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4kids v. the Upper Deck Company

June 21, 2012

4KIDS ENTERTAINMENT, INC., ET AL., PLAINTIFFS,
v.
THE UPPER DECK COMPANY, ET AL., DEFENDANTS.



The opinion of the court was delivered by: Gabriel W. Gorenstein, United States Magistrate Judge

REPORT AND RECOMMENDATION

Plaintiffs 4Kids Entertainment, Inc. and 4Kids Productions, Inc. (collectively, "4Kids") brought this action to recover damages stemming from the failure of defendants The Upper Deck Company ("Upper Deck") and Upper Deck Entertainment, LLC ("UD LLC") to pay 4Kids in accordance with a series of contracts between the parties. Because defendants are in default, the only remaining issue is damages.

I. PROCEDURAL HISTORY, GRANT OF SUMMARY JUDGMENT, AND DEFAULT

4Kids filed its complaint on April 22, 2010. See Complaint, filed Apr. 22, 2010 (Docket # 1) ("Compl."). Defendants answered and counterclaimed. See Defendants The Upper Deck Company and Upper Deck Entertainment, Inc.'s Answer and Affirmative Defenses, filed June 21, 2010 (Docket # 8); Defendants The Upper Deck Company and Upper Deck Entertainment, Inc.'s Amended Answer, Affirmative Defenses, and Counterclaim, filed July 12, 2010 (Docket # 9). In their complaint, 4Kids asserted five causes of action against defendants: (1) breach of contract, (2) quantum meruit, (3) unjust enrichment, (4) breach of the implied covenant of good faith and fair dealing, and (5) account stated. See Compl. ¶¶ 73-108. The allegations concern three contracts between the parties. The first, the "Huntik Term Sheet," was a license agreement between 4Kids and Upper Deck regarding an animated television series. See id. ¶¶ 8-9. The second contract, the "Huntik Commercial Production Agreement," was an agreement between 4Kids and UD LLC for plaintiffs to produce commercials for the Huntik animated series. See id.

¶¶ 35, 36, 38. The third agreement, the "Dinosaur King Production Agreement," was between 4Kids and Upper Deck for the production of commercials for the "Dinosaur King trading card game." See id. ¶¶ 49-50. On May 31, 2011, Judge Colleen McMahon issued a Decision and Order granting in part and denying in part 4Kids' motion for summary judgment. See 4Kids Entm't, Inc. v. Upper Deck Co., 797 F. Supp. 2d 236 (S.D.N.Y. 2011).

As to the claims based on the Huntik Term Sheet, Judge McMahon granted 4Kids' motion for summary judgment finding Upper Deck liable for breach of contract for failing to make a $175,000 payment, see id. at 244-45; denied 4Kids' motion for summary judgment with respect to damages resulting from the breach (other than 4Kids' claim to the interest on the $175,000 from the time it should have been paid), see id. at 244-45, 247-48; dismissed all other claims related to the Huntik Term Sheet, see id. at 248-49; and denied 4Kids' request for attorneys' fees related to the Huntik Term sheet as "premature," see id. at 249-50.

As to the claims based on the Huntik Commercial Production Agreement, Judge McMahon denied 4Kids' motion for summary judgment and dismissed these claims. See id. at 250.

As to the claims based on the Dinosaur King Production Agreement, Judge McMahon granted 4Kids' summary judgment motion on its claim that Upper Deck breached the Dinosaur King Production Agreement by failing to timely pay the amount it owed. See id. at 252. However, because Upper Deck ultimately paid the amount owed (after 4Kids filed its summary judgment motion), the court found that 4Kids was entitled to only two types of damages: (1) "interest commencing thirty days after the invoice was issued," id., and (2) attorneys' fees, but not for any "fees incurred from and after the date when the invoice was satisfied," or December 10, 2010, see id. at 252-53. Further, the court stated that "any fee application must be only for time that is unequivocally referable to the assertion in this lawsuit of the claim under the Dinosaur King Commercial Production Agreement. If that time cannot be separately accounted for, no fees will be awarded." Id.

As a result of the dismissal of the claims concerning the Huntik Commercial Production Agreement, no claims against UD LLC remain in this case. See Declaration of Kristen M. Gray in Support of Plaintiffs' Application for Final Judgment, filed June 8, 2012 (Docket # 59) ("Gray Decl.") ¶ 91; Declaration of Evan S. Rothfarb in Support of Plaintiffs' Application for Final Judgment, filed June 8, 2012 (Docket # 60) ("Rothfarb Decl.") ¶ 25.

Accordingly, as described in Judge McMahon's decision on the summary judgment motion, the following issues remained to be decided as of the date of that decision:

(1) damages due to Plaintiffs for Defendants' breach of the Huntik Term Sheet;

(2) the amount of interest due to Plaintiffs for Defendants' breach of the Dinosaur King Commercial Production Agreement; (3) attorneys' fees, if any, attributable to the assertion of the Dinosaur King Commercial Production Agreement claim for breach of contract; and (4) attorneys' fees that may (or may not) end up being awarded pursuant to the Huntik Term Sheet. 4Kids Entm't, 797 F. Supp. 2d at 253.

Following the summary judgment decision, defendants' counsel filed a motion to withdraw, which Judge McMahon granted by memorandum endorsement. See Memorandum Endorsement, filed Feb. 29, 2012 (Docket # 45). In granting that motion, Judge McMahon warned defendants that they needed to procure new counsel by March 16, 2012 or risk being in default. Id. When defendants failed to obtain new counsel, Judge McMahon issued an order declaring defendants to be in default. See Order Declaring Defendants to Be in Default, Precluding Defendants from Introducing Proof at the Inquest on Damages, and Referring Oscar

A. Herasme, Esq. to the Court's Committee on Grievances for Possible Discipline, filed May 8, 2012 (Docket # 50). The order finding defendants to be in default stated that they were "precluded from offering any proof on the question of damages or attorneys' fees." See id. Thereafter the case was referred to the undersigned for an inquest. See Order of Reference to a Magistrate Judge, filed May 11, 2012 (Docket # 51).

On May 11, 2012, this Court issued a scheduling order directing 4Kids to file Proposed Findings of Fact and Conclusions of Law with supporting documentation in support of its request for damages. See Order, filed May 11, 2012 (Docket # 52). On June 8, 2012, 4Kids submitted its proposed findings of fact and conclusions of law, along with supporting affidavits. See Proposed Findings of Fact and Conclusions of Law in Support of ...


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