Opinion
Index No. 651141/2023 Motion Seq. No. 001
01-02-2024
FINE CREATIVE MEDIA, INC. Plaintiff, v. BARNES & NOBLE, INC., Defendant.
Unpublished Opinion
MOTION DATE 10/16/2023
DECISION + ORDER ON MOTION
JOEL M. COHEN, J.S.C.
The following e-filed documents, listed by NYSCEF document number (Motion 001) 5, 6, 7, 8, 9, 10, 11, 12, 13, 14, 15, 16, 17, 18, 19,20,21 were read on this motion to DISMISS
This is a breach of fiduciary duty, breach of contract, and false advertising case. The dispute arises from a book Publishing Agreement ("Publishing Agreement") entered into by Plaintiff Fine Creative Media, Inc., ("FMC" or "Plaintiff) and Defendant Barnes & Noble, Inc., ("B&N" or "Defendant").
B&N moves to dismiss various claims asserted against it. For the reasons set forth below, the motion is granted with respect to Plaintiffs claims for breach of fiduciary duty, accounting, unjust enrichment, violations of GOL §§349 and 350, and breach of the implied covenant of good faith and fair dealing. The motion is denied with respect to Plaintiffs claims for breach of contract and declaratory judgment as to future royalties to be paid by B&N.
BACKGROUND
I. Factual Background
According to the Complaint, the factual allegations of which are assumed to be true for the purposes of this motion, the parties entered into a Production Agreement in 2001, which they amended in 2003 (NYSCEF 1 ["Compl."] ¶ 3; see also NYSCEF 8 ["Production Agreement"]). The agreement contemplated an arrangement under which FCM would, on behalf of B&N, manufacture reprints of book titles in the public domain that B&N would then market and sell in-house under the B&N Classics imprint ("B&N Classics") (Compl. ¶ 14). The parties mutually agreed on which titles FCM would manufacture and print, and FCM would then develop ancillary materials such as cover art, introductions, graphics, and other materials (id.). Under the Production Agreement, B&N provided FCM with a significant advance to defray FCM's initial production costs, and paid FCM on delivery of the titles, with the exact amount subject to a formula based on the final price paid by B&N customers (see Production Agreement §§7-9). Per the agreement, B&N also paid 33 percent of FCM's rent on office space in Manhattan, New York (Compl. ¶ 17).
In late 2019, B&N stopped placing orders for B&N Classics and ceased all communication with FCM. B&N instead began to publish different editions of largely the same public domain titles with a different manufacturer and under similar, but different, imprints ("B&N Competing Classics") (Compl. ¶¶ 27-31). B&N advertised and sold B&N Competing Classics on its website. FCM alleges that B&N included customer reviews of B&N Classics on the webpage for the B&N Competing Classics (Compl. ¶¶ 27-31).
The Production Agreement contemplates how the parties might proceed if B&N were to manufacture B&N Classics without FCM's involvement. Section 8(f) provides, in relevant part:
If B&N manufactures at its expense, or if FCM manufactures at the request of B&N, any product using the B&N Classics or substantially any part thereof. . . then B&N shall pay FCM a royalty and/or other payments, upon which B&N and FCM shall mutually agree in writing. Before B&N may undertake or cause the manufacture of any product pursuant to this Section 8(f), B&N and FCM, as a precondition, must first mutually agree in writing on the amount of the royalty and/or other payments that B&N shall pay FCM therefor.(Production Agreement § 8(f)).
Section 8(h) of the Production Agreement provides that "B&N's obligation to pay FCM royalties ... under Section 8(f) shall survive the termination of this Agreement for any reason or cause whatsoever and shall exist as long as proceeds from such products are caused by or paid to B&N or to another on its account or behalf." (Production Agreement 8(h)).
Finally, Section 11 of the agreement contains provisions regarding termination, including the terms under which B&N can terminate the Production Agreement, and royalty payments B&N must pay FCM if that occurs. Section 11 provides, in relevant part, as follows:
(a) If FCM consistently and materially fails to deliver titles hereunder (i) on a timely basis and/or (ii) which meet the Quality Standards set forth in Section 2(b) above, B&N shall have the right to provide FCM written notice detailing such deficiency. ... In the case of such termination, B&N shall pay FCM a royalty as set forth in Section 11(c) below....
