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observing that clear contractural language does not become ambiguous simply because one party urges the court to adopt a varying interpretation
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99 Civ. 12409 (RMB) (AJP)
December 9, 2002
REPORT AND RECOMMENDATION
This dispute arises from the 1997 agreement by which plaintiff New Paradigm Software Corp. sold a computer program called "Copernicus" to defendant VIE Systems, Inc. for over $2 million plus a continuing 5% royalty on future Copernicus business. Defendant New Era of Networks, Inc. ("NEON") acquired VIE's stock in April 1999. Plaintiff New Paradigm has sued defendants for breach of contract and tortious interference with contract for allegedly failing to market Copernicus while marketing similar computer software without royalty payment to plaintiff. Presently before the Court is defendants' summary judgment motion.
For the reasons set forth below, defendants' summary judgment motion should be GRANTED.
FACTS
John Brann, then a New Paradigm employee, designed and created the Copernicus computer software program in or about 1992. (Dkt. No. 29: Brann Aff. ¶ 1; Dkt. No. 29: Bludell Aff. ¶ 2.) New Paradigm registered a trademark for Copernicus and applied for a patent for Copernicus (which was issued after the sale to VIE). (Brann Aff. ¶ 3; Bludell Aff. ¶ 15.)
"Copernicus is an adaptable software program which enables any computer program running on any computer system to share its information with any other computer program on any other computer system in the format required by the other program without the need for programming. . . . Copernicus is known as a `formatting' or a `dynamic formatting' product because it integrates disparate or different formats so that information can be shared." (Brann Aff. ¶ 2; accord, Bludell Aff. ¶ 3.)
New Paradigm's Sale of Copernicus to VIE
By agreement dated May 9, 1997, New Paradigm sold Copernicus to VIE. (Golenbock Aff. Ex. 2:5/9/97 VIE-New Paradigm Agreement (hereafter, "Agreement"). VIE was created to acquire Copernicus. (Dkt. No. 29: Signorelli Aff. Ex. C: LeGoff Dep. at 24-25; Signorelli Aff. Ex. C: Hirschberg Dep. at 15, 51-52.)
The Agreement provided that on the "Closing Date," New Paradigm would sell Copernicus (and related tangible and intangible assets) to VIE. (Agreement, Article 1.) VIE agreed to, and did, pay $2,050,000 to New Paradigm on the Closing Date. (Agreement, § 2.1; LeGoff Dep. at 29.) The closing was scheduled to take place on June 20, 1997 (Agreement, § 4.1), but in fact took place on or about July 15, 1997 (Bludell Aff. ¶¶ 4, 15; Brann Aff. ¶ 3).
Because the parties desired that VIE begin marketing Copernicus immediately, even before the Closing Date, they agreed that VIE would immediately begin marketing Copernicus on behalf of New Paradigm until the Closing Date. (Agreement, Article 3.) Article 3 of the Agreement is entitled "Contemporaneous Actions and Deliveries; Other Agreements." (Agreement, Article 3.) Because section 3.2(a) is key to certain issues in this lawsuit, and because the parties' papers selectively quote from it, the Court quotes it in full:
3.2 Operation of the Business. (a) Commencing with the date hereof, Seller [New Paradigm] hereby irrevocably appoints Buyer [VIE] as its exclusive agent to operate the Business on behalf of Seller, including, without limitation, the exclusive right to develop, market, license and support the Programs and to service, on a subcontract basis, the IBM Agreement and all of the Assumed Contracts (as hereinafter defined). Between the date hereof and the Closing (and thereafter if the Closing shall occur), Seller shall not incur any obligations, grant any licenses, contract on behalf of or otherwise take part in any of the operations of the Business without the prior written consent of Buyer. In connection therewith, Buyer agrees to perform, in accordance with the terms thereof, the unperformed and unfulfilled obligations of Seller to perform maintenance and support services from and after the date hereof under the IBM Agreement and the Assumed Contracts, and to assume those contractual liabilities of Seller specifically listed on Schedule 3.2 hereto (the "Assumed Liabilities"). Except for the Assumed Liabilities (and from and after the Closing Date, those liabilities specifically listed on the Liabilities Undertaking), Buyer shall not assume or be responsible for any debts, commitments, obligations or liabilities of Seller of any nature whatsoever. Buyer also agrees that (i) it will not amend the IBM Agreement or any of the Assumed Contracts until such time as such contract shall have been assigned to Buyer, or incur any contractual obligation on behalf of Seller without Seller's prior written consent if Seller would be required to assume, perform or satisfy such obligation in the event that the Closing does not occur, and (ii) it shall commence a reasonable sales effort with respect to the licensing of the COPERNICUS Programs and shall otherwise conduct the Business in a commercially reasonable manner. Without in any way limiting Buyer's rights under the License Agreement, the foregoing authorization shall terminate in the event that the Closing shall not occur within one hundred eighty (180) days from the date hereof.
(Agreement, § 3.2(a), emphasis added.)
Article 10 provided that the "Agreement and all rights of Buyer [VIE] shall be assignable to one or more subsidiaries or affiliates of Buyer," but that "[s]uch relieve Buyer of its obligations" under the Agreement. (Agreement, § 10.2.) It further provided that the Agreement was governed by New York law (Agreement, § 10.4), and that the Agreement was the parties' full agreement, i.e., an integration clause:
10.7 Entire Agreement. This Agreement sets forth the entire understanding of the parties hereto in respect of the subject matter hereof and may not be modified, amended or terminated except by a written agreement specifically referring to this Agreement signed by all of the parties hereto. This Agreement supersedes all prior agreements and understandings among the parties with respect to such subject matter.
(Agreement, § 10.7.)
In addition to the up-front payment of $2,050,000 at Closing, the Agreement provided for a royalty of 5% of net revenue starting on the first anniversary of the Closing Date. (Agreement, § 2.1(c) Schedule 2.1(c), § 1.) The Agreement allowed VIE to combine Copernicus with other computer programs, and the royalty would be on the proportional fee allocated to Copernicus in such combination product. (Agreement, Schedule 2.1(c), § 1.) The Royalty schedule limited VIE's ability to change its pricing policy on Copernicus in a way to reduce the royalty:
According to New Paradigm, the 5% royalty "was agreed to by the parties as a substitute for the granting of a 10% equity interest to New Paradigm in VIE. The substitution of the Royalty for the 10% equity interest was reflected in two preliminary term sheets that were drafted prior to the execution of the Agreement." (Bludell Aff. ¶ 6; see also Signorelli Aff. Ex. C: Hirschberg Dep. at 20 (she vaguely recalls such a discussion but Mr. Bludell of New Paradigm changed his mind).)
From and after the Closing Date, Buyer agrees not to materially alter its pricing policies with respect to the sale, license or distribution of the COPERNICUS Programs for purposes of reducing or otherwise negating its obligation to pay the Royalty to Seller (for example, by increasing its charges for maintenance fees or consulting services at the expense of license fees so as to reduce the Net Revenue calculation).
(Agreement, Schedule 2.1(c), § 1.)
