FDL, Inc. v. Simmons Company (S.D.Ind. 2003)

Full title: FDL, INC, Plaintiff, vs. SIMMONS COMPANY, UNITED SLEEP PRODUCTS DENVER…

Court: United States District Court, S.D. Indiana

Date published: Nov 17, 2003

CAUSE NO. IP01-1872-C-T/K (S.D. Ind. Nov. 17, 2003)

Opinion

CAUSE NO. IP01-1872-C-T/K

November 17, 2003

ENTRY ON MOTIONS FOR SUMMARY JUDGMENT ¹

1 This Entry is a matter of public record and may be made available to the public on the court's web site, but it is not intended for commercial publication either electronically or in paper form. Although the ruling or rulings in this Entry will govern the case presently before this court, this court does not consider the discussion in this Entry to be sufficiently novel or instructive to justify commercial publication or the subsequent citation of it in other proceedings.

JOHN TINDER, District Judge

Defendant Simmons Company ("Simmons") granted overlapping exclusive licenses to two companies, United Sleep Products, Inc. ("United") and FDL, Inc. ("FDL"), the latter of which has now sued Simmons and United. FDL has alleged claims for rescission, fraud, and lost profits on which Simmons has moved for summary judgment; and Simmons has counterclaimed for breach of contract, requesting $608,957 in minimum royalty payments allegedly due under the FDL License and an injunction obligating FDL to permit Simmons to conduct an audit of FDL's financial records as provided in the agreement. Simmons asks for judgment as a matter of law on these counterclaims as well. In addition, United moves for summary judgment on the claims instituted against it by FDL. The court has now considered the arguments and submissions of the parties and decides as explained below.

I. The Facts

A. The License Conflict

Simmons is a well-known manufacturer of mattresses, but part of its business consists in licensing various trademarks, including the Simmons^(tm) Brand, to other manufacturers. Such licensees pay Simmons royalties under agreements whose terms vary from license to license and which are negotiated between Simmons and the licensees. (Roca Aff. ¶ 10.)

United had been a Simmons licensee since 1996, with authority under the original United licensing agreement to use Simmons trademarks with respect to "futon mattresses, the covers therefor, and futon frames." (United License ¶ 1.) On June 1, 2000, Simmons and United agreed to an amendment of the United License, extending the definition of licensed "Products" to "non-upholstered furniture items sold to the consumer in unassembled, 'knock-down' form for assembly by the consumer ('ready to assemble' furniture)" (the "United Third Amendment").

FDL likewise became a Simmons licensee when the two companies entered into an agreement on October 1, 1999. Under the terms of the original FDL License, FDL had the right to use the Simmons trademark in connection with "seating furniture designed for office use and sold to retailers either specializing in office furniture products or carrying an office furniture line." (FDL License at 1.) That agreement was amended on January 30, 2001, to grant FDL the use of the Simmons trademark with respect to "seating furniture designed for office use, ready-to-assemble furniture for home office use, and other non-seating office furniture products and sold to retailers either specializing in office furniture products, carrying an office furniture line or carrying a line of office furniture for home use." (the "FDL Second Amendment" ¶ 2.)

Simmons concedes that the FDL Second Amendment overlaps with the United Third Amendment.² As Marco Roca, the Simmons Vice President of Contract Sales and Global Licensing, stated the conflict, the amendments overlap "in RTA [ready-to-assemble] rights for office and home office furniture." (Roca Aff. ¶ 22.) Scott White, formerly Vice President of National Accounts and Domestic Licensing for Simmons, handled negotiations for both the United Third Amendment (White Dep. at 80-81) and the FDL Second Amendment ( id. at 193-94). Simmons' attorney's drafted the license agreements and amendments. ( Id. at 91; Kesner Aff. ¶ 10.) White testified that he relied on legal counsel to review the amendment for conflicts with other licenses. (White Dep. at 87, 136, 199.) He specifically identified Arthur Jay Schwartz of Smith, Gambrell, and Russell LLP as an attorney from whom he sought advice with respect to the United Third Amendment. ( Id. at 195.) For his part, Schwartz denies that it was his firm's responsibility to vet the amendments for conflicts with other licensing contracts. (Schwartz Dep. at 30.) He testified that, in fact, White told him not to perform a conflicts review. According to Schwartz, White said that "he knew what he had to license and that we could rely upon him." ( Id. at 31.)

2 United, for its part, states that it has never sold any Simmons trademarked computer desks, office chairs, or other office or home office RTA furniture. (Sullivan Aff. ¶¶ 12-13.)

White testified that based on his understanding of the FDL Second Amendment and United Third Amendment, both then and now, there was no overlap between the two license agreements. White understood that the United Third Amendment gave United "the rights for unassembled, knock-down furniture for consumer purchase that related to the products that they were marketing, which was futon mattresses, covers and futon frames." (White Dep. at 91.) White admitted that his understanding of the agreement-that is, the restriction to futon mattresses, covers and futon frames-was not reflected in the terms of the United Third Amendment. ( Id. at 226.) White ceased to be an employee of Simmons in April 2001 when "his position was eliminated." ( Id. at 30, 57.)

B. Discovery of the Conflict

According to Roca, Simmons first become alert to the possibility of a conflict between the United Third Amendment and the FDL Second Amendment on May 24, 2001, when he received an e-mail inquiry from a representative of United as to whether another Simmons licensee was manufacturing RTA furniture. (Roca Aff. ¶ 18.) It appears that in late January or early February of 2001, White circulated a chart listing 2001 licenses on which FDL was depicted as holder of a license with respect to "RTA office, office desks" and United as holder of a license in connection with "RTA Furniture access." (Pl.'s Ex. 27.) Roca testified that he read the chart but at the time was not looking for a conflict and did not spot what he concedes is an overlap revealed by the chart. (Roca Dep. at 115.)

At the time Roca received the e-mail inquiry from the United representative in May 2001, he formed the opinion that the licenses were in conflict. (Roca Dep. at 311.) Roca notified company executives-Robert Hellyer (President) and William Cruikmeer (Executive Vice President)-of the potential overlap. ( Id. at 75.) Roca did not contact FDL with information of the conflict at that time because he believed it necessary to seek legal advice as to the accuracy of his belief. ( Id. at 81.) On or around May 24, 2001, Simmons contacted outside legal counsel (Arthur Jay Schwartz at Smith, Gambrell and Russell, LLP) to investigate a possible license conflict. (Roca Aff. ¶ 19.) On July 27, 2001, Roca received a letter from Schwartz expressing his opinion that a possible conflict existed between the FDL Second Amendment and the United Third Amendment. (Ex. E; Roca Aff. ¶ 20.) At an August 15, 2001 meeting with officers for FDL, Roca informed FDL of the overlap in license rights granted to FDL and United. ( Id. ¶ 22.) A representative of United spoke at the meeting by telephone. ( Id. 1f 23.) The parties were unable to reach an agreement, with FDL demanding and Simmons refusing to disclose on grounds of confidentiality the United License and the amendments thereto. (Kesner Aff. ¶ 26.) Simmons and FDL continued to make efforts to resolve the license overlap. (Roca Aff. ¶ 24.)³ According to Bradley P. Young, FDL's CFO, "Simmons continued to tell us that Simmons was going to solve the problem." (Young Aff. ¶ 21.) None of these efforts met with any success.

3 FDL makes much of Simmon's refusal to disclose the existence of a simultaneous license conflict with a second company, Healthstyle, however, FDL has not made any allegations in connection with a possible Healthstyle conflict and its relevance to this dispute is not readily apparent. Certainly the existence of a single additional conflict is not a sufficient basis on which to infer a pattern of fraud, if that is FDL's intent.

FDL filed suit in connection with the license conflict on December 10, 2001. FDL continued selling Simmons-branded products until at least the last part of 2001. (Young Aff. ¶ 20; Housman Dep. at 47; Striebel Aff. ¶ 13; see also Striebel Dep. at 165 (stating that FDL might be selling a few Simmons office chairs as of October 2002).) FDL continued to make royalty payments to Simmons through at least June 30, 2002. (Roca Aff. ¶¶ 56-59, 61.) As of his October 2, 2002, deposition, FDL's President, Steven Striebel, testified that FDL believed it had the exclusive right to sell Simmons office seating furniture and "would object to anybody selling what [FDL] thought [it] had the exclusive right for." (Striebel Dep. at 167-68.)

