Opinion
02 Civ. 3640 (TPG).
September 30, 2005
OPINION
This case arises out of a trademark licensing agreement and an employment contract. The first three defendants in the caption have moved for summary judgment. Plaintiff has moved for partial summary judgment. Oral argument was held on August 24, 2004. Additional submissions were made thereafter.
The defense motion is denied. Plaintiff's motion is granted as to the Third Counterclaim, alleging termination of the licensing agreement, and this counterclaim is dismissed. Otherwise, plaintiff's motion for partial summary judgment is denied.
Facts
Plaintiff Ulla-Maija Inc. ("UMI") produces and markets high-end wedding dresses. The company was founded in the early 1990s as a vehicle for selling wedding dresses designed by defendant Ulla-Maija Kivimaki ("Kivimaki"), and the dresses were sold under the trademark "Ulla Maija" (the "Mark"). In 1997 defendant Ulla Maija Holding, L.L.C. ("UMH") was created for the purpose of owning and holding the Mark. In a License Agreement dated May 5, 1997 UMH licensed UMI to use the Mark. It is this License Agreement which gives rise to the main issues in the present action.
As of 1997 Kivimaki was President and Chief Designer of UMI. A formal Employment Agreement, dated May 5, 1997, was entered into between UMI and Kivimaki, under which Kivimaki would continue as President and Chief Designer until April 30, 2000. Kivimaki did indeed continue to work for UMI and to design wedding dresses for that company. Although Kivimaki's employment contract expired in April 2000, Kivimaki continued her employment at the company until July 2000.
Section 4.3 of the Employment Agreement basically permitted Kivimaki to compete with UMI after termination of her employment by UMI, subject to certain specific conditions. Kivimaki has in fact attempted to carry on a wedding dress business through defendant Kivimaki, Inc. This has given rise to a controversy, which has been dealt with in the present action, but the details of which are not relevant for purposes of the present opinion.
The issues involved in the current summary judgment motions arise largely out of provisions in the License Agreement requiring UMI to adhere to certain quality standards in both dresses and promotional materials.
Section 2.1 of the License Agreement describes the quality standards imposed on UMI in connection with the design, manufacture, and sale of the Ulla-Maija wedding dresses. This section concludes as follows:
To assure compliance with the quality standards set forth herein, the styles, designs, sketches, patterns, models, materials, colors, workmanship and quality of all Licensed Products shall be subject to Licensor's approval prior to the distribution, sale or other use thereof.
Section 2.2 imposes quality requirements on advertising and promotional materials and concludes:
To assure such consistence, periodically, during the process of designing, creating and finalizing the Promotional Materials, Licensee shall submit such Promotional materials to Licensor for its prior approval.
These provisions of the License Agreement are followed by Section 2.3, which is critical to the present action, and which provides:
2.3 Whenever Licensor's approval is required pursuant to Section 2.1 or 2.2, such approval shall not be unreasonably withheld and shall be granted if the quality of the material submitted for approval is at least as high as that maintained by Licensee prior to the date hereof. Licensor shall be deemed to have approved all Licensed Products, Packaging Materials and Promotional Materials submitted to it by Licensee (or otherwise inspected by Licensor) unless Licensor expressly denied such approval no later than within five days after the earlier of (i) Licensor's actual inspection and (ii) the delivery of such materials to Licensor for its approval.
Prior to July 2000 there was no issue about Kivimaki approving dress designs or promotional materials, because she was the designer. However, after Kivimaki left UMI in July 2000 the License Agreement was still in effect, and required submission of dress designs and promotional materials to Kivimaki. There were fall dress designs which were apparently ready in October and spring designs which were ready in April.
It was in October 2000 that the first designs and promotional materials were submitted to Kivimaki after she left the company. These were submitted twice, apparently because Kivimaki did not readily respond. It appears that she did not comply with the five-day requirement of Section 2.3. However, Kivimaki did ultimately respond, and rejected all of the designs and promotional materials that had been submitted to her. UMI concluded that Kivimaki had not complied with her obligations under Section 2.3, in that she had not responded within the required time and, when she did respond her approval was "unreasonably withheld." UMI therefore proceeded to produce and market wedding dresses based on these designs, and to use the promotional materials.