The Royalty schedule gave VIE an option to terminate royalty payments on or before the fourth anniversary of the Closing Date, for a payment of $1 million (less royalties already paid):
4. Royalty Termination Right. Notwithstanding anything to the contrary contained herein, Buyer [VIE] shall have the right, in its sole and absolute discretion, to cause an immediate termination [sic] its obligation to pay any future Royalty to Seller [New Paradigm] hereunder, if at any time on or prior to the fourth (4th) anniversary of the Closing Date, Buyer provides written notice to Seller of its intention to effect its termination right hereunder and pays to or for the benefit of Seller, together with such termination notice, an amount equal to the greater of (a) all Royalties previously paid to Seller (or accrued as payable as of the date of such notice) pursuant to the provisions of this Schedule 2.1(c) and (b) $1,000,000 (the "Termination Payment"). Seller shall have the obligation to accept such Termination Payment when tendered. Upon tendering of the Termination Payment, Buyer's obligation to pay any Royalty accruing from and after the date the Termination Payment is tendered to Seller shall immediately cease and be of no further force or effect.
(Agreement, Schedule 2.1(c), § 4.)
Finally, the Royalty schedule provided that if VIE transferred its rights to an unrelated third party that did not assume VIE's royalty obligations, VIE was required to pay New Paradigm the equivalent of the above Royalty Termination Payment (i.e., the $1 million less royalties already paid):
5. Sale of the COPERNICUS Programs. (a) In the event that at any time prior to the fourth (4th) anniversary of the Closing Date, Buyer [VIE] shall transfer to an unrelated third party all of its rights and interest in and to the COPERNICUS Programs, and such purchaser does not assume, by operation of law or otherwise, the Royalty obligations hereunder, Buyer [VIE] shall be required to pay to Seller [New Paradigm], on or prior to the closing of such sale transaction, an amount equal to the Termination Payment.
(Agreement, Schedule 2.1(c), § 5(a).)
New Paradigm claims that "its understanding of this provision was that it applied to all transfers of Copernicus, no matter what the legal vehicle used by the parties and regardless of . . . whether actual legal title to Copernicus was transferred." (Bludell Aff. ¶ 12.)
NEON's Acquisition of VIE
On or about April 5, 1999, NEON acquired all of the stock of VIE for $12 million. (Signorelli Aff. Ex. D: NEON-VIE Share Acquisition Agreement.) Prior to the acquisition, NEON and its existing product NEONet competed with VIE and Copernicus. (Signorelli Aff. Ex. C: LeGoff Dep. at 48-49, 78-79; Signorelli Aff. Ex. C: Hirschberg Dep. at 68.) New Paradigm concedes that "VIE ceased operating as a separate and independent entity upon its acquisition by NEON." (Brann Aff. ¶ 5.) Indeed, New Paradigm's complaint in this action alleges that "[a]s a matter of New York law and fact, NEON is a successor company to VIE," "by acquiring VIE, VIE and NEON have constructively merged together as a matter of New York law and fact," and "by acquiring all of the assets of VIE, . . . NEON is a mere continuation of VIE." (Dkt. No. 6: Am. Compl. ¶ 82.)
On April 12, 1999, NEON wrote to New Paradigm that NEON had assumed responsibility for VIE's royalty obligations to New Paradigm:
Pursuant to New Era of Networks, Inc. (NEON) purchasing VIE Systems, Inc. on April 6, 1999, NEON has assumed responsibility for paying New Paradigm Software Corporation all royalties due it under the Agreement of Purchase and Sale of Assets entered into by and between New Paradigm Software Corporation and VIE Systems, Inc. on May 9, 1997.
(Golenbock Aff. Ex. C: 4/12/99 NEON Letter to New Paradigm, emphasis added; see also Bludell Aff. ¶¶ 20-21; Signorelli Aff. Ex. B: NEON Press Release regarding VIE Acquisition.)
In August 1999, NEON decided that it would "phase out" Copernicus in favor of other NEON products (but would continue to support existing Copernicus customers). (Brann Aff. ¶¶ 6 Ex. A.) According to Brann, who moved with Copernicus from New Paradigm to VIE to NEON (Brann Aff. ¶ 1), "NEON was marketing software which was substantially similar to Copernicus in terms of what the products were designed to accomplish for users." (Brann Aff. ¶ 9.) New Paradigm's Amended Complaint in This Action New Paradigm's first claim (against both defendants) is for breach of contract for failure to make the $1 million Termination Payment. (Dkt. No. 6: Am. Compl. ¶¶ 84-91.) New Paradigm's theory is that "NEON merely purported to assume the royalty obligation but has not actually assumed VIE's royalty obligation under the Agreement," and thus the Termination Payment is due. (Am. Compl. ¶¶ 87, 89.)
New Paradigm's third cause of action (against NEON) is for tortious interference with the VIE-New Paradigm Agreement. (Am. Compl. ¶¶ 98-106.) New Paradigm seeks punitive damages on this claim. (Am. Compl. ¶ 106.)
New Paradigm's second claim (against NEON) is for breach of contract for failing to undertake a reasonable sales effort for Copernicus and failing to "abide by an implied covenant of good faith and fair dealing with regard to undertaking a reasonable and good faith effort at licensing Copernicus so as to generate the Royalty." (Am. Compl. ¶ 94; see also Am. Compl. ¶¶ 92-97.)
New Paradigm's fifth claim (against NEON) also is for breach of contract, for "licensing of products which are identical, virtually identical, or substantially similar to Copernicus but not under the name Copernicus and without paying 5% of the net revenues from such sales." (Am. Compl. ¶ 113; see also Am. Compl. ¶ 112-17.) In addition to royalties on the allegedly similar products, New Paradigm seeks punitive damages on this claim. (Am. Compl. ¶ 117.)
Finally, New Paradigm's seventh claim (against both defendants) seeks costs and attorneys' fees. (Am. Compl. ¶¶ 123-27.)
Judge Berman dismissed New Paradigm's fourth claim (unjust enrichment) and sixth claim (rescission) by Order dated July 26, 2000. New Paradigm Software Corp. v. New Era of Networks, Inc., 107 F. Supp.2d 325, 328-31 (S.D.N.Y. 2000) (Berman, D.J.).
Defendants have moved for summary judgment on all of New Paradigm's remaining claims. Judge Berman referred the motion to me for a Report and Recommendation on November 6, 2002. (Dkt. No. 33.)
ANALYSIS
I. STANDARDS FOR CONTRACT INTERPRETATION UNDER NEW YORK LAW
"It is black letter law that in a diversity action such as this, state substantive law applies." Contri v. Yellow Freight Sys., Inc., 92 Civ. 2603, 1996 WL 87237 at *2 (S.D.N.Y. Feb. 29, 1996) (Peck, M.J.) (citing Erie R.R. v. Tompkins, 304 U.S. 64, 78, 58 S.Ct. 817, 822 (1938)); accord, e.g. Aviation Dev. Co. v. CS Acquisition Corp., 97 Civ. 9302, 1999 WL 46630 at *6 (S.D.N.Y. Feb. 2, 1999) (Peck, M.J.), aff'd, 201 F.3d 430 (2d Cir. 1999). Here, the New Paradigm-VIE Agreement specifically provided that it was governed by New York law. (Golenbock Aff. Ex. 2: Agreement, § 10.4.) Indeed, the parties here agree that New York substantive law governs this dispute. (See, e.g., Defs. Br. at 7; Dkt. No. 30: New Paradigm Br. at 20 n. 7.) As the Second Circuit has stated, "the parties agree that New York substantive law governs . . . and `where the parties have agreed to the application of the forum law, their consent concludes the choice of law inquiry.''' Texaco A/S (Denmark) v. Commercial Ins. Co., 160 F.3d 124, 128 (2d Cir. 1998) (quoting American Fuel Corp. v. Utah Energy Dev. Co., 122 F.3d 130, 134 (2d Cir. 1997)); accord, e.g., Bellis v. Tokio Marine Fire Ins. Co., 93 Civ. 6549, 2002 WL 193149 at *13 n. 20 (S.D.N.Y. Feb. 7, 2002); Aviation Dev. Co. v. CS Acquisition Corp., 1999 WL 46630 at *6.