(c) In the event B&N elects to terminate this Agreement pursuant to Section 11(a) above, B&N shall pay to FCM, subject to the exception below for sales under a B&N Promotion, a royalty equal to ten percent (10%) of the "List Price" for each B&N Classic title or conversion thereof printed or reprinted.. . . The royalty obligation under this Section 11(c) shall survive the termination of this Agreement for any reason or cause whatsoever and shall exist as long as proceeds from sales of printings or reprintings of any B&N Classics edition produced or previously developed by FCM under the First or Second Agreement or conversion thereof result from or are paid to B&N or to another on its account or behalf. . . . B&N's obligation to pay such royalty shall arise solely from B&N's printing or reprinting or causing such printing or reprinting of any B&N Classics edition produced or previously developed by FCM under the First or Second Agreement or conversion thereof, whether in whole or in part, and with or without ancillary materials, and shall arise as long as B&N prints or reprints or causes the printing or reprinting of such edition or conversion.(Production Agreement §§ 11(a), (c)).
FCM alleges three main breaches that give rise to eight causes of action. First, it alleges that B&N breached its fiduciary duty to FCM by ceasing and redirecting B&N Classics manufacturing to another producer. Second, and in the alternative, it alleges that B&N breached the Production Agreement by failing to perform its contractually obligation duties and not paying royalties to FCM. Finally, it alleges that B&N wrongly used customer reviews of B&N Classics to advertise competing editions of the same title.
II. Procedural Background
Plaintiff filed the Complaint on March 3, 2023. The Complaint contains eight causes of action: (1) breach of fiduciary duty, (2) breach of contract, (3) unjust enrichment, (4) breach of implied covenant of good faith and fair dealing, (5) violation of N.Y. Gen. Bus. Law Section §349, (6) violation of N.Y. Gen. Bus. Law Section §350, (7) accounting, and (8) declaratory judgment. (Compl. ¶¶ 42-96). Defendant now moves to dismiss the Complaint (NYSCEF 10). Oral argument was heard on October 25, 2023.
DISCUSSION
On a motion to dismiss pursuant to CPLR 3211(a)(7) for failure to state a claim, the court is to "accept the facts as alleged in the complaint as true, accord plaintiffs the benefit of every possible favorable inference, and determine only whether the facts as alleged fit within any cognizable legal theory" (Leon v Martinez, 84 N.Y.2d 83, 87 [1994]). "A motion to dismiss pursuant to CPLR 3211(a)(1) should be granted only where the documentary evidence that forms the basis of the defense utterly refutes the plaintiffs factual allegations, and conclusively disposes of the plaintiffs claims as a matter of law" (Nero v Fiore, 165 A.D.3d 823, 826 [2d Dept 2018]).
Further, a motion to dismiss under CPLR 3211(a)(7) on the ground that the pleadings fail to state a cause of action may be granted where a plaintiff has not stated a claim cognizable at law or to dispose of an action in which the plaintiff identified a cognizable cause of action but failed to assert a material allegation necessary to support the cause of action (Sud v Sud, 211 A.D.2d 423, 424 [2d Dept 1995]).
I. Breach of Fiduciary Duty and Accounting Claims
Defendant's motion to dismiss the first and seventh causes of action is granted because Plaintiff has failed to allege facts sufficient to establish that B&N owed a fiduciary duty to FMC. Plaintiffs argument that it was owed a fiduciary duty-which is not usually the case in an arms' length commercial transaction (Natl. Auditing Services & Consulting, LLC v 511 Prop., LLC, 211 A.D.3d 609, 610 [1st Dept 2022]) -is premised on the theory that the Production Agreement evidences a joint venture between the parties (Compl. ¶ 3).
A joint venture requires acts manifesting the intent of the parties to be associated as joint venturers, mutual contribution to the joint undertaking through a combination of property, financial resources, effort, skill or knowledge, a measure of joint proprietorship and control over the enterprise, and a provision for the sharing of profits and losses (Slabakis v Schik, 164 A.D.3d 454, 455 [1st Dept 2018] [citation omitted]). The parties need not use the term "joint venture" for a joint venture to be implied (Zeising v Kelly, 152 F.Supp.2d 335, 348 [SDNY 2001] ["[T]he actual term "joint venture" need not be employed by the parties, and such intent to enter into a joint venture may be either express or implied"] [applying New York law]).
In this case, the Production Agreement contemplates mutual contribution of financial resources, specialized knowledge, and joint decision making on some aspects of production of the B&N Classics titles, including which titles would be published. However, Plaintiff has failed to adequately plead that the Production Agreement contains a provision for the sharing of profits and losses. "[A]n indispensable essential of a . . . joint venture, both under common law and statutory law, is a mutual promise or undertaking of the parties to share in the profits of the business and submit to the burden of making good the losses." (Steinbeck v Gerosa, 4 N.Y.2d 302, 317 [1958]). Although "[a] joint venture does not require an equal sharing of profits or losses" (Dundes v Fuersich, 6 Misc.3d 882, 885 [Sup Ct, NY County 2004]), the obligation to share in some respect must be part of the arrangement.
