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R Squared Global, Inc v. Serendipity 3

November 3, 2011

R SQUARED GLOBAL, INC., PLAINTIFF,
v.
SERENDIPITY 3, INC., DEFENDANT.



The opinion of the court was delivered by: P. Kevin Castel, District Judge:

MEMORANDUM AND ORDER

Plaintiff R Squared Global, Inc. ("R Squared") moves for a preliminary injunction against defendant Serendipity 3, Inc. ("Serendipity"), the owner and operator of a New York City restaurant famed for its array of opulent ice cream dishes. R Squared seeks to enjoin Serendipity from terminating the parties' licensing agreement, which grants R Squared the exclusive right to open restaurants and sell merchandise bearing Serendipity's intellectual property.

Plaintiff filed an Amended Verified Complaint in this action, asserting seven claims.*fn1 (Docket #12.) The complaint includes claims each for breach of contract and breach of the implied covenant of good faith and fair dealing. (Id.) Plaintiff also seeks a declaratory judgment on three separate grounds: that it is not in breach of the parties' licensing agreement; that R Squared has not infringed Serendipity's intellectual property rights; and that Serendipity has breached the provision of the licensing agreement governing R Squared's right to open additional Serendipity locations. (Id.) On October 12, 2011, this Court granted R Squared a temporary restraining order pending a hearing and determination of the motion for a preliminary injunction. (Docket #5.) On October 24, 2011, this Court presided over a hearing on R Squared's motion for a preliminary injunction.

For the reasons set forth below, R Squared has demonstrated that there are sufficiently serious questions going to the merits of whether defendant has satisfied the notice and cure requirements of the parties' agreement such as to make those questions fair ground for litigation. R Squared has also demonstrated that the balance of hardships in terminating its license, which enables R Squared to operate these restaurants, tips decidedly in its favor and that it would suffer irreparable injury in the absence of an injunction. R Squared's motion for a preliminary injunction (Docket #8) is therefore granted.

BACKGROUND

Serendipity is a New York corporation that owns and operates a restaurant and dessert parlor in New York, NY under the name "Serendipity 3." (Am. Compl. ¶ 4.) R Squared is a Nevada corporation whose sole business is as the exclusive licensee of Serendipity's trademarks and copyrights. (Id. ¶¶ 3, 10.) Rowen Seibel, R Squared's founder and sole employee, formed R Squared "for the sole and express purpose" of becoming the exclusive licensee of Serendipity. (Id. ¶ 8.) Pursuant to their arrangement, R Squared owns and operates three Serendipity restaurants located in Las Vegas, NV, Boca Raton, FL, and Washington, DC (the "Georgetown" location).

I. The Licensing Agreement

The licensing agreement ("Agreement"), which the parties entered into on September 14, 2005, represents a comprehensive licensing arrangement of Serendipity's intellectual property to R Squared.*fn2 In exchange for enjoying the exclusive right to open and operate Serendipity restaurants in any location outside of New York and Nassau counties, R Squared pays royalties to Serendipity. (Id. ¶¶ 12, 14, 16.) The Agreement provides for an initial term of ten years, after which R Squared may elect to renew for up to two additional five-year terms provided R Squared is not in "Material Breach." (Id. ¶ 11.) The Agreement also details R Squared's right to open and operate new Serendipity locations, as well as R Squared's right to enter into sublicensing arrangements with third parties. (Id. ¶¶ 20-25.)

Three provisions of the Agreement are particularly relevant to plaintiff's pending motion for injunctive relief. The first is paragraph 2.3, labeled "Merchandising." (Aff. Stephen Bruce Ex. A ("Agreement"), at 2-3.) Paragraph 2.3 addresses the scope of R Squared's rights to sell branded merchandise bearing Serendipity's intellectual property at R Squared's Serendipity locations. R Squared "must purchase any Licensed Merchandise to be sold in the Merchandising Outlets" directly from Serendipity. If R Squared should purchase merchandise elsewhere, it must obtain advance written approval "on a product by product basis" before selling it. (Id. at 3.) R Squared therefore must either purchase any item of Serendipity-branded merchandise directly from Serendipity or receive its prior written approval before selling or displaying it. (Id.)

Paragraph 10, titled "Intellectual Property Protection," defines the parties' rights and obligations regarding Serendipity's trademarks and copyrights. Under paragraph 10.2, R Squared must "display [Serendipity's] Intellectual Property only in such form and manner as are specifically approved in advance in writing by Serendipity." (Id. at 10.) Paragraph 10.3 further prohibits R Squared from "identify[ing] itself as the owner" of Serendipity's intellectual property. (Id. at 11.) Lastly, paragraph 10.6 prohibits R Squared from "tak[ing] any action which damages the reputation of Serendipity or which reflects negatively upon Serendipity or [its] Intellectual Property." (Id. at 12.)