See also, e.g., Stagl v. Delta Airlines, Inc., 52 F.3d 463, 467 (2d Cir. 1995); Gelb v. Royal Globe Ins. Co., 798 F.2d 38, 44 n. 5 (2d Cir. 1986), cert. denied, 480 U.S. 948, 107 S.Ct. 1608 (1987); Printers II, Inc. v. Professional Publ'g, Inc., 784 F.2d 141, 146 n. 6 (2d Cir. 1986); IBS, Inc. v. Banco Exterior De Espana, Ltd., 98 Civ. 6487, 2001 U.S. Dist. LEXIS 23505 at *8 n. 2 (S.D.N.Y. Jan. 12, 2001); Norfolk Southern Ry. v. Flexi-Van Leasing, Inc., 99 Civ. 0055, 2000 WL 1855112 at *5 n. 1 (S.D.N.Y. Dec. 18, 2000); ABC Radio Network, Inc. v. Lens America, Inc., 97 Civ. 9467, 1999 WL 771360 at *2 (S.D.N.Y. Sept. 28, 1999); Air Support Int'l, Inc. v. Atlas Air, Inc., 54 F. Supp.2d 158, 165 (E.D.N.Y. 1999); Vanguard Mun. Bond Fund, Inc. v. Cantor, Fitzgerald L.P., 40 F. Supp.2d 183, 189 (S.D.N.Y. 1999) (Stein, D.J. Peck, M.J.).
"Under New York law `the initial interpretation of a contract is a matter of law for the court to decide.' Included in this initial interpretation is the threshold question of whether the terms of the contract are ambiguous." Alexander Alexander Servs., Inc. v. These Certain Underwriters at Lloyd's, 136 F.3d 82, 86 (2d Cir. 1998) (citations omitted).
Accord, e.g., Norfolk Southern Ry. v. Flexi-Van Leasing, Inc., 2000 WL 1855112 at *5; ABC Radio Network, Inc. v. Lens America, Inc., 1999 WL 771360 at *2; Air Support Int'l, Inc. v. Atlas Air, Inc., 54 F. Supp.2d at 165; Aviation Dev. Co. v. CS Acquisition Corp., 1999 WL 46630 at *6.
Under New York law, the construction of an unambiguous contract is a matter of law, appropriate for summary judgment resolution. See, e.g., Adirondack Transit Lines, Inc. v. United Transp. Union, Local 1582, 305 F.3d 82, 85 (2d Cir. 2002) ("`The proper interpretation of an unambiguous contract is a question of law for the court, and a dispute on such an issue may properly be resolved by summary judgment.'") (quoting Omni Quartz, Ltd. v. CVS Corp., 287 F.3d 61, 64 (2d Cir. 2002)); Bouzo v. Citibank, N.A., 96 F.3d 51, 58 (2d Cir. 1996); Nowak v. Ironworkers Local 6 Pension Fund, 81 F.3d 1182, 1192 (2d Cir. 1996); Sayers v. Rochester Tel. Corp. Supplemental Mgmt. Pension Plan, 7 F.3d 1091, 1094 (2d Cir. 1993); Seiden Assoc., Inc. v. ANC Holdings, Inc., 959 F.2d 425, 428 (2d Cir. 1992); Metropolitan Life Ins. Co. v. RJR Nabisco, Inc., 906 F.2d 884, 889 (2d Cir. 1990).
The summary judgment standards under Rule 56, Fed.R.Civ.P., are well-known and will not be set out here. See, e.g., Aviation Dev. Co. v. CS Acquisition Corp., 1999 WL 46630 at *7 n. 6; Fleet Capital Corp. v. Yamaha Motor Corp., 01 Civ. 1047, 2002 WL 31174470 at *10-11 n. 16 (S.D.N.Y. Sept. 26, 2002) (Peck, M.J.) ( cases cited therein); Brown v. Cushman Wakefield, Inc., 01 Civ. 6637, 2002 WL 1751269 at *12-13 (S.D.N.Y. July 29, 2002) (Peck, M.J.); Hogan v. Metromail, 99 Civ. 11204, 2002 WL 373245 at *11-13 (S.D.N.Y. Mar. 8, 2002) (Peck, M.J.); Cobian v. New York City, 99 Civ. 10533, 2000 WL 1782744 at *7 (S.D.N.Y. Dec. 6, 2000) (Peck, M.J.), aff'd, No. 01-7575, 2002 WL 4594 at *1 (2d Cir. Dec. 21, 2001); Austin v. Ford Models, Inc., 95 Civ. 3731, 2000 WL 1752966 at *6 (S.D.N.Y. Nov. 29, 2000) (Peck, M.J.), aff'd, No. 01-7030, 2001 WL 1562070 at *1 (2d Cir. Dec. 4, 2001), cert. denied, 123 S.Ct. 189 (2002); Douglas v. Victor Capital Group, 21 F. Supp.2d 379, 387-88 (S.D.N.Y. 1998) (Stein, D.J. Peck, M.J.); Mariani v. Consolidated Edison Co., 982 F. Supp. 267, 271-273 (S.D.N.Y. 1997) (Peck, M.J.), aff'd, No. 97-9502, 172 F.3d 38 (table), 1998 WL 961111 (2d Cir. Jan. 25, 1998); Mason Tenders Dist. Council Welfare Fund v. ITRI Brick Concrete Corp., 96 Civ. 6754, 1997 WL 678164 at *10-11 (S.D.N.Y. Oct. 31, 1997) (Peck, M.J.).
See also, e.g., Nicholas Labs. Ltd. v. Almay, Inc., 900 F.2d 19, 21 (2d Cir. 1990); Hunt Ltd. v. Lifschultz Fast Freight, Inc., 889 F.2d 1274, 1277 (2d Cir. 1989); Norfolk Southern Ry. v. Flexi-Van Leasing, Inc., 2000 WL 1855112 at *5; ABC Radio Network, Inc. v. Lens America, Inc., 1999 WL 771360 at *3; Air Support Int'l, Inc. v. Atlas Air, Inc., 54 F. Supp.2d at 165; Aviation Dev. Co. v. CS Acquisition Corp., 1999 WL 46630 at *7; Berman v. Parco, 986 F. Supp. 195, 208-09 (S.D.N.Y. 1997) (Wood, D.J. Peck, M.J.); Chase Manhattan Bank, N.A. v. Keystone Distrib. Inc., 873 F. Supp. 808, 810-11 (S.D.N.Y. 1994); Royal Bank of Canada v. Mahrle, 818 F. Supp. 60, 62 (S.D.N.Y. 1993); Broadway Nat'l Bank v. Progressive Cas. Ins. Co., 775 F. Supp. 123, 126 (S.D.N.Y. 1991), aff'd mem., 963 F.2d 1522 (2d Cir. 1992).