Under the Agreement, Plaintiff receives two forms of payment for the "B&N Classics" books. First, B&N provided Plaintiff with a substantial advance to assist with the initial production costs, which was repaid by Plaintiff at the time of the books' delivery to B&N. Critically, there was no obligation for Plaintiff to return any of the advance if the B&N Classics business proved to be unsuccessful (Production Agreement §7(d)). Thus, B&N alone bore the risk that it would not recover its advance payments. Second, B&N pays Plaintiff a purchase price upon the delivery of the books to B&N, and the books are non-returnable (id. §6). Thus, if the books do not sell, only B&N bears the risk of loss.
Plaintiffs argument that the parties contemplated no losses is contradicted by Plaintiffs allegations that this was a highly competitive market. Furthermore, Plaintiff alleges that "if the [B&N Classics] line turned out to be unsuccessful, FCM assumed the risk that it would lose the value of its services and expenses incurred in developing and producing the B&N Classics." (Compl. ¶15). But this would be true of any agreement between a buyer and seller of goods. By contrast, in Dundes, which was found to involve a joint venture, the "arrangement contemplated that Dundes and [defendants] would take the risk that they would receive nothing for services performed by each of them, and the expenses both would incur, if sufficient revenues did not materialize" (6 Misc.3d at 883 [emphasis added]).
The Complaint in this case does not allege anything similar and is instead a straightforward contractual arrangement. In the absence of allegations showing the substance of a true joint venture, or some other basis for imposing fiduciary duties upon otherwise independent commercial entities, FCM's claim for breach of fiduciary duty and the related claim for an accounting must be dismissed.
II. Breach of Contract
Defendant's motion to dismiss the second cause of action for breach of contract is granted in part and denied in part. Plaintiff alleges that B&N breached Sections 8 and/or 11 of the Agreement by failing to pay Plaintiff a royalty on all sales of the B&N Competing Classics (Compl. ¶¶ 19, 38-39). To adequately allege a breach of contract claim, B&N must plead the existence of a valid contract, plaintiffs performance of its obligations, defendant's breach, and damages resulting from that breach. (Morris v 702 E. Fifth St. HDFC, 46 A.D.3d 478, 479 [1st Dept 2007]).
Contrary to Defendant's argument, the Complaint does not assert that B&N "must use FCM in perpetuity." Rather, the Complaint alleges that Sections 8(f) and 11(c) impose clear obligations, including the payment of royalties, in certain defined situations (Compl. ¶ 20).
a. Breach of Contract Pursuant to Section 8(f)
Defendant's motion to dismiss the breach of contract cause of action is denied with regard to Section 8 of the Production Agreement. Section 8(f) provides that, should B&N proceed without FCM in connection with manufacturing "any product using the B&N Classics or substantially any part thereof," B&N must first (as a "precondition") agree to a royalty that B&N must pay FCM for each such sale (Production Agreement§8(f)). B&N is correct that the Agreement does not place any limits on B&N's publication of public domain titles. However, that is not the relevant question.
The question is whether B&N, by publishing the B&N Competing Classics, is using the B&N Classics or substantially any part thereof. According to FCM, B&N breached Section 8(f) by manufacturing products that use a substantial part of the B&N Classics-namely, the 208 contractually-agreed-upon works themselves (Compl. ¶¶ 25, 39). Thus, under FCM's theory, Section 8(f) does not limit this contractual obligation to the use of the ancillary materials, or the reprinting of the specific "branded edition" published by FCM. Rather, B&N could not publish other versions of the 208 selected titles without paying FCM royalties. To be sure, it may ultimately be difficult for FCM to establish that the parties' agreement-which does not use terms such as "exclusive"-broadly locked B&N into working only with FCM on a broad catalogue of public domain titles, at pain of paying royalties on products in which FCM played no role. However, the language of the agreement does not utterly refute FCM's claims so as to warrant summary dismissal at this stage.
b. Breach of Contract Pursuant to Section 11
Defendant's motion to dismiss the breach of contract cause of action pursuant to Section 11 of the Production Agreement is granted. Plaintiff alleges that Section 11(c) provides that should B&N terminate the Agreement, B&N must pay a 10 percent royalty in connection with the sale of any "B&N Classic title" whether "in whole or in part, and with or without ancillary materials." Here, Defendant's argument that Section 11(c) is inapplicable because "B&N has not terminated the [] Agreement for cause under Section 11(a)" is persuasive.
Section 11(c) applies only "[i]n the event B&N elects to terminate this Agreement pursuant to Section 11(a) above ... ." Section 11(a) contemplates B&N's right to terminate "[i]f FCM consistently and materially fails to deliver titles." (NYSCEF 8 §8(f)).
