Opinion
6546-04.
Decided August 15, 2005.
Grimes Battersby, LLP, New York, New York, Counsel for Plaintiff.
Law Office of Jack Segal LLP, Brooklyn, New York, Counsel for Defendants.
BACKGROUND
The following facts are not in dispute. Plaintiff, FM Precise Metals, Inc. ("FM"), and Defendant, Premier Innovation, LLC ("Premier"), entered into a written Agreement on April 8, 2002, by which FM Precise Metals gave Premier Innovation "the exclusive right and license to use, reproduce, manufacture, distribute and sell" licensed products using FM's proprietary artwork. Pursuant to the Agreement, Premier was required to pay a royalty of fifty cents ($.50) to FM for each unit sold. The royalty was to be calculated on a monthly basis and paid no later than 45 days after the end of the month. The Agreement also provided that:
"A Royalty obligation shall accrue upon the sale of the Licensed Products regardless of the time of the collection by Licensee."In addition, the Agreement required Premier to provide FM with written monthly statements which indicated the number of units sold, the quantity shipped and a gross invoice. The Agreement afforded FM a guaranteed minimum royalty of $100,000. The Agreement specifically provided:
" During each calendar year during the Term of this Agreement, LICENSEE [Premier] agrees to pay LICENSOR [FM] a Guaranteed Minimum Royalty as recited in Schedule A which may be credited against LICENSEE's actual royalty obligation to LICENSOR. The Guaranteed Minimum Royalty shall be calculated at the end of each calendar year. In the event that LICENSEE's actual Royalties paid LICENSOR for any calendar year are less than the Guaranteed Minimum Royalty for such year, LICENSEE shall, in addition to paying LICENSOR its actual earned Royalty for such Royalty Period, pay LICENSOR the difference between the total earned Royalty for the year and the Guaranteed Minimum Royalty for such year." (Emphasis added.)
Schedule A provides:
"The Guaranteed Minimum Royalty for each year during the Term or Extended Term of this Agreement shall be: ONE HUNDRED THOUSAND U.S. DOLLARS ($100,000.00)." (Emphasis in original.)
The Agreement provided that its term was to be one year from the date of its execution and that Premier's obligation commenced with the first shipment of July 1, 2002. It further provided that all royalty obligations, including the Guaranteed Minimum Royalty, would be accelerated and become due and payable upon expiration or termination of the Agreement. FM was entitled to interest on late payments at the rate of one percent (1%) per month from the date payments were due.
It is not disputed that Premier has paid no royalties nor has it rendered any monthly reports. Premier has conceded that some items were sold via an infomercial and others via a liquidation sale, albeit at a significant loss.
On this motion, FM seeks the minimum royalty for the calendar year 2002, along with interest at 1% per month and a minimum royalty for the calendar year 2003, along with interest at 1% per month. In so doing, FM seeks to have this Court interpret the Agreement to mean that if the term encompasses any portion of a calendar year, it is entitled to a minimum royalty of $100,000 for that year. That is, because the Agreement was in effect for some part of two calendar years, two minimum royalty payments of $100,000 are owed together with interest.
DISCUSSION
A. Plaintiff's Standing
Initially, Premier argued that FM did not have standing to prosecute this action. However, Premier has waived its objection to FM's standing. CPLR 3211(e) and (a)(3); Charles Offset Co., Inc., v. Hobart-McIntosh Paper Co., 192 AD2d 419 (1st Dept. 1993). In any event, FM has standing inasmuch as it is the assumed name for Pirnat Precise Metals, Inc., which Plaintiff has established is a valid New York Corporation.