Where the terms of an agreement are clear and unambiguous, the Court will not look beyond the "four corners" of the agreement, and parol evidence of the parties' intentions is inadmissible. E.g., R/S Assoc. v. New York Job Dev. Auth., 98 N.Y.2d 29, 33, 744 N.Y.S.2d 358, 360 (2002) ("Unless the court finds ambiguity, the rules governing the interpretation of ambiguous contracts do not come into play. Thus, when interpreting an unambiguous contract term [e]vidence outside the four corners of the document . . . is generally inadmissible to add to or vary the writing. [E]xtrinsic and parol evidence is not admissible to create am ambiguity in a written agreement which is complete and clear and unambiguous upon its face.") (ellipsis brackets in original, citations internal quotations omitted.) (quoting W.W.W. Assoc. Inc. v. Giancontieri, 77 N.Y.2d 157, 162-63, 565 N.Y.S.2d 440, 443 (1990)); Weissman v. Sinorm Deli, Inc., 88 N.Y.2d 437, 447, 646 N.Y.S.2d 308, 313 (1996) ("[W]hen parties set down their agreement in a clear, complete document, evidence outside the four corners of the document as to what was actually intended is generally inadmissible."); Wells v. Shearson Lehman/American Express, Inc., 72 N.Y.2d 11, 19, 530 N.Y.S.2d 517, 521 (1988); see, e.g., Feifer v. Prudential Ins. Co., 306 F.3d 1202, 1210 (2d Cir. 2002) ("It is axiomatic that where the language of a contract is unambiguous, the parties' intent is determined within the four corners of the contract, without reference to external evidence."); Omni Quartz, Ltd. v. CVS Corp., 287 F.3d at 64; In re Revere Armored, Inc., No. 97-6112, 131 F.3d 132 (table), 1997 WL 794460 at *3 (2d Cir. 1997) ("When the terms of a contract are clear and unambiguous, this Court will not look beyond the four corners of the contract itself to interpret the parties' intentions."); Mizuna, Ltd. v. Crossland Fed. Sav. Bank, 90 F.3d 650, 660 (2d Cir. 1996) (quoting W.W.W. Assoc., Inc. v. Giancontieri, supra); Goldman v. Commissioner of Internal Revenue, 39 F.3d 402, 406 (2d Cir. 1994); Goodheart Clothing Co. v. Laura Goodman Enter., Inc., 962 F.2d 268, 272 (2d Cir. 1992); Seiden Assoc., Inc. v. ANC Holdings, Inc., 959 F.2d at 428.
See also, e.g., Nicholas Labs. Ltd. v. Almay, Inc., 900 F.2d at 20; Burger King Corp. v. Horn Hardart Co., 893 F.2d 525, 527 (2d Cir. 1990); Daigle v. West, No. 5:00-CV-189, 5:00-CV-1055, 2002 WL 31177712 at *8 (N.D.N.Y. Nov. 6, 2002); New Avex, Inc. v. Socata Aircraft, Inc., 02 Civ. 6519, 2002 WL 1998193 at *5 (S.D.N.Y. Aug. 29, 2002) ("`It is the primary rule of construction of contracts that when the terms of a written contract are clear and unambiguous, the intent of the parties must be found within the four corners of the contract, giving a practical interpretation to the language employed and the parties' reasonable expectations.'") (quoting Marshall v. Marshall, 264 A.D.2d 826, 827, 695 N.Y.S.2d 595, 596 (2d Dep't 1999)); Schafrann v. Venezuela, 01 Civ. 10637, 2002 WL 1766446 at *2 (S.D.N.Y. July 31, 2002) (quoting W.W.W. Assoc., Inc. v. Giancontieri, supra); Municipal Capital Appreciation Ptnrs. I, L.P. v. Page, 181 F. Supp.2d 379, 390-92 (S.D.N.Y. 2002); ABC Radio Network, Inc. v. Lens America, Inc., 1999 WL 771360 at *3; Aviation Dev. Co. v. CS Acquisition Corp., 1999 WL 46630 at *7; Berman v. Parco, 986 F. Supp. at 209; G.D. Searle Co. v. Medicore Communications, Inc., 843 F. Supp. 895, 906 (S.D.N.Y. 1994); Royal Bank of Canada v. Mahrle, 818 F. Supp. at 62; Broadway Nat'l Bank v. Progressive Cas. Ins. Co., 775 F. Supp. at 126-27; Health-Chem Corp. v. Baker, 737 F. Supp. 770, 773 (S.D.N.Y.), aff'd mem., 915 F.2d 805 (2d Cir. 1990); Adler Shaykin v. Wachner, 721 F. Supp. 472, 476, 479 (S.D.N.Y. 1988).
Further, whether a contract is clear or ambiguous is a question of law to be resolved by the Court. See, e.g., Alexander Alexander Servs., Inc. v. These Certain Underwriters at Lloyd's, 136 F.2d at 86; W.W.W. Assoc., Inc. v. Giancontieri, 77 N.Y.2d at 162, 565 N.Y.S.2d at 443 ("Whether or not a writing is ambiguous is a question of law to be resolved by the courts."); Sutton v. East River Sav. Bank, 55 N.Y.2d 550, 554, 450 N.Y.S.2d 460, 462 (1982) ("[T]he threshold decision on whether a writing is ambiguous is the exclusive province of the court").
See also, e.g., Sayers v. Rochester Tel. Corp., 7 F.3d at 1094; Seiden Assoc., Inc. v. ANC Holdings, Inc., 959 F.2d at 429; Norfolk Southern Ry. v. Flexi-Van Leasing, Inc., 2000 WL 1855112 at *5; Aviation Dev. Co. v. CS Acquisition Corp., 1999 WL 46630 at *7; Berman v. Parco, 986 F. Supp. at 209; EJS-ASOC Ticaret ve Danismanlik Ltd. v. ATT, 886 F. Supp. 331, 334 (S.D.N.Y. 1994); Chase Manhattan Bank, N.A. v. Keystone Distrib. Inc., 873 F. Supp. at 811.