Thereafter, Striebel sent Simmons a letter dated October 29, 2002, declaring FDL's intention to rescind the FDL License. (Roca Aff. ¶ 28; Ex. F.) Simmons asserts that through a restated license agreement with United, effective March 24, 2003, it has eliminated the overlap in licenses and has notified FDL thereof. (Pl.'s Br. at 7; Roca Aff. ¶¶ 15, 29.) C. Effect of Conflict on FDL's Profits ⁴

4 FDL repeatedly asserts that FDL's Simmons sales were profitable, but then cites sales or revenues figures. (See, e.g., Pl.'s. Br. at 10.) That FDL generated $1.7 million in revenue from the sale of Simmons desks, and had $10.8 million in total Simmons RTA revenues in 2001, says nothing about the profitability of these sales-the only legally relevant question. The same is true of the claim that FDL lost sales of $100 million over the life of the FDL License. For this reason, Dr. Michael J. Etzel's opinion that FDL lost $56.6 million in office chair sales between 2001-2004 and $48 million in RTA furniture in that same period does not aid in the resolution of any material fact (except insofar as it supports a net profits calculation (see Schmitt Aff. ¶ 16). (Etzel Aff. ¶ 18.) Finally, both parties lavish attention on FDL's marketing and sales strategies, which may interest students of marketing, but are of no relevance to this lawsuit. Any success or failure in that respect will be reflected in profitability figures; thus, this subsection will focus on the submissions which bear on that question.

Based on calculations done by Bradley Young, CFO of FDL, and/or Mark Kesner, Vice President of Corporate Development for FDL, Steven Striebel, the President of FDL, testified on October 2, 2002, that the sale of Simmons products resulted in either a break-even or a loss in profits. (Striebel Dep. at 193.) As Young explained, "if you do a profit and loss on Simmons, there's a loss, not an income." (Young Dep. at 62-63.) Kesner likewise stated that while FDL had generated earnings with respect to individual Simmons-marked items, as a whole, "FDL has not made money." (Kesner Dep. at 178.)

FDL does not deny that it has lost money on the FDL License and Second Amendment. (Pl.'s Br. at 13.) Nonetheless, it still seeks lost profits. Based on the opinion of David Schmitt, an accountant with the accounting firm BKD, FDL maintains that the net loss on the sale of Simmons-branded chairs and other RTA furniture resulted from the payment of costs which were intended to be paid out over the life of the contract. (Schmitt Aff. ¶ 16.) If those costs were spread out as originally envisioned, the result, in Schmitt's estimation, would be a net profit of $19 million (most likely result) for the calender years 2001-2004. As Schmitt explained,

I also determined that as a result of the Simmons contract, FDL committed to costs that were intended to be paid out during the length of the contract. If those costs were paid for over the contract term, as had been anticipated, FDL's expected sales (even assuming no increase in sales), would have continued to generate net profits for FDL, if FDL continued to have the exclusive rights during the remainder of the contract. The payment of these long term costs without the Simmons sales anticipated in an exclusive arrangement is resulting in a loss of over $1 million for FDL on what was and should have been a profitable contract for both Simmons branded product lines [Simmons branded chairs and other RTA furniture].

( Id.) It appears that the FDL officers who testified that the FDL License resulted in a net loss for FDL have fallen into line with this explanation, as evidenced by the identical language in their affidavits. Striebel and Young attempt to clear up the apparent discrepancy with their prior deposition testimony by reference to this concept of long-term contract costs, which they claim produced the net loss calculation. (Striebel Aff. ¶ 14; Young Aff. ¶¶ 24, 25.)

Simmons correctly notes that Schmitt's opinion is based on a report which calculated expected net profits based on projected sales of Simmons branded products, which figure was taken from Dr. Etzel's projections of lost sales. (Etzel Aff. ¶ 18.) Simmons further argues that the April 30, 2003, report supporting Schmitt's opinion does not distinguish between Simmons branded chairs and RTA furniture, on the grounds that a licensing conflict exists only as to the latter. However, the United Third Amendment granted United the rights for all non-upholstered RTA furniture, and it is unclear why a "ready-to-assemble" chair would not fall in to that category. Thus, the licensing conflict would extend to such items. More seriously, Simmons submits that the second report (dated April 30, 2003) appended to Schmitt's affidavit contradicts his opinion as to net profits on the FDL License because that report lists a "Net Cumulative Loss." As Simmons observes, this term is not explained in the report. It may be that "Net Cumulative Loss" refers to that loss which would occur without taking into account projected sales over the contract term, but that is not evident from the report, and the court is not in a position to speculate. Nonetheless, even without the support of the April 30, 2003, report, Schmitt's opinion still has one leg to stand on in the form of the December 20, 2002, report. (Pl.'s. Ex. B.)

D. Attempted Audit

In the summer of 2002, Simmons notified FDL of its desire to perform an audit of FDL's financial records as provided for in the FDL License. (Def.'s Ex. A at 7.) After some delay, the parties arranged for a Simmons audit team to visit the FDL offices starting September 25, 2002. Prior to performing the audit, FDL asked the members of the audit team to execute confidentiality agreements which contained terms unacceptable to Roca. (Roca Aff. ¶ 50.) As a result, the Simmons audit team was not allowed to enter the premises and conduct the audit. Further attempts to resolve the differences between the parties have not resulted in an agreement as to the conduct of the audit.

II. Summary Judgment Standard

The court must grant summary judgment if there is "no genuine issue as to any material fact." Fed.R.Civ.P. 56(c). The standard for summary judgment is the same as that of a directed verdict, and thus is warranted where no rational jury or other trier of fact could render a verdict for the nonmovant. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986); Colosi v. Electri-Flex Co., 965 F.2d 500, 504 (7th Cir. 1992). A "metaphysical doubt" regarding the existence of a material fact will not defeat a motion for summary judgment, Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 474 U.S. 574, 587 (1986). Moreover, the moving party need not positively disprove the nonmovant's case, but may prevail by "pointing out to the district court" a lack of supporting evidence. Celotex Corp. v. Catrett, 477 U.S. 317, 325 (1986). The court's review of the record "requires that [it] construe all inferences in favor of the party against whom the motion under consideration is made." Metro. Life Ins. Co. v. Johnson, 297 F.3d 558, 561-62 (7th Cir. 2002) (citation omitted); see also Reeves v. Sanderson Plumbing Prods., Inc. 530 U.S. 133, 150-151 (2000) ("the court must draw all reasonable inferences in favor of the nonmoving party, and it may not make credibility determinations or weigh the evidence."). Therefore, in its consideration of the pending summary judgment motions, the court will draw all reasonable inferences in favor of FDL.

III. Discussion

A. Simmons' Motion for Summary Judgment

The court first addresses Simmons' motion for summary judgment. Simmons contends that summary judgment is warranted on FDL's rescission claims because FDL has affirmed the parties' contract and is bound by its terms. Simmons seeks summary judgment on FDL's fraud claim on the grounds that the alleged representations on which the claim is based are insufficient as a matter of law to establish fraud and FDL has no evidence of scienter. According to Simmons, the FDL License expressly precludes recovery of lost profits and consequential damages, and FDL's alleged lost profits are speculative and unrecoverable under governing law, so it is entitled to judgment as a matter of law on the lost profits claim as well. Simmons also seeks a judgment that FDL has affirmed the parties' contract and is responsible for its contractual obligations thereunder, including obligations to pay $608,957 in unpaid, past due, minimum royalties, and to allow Simmons to conduct a license audit to review FDL's past compliance with its royalty payment obligations.

1. Choice of Law

The first matter to be taken up is what substantive law governs the disputes between FDL and Simmons. A provision in the FDL License provides that Georgia law governs, and the parties agree that Georgia law is the applicable substantive law. Thus, this issue turns out to be the easiest to decide, and the court looks to Georgia law in deciding Simmons' motion.

2. Rescission

The next issue for decision is whether FDL affirmed or rescinded the FDL License. According to Simmons, FDL's rescission claims should be dismissed because Georgia law required FDL to choose between affirming the contract and seeking rescission, and FDL elected to stand on the contract. Simmons seeks a judgment that FDL has affirmed, and is bound by the terms of, the FDL License. FDL responds that it did not have to elect its remedies as the Federal Rules of Civil Procedure permit pleading of inconsistent theories, and, in addition, based on the facts of this case, it was reasonable for it to wait until October 2002 to seek rescission of the contract.

Simmons contends that the doctrine of election of remedies is procedural in nature and thus governed by federal law, citing Douglas Co. v. Abercrombie, 172 S.E.2d 419 (Ga. 1970), and Olympia Hotels Corp. v. Johnson Wax Development Corp., 908 F.2d 1363 (7th Cir. 1990). The doctrine of election of remedies has both a procedural and substantive aspect. The Douglas case addresses the procedural aspect of the doctrine, 172 S.E.2d at 40, which aspect was abolished by Federal Rule of Civil Procedure 8. The substantive aspect, however, was unaffected as it is used to prevent double recovery and is not merely a rule of pleading. See Am. Int'l Adjustment Co. v. Galvin, 86 F.3d 1455, 1467 (7th Cir. 1996); Olympia Hotels, 908 F.2d at 1371.

