United States District Court, E.D. New York
Bernard D'Orazio, Esq., Law Offices of Bernard D'Orazio, P.C., New York, NY, for Plaintiff.
Rex Whitehorn, Esq., Rex Whitehorn & Associates, P.C., Great Neck, NY, for Defendant.
MEMORANDUM & ORDER
JOANNA SEYBERT, District Judge.
Currently before the Court are the parties' cross-motions for summary judgment. For the following reasons, both motions are GRANTED IN PART and DENIED IN PART.
I. The Parties
Plaintiff Rentrak Corporation ("Rentrak" or "Plaintiff") is an Oregon corporation that leases home entertainment products (e.g., DVDs and video games) to third-party retailers for use as rentals in their video rental stores. (Pl.'s 56.1 Stmt., Docket Entry 23-1, ¶ 1; Murphy Decl., Docket Entry 23-3, ¶ 2.) Defendant Fred Handsman ("Handsman" or "Defendant") was the president and majority shareholder of Video U.S.A. Entertainment, Inc. ("Video USA"), a now-defunct, New York corporation that operated a chain of video rental stores. (Pl.'s 56.1 Stmt. ¶ 2; Def.'s 56.1 Counterstmt., Docket Entry 26-1, ¶ 2.)
II. The Rentrak Agreement
On June 5, 2001, Video U.S.A. and Rentrak entered into a contract pursuant to which Rentrak leased its home entertainment products to Video U.S.A. so that Video U.S.A. could then rent them to its customers at its rental stores (the "Rentrak Agreement"). (Pl.'s 56.1 Stmt. ¶ 4; Murphy Decl. Ex. F, Docket Entry 23-11.) Handsman signed the Rentrak Agreement solely in his capacity as president of Video U.S.A.; he did not personally guarantee the Rentrak Agreement. (Murphy Decl. Ex. F at 2; Handsman Aff., Docket Entry 26 at 12, ¶¶ 3-7.)
Under the Rentrak Agreement, if Video U.S.A. rented a particular title, it was required to share the rental fee revenue with Rentrak. (Pl.'s 56.1 Stmt. ¶ 5; Murphy Decl. Ex. F § 5.) Rentrak would set the particular lease term for each title at the time Video U.S.A. placed an order for that particular title. (Murphy Decl. ¶ 4 n.2.) During each title's individual lease term, Video U.S.A. was required to keep the physical copies of the title at its rental store and use its best efforts to rent them to its customers. (Pl.'s 56.1 Stmt. ¶ 5; Murphy Decl. Ex. F § 2.2) However, the Rentrak Agreement also granted Video U.S.A. a limited right to sell each title at certain times during its lease period, but not until the "Sell Through Date" of the title was reached, which was set by Rentrak and varied for each title. (Pl.'s 56.1 Stmt. ¶ 7; Murphy Decl. ¶¶ 8, 10-12, Ex. F § 2.3.) In addition, Video U.S.A. had the option to purchase each title at the end of its lease term, but if Video U.S.A. elected not to purchase the title, it had to return the copies of it to Rentrak. (Pl.'s 56.1 Stmt. ¶ 12; Murphy Decl. Ex. F §§ 2.4, 7.2.)
The Rentrak Agreement required Video U.S.A. to "immediately notify Rentrak in writing whenever [Video U.S.A.]... ceas[ed] ownership, control or operation of a Store." (Murphy Decl. Ex. F § 1.3.) In addition, the Rentrak Agreement explicitly provided that Video U.S.A. would be in default if it: (1) failed to pay amounts owed under the Rentrak Agreement, (2) closed its stores, or (3) did not conduct business for seven or more consecutive days. (Murphy Decl. Ex. F §§ 8.1.1-8.1.2.)
The Rentrak Agreement further required Video U.S.A. to use a "point-of-sale" computer system (the "POS System") to track and report to Rentrak all rentals and sales of Rentrak's titles. (Pl.'s 56.1 Stmt. ¶ 5; Murphy Decl. Ex. F § 1.) Video U.S.A. was required to process all transactions through the POS System and provide to Rentrak daily reports for all rentals and sales. (Pl.'s 56.1 Stmt. ¶ 5; Murphy Decl. Ex. F § 1.1.5) The POS System gave Rentrak instantaneous remote access to Video U.S.A.'s daily sales and rental activities. (Handsman Aff. ¶ 10.)
Under the Rentrak Agreement, in the event of default or breach of the agreement by Video U.S.A., Rentrak had the option to terminate the agreement or suspend Video U.S.A.'s rights under the agreement, in which case Video U.S.A. would have to return all titles to Rentrak:
8.2 If you default, we shall be entitled to take one or more of the following steps...
8.2.1 Terminate our Agreement with you. If we terminate this Agreement you will pay all amounts owed to us and return at your expense all PPT Cassettes in your possession within ten (10) days.
8.2.2 Suspend your rights under this Agreement, require you to pay all amounts you owe us within ten (10) days and/or require you to return at your expense all PPT Cassettes in your possession within ten (10) days.
(Murphy Decl. Ex. F §§ 8.2-8.2.2.) The Rentrak Agreement also contained a liquidated damages provision in the event that Video U.S.A. failed to return titles in accordance with section 8.2:
If you do not return PPT Cassettes or the PPT Cassettes are not returned in good condition, then you will be required to pay us $65 per PPT Cassette if we requested return of the Cassette within ninety days of the title's street date and $30 per PPT Cassette if the request is made more than ninety days after the title's street date.
(Murphy Decl. Ex. F § 8.2.3.) In addition, while either party could terminate the Rentrak Agreement with written notice to the other, the Rentrak Agreement explicitly stated that the term of the Rentrak Agreement would not end until "after (i) all of [Video U.S.A.'s] obligations under [the Rentrak] Agreement [were] satisfied and (ii) ninety (90) days after the last day of the last lease term of the PPT Cassettes ordered by [Video U.S.A.]." (Murphy Decl. Ex. F § 7.1.)
Finally, the Rentrak Agreement also contained a provision requiring Video U.S.A. to hold in trust Rentrak's share of the revenue derived from Video ...