"Contract language is not ambiguous if it has a `definite and precise meaning . . . concerning which there is no reasonable basis for a difference of opinion.'" Hunt Ltd. v. Lifschultz Fast Freight, Inc., 889 F.2d at 1277 (quoting Breed v. Ins. Co. of N. Am., 46 N.Y.2d 351, 355, 413 N.Y.S.2d 352, 355 (1978)). Conversely, a contract is ambiguous if it is susceptible to more than one meaning. E.g., Chimart Assoc. v. Paul, 66 N.Y.2d 570, 763, 498 N.Y.S.2d 344, 346 (1986) (to determine if ambiguity exists in contract court must determine "whether the agreement on its face is reasonably susceptible of more than one interpretation"); St. Mary v. Paul Smith's Coll. of Arts Sciences, 247 A.D.2d 859, 859, 668 N.Y.S.2d 813, 813 (4th Dep't 1998) (same, quoting Chimart); Lipari v. Maines Paper Food Serv., Inc., 245 A.D.2d 1085, 1085, 667 N.Y.S.2d 548, 549 (4th Dep't 1997); Levey v. A. Leventhal Sons, Inc., 231 A.D.2d 877, 877, 647 N.Y.S.2d 597, 597 (4th Dep't 1996); Arrow Communication Labs., Inc. v. Pico Prods., Inc., 206 A.D.2d 922, 922-923, 615 N.Y.S.2d 187, 188 (4th Dep't 1994); American Express Bank Ltd. v. Uniroyal, Inc., 164 A.D.2d 275, 277, 562 N.Y.S.2d 613, 614 (1st Dep't 1990) ("A contract should be construed so as to give full meaning and effect to all of its provisions."), appeal denied, 77 N.Y.2d 807, 569 N.Y.S.2d 611 (1991); Hutzel v. United States Aviation Underwriters, Inc., 132 A.D.2d 45, 49, 522 N.Y.S.2d 301, 303 (3d Dep't 1987) ("an ambiguity exists . . . when a term `is capable of more than one meaning'"), appeal denied, 71 N.Y.2d 804, 528 N.Y.S.2d 829 (1988); see, e.g., Alexander Alexander Servs., Inc. v. These Certain Underwriters at Lloyd's, 136 F.3d at 86; Sayers v. Rochester Tel. Corp., 7 F.3d at 1095; Goodheart Clothing Co. v. Laura Goodman Enter., Inc., 962 F.2d at 272; Seiden Assoc., Inc. v. ANC Holdings, Inc., 959 F.2d at 428; Walk-In Med. Ctrs., Inc. v. Breuer Capital Corp., 818 F.2d 260, 263 (2d Cir. 1987) ("An `ambiguous' word or phrase is one capable of more than one meaning when viewed objectively by a reasonably intelligent person who has examined the context of the entire integrated agreement and who is cognizant of the customs, practices, usages and terminology as generally understood in the particular trade or business.").
Accord, e.g., Nowak v. Ironworkers Local 6 Pension Fund, 81 F.3d at 1192; Sayers v. Rochester Tel. Corp., 7 F.3d at 1095; Seiden Assoc., Inc. v. ANC Holdings, Inc., 959 F.2d at 428; Norfolk Southern Ry. v. Flexi-Van Leasing, Inc., 2000 WL 1855112 at *5; ABC Radio Network, Inc. v. Lens America, Inc., 1999 WL 771360 at *3; Air Support Int'l, Inc. v. Atlas Air, Inc., 54 F. Supp.2d at 165; Aviation Dev. Co. v. CS Acquisition Corp., 1999 WL 46630 at *8.
See also, e.g., Norfolk Southern Ry. v. Flexi-Van Leasing, Inc., 2000 WL 1855112 at *5; Aviation Dev. Co. v. CS Acquisition Corp., 1999 WL 46630 at *8; Berman v. Parco, 986 F. Supp. at 209 n. 9 (citing cases); Health-Chem Corp. v. Baker, 737 F. Supp. at 773 ("[A] term is ambiguous when it is `capable of more than one meaning when viewed objectively by a reasonably intelligent person who has examined the context of the entire integrated agreement. . . .'").
Clear contractual language does not become ambiguous simply because the parties to the litigation argue different interpretations. E.g., Bethlehem Steel Co. v. Turner Constr. Co., 2 N.Y.2d 456, 460, 161 N.Y.S.2d 90, 93 (1957) ("Mere assertion by one that contract language means something to him, where it is otherwise clear, unequivocal and understandable when read in connection with the whole contract, is not in and of itself enough to raise a triable issue of fact."); Moore v. Kopel, 237 A.D.2d 124, 125, 653 N.Y.S.2d 927, 929 (1st Dep't 1997) ("[A] contract is not rendered ambiguous just because one of the parties attaches a different, subjective meaning to one of its terms."); see, e.g., Sayers v. Rochester Tel. Corp., 7 F.3d at 1095; Seiden Assoc., Inc. v. ANC Holdings, Inc., 959 F.2d at 428 ("The language of a contract is not made ambiguous simply because the parties urge different interpretations."); Metropolitan Life Ins. Co. v. RJR Nabisco, Inc., 906 F.2d at 889 ("Language whose meaning is otherwise plain is not ambiguous merely because the parties urge different interpretations in the litigation.").
See also, e.g., Hunt Ltd. v. Lifschultz Fast Freight, Inc., 889 F.2d at 1277; Norfolk Southern Ry. v. Flexi-Van Leasing, Inc., 2000 WL 1855112 at *6; ABC Radio Network, Inc. v. Lens America Inc., 1999 WL 771360 at *3; Air Support Int'l, Inc. v. Atlas Air, Inc., 54 F. Supp.2d at 165-66; Aviation Dev. Co. v. CS Acquisition Corp., 1999 WL 46630 at *8; Berman v. Parco, 986 F. Supp. at 210; EJS-ASOC Ticaret v. ATT, 886 F. Supp. at 334; Chase Manhattan Bank, N.A. v. Keystone Distrib., Inc., 873 F. Supp. at 811; Broadway Nat'l Bank v. Progressive Cas. Ins. Co., 775 F. Supp. at 126; Health-Chem Corp. v. Baker, 737 F. Supp. at 773.
"[W]hen ambiguity exists and the resolution of the ambiguity hinges on such extrinsic matters as the credibility of witnesses or documents or upon choosing one among several reasonable inferences that may be drawn from such extrinsic evidence, a jury, and not a court, should decide what meaning is to be ascribed to the contract." Chase Manhattan Bank, N.A. v. Keystone Distrib., Inc., 873 F. Supp. at 811; see also, e.g., Seiden Assoc., Inc. v. ANC Holdings, Inc., 959 F.2d at 428; Burger King Corp. v. Horn Hardart Co., 893 F.2d at 528; Wards Co. v. Stamford Ridgeway Assoc., 761 F.2d 117, 120 (2d Cir. 1985); Norfolk Southern Ry. v. Flexi-Van Leasing, Inc., 2000 WL 1855112 at *6; ABC Radio Network, Inc. v. Lens America, Inc., 1999 WL 771360 at *3; Aviation Dev. Co. v. CS Acquisition Corp., 1999 WL 46630 at *9; Berman v. Parco, 986 F. Supp. at 210.