Simmons' argument is based on the substantive aspect of the doctrine of election of remedies, rather than the procedural aspect. This is because Simmons has not argued that FDL cannot plead inconsistent remedies, but rather that FDL has affirmed the contract.

Under Georgia substantive law, a party claiming fraudulent inducement has an election of remedies:

(1) promptly after discovering the fraud he may rescind the contract and sue in tort for recovery of the purchase price and for any additional damages resulting from the alleged fraud; [or] (2) he may affirm the contract and sue for damages resulting from the fraud.

Authentic Architectural Millworks, Inc. v. SCM Group USA, Inc., No. A03A1470, 2003 WL 21978115, at *1 (Ga.Ct.App. Aug. 20, 2003). If a party elects to affirm the contract, the party is bound by the contract's terms, including the provisions of a merger clause, and is subject to any defenses based on the contract. See id.; Lakeside Invs. Group, Inc. v. Alien, 559 S.E.2d 491, 494 (Ga.Ct.App. 2002), cert. denied; Worsham v. Provident Cos., 249 F. Supp.2d 1325, 1331 (N.D. Ga. 2002) (applying Georgia law).

As stated, if the party chooses to rescind the contract, the party must do so "promptly" after discovering the fraud. See, e.g., Kobatake v. E.I. DuPont De Nemours Co., 162 F.3d 619, 626 n. 10 (11th Cir. 1999) (applying Georgia law and concluding that almost two year delay between time plaintiffs learned of alleged fraud and brought action for rescission rendered rescission claim untimely as a matter of law); Holloman v. D.R. Norton, Inc., 524 S.E.2d 790, 795 (Ga.Ct.App. 2000) ("An announcement of the intent to rescind the contract must be made in a timely fashion, as soon as the facts supporting the claim for rescission are discovered."); Orion Capital Partners, L.P. v. Westinghouse Elec. Corp., 478 S.E.2d 382, 385 (Ga.Ct.App. 1996) (holding seven-month delay "too late as a matter of law to constitute an effective rescission or reasonable offer to rescind the agreement").

Georgia case law also holds that a party who seeks money damages for breach of contract in its initial pleading, only to seek rescission in subsequent pleadings has waived any claim to rescission and affirmed the contract. See, e.g., Authentic Architectural Millworks, 2003 WL 21978115, at *2 (holding that buyer who alleged fraudulent inducement waived claim for rescission and affirmed contract where buyer sought only money damages in initial pleading and did not seek rescission until after seller filed motion for partial summary judgment arguing that buyer had elected to affirm contract); Holloman, 524 S.E.2d at 795-96 (holding that plaintiffs waived right to a rescission of the contract at issue where "[t]he original complaint, by affirming the contract and seeking damages resulting from the alleged fraud without alleging any cause of action for rescission, constituted an election of remedies and a waiver of any rescission claim."); Nexus Servs., Inc. v. Manning Ironies, Inc., 410 S.E.2d 810, 811 (Ga.Ct.App. 1991) (describing rescission " as a condition precedent to the bringing of the action") (quotation omitted). Furthermore, if a party "knowingly accepts and retains any benefit under a contract which he has been induced to make by fraud, after he has knowledge of such fraud," then the party is deemed to have affirmed the validity of the contract. G. Mansour, Inc. v. Mansour's Inc., 503 S.E.2d 304, 306 (Ga.Ct.App. 1998); see also Mintz v. Barlow, 528 S.E.2d 306, 308-09 (Ga.Ct.App. 2000); Kobatake, 165 F.3d 619, 626 ("'in order to rescind, the defrauded party must promptly, upon discovery of the fraud, restore or offer to restore to the other party whatever he has received by virtue of the contract if it is of any value'") (quoting Ga. Code Ann. § 13-4-60).

The court concludes that FDL has affirmed the FDL License and waived any claim to rescission. First, FDL did not promptly rescind the contract after discovering the alleged fraud. The undisputed facts establish that FDL learned of the competing license to United in August 15, 2001; yet, FDL did not seek to rescind the contract until, at the earliest, the end of October 2002, more than fourteen months later. FDL maintains that because of an alleged cover-up by Simmons, it did not have all the facts of Simmons' alleged fraud and therefore it was reasonable to wait as it did to seek rescission. In making this argument, FDL concedes that Simmons advised it of the United contract in August 2001. FDL has offered nothing to raise an inference that the information provided by Simmons thereafter was essential for FDL to realize it had a fraud claim against Simmons. In fact, every indication is that long before October 2002 FDL believed it had a fraud claim against Simmons. FDL's counsel wrote a letter to Simmons, dated October 22, 2001, stating that it appeared that Simmons induced FDL to enter into the agreement (the FDL License) knowing that it could not fulfill its obligations thereunder. (FDL Ex. 30 at 1.) In addition, FDL has asserted a fraud claim against Simmons since the filing of its original complaint on December 10, 2001. Given the record before the court, no reasonable trier of fact could find that FDL sought rescission "as soon as the facts supporting the claim for rescission" were discovered. See Holloman, 524 S.E.2d at 795. Further, FDL's fourteen-month delay far exceeds the seven-month delay which was held by the Georgia court of appeals to be too late as a matter of law. Orion Capital Partners, 478 S.E.2d at 385.

Moreover, FDL's actions were inconsistent with a prompt attempt to rescind. FDL's original complaint, filed on December 10, 2001, asserted three claims for relief against Simmons: fraud, breach of contract, and misrepresentation, and sought money damages on all claims. The complaint expressly alleges that the agreement on which the claims are based, the FDL License, "is a valid contract." (Compl. ¶ 38.) The complaint contains no count seeking rescission and no allegation of the necessary elements of a claim for rescission. On April 22, 2002, FDL filed its Amended Complaint, which notably, like the original Complaint, alleges that the FDL License "is a valid contract" (Am. Compl. ¶ 38) and makes no claim for rescission. On November 22, 2002, FDL moved to amend and supplement its complaint; the motion was granted on December 31, 2002, and the Second Amended and Supplemental Complaint ("Second Amended Complaint") was deemed filed as of that date. Though the Second Amended Complaint seeks rescission of the FDL License, like the pleadings before it, this current complaint also claims that the FDL License "is a valid contract" (Sec. Am. Suppl. Compl. ¶ 64); alleges a breach of contract against Simmons arising from a breach of the FDL License and seeks money damages for that breach ( id. ¶¶ 37-42); and alleges that United induced Simmons' breach of contract ( id. ¶ 69).

Thus, like the parties in Authentic Architectural Millworks and Holloman, by first seeking money damages for breach of contract and only later seeking rescission, FDL has waived any claim to rescission and has affirmed the contract. FDL has repeatedly alleged in its pleadings in this case that the FDL License is valid and, even under the current complaint, continues to seek money damages for breach of that contract. In addition, the evidence establishes that FDL by its actions affirmed the FDL License after learning of the license overlap and bases for the alleged fraud. FDL continued to use Simmons trademarks, to sell Simmons trademarked products, and to make royalty payments for approximately one year after learning of the license overlap. Moreover, to this day, FDL maintains a breach of contract claim alleging Simmons breached the FDL License, and claims that the FDL License "is a valid contract." Not only that, but FDL also maintains its claims against United, all of which depend on the validity of the FDL License. And, finally, there is no evidence that FDL promptly restored or offered to restore to Simmons the benefits which it received under the FDL License.

Therefore, FDL's attempt to assert claims for rescission comes too late. The original complaint constituted an election of remedies, with FDL choosing to affirm the contract with Simmons and waive any claim of rescission. The court holds that FDL affirmed the FDL License and therefore is bound by its terms. Accordingly, the court finds that Simmons is entitled to judgment as a matter of law on FDL's claims for rescission.

3. Fraud

Simmons seeks summary judgment on FDL's fraud claim, contending that none of the six representations identified in the Second Amended Complaint allegedly made by Simmons constitutes actionable fraud. To establish fraud, FDL must prove that (1) Simmons made a false representation or omission of fact; (2) Simmons knew this representation was false (scienter); (3) by making this representation, Simmons intended to induce FDL to enter the agreement; (4) FDL justifiably relied on the representation; and (5) Simmons proximately caused FDL damage. See Looney v. M-Squared, Inc., 586 S.E.2d 44, 49 (Ga.Ct.App. 2003); Catrett v. Landmark Dodge, Inc., 560 S.E.2d 101, 103 (Ga.Ct.App. 2002).