Here, there is no dispute that B&N never gave FCM any notice of termination detailing any deficiency. It simply stopped making new orders. The contract does not mandate the B&N make new orders. Although FCM notes that Section 11(c) provides that the "royalty obligation under this Section 11(c) shall survive the termination of this Agreement for any reason or cause whatsoever," that is not the relevant question. In order for there to be a royalty obligation under 11(c) there must first be an 11(a) termination for cause. In this case, there was not. Accordingly, this prong of Plaintiff s breach of contract claim is dismissed pursuant to CPLR 3211(a)(1).
x Plaintiff argues that this interpretation supports the "absurd result" that FCM would be better off having breached the contract than not breaching. (NYSCEF 15, p. 16). That logic doesn't follow because FCM's royalty payments under a failure to perform would be only 10 percent, far below the value of their performance. (Production Agreement §11(c)).
III. Violation of GOL §§349 and 350
Defendant's motion to dismiss the fifth and sixth causes of action is granted. To plead a claim under N.Y. Gen. Bus. Law Sections 349 and 350, FCM must allege that B&N engaged in "(1) consumer-oriented conduct that is (2) materially misleading and that (3) plaintiff suffered injury as a result of the allegedly deceptive act or practice." (Koch v Acker, Merrall & Condit Co., 18 N.Y.3d 940, 941 [2012]; see also Lucker v Bayside Cemetery, 114 A.D.3d 162, 174 [1st Dept 2013]).
The complaint alleges that B&N's placement of positive reviews for the B&N Classics on product pages for the B&N Competing Classics is likely to deceive reasonable consumers into thinking that such positive reviews are applicable to the B&N Competing Classics and/or that there is an affiliation between the B&N Classics and the B&N Competing Classics (Compl. ¶ 34-35).
Even assuming this practice might in some circumstances mislead a purchaser of a B&N Competing Classic, any diversion of sales from B&N Classics to B&N Competing Classics does not cause injury to FCM. Under the parties' agreement, FCM has already been paid by B&N for the B&N Classics that are available for sale. Additional sales of B&N Classics would not inure to FCM's benefit unless and until they triggered B&N to order more books under the parties' agreement, which is speculative at best and not pleaded.
IV. Unjust Enrichment and Breach of the Implied Covenant of Good Faith and Fair Dealing
Defendant's motion to dismiss Plaintiffs causes of action for unjust enrichment and breach of the implied covenant of good faith and fair dealing is granted.
There is no dispute that the Production Agreement is a valid and binding agreement that governs the rights and obligations of the parties. In those circumstances, there is no viable quasi-contract claim for unjust enrichment (MG West 100 LLC v. St. Michael's Protestant Episcopal Church, 127 A.D.3d 624, 626 [1st Dept 2015] [dismissing unjust enrichment claim and stating that "a valid and enforceable written agreement governing the parties[sic] dispute,[] precludes recovery in quasi contract for events arising out of the same subject matter"]).
Similarly, FCM's purported claim for breach of the implied covenant of good faith and fair dealing is duplicative of its claim for breach of contract. It is based on the same allegations and seeks the same relief. Moreover, "the covenant of good faith and fair dealing cannot be used to add a new term to a contract" (D &L Holdings, LLC v RCG Goldman Co., LLC, 287 A.D.2d 65, 73 [1st Dept 2001]). Here, either B&N owes FCM royalties or other damages for breaching the agreement, or it does not. Accordingly, this claim is dismissed.
V. Declaratory Judgment
Finally, Defendant's motion to dismiss the eighth cause of action is denied. B&N makes no specific arguments regarding declaratory judgment, and FCM's declaratory judgment claim seeks to define the scope of B&N's obligations going forward. It is thus not impermissibly duplicative of the breach of contract claims (see Chiykowski v Goldner, 2020 WL 2834225, at *4 [SDNY 2020] [finding breach of contract and declaratory judgment not duplicative]).
Accordingly, it is
ORDERED that Defendant's motion to dismiss the Complaint is GRANTED as to counts one, three, four, five, six, and seven; GRANTED IN PART AND DENIED IN PART as to count two; and DENIED as to count eight; it is further
ORDERED that Defendant file an Answer within twenty-one (21) days of the date of this Order; and it is further
ORDERED that the parties appear for a preliminary conference on February 13, 2024, at 10:00 a.m., with the parties circulating dial-in information to chambers at SFC-Part3@nycourts.gov in advance of the conference.
If the parties agree on a proposed preliminary conference order in advance of the conference date (consistent with the guidelines in the Part 3 model preliminary conference order, available online at https://www.nycourts.gov/LegacyPDFS/courts/comdiv/NY/PDFs/Part3-PreliminaryConference-Order.pdf), they may file the proposed order and email a courtesy copy to chambers with a request to so-order in lieu of holding the conference.
This constitutes the Decision and Order of the Court.