However, it is the Court's role to determine the value or existence of extrinsic evidence produced by the parties. Uniroyal, Inc. v. Home Ins. Co., 707 F. Supp. 1368, 1375(E.D.N.Y. 1988) (Weinstein, D.J.) ("The appraisal of the value or existence of extrinsic evidence is for the court as a matter of substantive law."); see also, e.g., Aviation Dev. Co. v. CS Acquisition Corp., 1999 WL 46630 at *9. Thus, even when a contract is ambiguous, if the parol evidence offered by the parties does not resolve that ambiguity, or after opportunity to do so the parties do not offer extrinsic evidence to resolve the ambiguity, the Court must construe the contract as a matter of law on a summary judgment motion. E.g., State of New York v. Home Indem. Co., 66 N.Y.2d 669, 671, 495 N.Y.S.2d 969, 971 (1985) ("[I]f the tendered extrinsic evidence is itself conclusory and will not resolve the equivocality of the language of the contract, the issue remains a question of law for the court."); Kenavan v. Empire Blue Cross Blue Shield, 248 A.D.2d 42, 677 N.Y.S.2d 560, 563 (1st Dep't 1998) (where the "evidence introduced by the parties extrinsic to the [contract] was not dispositive of the [interpretation] issue . . . the proper interpretation is an issue of law for the court"); Primavera v. Rose Kiernan, Inc., 248 A.D.2d 842, 670 N.Y.S.2d 223, 224-25 (3d Dep't 1998) ("If, however, extrinsic evidence does not resolve the ambiguity, the interpretation of the ambiguous contract terms remain a question of law for the court."); Econo Truck Body Equip., Inc. v. Guaranty Nat'l Ins. Co., 162 A.D.2d 913, 915, 557 N.Y.S.2d 991, 993 (3d Dep't 1990).
See also, e.g., Alexander Alexander Servs., Inc. v. These Certain Underwriters at Lloyd's, 136 F.3d at 86 (where no extrinsic evidence exists, court may grant summary judgment); Chase Manhattan Bank v. American Nat'l Bank Trust Co., 93 F.3d 1064, 1073 (2d Cir. 1996) ("Summary judgment may be proper in a contract action if . . . the contract is ambiguous but there is no relevant extrinsic evidence of the parties' actual intent."); McCostis v. Home Ins. Co., 31 F.3d 110, 113 (2d Cir. 1994); Aviation Dev. Co. v. CS Acquisition Corp., 1999 WL 46630 at *9; General Star Indem. Co. v. Custom Editions Upholstery Corp., 940 F. Supp. 645, 655 (S.D.N.Y. 1996); Uniroyal, Inc. v. Home Ins. Co., 707 F. Supp. at 1374-75 (leading case).
A. New Paradigm's First Claim: Breach of Contract For Failure To Pay The Termination Payment
The VIE-New Paradigm Agreement provided that if VIE "shall transfer to an unrelated third party all of its rights and interest in and to the COPERNICUS Programs, and such purchaser does not assume, by operation of law or otherwise, the Royalty obligations," VIE is required to pay New Paradigm the $1 million Termination Payment. (Agreement, Schedule 2.1(c), § 5(a), quoted in full on page 3 above.) New Paradigm claims that NEON's acquisition of VIE's stock triggered the Termination Payment. (Dkt. No. 6: Am. Compl. ¶¶ 84-91; see also Dkt. No. 30: New Paradigm Br. at 16-19.) New Paradigm is incorrect, for two reasons.
This provision of the Agreement is clear and unambiguous. New Paradigm's parol evidence — that it "understood" this applied to any transfer of Copernicus, regardless of the form (Bludell Aff. ¶ 12) — therefore is inadmissible. (See cases cited at pages 10-14 above.)
First, VIE did not transfer its rights to Copernicus to NEON; rather, NEON purchased all of the stock in VIE. (See page 6 above.) As a matter of law, purchase of a company's stock is distinct from a sale of the company's assets, and thus NEON's purchase of VIE's stock is not a transfer of Copernicus. See, e.g., Torrey Delivery, Inc. v. Chautauqua Truck Sales Serv., Inc., 47 A.D.2d 279, 282-83, 366 N.Y.S.2d 506, 510 (4th Dep't 1975) ("It has long been the law in New York that a `corporation in respect of corporate property and rights is entirely distinct from the stockholders who are the ultimate or equitable owners of its assets; that even complete ownership of capital stock does not operate to transfer the title to corporate property; and that ownership of capital stock is by no means identical with or equivalent to ownership of corporate property.' Ownership of capital stock being distinct from ownership of corporate property, it follows that the sale of such stock is not a sale of corporate property.") (citation omitted); accord, e.g., Feldman v. Trustees of Beck Indus., Inc., 479 F.2d 410, 415 (2d Cir.) ("Ownership of all the outstanding stock of a corporation, however, is not the equivalent of ownership of the [corporation's] property or assets."), cert. denied, 414 U.S. 858, 94 S.Ct. 163 (1973).
See also, e.g., Glenoit Mills, Inc. v. Miss Bobbie Originals, Inc., 93 Civ. 5494, 1994 WL 198763 at *2 (S.D.N.Y. May 18, 1994) ("[I]t has long been the law in New York that `a corporation in respect of corporate property and rights is entirely distinct from the stockholders who are the ultimate or equitable owners of its assets; that even complete ownership of capital stock does not operate to transfer the title to corporate property; and that ownership of capital stock is by no means identical with or equivalent to ownership of corporate property.'") (quoting William Iselin Co. v. Boardwalk Regency Corp., 703 F. Supp. 1084, 1088 (S.D.N.Y. 1989), Torrey Delivery, supra); Farley v. Davis, 91 Civ. 5530, 1994 WL 167944 at *4 (S.D.N.Y. May 2, 1994) (same); Boise Cascade Corp., v. Wheeler, 419 F. Supp. 98, 101-02 (S.D.N.Y. 1976) (same), aff'd, 556 F.2d 554 (2d Cir. 1977); In re Fontana D'Oro Foods, Inc., 65 N.Y.2d 886, 888, 493 N.Y.S.2d 300, 301 (1985) (Stock transfer is distinct from a sale of a business or tangible assets because "[t]he well-settled rule is that `ownership of capital stock is by no means identical with or equivalent to ownership or corporate property.' . . . [W]e cannot disregard the fact that the parties chose to structure their transaction as one involving stock. . . . Given the form of their transaction, whether the parties might really have intended to transfer control of an ongoing business enterprise, rather than stock, can have no bearing on this conclusion."); 5303 Realty Corp. v. O Y Equity Corp., 64 N.Y.2d 313, 323, 486 N.Y.S.2d 877, 884 (1984) ("`[T]he corporation in respect of corporate property and rights is entirely distinct from the stockholders who are the ultimate or equitable owners of its assets . . . even complete ownership of capital stock does not operate to transfer the titled to corporate property and . . . ownership of capital stock is by no means identical with or equivalent to ownership of corporate property.'") (ellipsis in original); Brock v. Poor, 216 N.Y. 387, 402 (1915) ("One who by purchase or otherwise becomes the owner of all the capital stock of a private corporation, does not thereby become the legal owner of its property, but title to the latter is vested in the corporate entity."); Power Test Petroleum Distribs., Inc. v. Baker-Tripi Realty Corp., 190 A.D.2d 845, 845-47, 594 N.Y.S.2d 266, 267-68 (2d Dep't 1993) (Defendant's sale of all its stock to a third party did not trigger plaintiff's right of first refusal on offers for defendant's property "since the sale of shares of stock in a corporation is not equivalent to the sale of a corporate property."); see also, e.g., United States v. Wallach, 935 F.2d 445, 462 (2d Cir. 1991) ("[S]hareholders do not hold legal title to any of the corporation's assets. Instead, the corporation — the entity itself — is vested with the title.").
