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Outdoor Partners LLC v. Rabbit Hole Interactive Corp.

United States District Court, S.D. New York

March 28, 2014

OUTDOOR PARTNERS LLC, Plaintiff,
v.
RABBIT HOLE INTERACTIVE CORP., et al., Defendants.

OPINION & ORDER

KATHERINE B. FORREST, District Judge.

On March 18, 2013, following the failed settlement of a prior lawsuit dating back to 2011 asserting alleged breaches of a developer agreement for two software applications to comply with specifications for Nintendo of America, Outdoor Partners LLC ("OPL") again filed suit against Rabbit Hole Interactive ("RHI"). The second lawsuit, currently pending before this Court, asserts the same causes of action based on the same facts as the first. On September 30, 2013, RHI answered and counterclaimed for breaches of both the settlement and developer agreements.

Now pending before the Court is RHI's motion for summary judgment as to each of its counterclaims and to dismiss the affirmative claims brought by OPL. For the reasons set forth below, RHI's motion is DENIED as to each of its counterclaims and OPL's claim for breach of contract; its motion is GRANTED solely with respect to OPL's two tort claims.

I. BACKGROUND

On February 18, 2011, OPL and RHI entered into the Bass Pro Video Game Developer Agreement ("the Developer Agreement"), pursuant to which RHI would develop video games for OPL, and OPL would pay royalties to RHI, conditioned on approval of the games by Nintendo of America. (Grossman Aff. ¶¶ 3, 4, Ex. 1, ECF No. 30.) RHI developed a game that failed Nintendo's approval process four times. (Id. ¶ 6.) OPL suffered several hundred thousand dollars in harm from this failure. (Id. ¶ 11.) On September 30, 2011, Chris Pauwels, a principal of RHI, proposed to OPL that RHI and OPL "agree to share the increased costs due to changes in scope of $184, 000.00 equally, therefore $92, 000.00 to each party." (Id. ¶ 9, Ex. 2 (emphasis in original).)

On November 14, 2011, OPL's principal terminated the Developer Agreement pursuant to paragraph 11.2 of the Agreement, which provided that it could be terminated for cause. (Id. ¶ 14; Ex. 1, at ¶ 11.2; Ex. 3.) The parties disputed whether OPL owed RHI a Termination Fee. (See id. ¶¶ 16-18.) On November 18, 2011, Pauwels wrote in an email to Chip Pedersen of OPL, "The bugs have been fixed and tested." (Id. ¶ 16, Ex. 4.)

On December 13, 2011, OPL sued RHI and its principals in this Court for, inter alia, breach of contract. (deBrauwere Decl. ¶ 7, Ex. 3, ECF No. 31.) On September 14, 2012, the parties entered into a Stipulation of Settlement and Order ("the Settlement Agreement") that dismissed the action without prejudice. (Id. ¶ 8, Ex. 4.)

In sum, the Settlement Agreement provided for (1) a series of advance payments to RHI ("Royalty Advance payment(s)") (id. Ex. 4, at ¶ 2(a)); (2) a deposit in trust with Pryor Cashman for the benefit of RHI of the sum of $106, 901.75 (id. Ex. 4, at ¶ 2(b)), at which time Pryor Cashman would issue a "Deposit Confirmation Notice" (id. Ex. 4, at ¶ 4); and (3) a process by which RHI could deliver to a third party, War Drum Studios LLC ("War Drum") a personal computer on which versions of two games ("the Hunt" and "the Strike" games, together "the Games") reside. War Drum would then report on whether the Games compiled (passed certain technical tests). (Id. Ex. 4, at ¶ 7.) If the results of the initial testing were negative, OPL would issue to RHI an Initial Game Rejection Notice; RHI would then have the opportunity, in its sole discretion, to correct any bugs. (Id. Ex. 4, at ¶ 9.) If the results of the initial testing were positive, OPL would issue a Game Acceptance Notice, and Pryor Cashman would release the $106, 901.75 to RHI. (Id. Ex. 4, at ¶ 12.) If the initial testing resulted in a Game Rejection Notice and RHI chose to try to fix any bugs, the Games would then be sent to War Drum for testing a second time. (Id. Ex. 4, at ¶ 9.) If the Games failed a second round of testing, then OPL could issue a Final Rejection Notice and would be entitled to have the funds deposited with Pryor Cashman returned to it. (Id. Ex. 4, at ¶¶ 10, 11.)

In short, the Settlement Agreement provides that RHI's obligation to provide the Games to War Drum for testing occurs after OPL deposits the $106, 901.75 in trust with Pryor Cashman, not before. (Id. Ex. 4, at ¶¶ 4, 5.) The process for acceptance and rejection of the Games, and either final payment of the funds to RHI or their return to OPL, occurs thereafter. (Id. Ex. 4, at ¶¶ 11, 12.) The terms relating to payment, release, and termination are set forth as specified below.

The Settlement Agreement required OPL to pay "Royalty Amounts, " which were defined as "the royalty amounts payable to RHI for the period from October 1, 2011 to March 31, 2012, pursuant to the agreement between OPL and RHI, dated February 18, 2011 (the Developer Agreement'), which totals U.S. $121, 901.75." (Id. Ex. 4, at ¶ 1.) The Settlement Agreement sets forth OPL's payment obligations as follows:

a. OPL shall make three advance payments of $5, 000 each (each, a "Royalty Advance") to RHI, as follows:
i. OPL agrees that within ten (10) business days of the Settlement Date, OPL will make the first Royalty Advance and shall pay the amount of $5, 000 to RHI; and
ii. OPL agrees that within thirty (30) business days of the Settlement Date, OPL will make the second Royalty Advance and shall pay to RHI the amount of $5, 000; and
iii. OPL agrees that within sixty (60) business days of the Settlement Date, OPL will make the final Royalty Advance payment to RHI in the amount of $5, 000.
b. OPL agrees that on or before January 15, 2013, OPL will deposit the sum of $106, 901.75... in trust for the benefit of RHI and to be released pursuant to ...

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