Under Section 8.2 either party had a right to terminate the contract in the event of a material default or breach if such default or breach was not cured within 30 days following notice. Section 8.2 provides:
8.2 Except as otherwise expressly provided in this Agreement, if either party shall default in a material respect in the performance of any of the terms and conditions on its part to be performed hereunder or shall be in material breach of any provision hereof, and if such default or breach has not been cured within 30 days after notice thereof to such party, the other party may, at any time thereafter and at its option, terminate the Term by giving notice to the defaulting or breaching party, except that if such default or breach is curable in nature but cannot be cured within 30 days, the defaulting or breaching party shall have reasonable additional time to effect a cure, provided that such party diligently proceeds to effect the same.
Neither side gave any such notice with respect to the events of October 2000. It should be noted that plaintiff UMI makes no claim that the License Agreement has ever been terminated and takes the position that it is still in effect, thus allowing UMI to produce and market wedding dressing under the Mark in question. However, defendants Kivimaki and UMH do contend that UMI has breached the License Agreement and that such agreement has been terminated. It is of significance to this claim of Kivimaki and UMH that no notice was given by UMH under Section 8.2 of the License Agreement with respect to what occurred in the fall of 2000.
UMI designed and marketed wedding dressing in the spring of 2001, the fall of 2001, the spring of 2002 and thereafter. UMI made no attempt to send designs or promotional materials to Kivimaki for her approval after October 2000. Specifically no such items were sent to Kivimaki in April 2001, October 2001 or April 2002.
There is a dispute about whether UMI was excused from sending such items because Kivimaki was no longer at the address provided in the License Agreement, and because the law firm listed as a possible alternative recipient was no longer representing Kivimaki. The details relating to this issue will not be described, because this matter is not dispositive in connection with what the court will rule.
What is dispositive is as follows. Kivimaki knew full well that the times for submitting designs and promotional materials under the License Agreement were April and October of each year. She received no submission for her approval in April 2001. She had a right, if she considered this to be a material default or breach of the License Agreement, and if she wished to terminate the agreement on that basis, to give notice under Section 8.2 of the License Agreement. She did no such thing. The same can be said with respect to October 2001. Kivimaki received no items for approval at that time and gave no notice of any default or breach. Kivimaki made no complaint of any kind in or about April 2001 or October 2001 with respect to the failure of UMI to make submissions for her approval.
The situation changed in April 2002. As already stated, UMI made no submissions to Kivimaki in April 2002. Under date of April 12, 2002 Kivimaki sent a letter to UMI — more specifically, to the parties designated in the License Agreement to receive notice on behalf of UMI. This letter was on letterhead bearing the name Ulla-Maija Holding LLC, with its address consisting of two attorneys at the law firm of Ballon Stoll Bader Nadler, 1450 Broadway, New York, NY 10018. The following shows the addressee and text of the letter.
Oxcal Ventures 17308 Avenida de la Herradura Pacific Palisades, CA 90272 Fax 310 454 9813 Attention: Steven A. Birnbaum, Director
Dear Sir:
As you already know, Ulla-Maija, Inc. has repeatedly failed to perform material obligations under the Licensing Agreement between Ulla-Maija Holding, L.L.C. and Ulla-Maija, Inc. dated May 5, 1997 (the Agreement), including but not limited to the obligation to manufacture and sell women's wear and accessories of certain design and quality standard, the obligation to be consistent with the prestige of the trade name "Ulla-Maija" when advertising and promoting the products subject to the agreement, an the obligation to obtain the approval of Ulla-Maija Holding, L.L.C. for all such advertising and promotional materials.
Therefore, you are hereby requested to immediately cease using the "Ulla-Maija" tradename and contact the undersigned upon receipt of this letter to discuss the materials mentioned above.
The apparent occasion for this April 12 letter was the fact that on April 10, 2002 an attorney for UMI had written Kivimaki complaining that Kivimaki was attempting to market wedding dresses by means of the improper use of the Mark, which had been licensed to UMI.
In any event, Steven A. Birnbaum, listed as an addressee of the April 12 Kivimaki letter, received that letter. He states that he received a faxed copy on April 29. There is no evidence of any receipt by or on behalf of UMI prior to that time. Birnbaum has stated that he attempted to call the attorneys listed on the letterhead to obtain more specifics as to the alleged problems, but that his call was not returned.