B. Interpreting the Parties' Agreement
The Court of Appeals has enunciated the standard to be applied in cases such as this. In Vermont Teddy Bear Co., Inc. v. 538 Madison Realty Company, 1 NY3d 470 (2004), the Court of Appeals stated "when interpreting contracts, we have repeatedly applied the 'familiar and eminently sensible proposition of law that, when parties set down their agreement in a clear, complete document, their writing should . . . be enforced according to its terms.'" Id. at 475, quoting W.W.W. Assoc. v. Giancontieri, 77 NY2d 157, 162 (1990). The Court continued "[t]his rule [has] special import 'where . . . the instrument was negotiated between sophisticated, counseled business people negotiating at arm's length.'" Vermont Teddy Bear Co., Inc. v. 538 Madison Realty Company, supra at 475, quoting Matter of Wallace v. 600 Partners Co., 86 NY2d 543, 548 (1995). The question of whether an agreement is ambiguous is a question of law for the courts ( Kass v. Kass, 91 NY2d 554, 566; and Van Wagner Adv. Corp. v. S M Enters., 67 NY2d 162-3) to be determined by looking within the four corners of the document. . . ." Kass v. Kass, supra at 566, citing Van Wagner Adv. Corp. v. S M Enters., supra at 186, 191.
The Court of Appeals, in Kass, stated:
"And, in deciding whether an agreement is ambiguous, courts 'should examine the entire contract and consider the relation of the parties and the circumstances under which it was executed. Particular words should be considered, not as if isolated from the context, but in the light of the obligation as a whole and the intention of the parties as manifested thereby. Form should not prevail over substance and a sensible meaning of words should be sought.'" Supra at 566, quoting Atwater Co. v. Panama R.R. Co., 246 NY 519, 524 (1927).
In construing a contract, a court must avoid an interpretation that would leave contractual clauses meaningless. Two Guys from Harrison-N.Y., Inc. v. S.F.R. Realty Assocs., 63 NY2d 396, 403 (1984). Courts are often guided by the doctrine of "inclusio unius est exclusio alterius." Id. at 403-4. "[C]ourts may not by construction add or excise terms, nor distort the meaning of those used and thereby make a new contract for the parties under the guise of interpreting the writing (citations omitted)." Reiss v. Financial Performance Corp., 97 NY2d 195, 199 (2001). "A contract must be construed most strongly against the party who prepared it and favorably to a party who had no voice in the selection of its language (4 Williston, Contracts, § 621; 10 NY Jur, Contracts § 223)." 67 Wall St. Co. v. Franklin Nat. Bank, 37 NY2d 245, 249 (1975).
This Court noted in its decision dated August 25, 2004 that "Plaintiff was represented by counsel, and that he drafted the Agreement. . . ." Any ambiguity in the Agreement must accordingly be construed against Premier. Reckless v. Goldman, 12 AD3d 658 (2nd Dept. 2004); and Matter of Cowen Co. v. Anderson, 76 NY2d 318.
While the term "calendar year" is used in the Agreement where FM's right to a guaranteed minimal royalty is recited, it is not otherwise used, in the balance of the contract. In fact, the term "calendar year" is not used when the amount of the guaranteed minimum royalty is recited. Moreover, Nelson Goodman, a member of Premier, characterizes FM's interpretation of the Agreement as illogical. He attests that Premier would not have obligated itself to pay for two years of royalties for a one year agreement. He also notes that before commencing this action, FM itself only sought "a One-Hundred Thousand Dollar ($100,000) Guaranteed Minimum Royalty" by letter of January 20, 2004.
The inescapable conclusion is that this contract is ambiguous with regard to the period or periods during which FM is entitled to a guaranteed minimum royalty. Extrinsic evidence is needed to establish the intention of the parties. Maratea v. Greater Metropolitan Abstract Corp., 305 AD2d 381 (2nd Dept. 2003). See also, Comprehensive Health Solutions, Inc. v. Trustco Bank, National Ass'n., 277 AD2d 861 (3rd Dept. 2000); Emcee Personnel v. Morgan Lewis Bockius, LLP, 269 AD2d 353 (2nd Dept. 2000); and Barrow v. Lawrence United Corp., 146 AD2d 15 (3rd Dept. 1989).
Accordingly, it is,
ORDERED, that Plaintiff's motion for summary judgment is denied; and it is further,
ORDERED, that counsel for the parties shall appear for a pretrial conference on September 16, 2005 at 9:30 a.m. At that time, counsel shall be prepared to mark exhibits and otherwise comply with the pretrial rules of the Commercial Division.
This constitutes the decision and Order of the Court.