Simmons claims that the representations identified in paragraphs 9, 10 and 11 of the Second Amended Complaint were not false when made, were statements of future intent, and/or are barred by the merger clause of the FDL License. FDL has not directly contested Simmons' position that none of these representations amounts to actionable fraud. This was a sound strategy because, for the reasons argued by Simmons, summary judgment should be granted Simmons on the fraud claim premised upon the alleged false representations identified in these paragraphs.

FDL alleges fraud in paragraph 14 of the Second Amended Complaint on the basis of an alleged oral representation by Scott White of Simmons to Mark Kesner of FDL in or about the fall or winter of 2000-2001 that "[1] Simmons had no knowledge of any rights of a third party that would be infringed by FDL's use of the Simmons Trademarks with respect to the SA [Second Amendment] Products and [2] that FDL would have the exclusive rights to the SA Products." (Sec. Am. Suppl. Compl. ¶ 14.) Simmons submits that the merger clause in the FDL License bars the fraud claim based on this oral representation.

FDL claims that the Second Amendment does not contain a merger clause. That agreement, however, expressly provides that "all terms and conditions of the License Agreement . . . shall remain in full force and effect without change." (Second Amendment ¶ 4.) The FDL License contains a merger clause which provides that the parties' written agreement "constitutes the entire agreement between Licensor and Licensee concerning its subject matter . . .[and] supersedes all prior agreements, correspondence, representations and writings regarding its subject matter." (Roca Aff., Ex. A, FDL License, ¶ 12(d).) FDL cites nothing to suggest that the merger clause of the FDL License has not remained in full force and effect despite the amendments to that agreement. And, by affirming the FDL License, FDL is now bound by its terms, including the terms of the merger clause. See, e.g., Authentic Architectural Millworks, Inc. v. SCM Group USA, Inc., No. A03A1470, 2003 WL 21978115, at *1 (Ga.Ct.App. Aug. 20, 2003); Lakeside Invs. Group, Inc. v. Alien, 559 S.E.2d 491, 494 (Ga.Ct.App. 2002), cert. denied.

FDL argues that a merger clause has no bearing where it is alleged that fraud procured the signing of the agreement at issue. But because FDL has affirmed the FDL License including the merger clause, FDL cannot now claim reliance on oral statements outside the contract. The Georgia Supreme Court has stated: "In written contracts containing a merger clause, prior or contemporaneous representations that contradict the written contract cannot be used to vary the terms of a valid written agreement purporting to contain the entire agreement of the parties, nor would the violation of any such alleged oral agreement amount to actionable fraud." First Data POS, Inc. v. Willis, 546 S.E.2d 781, 784 (Ga. 2001) (quotation omitted); see also Kobatake, 162 F.3d at 625-26 (explaining that a merger clause bars a plaintiff from asserting reliance on misrepresentations not contained in the contract); Conway v. Romarion, 557 S.E.2d 54, 58 (Ga.Ct.App. 2001) ("A merger clause . . . prevents a party from claiming reliance upon a representation not contained in the contract.") (quotation omitted), cert. denied.; D.L. Lee Sons, Inc. v. ADT Security Systems, Mid-South, Inc., 916 F. Supp. 1571 (S.D. Ga. 1995), aff'd, 77 F.3d 498 (11th Cir. 1996), relied on by FDL does not hold to the contrary. Therefore, "as a matter of law, a valid merger clause executed by two or more parties in an arm's length transaction precludes any subsequent claim of [fraud] based upon pre-contractual representations." First Data, 546 S.E.2d at 785.

In First Data, the Georgia Supreme Court considered a merger clause substantially similar to the merger clause at issue in this case. The clause provided: "[The] Agreement . . . constitutes the entire agreement between the parties with respect to the subject matter contained herein and supercedes all prior agreements and understandings, both oral and written by and between the parties hereto with respect to the subject matter hereof." Id. at 783. The court held that this merger clause precluded any post-contractual claims of theft by deception, fraud, or misrepresentation. Id. at 792. The court reasoned that, "[u]nder the express terms of the Agreement, [plaintiffs] could not have reasonably placed their reliance upon any pre-contractual representation that was not also included in the Agreement's language, and thus [plaintiffs] could not have been deceived by such pre-contractual representations." Id. at 785.

In the instant case, the merger clause in the FDL License provides in relevant part: "This Agreement constitutes the entire agreement between Licensor and Licensee concerning its subject matter. It supersedes all prior agreements, correspondence, representations and writings regarding its subject matter." (FDL License, ¶ 12(d).) Following the holding of First Data and applying the merger clause, any pre-contractual representations made by Simmons were superseded by the provisions in the FDL License, and FDL was on notice that the FDL License superceded all prior representations not contained within the FDL License. Thus, the court concludes that any reliance by FDL on pre-contractual representations would be unreasonable, and the merger clause bars FDL's fraud claim based on Simmons' oral representations.

Furthermore, the merger clause expressly provides that "[n]o amendment, modification or supplement . . . shall be binding unless executed in writing by both of the parties hereto." (Roca Aff., Ex. A, FDL License, ¶ 12(d).)) Given this language, which requires that all amendments be executed in writing by both FDL and Simmons and which is incorporated into the Second Amendment, FDL could not have reasonably relied on the oral representation alleged in paragraph 14 of the Second Amended Complaint. Therefore, the court finds that Simmons is entitled to summary judgment on FDL's fraud claim based on the oral representation alleged in paragraph 14.

As its next alleged false representation, FDL claims that the Second Amendment incorporated Simmons' representation that it had no knowledge of any rights which would be infringed by FDL's use of the Simmons Trademarks with respect to the Products and Second Amendment Products by any third party. The alleged incorporated representation is found in paragraph 8(b) of the FDL License, which states in relevant part that FDL:

represents and warrants that, as of the Effective Date, it has no knowledge of any rights held by third parties in the Territory that would be infringed by Licensee's use of the Trademarks . . . and has received no written threat from any third party to take any legal action against Licensor for such an infringement.

(FDL License, ¶ 8(b) (emphasis added).) The FDL License defines the "Effective Date" as "the 1^st day of October, 1999." ( Id. at 1.)

Simmons submits that the Second Amendment did not amend or modify the meaning of the "Effective Date," and, therefore, did not amend the representation in paragraph 8(b) of the FDL License. Simmons argues that even if the representation in paragraph 8(b) is incorporated into the Second Amendment the representation does not constitute actionable fraud since FDL has no evidence that it gave office chair rights or RTA rights to any other licensee prior to the "Effective Date" of October 1, 1999. FDL replies that Simmons offers an absurd view of the parties' intent-that the parties' agreement in expanding the Products covered by the license agreements in 2001 related only to the state of affairs in 1999. FDL relies on statements from the affidavit of Mark Kesner to establish that this was contrary to the parties' intent.

Although a representation by Simmons that as of the Effective Date, that is, October 1, 1999, it had no knowledge of any rights held by third parties in the Territory which would be infringed by FDL's use of the Trademarks which covered products including those for which FDL was not given a license by Simmons until January 30, 2001, may seem somewhat strange, this was exact representation made by Simmons in the Second Amendment through incorporation of paragraph 8(b) of the FDL License. Even if it would have been silly for FDL to sign the Second Amendment giving FDL rights to additional products and not to care whether Simmons had the rights to the additional products as of the date of the Amendment, when the unambiguous terms of the FDL License as amended by the Second Amendment are given their meanings under the FDL License, paragraph 8(b) does not suggest that Simmons made any false representation regarding any rights held by third parties as of the date of the execution of the Second Amendment, January 30, 2001. If FDL was seeking assurances that Simmons had the rights to the Products as of the date of the Second Amendment, no such assurance reasonably can be found in paragraph 8(b) of the FDL License. As Simmons submits, the Second Amendment did not modify the meaning of "Effective Date," and the Amendment provides that "[u]nless otherwise specifically defined . . . each term used herein that is defined in the License Agreement shall have the meaning assigned to such term in the License Agreement." (Second Amendment ¶ 1.) The Second Amendment does not otherwise define the term "Effective Date," which term is defined in the License Agreement as "October 1, 1999."

A court should not rewrite a contract. See, e.g., Fernandes v. Manugistics Atlanta, Inc., 582 S.E.2d 499, 503 (Ga.Ct.App. 2003); Fantastic Fakes v. Pikwick Int'l, 661 F.2d 479, 484 (5th Cir. 1981). In the instant case, FDL urges an interpretation on the court which would rewrite the parties' agreement as to the meaning of "Effective Date," a meaning which was unchanged by the Second Amendment. FDL seeks an interpretation that not merely expands the meaning of the express language of the agreements, but contradicts it.⁵ Both FDL and Simmons are sophisticated business entities represented during negotiations at all times by able counsel. Therefore, FDL's request that the court rewrite the parties' agreement as to the meaning of the term "Effective Date" is declined.

5 In contrast, the Fantastic Fakes court implied a condition precedent into the parties' copyright agreement, rather than rewriting the meaning of an expressly defined term in the agreement.

