i]n April 2007, NCR considered the possibility of terminating the [2003 Contract]." (Id. at 201). As the year progressed, Barton had difficulty getting updates from Lane about the status of the Sticky Label Project. (Id. at 201-02). Lane told Barton that the project was "at a standstill" because McDonald's had objected to the cost of the sticky labels. (PX 222; Tr. 203-04).
At some point thereafter, Laura Wakefield ("Wakefield"), an NCR in-house attorney, contacted Barton to request a copy of the 2003 Contract because NCR did not have a copy. (Tr. 204-05). After Barton provided a copy, Wakefield asked him to give her the names of his contacts at McDonald's. (Id. at 205; PX 260). This made Barton "uncomfortable," especially because "all this information was already available at NCR." (Tr. 206). As a consequence, Barton sent Wakefield an email dated February 4, 2008 (with a copy to Lane) suggesting that Wakefield speak to Lane about "this" because they had been working together on the project. (PX 260). Although Barton did not name any names, he explained in his email that his contacts at McDonald's were "at higher levels," and thus "no longer really involved in the day-to-day issues." (Id.).
A few weeks later, on February 22, 2008, Daniel Bogan ("Bogan"), Senior Vice President and General Manager of NCR's Systemedia Division,*fn15 sent Barton a letter indicating that NCR would no longer pay BGI commissions pursuant to the 2003 Contract. (PX 268). Bogan stated that he had reached this decision because he was "unable to verify" certain of BGI's representations and warranties in the 2003 Contract. (Id.). Specifically, Bogan "[had] not been able to find any evidence that [BGI had] a current relationship with McDonald's." (Id.). Bogan emphasized that Barton did not identify his contacts at McDonald's when Wakefield had requested that information. Furthermore, according to Bogan, Barton "did not produce a signed McDonald's agreement, although [Barton] stated that [he] ...