On May 14, 2002 Kivimaki sent a letter (using the same letterhead as was on the April 12 letter), stating
Oxcal Ventures 17308 Avenida de la Herradura Pacific Palisades, CA 80272 Fax No.: (310) 454-9813 Attention: Steven A. Birnbaum, Director
Dear Sir:
We previously sent you a letter informing you of Ulla-Maija, Inc.'s failure to perform material obligations under a Licensing Agreement (the "Agreement") with Ulla-Maija Holding L.L.C. dated May 5, 1997.
No attempts to cure having been made by Ulla-Maija, Inc. to this date, we are hereby terminating the Agreement.
Discussion
Defendants UMH and Kivimaki claim that the License Agreement was terminated because UMI breached the agreement and a proper notice was given under Section 8.2 of the License Agreement.The court disagrees. Section 8.2 essentially provides that a party claiming a breach must give notice and an opportunity to cure the breach lasting at least 30 days.
It is settled law, and surely a necessary interpretation of Section 8.2, that the notice must be specific enough so as to give the other party a reasonable opportunity to cure the breach if this can be done.
In the present case we are surely dealing with the kind of difficulty which UMI could have cured if there was indeed same failure of performance by UMI. UMI was perfectly able to design wedding gowns of the high quality contemplated under the License Agreement. UMI had produced such gowns for a number of years. To be sure, they had been designed by Kivimaki herself. However, there is no evidence whatever that the people remaining at UMI, after Kivimaki left, were incapable, or unwilling, to carry out the design function in an acceptable manner. The same is surely true as to promotional materials. There is not the slightest indication in the record that a notice, pointing out specific problems with design or production or promotional materials, would not have resulted in curative action. The fact is that no such notice was ever given. There was no notice at all until April 2002, and the purported notice at that time did not comply with the License Agreement.
This purported notice was the letter of April 12, 2002. However, it was stated in terms so general as to be meaningless insofar as providing an opportunity to cure any alleged breaches. The letter claimed the failure "to perform material obligations" under the License Agreement. These were said to include (but were not limited to) the obligation to manufacture and sell dresses "of certain design and quality standard." This gave no hint of what specific defects needed to be cured. Were they in the design? And, if so, in what way? Were there defects in the manufacture? If so, what? Nothing was specified. As to the promotional material, again there was the most general objection without any guidance as to what needed to be cured.
In connection with the obligation to obtain approval, all that is mentioned is advertising and promotional materials. Nothing was said about any failure to submit dress designs.
Also, the April 12, 2002 letter was wholly lacking in the essential feature required by the License Agreement — i.e., providing a 30-day period to cure defects. Instead, the letter demanded the immediate cessation by UMI of the use of the Mark. Since the License Agreement was a license of the Mark, the demand in the letter was for an immediate stop to the operation of the License Agreement.
The April 12, 2002 letter was followed by the May 14, 2002 letter, which remarkably complained about there being no attempts to cure, and stated that the License Agreement was terminated.
The court concludes that the April 12, 2002 letter was invalid as a notice, since it did not comply with what was required under Section 8.2 of the License Agreement. The May 14, 2002 letter was similarly invalid and did not effect a termination of the License Agreement.
The result is that the court dismisses by summary judgment the claim of UMH and Kivimaki that the License Agreement is terminated. That is the Third Counterclaim.
This leaves the issue of what remedy in favor of plaintiff is appropriate, and this issue must be dealt with in further proceedings. The court must determine whether there is a way for the License Agreement to continue with reasonable and good faith cooperation by Kivimaki in approving designs and promotional materials, as provided for in the agreement. On the other hand, it may be that Kivimaki has irreconcilably waived her right to have such items submitted to her for approval. These questions will be dealt with in further proceedings.
Conclusion
The motion of defendants Kivimaki, UMH, and Kivimaki, Inc. for summary judgment is denied. Plaintiff's motion is granted as to the Third Counterclaim, alleging termination of the License Agreement, and this counterclaim is dismissed. Otherwise plaintiff's motion for partial summary judgment is denied.
SO ORDERED.