FDL offers no evidence that Simmons gave office chair rights or RTA rights to any other licensee prior to the "Effective Date" of October 1, 1999. Therefore, the court concludes that Simmons should be granted summary judgment on the fraud claim premised upon the representation in paragraph 8(b) as incorporated by the Second Amendment.

FDL further bases its fraud claim on the Second Amendment's alleged incorporation of paragraph 1(b) of the FDL License which paragraph provides that Simmons "shall not, nor shall it license another to, market, distribute or sell any of the Products under the Trademarks within the Territory during the Term[.]" (FDL License, ¶ 1(b).) According to FDL, this representation was false at the time the Second Amendment was executed by the parties.

Though FDL fails to cite to the specific language in the Second Amendment which reasonably can be interpreted as incorporating this representation made by Simmons in the FDL License, such language exists:

NOW, THEREFORE, for and in consideration of the premises and the mutual promises and covenants contained herein for other good and valuable consideration, the receipt, adequacy and sufficiency of which is hereby acknowledged, the parties hereto agree. . . .

(Second Amendment at 1) (emphasis added). The Second Amendment expressly provides that "[e]ach reference to . . . 'herein,' and 'hereby' . . . and each reference to this 'Amendment' or this 'Second Amendment' shall from and after the date hereof refer to the License Agreement, as amended by this Second Amendment." ( Id.) "License Agreement" means "the Initial License Agreement as amended by the First Amendment," ( id.) and the "Initial License Agreement" means "that certain Trademark License Agreement dated as of October 1, 1999[,]" ( id.), that is, the FDL License. Thus, the language "for and in consideration of the premises and the mutual promises and covenants contained herein" means "for and in consideration of the premises and the mutual promises and covenants contained" in the Initial License Agreement as amended by the First Amendment and by the Second Amendment. One premise of the Initial License Agreement is that "[Simmons] shall not, nor shall it license another to, market, distribute or sell any of the Products under the Trademarks within the Territory during the Term". (FDL License, ¶ 1(b).) Therefore, the "Now, Therefore" paragraph of the Second Amendment reasonably can be read as incorporating the representation made in paragraph 1(b) of the FDL License.

Simmons maintains that the representation made in paragraph 1(b) was a statement of future intent and therefore not actionable as fraud. Although the use of the term "shall" describes a promise of future intent, see Moore v. Scottsdale Ins. Co., 891 F. Supp. 613, 618 (M.D. Ga. 1995) (applying Georgia law), a "promise to perform some future act is not fraud unless made with the present intent not to perform or with a present knowledge that the future event will not take place." Simpson Consulting, Inc. v. Barclays Bank PLC, 490 S.E.2d 184, 188 (Ga.Ct.App. 1997) (emphasis added). Simmons argues that FDL has not alleged that it did not intend to abide by this aspect of the FDL License when the Second Amendment was executed. That omission is not fatal to FDL's fraud claim, however. FDL has alleged facts sufficient to show that Simmons had the present knowledge that the future event would not take place-it could not, as Simmons already had given the overlapping license to United. This undisputed fact also raises a reasonable inference that Simmons did not have a present intent to perform the promised future act.

In its brief in response to Simmons' summary judgment motion, FDL asserts for the first time that Simmons made a false representation in paragraph 2 of the Second Amendment which states, essentially, that Simmons had the exclusive right to use the trademarks in connection with certain products, including RTA furniture. FDL argues that this statement was false because Simmons already had granted United the rights to use the trademarks to RTA furniture. Simmons objects to FDL's effort to allege a fraud claim based on this statement because it is not alleged in the complaint and maintains that FDL waived any right to assert such a claim based because it has amended its pleadings and at no time added this new allegation. FDL responds that it should be allowed to amend its complaint. The court agrees with FDL.

First of all, though the Second Amended Complaint does not specifically allege a fraud claim based on the representation in paragraph 2 of the Second Amendment, the representation is closely related to the others which are pled as the bases for FDL's fraud claim, see, for example, paragraphs 10, 11, 14, 15 and 16 of the Second Amended Complaint, relying on paragraphs 1(b) and 8(b) of the FDL License and the alleged oral representation by Scott White to FDL that Simmons had no knowledge of any rights of third party which would be infringed by FDL's use of the trademarks and that FDL would have the exclusive rights to the SA Products. The Second Amendment is a very short document, not even two full typed pages, less the parties' signatures; thus, the representations in paragraph 2 are not buried away. So it seems that the failure to include the statement in paragraph 2 of the Second Amendment as a basis for the fraud claim in FDL's pleadings was due to an oversight.

Furthermore, Simmons has not shown that it would suffer any real prejudice if FDL is permitted to pursue a fraud claim based on the representation in paragraph 2. Discovery remains open, and the court will allow FDL to renew its motion for summary judgment with respect to this aspect of FDL's claims. Thus, this case is unlike those cited by Simmons in which discovery had closed, see Bethany Pharmacal Co. v. QVC, Inc., 241 F.3d 854 (7th Cir. 2001), or final judgment had been entered, see Doe v. Howe Military School, 227 F.3d 981 (7th Cir. 2000). Under Rule 15 of the Federal Rules of Civil Procedure, leave to amend "shall be freely given when justice so requires." Fed.R.Civ.P. 15(a). That is the situation here. Therefore, the court ORDERS that FDL has ten days from this date within which to amend its current complaint to plead fraud and negligent misrepresentation claims based upon the statement made in paragraph 2 of the Second Amendment and Simmons has forty-five days from this date within which to renew its motion for summary judgment with respect to this single aspect of the fraud and negligent misrepresentation claims.

Simmons urges that it nonetheless is entitled to summary judgment on the fraud claim because FDL has no evidence from which an intent to defraud reasonably could be inferred. Under Georgia law, "[w]here there is no evidence of scienter, that is, that the false statement was knowingly made with false design, there can be no recovery." Coffee Butler Serv., Inc. v. Sacha, 430 S.E.2d 149, 151 (Ga.Ct.App. 1993) (quotation omitted); see also Day v. Randolph, 283 S.E.2d 687, 688 (Ga.Ct.App. 1981) ("An innocent misstatement may amount to negligence but it is not fraud."). Simmons claims that Scott White, the only Simmons' employee involved in the negotiations of both the FDL and United license agreements, testified that he did not intend to defraud FDL and there is no other evidence from which one could reasonably infer that any representation by Simmons was made with the intent to deceive. Simmons, however, cites no evidence to directly support its claim as to White's testimony (though White testified that he did not believe that there was any overlap between the rights granted under the FDL Second Amendment and the United Third Amendment).

Rather, Simmons asserts that White relied on legal counsel to draft the licenses and amendments and to identify and prevent any product overlaps among licenses. Simmons offers White's deposition testimony for support ( see, e.g., White Dep. at 87); however, FDL has offered evidence to raise a genuine issue of material fact regarding White's reliance on legal counsel. FDL submits the deposition testimony of Arthur Jay Schwartz, employed by Simmons' then legal counsel, Smith, Gambrell and Russell, LLP, who testified that the law firm was not given a complete set of license agreements and Simmons was aware of this; the firm was directed not to review contracts for conflicts; and the firm was specifically advised by White and others including Simmons' Executive Vice President Cruikmeer not to check potential contracts and amendments for conflicts with existing contracts and amendments; and White told the firm to rely on him to know what license rights Simmons had and what Simmons had the right to license. (Schwartz Dep. at 15-19, 29-31.)

Simmons acknowledges that under certain circumstances, the scienter sufficient to support a fraud claim may be based on a reckless representation:

A reckless representation not known to be true can constitute fraud the same as if known to be false and made to deceive; to recklessly represent facts as true to deceive, when it is not known whether or not such facts are true, is fraud as a matter of law, while a knowingly false representation is fraud in fact.

Smiley v. SJ Invs., Inc., 580 S.E.2d 283, 289 (Ga.Ct.App. 2003) (citing Boroughs v. Belcher, 85 S.E.2d 422 [, 422-23] (Ga. 1955); McDonald v. Mullins, 29 S.E.2d 507 [, 508] (Ga. 1944)), cert. denied. According to Simmons, however, FDL has no evidence that White knew the falsity of a representation he made and upon which he intended FDL to rely. The evidence, Simmons submits, is that he believed every statement he made to FDL was accurate and he had read the documents and concluded that they were not in conflict.