Indeed, New Paradigm admits that "as a matter of New York law and fact," NEON is the "successor company" to VIE, a "mere continuation" of VIE. (Am. Compl. ¶ 82; New Paradigm Br. at 19.)
The Agreement is clear that only a transfer of Copernicus triggers the Termination Payment, and what occurred here was not a transfer of Copernicus but rather NEON's acquisition of VIE's stock.
Second, even if NEON's purchase of VIE's stock was a transfer of Copernicus, which it was not, NEON specifically assumed responsibility for the Agreement's royalty obligations to New Paradigm. (Golenbock Aff. Ex. 3:4/12/99 NEON Assumption Letter to New Paradigm, quoted at page 6 above.) Because NEON assumed the royalty obligations, the Termination Payment was not triggered. (See Agreement, Schedule 2.1(c), § 5(a), quoted at page 5 above.)
To try to get around this, New Paradigm claims that no assumption took place because "NEON only purported to assume the royalty obligation but never in fact did." (New Paradigm Br. at 16-17; see also Am. Compl. ¶¶ 87, 89.) New Paradigm offers no citations for this legal theory, which clearly is deficient — it confuses alleged breach by NEON of its assumption obligations (for which both NEON and VIE would be liable for breach of contract) with a failure to assume the royalty obligations (which would trigger the Termination Payment). Indeed, New Paradigm tries to have its cake and eat it too, by asserting a breach because NEON allegedly only "purported" to assume the royalty obligations, but then asserting this claim against not only VIE but also NEON as successor in interest to VIE. (New Paradigm Br. at 19.) New Paradigm's argument is meritless. Cf. Bridgestone/Firestone, Inc. v. Recovery Credit Servs., Inc., 98 F.3d 13, 20 (2d Cir. 1996) ("To maintain a claim of fraud [distinct from a breach of contract claim] a plaintiff must either: (i) demonstrate a legal duty separate from the duty to perform under the contract; or (ii) demonstrate a fraudulent misrepresentation collateral or extraneous to the contract; or (iii) seek special damages that are caused by the misrepresentation and unrecoverable as contract damages.") (citations omitted); Grappo v. Alitalia Linee Aeree Italiane, S.p.A., 56 F.3d 427, 434 (2d Cir. 1995) ("A cause of action for fraud does not generally lie where the plaintiff alleges only that the defendant entered into a contract with no intention of performing."); Bibeault v. Advanced Health Corp., 97 Civ. 6026, 2002 WL 24305 at *5-6 (S.D.N.Y. Jan. 8, 2002) (fraudulent inducement claim dismissed for duplicating breach of contract claim because plaintiff failed to meet the Bridgestone prongs) ( cases cited therein); New York Univ. v. Continental Ins. Co., 87 N.Y.2d 308, 316-18, 639 N.Y.S.2d 283, 287-89 (1995) ("[D]efendant may be liable in tort when it has breached a duty of reasonable care distinct from its contractual obligations, or when it has engaged in tortious conduct separate and apart from its failure to fulfill its contractual obligations. . . . Conversely, where a party is merely seeking to enforce its bargain, a tort claim will not lie. . . . General allegations that defendant entered into a contract while lacking the intent to perform it are insufficient to support the [fraud] claim.") (citations omitted).
Because NEON acquired VIE's stock, not Copernicus, and in addition, because NEON assumed VIE's royalty obligations to New Paradigm, the Court should grant summary judgment to defendants dismissing New Paradigm's first cause of action.
B. New Paradigm's Third Claim: Tortious Interference
In denying defendants' prior motion to dismiss this claim, Judge Berman held that:
To state a claim for tortious interference under New York law, a plaintiff must allege "(1) the existence of a contract between plaintiff and a third party; (2) defendant's knowledge of the contract; (3) defendant's intentional inducement of the third party to breach or otherwise render performance impossible; and (4) damages to plaintiff." In its Amended Complaint, Plaintiff has alleged the existence of a contract between itself and VIE; NEON's knowledge of this contract; NEON's intentional inducement of VIE to breach; as well as damages. (Compl. ¶ 101-106.) While Defendants are correct that there can be no liability for tortiously interfering with one's own contract, "Plaintiff's tortious interference claim is principally addressed to NEON's interference with the 1997 contract between VIE and New Paradigm prior to NEON's actual purchase of VIE's stock." (Pl.'s Mem. at 16.) Defendant's argument focuses only on the time period after NEON had become a parent company to VIE.
Defendants' argument that any alleged interference with the Agreement between VIE and New Paradigm was "privileged" similarly is not persuasive. Defendants contend that "New York courts have repeatedly recognized the promotion of economic interests as a legitimate business purpose justifying interference with an existing contract even absent a formal relationship between the defendant and one of the parties to the contract." (Def.'s Mem. at 7.) "`[O]ne who has a financial interest in the business of another is privileged to interfere with a contract between the other and a third party if his purpose is to protect his own interest and if he does not employ improper means.'" Plaintiff, however, is arguing that NEON interfered with the contract "prior to NEON's actual purchase of VIE's stock," (Pl.'s Mem. at 16), and thus, prior to its acquisition of a financial interest in the business of VIE.
New Paradigm Software Corp. v. New Era of Networks, Inc., 107 F. Supp.2d 325, 330-31 (S.D.N.Y. 2000) (Berman, D.J.) (citations omitted).
New Paradigm's present tortious interference claim is predicated on its assertion that the Termination Payment was due, but not paid, on NEON's acquisition of VIE:
[B]y agreeing to acquire VIE and Copernicus, NEON also intentionally induced VIE to breach its contractual obligation to pay the Termination Payment which was required to be paid "on or before the closing" when the party acquiring Copernicus does not assume the royalty obligation. NEON intentionally induced this breach by pretending to assume and falsely assuming VIE's royalty obligation but never actually intending or assuming such obligation.
(Dkt. No. 30: New Paradigm Br. at 23-24.)
The Court has found, however, that NEON did assume the royalty obligation, and that there was no breach of contract based on NEON's acquisition of VIE's stock and assumption of the royalty obligation. (See Point II.A above.) Accordingly, since there was no breach of contract, NEON did not tortiously interfere with the VIE-New Paradigm Agreement. See, e.g., AHEPA 91, Inc. v. United States Dep't of Hous. Urban Dev., No. 02-6060, 43 Fed. Appx. 450, 454, 2002 WL 1941027 at *3 (2d Cir. Aug. 21, 2002) ("[S]ince there was no breach of the . . . contract, no suit for tortious interference with a contract can lie."); D'Andrea v. Rafla-Demetrious, 146 F.3d 64, 66 (2d Cir. 1998) (Second Circuit "decline[s] to hold that the New York courts would recognize an exception to the rule requiring `actual breach' in order to state a claim for tortious inference with contractual relations.") (citing cases); Lama Holding Co. v. Smith Barney Inc., 88 N.Y.2d 413, 424, 646 N.Y.S.2d 76, 82 (1996) ("Tortious interference with contract requires the existence of a valid contract between the plaintiff and a third party, defendant's knowledge of that contract, defendant's intentional procurement of the third-party's breach of the contract without justification, actual breach of the contract, and damages resulting therefrom[.]") (emphasis added); NBT Bancorp Inc. v. Fleet/Norstar Fin. Group, Inc., 87 N.Y.2d 614, 621, 641 N.Y.S.2d 581, 584 (1996) ("[B]reach of contract has repeatedly been listed among the elements of a claim for tortious inference with contractual relations."); CFJ Assoc. of New York, Inc. v. Hanson Indus., 294 A.D.2d 772, 775, 742 N.Y.S.2d 433, 437 (3d Dep't 2002) (Where court found no breach of contract by defendant, the "Supreme Court was constrained to dismiss plaintiff's tortious interference claim as well.").