The third provision particularly relevant to R Squared's motion for injunctive relief is paragraph 12.1, which addresses the parties' right to termination. Paragraph 12.1 explicitly states that the Agreement "shall remain in full force and effect" unless terminated in one of three enumerated ways: (a) by mutual consent of the parties in writing; (b) by "payment breach," consisting of Serendipity giving written notice to R Squared of its failure to make a royalty payment; or (c) automatically, following written notice to R Squared of "any breach or default" that it does not cure within ninety days. (Id.) The third subparagraph-paragraph 12.1(c), titled Cure Period-is central to plaintiff's motion for injunctive relief. Paragraph 12.1(c) states:

This Agreement shall automatically terminate ninety (90) days after written notice by Serendipity to R Squared of any breach or default by R Squared in any of its representations in this Agreement or the performance of any of its obligations under this Agreement (other than those set forth in subparagraph (b) [titled Payment Breach]) unless such breach or default is cured within such ninety (90) day period; provided that, if the nature of the breach is such that it cannot reasonably be cured within such ninety (90) day period, then R Squared shall have an additional sixty (60) days to cure same if R Squared commences the cure within the ninety (90) day period and diligently pursues same to completion. . . . Breaches covered by this subparagraph (c) shall be considered Material Breaches if not cured within the time period set forth in this subparagraph (c). Notwithstanding the foregoing, inadvertent breaches of this Agreement incapable of being cured shall not give rise to Serendipity's right to terminate this Agreement. (Id.) In summary, Serendipity must inform R Squared in writing that R Squared has breached one of its obligations. Upon receipt of this notice, R Squared may then cure the breach within ninety days. If it cannot reasonably do so, R Squared has an additional sixty days provided that it commences this cure process within the initial ninety-day cure period. (Id.) Any breach not cured within this time period is considered a "Material Breach" of the Agreement, resulting in its automatic termination. (Id.)

II. R Squared's Purported Breaches of the Agreement a. The June 25, 2009 Letter

Serendipity engaged in a series of written exchanges with R Squared beginning in June 2009 the thrust of which was to assert that R Squared was listing menu items or offering branded merchandise that Serendipity had not approved. R Squared asserts that in each instance, it either cured the purported breach or obtained Serendipity's permission to continue to sell the item.

Counsel for Serendipity mailed R Squared and its counsel a letter dated June 25, 2009, informing R Squared that it was in breach of the Agreement pursuant to paragraph 12.1(c). (First Aff. Rowen Seibel Ex. L ("June 25, 2009 letter"), at 1.) The June 25, 2009 letter identified fifteen breaches by R Squared at its Las Vegas location.*fn3 The majority of violations alleged were of paragraphs 2.3 and 10.2 of the Agreement which, as discussed above, govern R Squared's obligations regarding the display and sale of merchandise bearing Serendipity's intellectual property. (Id. at 2-3.) Specifically, the June 25, 2009 letter contended that R Squared had breached the Agreement by, inter alia: displaying Serendipity's intellectual property "without first securing written approval;" refusing to remove from its menu "items bearing the names of individuals . . . notwithstanding several verbal and written requests to do so;" manufacturing "[t-]shirts" without first securing Serendipity's approval "as to the designs featured on such shirts;" and manufacturing "plates" bearing Serendipity's intellectual property (the "black and white dishware") without first securing its approval as to their design and quality. (Id. at 2.)

In response to the June 25, 2009 letter, R Squared provided Serendipity with samples of the allegedly infringing T-shirts, black and white dishware, and individually named menu items. Without "conceding" any of Serendipity's allegations, R Squared in a letter dated September 28, 2009 recited in detail "the steps [it had taken] to address" the alleged breaches. (First Aff. Rowen Seibel Ex. M ("September 18, 2009 letter").) Regarding the specific items Serendipity had identified in its June 25, 2009 letter, R Squared's letter stated that it had already "rectified" the display of individually named items by removing them from its menu, and had mailed to Serendipity "samples of the subject tee shirts and plates for [Serendipity's] review." (Id. at 2.)

The parties' correspondence over these alleged breaches concluded with a letter from Serendipity's counsel to R Squared dated November 2, 2009. (First Aff. Rowen Seibel Ex. P ("November 2, 2009 letter").) In its letter, Serendipity approved the black and white dishware as depicted in an attached photograph and consented to a handful of specific T-shirt designs. (Id. at 1-3.) For both the T-shirts and the black and ...


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