"Except in plain and indisputable cases, scienter in actions based on fraud is an issue of fact for jury determinations." Farmers State Bank v. Huguenin, 469 S.E.2d 34, 37 (Ga.Ct.App. 1996) (citation omitted) (holding trial court erred in granting summary judgment on fraud claim where jury could infer that the attorney defendant intentionally failed to disclose a cloud on title where he "failed to notice" that certificates of title he prepared did not reveal the reservation of rights to a grantor of a deed he had prepared less than three months earlier); see also Bill Spreen Toyota, Inc. v. Jenquin, 294 S.E.2d 533, 537 (Ga.Ct.App. 1982) ("What one may not do is to turn his head away and blind himself to the truth of a falsity of a condition which he recklessly represents to his own advantage."). This is not a plain case in which the jury could draw but one reasonable inference.

When all reasonable inferences from the evidence are drawn in FDL's favor, a reasonable jury could find that Simmons through White knew, or recklessly failed to learn the truth or falsity of the representation to FDL: (1) in the paragraph 2 of the Second Amendment that Simmons had the exclusive right to use the trademarks in connection with certain products, including RTA furniture, and (2) in the Second Amendment's incorporation of paragraph 1(b) of the FDL License asserting that Simmons "shall not, nor shall it license another to, market, distribute or sell any of the Products under the Trademarks within the Territory during the Term." Cf. Bill Spreen Toyota, 294 S.E.2d at 537. If the jury believes the testimony of Schwartz and disbelieves White's testimony, it could find that Simmons blinded itself to the truth or falsity of the above representations made to FDL.

Simmons maintains that White made a mistake about the legal significance of the licenses when he checked for conflicts and such a mistake is not fraudulent or reckless as a matter of law. In Cotton States Mutual Insurance Co. v. Booth, 157 S.E.2d 877 (Ga.Ct.App. 1967), the court observed the general rule "that fraud cannot be predicated upon misrepresentations of law or misrepresentations as to matters of law." Id. at 879. The fraud claim in that case was based on alleged fraudulent misrepresentations made by the plaintiff's agents to the defendant about the legal effect of the terms of an agreement prior to the parties' execution of the agreement. The defendant relied on the agents' representations and executed the agreements without reading them. Id. at 878. In contrast, here, the statements in the FDL License and Second Amendment are not mere expressions of opinion as to the legal effect of the license agreements, but rather are representations in the license agreements themselves. Furthermore, nothing in the record suggests that FDL could have read all license agreements that Simmons had entered into in order to ascertain for itself whether the representations in the license agreements were truthful and accurate. Therefore, whether these representations at issue were made with the necessary scienter is for a jury to determine.

4. Negligent Misrepresentation

FDL alleges that Simmons' statements, if not intentionally false, were negligent misrepresentations. Simmons seeks summary judgment on this claim as well, arguing that any such claim based on a statement made outside the parties' written agreements is barred by the merger clause of the FDL License. Simmons is correct on this point. See Salinas v. Skelton, 547 S.E.2d 289, 294 (Ga.Ct.App. 2001) (purchaser estopped by merger clause from asserting reliance on alleged fraudulent misrepresentation not contained in contract), cert. denied. The other arguments advanced by Simmons-that the alleged negligent misrepresentations were either (1) not false, or (2) statements of future intent-fail to achieve summary judgment on the negligent misrepresentation based on the same statements that survive summary judgment as to the fraud claim. 5. Lost Profits

It is argued by Simmons that the express terms of the FDL License bar FDL from recovering damages for lost profits. Simmons further argues that FDL's claim for lost profits cannot be accurately ascertained and is speculative and, therefore, is unrecoverable under Georgia law. More specifically, Simmons urges that paragraph 8 of the FDL License addresses the rights and remedies available to either party in the event of a dispute and precludes either party from recovering lost profits or other consequential damages, regardless of the type of action or claim between them. FDL counters that paragraph 8 applies only to claims or actions for indemnification. Because this lawsuit contains no indemnification claims, the provision relied on by Simmons is inapplicable, according to FDL.

Simmons takes the better view. Its reliance on paragraph 8(b) is not persuasive as the court doubts that FDL has incurred a claim within the meaning of that provision. But this issue need not be decided because Simmons also relies on paragraph 8(g), which provides: "Limitation of Damages . Neither party should be liable hereunder to the other for any lost profits, loss of business, or other indirect, consequential or special damages of any nature whatsoever." (FDL License ¶ 8(g) (emphasis added)). Although this provision is contained within the section entitled "Indemnification," the court agrees that its application extends beyond indemnification claims. The provision logically could have been placed in the "Miscellaneous" section, but FDL cites no authority for the proposition that the placement in the "Indemnification" section alone controls the determination of whether the provision applies to the indemnification claims only. And, although the FDL License contains no provision stating that the section titles are not controlling, FDL offers nothing to establish that the section titles are legally determinative, or that they override the substantive terms of the license provisions. Case law supports the conclusion that the section titles of the FDL License are not controlling. See United States v. Leslie, 350 U.S. 383, 389 (1956) (construing a commercial instrument and concluding that the "essential characteristics" of the instrument controlled "regardless of their descriptive caption"); Swiss Bank Corp. v. Dresser Indus., 942 F. Supp. 398, 401-02 (N.D. III. 1996) (applying Delaware law). Though the court has found no case applying Georgia law on point, the Georgia legislature has expressly stated that with respect to the Georgia code, the descriptive headings of the individual code sections "do not constitute part of the law and shall in no manner limit or expand the construction of any Code section." Ga. Code Ann. § 1-1-7. It is reasonable to infer that the same result would obtain with regard to whether the descriptive titles of sections in contracts are controlling under Georgia law.

FDL also asserts that subparts (a) through (f) of paragraph 8 all pertain to indemnification actions only, but this assertion is not entirely correct. While paragraphs 8(a)-(c) and 8(e)-(f) appear to relate to indemnification only, paragraph 8(d) is not so limited. That paragraph provides:

(d) No Right of Set-off. Except as specifically provided in Section 8(c), all royalty payments and other amounts due to Licensor by Licensee hereunder shall be made without deduction and may not be set-off against by Licensee for any amounts which Licensee may claim are due Licensee, whether by indemnification or otherwise.

(FDL License ¶ 8(d) (emphases added)). The last phrase in this paragraph, "whether by indemnification or otherwise" expressly reveals that the paragraph's application is not limited to indemnification only. In addition, the use of the term "hereunder" in the paragraph further indicates that the paragraph is not limited to indemnification only. "Hereunder" is expressly defined by the FDL License as amended by the Second Amendment as follows:

Unless otherwise specifically defined herein, each term used herein that is defined in the License Agreement, shall have the meaning assigned to such term in the License Agreement. Each reference to . . . "hereunder," . . . shall from and after the date hereof refer to the License Agreement, as amended by this Second Amendment.

(Second Amendment ¶ 1.) Thus, the reference in paragraph 8(d) to royalty payments and other amounts due "hereunder" means royalty payments and other amounts due under the License Agreement, as amended by the Second Amendment, and the paragraph's application extends beyond indemnification.

Moreover, the terms of paragraph 8(g) establish that the bar on recovery of lost profits and other consequential damages extends beyond indemnification. The paragraph provides in pertinent part: " Limitation of Damages . Neither party should be liable hereunder to the other for any lost profits. . . ." (FDL License ¶ 8(g) (emphasis added)). As stated, the Second Agreement defines "hereunder" to mean the FDL License as amended by the Second Amendment. Therefore, paragraph 8(g) provides that neither party may be held liable under the License Agreement, as amended by the Second Amendment, to the other for any lost profits. Simmons' position that the paragraph is limited to indemnification only runs counter to the plain meaning of the language employed by the parties in the license agreement.

As well, other provisions in paragraph 8 reveal that the parties were fully capable of limiting particular provisions to particular situations or paragraphs when they chose to do so. For example, paragraph 8(a) specifically excludes paragraph 8(b) from the reach of the former paragraph. Another example is paragraph 8(c), which specifically provides that disputes under paragraph 8(b) may be resolved by arbitration and further provides that "[t]his paragraph 8(c) shall be strictly limited to matters as specified above regarding paragraph 8(b). No other disputes shall be subject to arbitration." (FDL License ¶ 8(c).) And, paragraph 8(f) states that the parties' obligations "pursuant to paragraph 8" survive the termination or expiration of the license agreement under certain situations. ( Id. ¶ 8(f).) Such language within paragraph 8 demonstrates that the parties were able to and did in fact limit the application of particular provisions to particular situations or paragraphs when they so desired. Thus, the absence of an express limitation of paragraph 8(g)'s preclusion of liability for lost profits or other consequential damages to indemnification claims only is telling of the parties' intent.

The terms of paragraph 8(g) are not ambiguous, so the court need not and cannot consider the extrinsic evidence offered by FDL. FDL contends that Simmons' interpretation is contrary to the law because a provision limiting damages applies only to the provision in which the limitation is contained. None of the cases cited by FDL, however, see Department of Transportation v. Arapaho Construction, Inc., 349 S.E.2d 196 (Ga.Ct.App. 1986), aff'd, 357 S.E.2d 593 (Ga. 1987); Novatel Communications, Inc. v. Cellular Telephone Supply, Inc., 856 F.2d 51 (11th Cir. 1988); or Willoughby Roofing Supply Co. v. Kajima Int'l, Inc., 776 F.2d 269 (11th Cir. 1985), support FDL's position that the provision precluding liability for lost profits or other consequential damages is limited to indemnification claims simply because the provision is contained within a section entitled "Indemnification."⁶

6 The provision at issue in Arapaho was a termination provision which provided in relevant part:

A. General: [Appellant] may, by written notice, terminate the Contract or a portion thereof when [appellee] is prevented from proceeding with the Contract as [a] direct result of one of the following conditions:. . . .

B. Implementation: When, under any of the above conditions, the Contract, or any portion thereof, is terminated before completion of all Items of work in the Contract, payment will be made for the actual number of Units or Items of work completed at the Contract Unit Price, or as mutually agreed for Items of work partially completed or not started. No claim for loss of anticipated profits shall be considered.

Arapaho, 349 S.E.2d at 198. The court held that the termination provision was inapplicable because the appellant had breached the contract and breach of contract was not one of the conditions referred to in the provision. Id. The provision at issue in Novatel provided as follows:

Warranties. Novatel's sole warranty with respect to the sale of the products shall be that for a period of twelve (12) months after the date of the shipment of the products to distributor, the products shall meet Novatel's published specifications regarding the products ("specifications"). Except as exclusively set forth in this paragraph, Novatel does not make any express or implied warranties, including, but not restricted to, the implied warranty of title and the implied warranties of merchantability and fitness for a particular purpose. Novatel's sole liability for this warranty shall be to repair or replace, at its option, any of the products not in compliance with the specifications and under no circumstances shall Novatel's liability exceed the dollar amount of the purchase price paid by distributor for any products not in compliance with the sole warranty set forth herein. Distributor agrees that any modifications or alterations made by anyone other than Novatel or any misuse, accident, negligence, or abnormal conditions of operations of any kind of the products will void all warranties made by Novatel. In no event shall Novatel be liable for any tort damages or indirect, special, general, incidental or consequential damages, including but not limited to loss of profits or anticipated profits. This paragraph shall supersede any paragraphs of this agreement which are inconsistent herewith.

Novatel, 856 F.2d at 154 n. 3. The court concluded that the warranty provision only pertained to repair remedies which were available to the purchaser in the event of a breach of warranty and did not extend to unrelated claims for breach of contract. Id. at 155. Similarly, the terms of the provision at issue in Willoughby limited only the remedy for termination of the contract to actual damages; the provision did not also limit the remedy available for breach of contract or for fraud. Willoughby, 776 F.2d at 270. In contrast, paragraph 8(g) at issue here does not limit the remedy available to any particular type of claim or action.

Paragraph 8(g) is arguably an exculpatory clause, see Imaging Sys. Int'l, Inc. v. Magnetic Resonance Plus, Inc., 490 S.E.2d 124, 128 (Ga.Ct.App. 1997) ("provisions severely restricting remedies act as exculpatory clauses"), and therefore "must be clear and unambiguous . . .[and]. . . specific in what [it] purport[s] to cover, and any ambiguity will be construed against the drafter of the instrument." Dep't of Transp. v. Arapaho Constr., 357 S.E.2d at 594 (quotation omitted). The court finds that the paragraph is clear, unambiguous and specific in precluding any and all liability of either party under the License Agreement as amended by the Second Amendment to the other party for lost profits, loss of business, or other indirect, consequential or special damages of any nature whatsoever. Paragraph 8(g) is not limited to indemnification claims or actions only.

Therefore, the court concludes that paragraph 8(g) precludes FDL from recovering lost profits from Simmons in this action.⁷ Simmons is entitled to summary judgment on FDL's claim for lost profits.

7 Given the conclusion that FDL is not entitled to consequential damages under the FDL License, the court need not address whether FDL otherwise would be entitled to lost profits under Georgia law.

6. Unpaid Minimum Royalties

Simmons contends that under the FDL License, FDL was obligated to make a minimum royalty payment of $700,000 during the third contract year, which expired on September 30, 2002, making the payment due no later than October 30, 2002. Because the evidence establishes that FDL made royalty payments of $91,043 during the third contract year, Simmons maintains that is entitled to summary judgment on its claim for the outstanding minimum royalty payment due of $608,597.

FDL responds that Simmons' material breach bars its recovery under the FDL License. This argument is not persuasive.

A material breach [of a contract] does not automatically and ipso facto end a contract. It merely gives the injured party the right to end the agreement. . . . If he elects instead to continue the contract, the obligations of both parties remain in force and the injured party may retain only a claim for damages for partial breach.

Merrill Stevens Dry Dock Co. v. M/V YEOCOMICO II, 329 F.3d 809, 816 (11th Cir. 2003) (quotation omitted) (rejecting defendant's argument that plaintiff's negligence constituted a breach of contract nullifying the contract's terms where the defendant chose to complete the contract); see also Dunkin' Donuts of Am., Inc. v. Minerva, Inc., 956 F.2d 1566, 1571 (11th Cir. 1992); Grady-Gould Watershed Improvement Dist. v. Transamerica Ins. Co., 570 F.2d 720, 723 (8th Cir. 1978) (stating that "[i]t is clear that a party to a contract may waive a breach of contract by the other party, even a material breach, and then be liable for his own subsequent breach"). Decisions applying Georgia law are in accord. Martin v. Rollins, Inc., 231 S.E.2d 751, 752-53 (Ga. 1977) ("recovery by a plaintiff who is in substantial breach of the contract . . . has long been allowed"); Travel Prof'ls Int'l, Inc. v. Access Travel Inc., 508 S.E.2d 197, 200 (Ga.Ct.App. 1998) ("'even a party who has himself breached a contract . . . is entitled to recover damages as against the other party who has failed in his contractual obligations.'") (quoting Pooler v. Taylor, 328 S.E.2d 749, 753 (Ga.Ct.App. 1985)).

The court has determined that FDL elected to affirm the FDL License. Thus, the terms of the FDL License remain in effect and FDL remains bound by those terms, including the provision requiring it to make minium annual royalty payments to Simmons. See Authentic Architectural Millworks, Inc. v. SCM Group USA, Inc., No. A03A1470, 2003 WL 219781 15, at *1 (Ga.Ct.App. Aug. 20, 2003); Lakeside Invs. Group, Inc. v. Alien, 559 S.E.2d 491, 494 (Ga.Ct.App. 2002), cert. denied. Likewise, FDL is bound by the provision of the FDL License stating that it has no right of set-off: "Except as specifically provided in Section 8(c), all royalty payments and other amounts due to Licensor by Licensee hereunder shall be made without deduction and may not be set-off against by Licensee for any amounts which Licensee may claim are due Licensee[.]" (FDL License ¶ 8(d).) The provisions of paragraph 8(c) appear inapplicable to the disputes in the instant case: There is no indication in the record of FDL's compliance with the terms of paragraphs 8(b) and 8(c). Thus, the court concludes that under paragraph 8(d), the unpaid minimum royalty payments due Simmons may not be set-off against any damages FDL claims based on Simmons' breach of contract.

The cases cited by FDL do not support its position that Simmons may not recover the unpaid minimum royalty payments. In the cases cited, there was no indication that the party injured by the initial breach had affirmed or ratified the contract following the initial breach by the other party, as did FDL in this case. See Friedman v. Goodman, 151 S.E.2d 455, 460 (Ga. 1966) (holding that where co-owners entered into lease agreement with lessees providing for exclusive possession of property without execution by or authorization of other co-owner, lease was not binding on lessees who did not take possession of the leased property and lessors were not entitled to recover rent from lessees); Am. Net, Inc. v. U.S. Cover, Inc., 532 S.E.2d 756, 760 (Ga.Ct.App. 2000) (holding sublessee's attempt to renew lease agreement with landlord was ineffective where landlord terminated lease agreement following sublessee's default), cert. denied; Smith v. Monroe, 60 S.E.2d 790, 793-94 (Ga.Ct.App. 1950) (holding paragraph of defendant's answer insufficiently pled set-off as it failed to itemize expenses); Tiedman v. Am. Pigment Corp., 253 F.2d 803, 807 (4th Cir. 1958) (holding that where plaintiff failed to perform conditions precedent to defendant's obligations to pay royalties, the defendant's obligation to pay royalties never arose and plaintiff's claims to royalties failed); Titus v. Rheitone, Inc., 758 N.E.2d 85 (Ind.Ct.App. 2001), trans. denied; Liocci v. Cardinal Associates, Inc., 492 N.E.2d 48 (Ind.Ct.App. 1986), trans. denied.

FDL also argues that its claims are inextricably intertwined with Simmons' counterclaims, so it would be improper for the court to enter judgment on the counterclaims. Neither Marathon v. S. Realties v. Kalb, 260 S.E.2d 85 (Ga. 1979), nor Aukerman v. Witner, 568 S.E.2d 123 (Ga.Ct.App. 2002), requires the denial of summary judgment on Simmons' counterclaim for past due minimum royalty payments. Neither case involved a term prohibiting set-off, whereas, the FDL License provides that the royalty payments due Simmons may not be set-off against any amounts claimed by FDL.

FDL submits that it is unfair for Simmons to seek the unpaid minimum royalty payments because FDL did not get the trademark rights and was prevented from selling the products covered by the license agreements. The evidence, however, refutes FDL's claim. FDL was granted a license to use the Trademarks on the Products covered by the FDL License. The license, as it turns out, was not exclusive as United had been granted overlapping rights. The evidence does not support a finding that FDL on learning of Simmons' breach promptly restored or offered to restore to Simmons the benefits which it received under the FDL License. Instead, the undisputed evidence reveals that FDL continued to reap benefits from the FDL License: FDL continued to use Simmons trademarks and to sell Simmons trademarked products, and to this day, its pleadings allege that the FDL License "is a valid contract." Interestingly, FDL also continued to make royalty payments for approximately one year after learning of the license overlap, which seems inconsistent with its current position that it is not obligated to make such payments. Under these circumstances, FDL has not shown that it would be unfair to require it to live up to its agreement to make minimum royalty payments.

Finally, the question of whether FDL waived a material breach by Simmons is not at issue. Waiver of a material breach by another party is different from the issue of whether a party's obligation under the contract continues following a material breach by one party and affirmation of the contract by the injured party. The court has not concluded that FDL waived any breach by Simmons; FDL's breach of contract claim against Simmons remains.

Therefore, the court accordingly finds that Simmons should be granted summary judgment on its counterclaim against FDL for the remaining unpaid minimum royalty payment for the third contract year of $608,957.

7. Audit

Finally, Simmons seeks summary judgment on its counterclaim for injunctive relief and/or a declaratory judgment requiring FDL to permit Simmons to conduct an audit of FDL's records in accordance with paragraph 7(c) of the FDL License. FDL's response is three-fold. First, it argues that Simmons refused the opportunity it was given to inspect FDL's records. FDL also maintains that because it provided in this litigation the very documents it would have provided to Simmons in an audit, another audit is unnecessary. Lastly, it is submitted that Simmons has not established the elements necessary for the issuance of an injunction.

Paragraph 7(c) provides:

(c) Maintenance of Records . Licensee shall maintain and preserve, for at least two years after any royalty payments are made, complete and accurate records sufficient to determine such royalty payments hereunder, in accordance with generally accepted accounting principles applied on a consistent basis. Licensor shall be permitted access to such records at any time during normal business hours on 30 days' prior written notice to Licensee not more frequently than once per Contract year. If an audit of Licensee's books by an independent certified public accountant shows an underpayment to Licensor of greater than three percent (3%), then, in addition to the payment of the underpayment and interest, License will also pay the entire costs incurred by Licensor in performing the audit. Licensor shall keep confidential any proprietary information of Licensee that it acquires in the course of any such audit using the same standard of care that Licensor applies to its own confidential information.

(FDL License ¶ 7(c).) It is undisputed that Simmons gave FDL notice of its intent to conduct an audit in 2002, and each time FDL attempted to impose additional conditions on the audit. Because Simmons would not agree to the additional conditions, the audit was not performed. In effect, by demanding Simmons to execute a separate confidentiality agreement, FDL unilaterally seeks to change the confidentiality aspect of paragraph 7(c) regarding audits. It has offered no authority to establish its legal right to do so, and none is apparent. Indeed, the FDL License expressly provides that in order to be binding, an amendment to the agreement must be in writing and signed by both parties. (FDL License ¶ 12(d).) Furthermore, FDL has not shown that its provision of documents to Simmons in this litigation should be treated as the equivalent as satisfaction of its obligation to allow the audit described in paragraph 7(c). By arguing that an audit has been rendered unnecessary, FDL essentially seeks to unilaterally amend the audit provision. Therefore, the court concludes that FDL is obligated under paragraph 7(c) of the FDL License to permit Simmons to conduct a license audit as described in paragraph 7 of the License.

FDL argues that Simmons "has not shown any of the elements necessary" for an injunction. When considering whether to grant injunctive relief, a court must consider: "(1) whether the [party seeking injunctive relief] has a reasonable likelihood of success on the merits; (2) whether [that party] will have an adequate remedy at law or will be irreparably harmed if the injunction does not issue; (3) whether the threatened injury to [that party] outweighs the threatened harm the injunction may inflict on the [opposing party]; and (4) whether the granting of the injunction will harm the public interest." Plummer v. Am. Inst. of Certified Pub. Accountants, 97 F.3d 220, 229 (7th Cir. 1996). Where, as here, Simmons seeks a permanent rather than preliminary injunction, the first factor is modified, and the party seeking the injunction must show that it has in fact succeeded on the merits. Plummer, 97 F.3d at 229.

Simmons has established that FDL is obligated under the FDL License, specifically paragraph 7(c), to maintain certain records and permit Simmons access to such records as well as an audit by an independent certified public accountant. Yet, Simmons has failed to address the remaining factors, even in its reply brief when it had the opportunity to respond to FDL's argument that this was a ground for denying the injunctive relief sought.

Furthermore, it has been said that in seeking injunctive relief: "the moving party must convince the court that relief is needed: The necessary determination is that there exists some cognizable danger of recurrent violation, something more than the mere possibility which serves to keep the case alive.'" Cummings v. Connell, 316 F.3d 886, 897 (9th Cir. 2003) (quoting United States v. W.T. Grant Co., 345 U.S. 629, 633 (1953)), cert. denied, 123 S.Ct. 2577 (2003). Given the court's ruling in this entry that FDL's obligation to submit to a Simmons audit pursuant to paragraph 7(c) of the FDL License remains in force and effect, and the granting of summary judgment on this counterclaim, the court fully expects FDL to allow Simmons to conduct the requested audit as provided by paragraph 7(c). Therefore, Simmons is entitled to summary judgment in its favor on its counterclaim for an audit, but Simmons has not convinced the court that an injunction is necessary.

B. United's Motion for Summary Judgment

In comparison, disposition of United's motion for summary judgment is easy. FDL has not contested United's motion directly and offers no evidence to raise a dispute regarding United's presentation of the facts. FDL argues that it has not had an opportunity to take certain discovery, but its response stops short of making a proper Rule 56(f) motion. FDL did not submit any affidavits stating why it could not present facts essential to justify opposition to United's motion, and FDL has not indicated any facts that if proven could affect the outcome of that motion. United's motion for summary judgment is well-taken; FDL's claims against United are meritless. FDL is unable to show that United had any knowledge of or complicity in Simmons' misconduct. Therefore, for many of the reasons advanced by United in its supporting brief, United's motion for summary judgment will be GRANTED.

IV. CONCLUSION

For the foregoing reasons, Simmons' motion for summary judgment will be GRANTED IN PART and DENIED IN PART consistent with this entry: Simmons will be GRANTED summary judgment on FDL's claims for rescission and lost profits; on the fraud and negligent misrepresentation claims premised upon the representations identified in paragraphs 9, 10, 11, 14 and 15 (but not paragraph 16) of the Second Amended Complaint as well as on Simmons' counterclaims for the remaining unpaid minimum royalty payment due for the third contract year and for an audit as described in paragraph 7(c) of the FDL License. Also, United's motion for summary judgment will be GRANTED and judgment for United will be entered on FDL's Second Amended Complaint.

In addition, it is ORDERED that FDL has ten days from this date within which to amend its current complaint to plead fraud and negligent misrepresentation claims based upon the statement made in paragraph 2 of the Second Amendment and Simmons has forty-five days from this date within which to renew its motion for summary judgment with respect to this single aspect of the fraud and negligent misrepresentation claims. FDL shall have fifteen days from service of Simmons' renewal within which to file and serve a brief responding to the renewal, and Simmons shall have seven days from service of FDL's response within which to file and serve a reply brief. If Simmons chooses not to renew its summary judgment motion as allowed herein, it should promptly notify the court and opposing counsel.

Because some of these interrelated claims remain for trial, as discussed above, no final judgment will be entered until all claims have been adjudicated to conclusion. It would be inefficient to allow the potential for multiple appeals to arise from this single series of acts.

ALL OF WHICH IS ENTERED.