Moreover, even if NEON only "pretended" to assume VIE's royalty obligation, such conduct would have occurred after NEON's acquisition of VIE, and thus it cannot support a claim for tortious interference for the reasons previously stated by Judge Berman.
The Court should grant summary judgment to defendants dismissing New Paradigm's third cause of action, for tortious interference.
III. DEFENDANTS SHOULD BE GRANTED SUMMARY JUDGMENT ON NEW PARADIGM'S BREACH OF IMPLIED CONTRACTUAL COVENANTS CLAIMS
A. New Paradigm's Second Claim: Breach of Contract for Allegedly Failing to Market Copernicus
New Paradigm has two theories for defendants' breach of contract: first, that NEON violated the explicit provision in Section 3.2(a) of the Agreement that VIE "shall commence a reasonable sales effort with respect to the licensing of the Copernicus programs," and second, breach of the implied covenant of good faith and fair dealing. (Dkt. No. 30: New Paradigm Br. at 19-21; Dkt. No. 6: Am. Compl. ¶¶ 92-97.)
Section 3.2, however, is inapplicable. All of Article 3, including Section 3.2, dealt with the parties' conduct between the execution of the Agreement and the Closing Date. (Agreement, Article 3.) New Paradigm was allowing VIE to manage the Copernicus business during that pre-closing period. Thus, the Agreement restricted New Paradigm from taking actions that would adversely affect the Copernicus business (since if the closing occurred, the business would become VIE's), and required VIE to "commence a reasonable sales effort" and "conduct the [Copernicus] Business in a commercially reasonable manner," since if the closing did not occur, the Copernicus business would be returned to New Paradigm. Once the closing occurred, Article 3 and § 3.2 specifically dropped out of the picture. Cf., e.g., Sevel Argentina S.A. v. General Motors Corp., 46 F. Supp.2d 261, 268 (S.D.N.Y. 1999) (Plaintiff's breach of contract claims dismissed where the activities allegedly constituting the breach occurred after the contract expired. "When the . . . [c]ontracts expired, so too, did [defendant's] obligations under that contract.").
Indeed, the phrase "Between the date hereof and the Closing (and thereafter if the Closing shall occur)," relied on by New Paradigm (New Paradigm Br. at 19), referred only to "Seller's," i.e., New Paradigm's, obligations to not license Copernicus or otherwise take part in the Copernicus business. (Agreement, § 3.2(a).) A similar phrase does not precede the sentence, later in that section, that required VIE to "commence a reasonable sales effort." (Id.)
The dispositive issue, therefore, is whether VIE's contractual obligation to pay royalties to New Paradigm imposed an implied by law covenant to use reasonable efforts to market Copernicus.;
The leading case finding an implied obligation to use reasonable efforts in an exclusive licensing agreement is Justice Cardozo's opinion in Wood v. Lucy, Lady Duff-Gordon, 222 N.Y. 88 (1917). In that case, Lady Duff-Gordon gave Wood exclusive rights to place her endorsement on fashion designs, in return for one half the profits. Id. at 90. Wood sued when Lady Duff-Gordon endorsed fashions for others; Lady Duff-Gordon defended the suit by claiming that their agreement was void for lack of a mutual obligation because Wood was not required to market her designs. Id. at 90-91. Because of the exclusive licensing and profit sharing arrangement, however, Justice Cardozo upheld the contract by finding an implied promise that Wood would use reasonable efforts to market defendant's designs. Id.
New York courts have continued to apply this landmark rule — that a contract to pay royalties contains an implied covenant to use reasonable efforts to market the product — where the only compensation called for by an exclusive license contract was payment of royalties. See, e.g., Zilg v. Prentice-Hall, Inc., 717 F.2d 671, 680 (2d Cir. 1983) (When a publisher has exclusive rights to publish a book, "the promise to publish . . . implies a good faith effort to promote the book. . . ."), cert. denied, 466 U.S. 938, 104 S.Ct. 1911 (1984); Bloor v. Falstaff Brewing Corp., 601 F.2d 609, 614 (2d Cir. 1979) (Due to royalty provision, "[e]ven without the best efforts clause [defendant] would have been bound to make a good faith effort to see that substantial sales of [plaintiff's] products were made.") (citing Wood v. Lucy, Lady Duff Gordon); G. Golden Assoc. of Oceanside, Inc. v. Arnold Foods Co., Inc., 870 F. Supp. 472, 476 (E.D.N.Y. 1994) ("It is well settled under New York law that where ongoing commissions or royalties are to be paid in an exclusive arrangement, a court will imply a covenant on the part of an exclusive licensee/assignee to exploit the subject matter of the license/assignment with due diligence `where such a covenant is essential as a matter of equity to give meaning and effect to the contract as a whole.'"); Don King Prods., Inc. v. Douglas, 742 F. Supp. 741, 767 (S.D.N.Y. 1990) ("In the context of agreements granting exclusive promotional or licensing rights, the promotor or exclusive licensee impliedly promises to `use reasonable efforts to generate profits' for the performer or licensor.").
See also, e.g., Mellencamp v. Riva Music Ltd., 698 F. Supp. 1154, 1157 (S.D.N.Y. 1988) ("When the essence of a contract is the assignment or grant of an exclusive license in exchange for a share of the assignee's profits in exploiting the license, [New York contract] principles imply an obligation on the part of the assignee to make reasonable efforts to exploit the license."); Poley v. Sony Music Entm't, Inc., 163 Misc.2d 127, 133-35, 619 N.Y.S.2d 923, 927 (Sup.Ct. N.Y. Co. 1994) (royalty provision in record contract imposed implied obligation on record company to use reasonable efforts to promote album so as to generate royalties for artist), aff'd on other grounds, 222 A.D.2d 308, 636 N.Y.S.2d 10 (1st Dep't 1995); 75A N.Y. Jur.2d, Literary Artistic Property § 32 ("The purchasers of literary property who promise to pay royalties in return therefor are under an obligation to the seller of such rights to produce and exploit the property, or at least to use their best efforts in this connection."); 75A N.Y. Jur.2d, Literary Artistic Property § 33 ("[E]ven where the contract between the parties does not contain explicit language requiring the publisher to use its best efforts or to promote the work fully, a promise may be implied that the publisher will make a good faith effort to promote the work.").
Relying on Judge Mansfield's decision in the district court in Vacuum Concrete Corp. v. American Mach. Foundry Co., 321 F. Supp. 771 (S.D.N.Y. 1971), defendants argue that New York cases have declined to imply an obligation to use reasonable efforts to market a product where the agreement provides for a sufficient up-front payment, guaranteed minimum royalty payment, or similar terms. (Defs. Br. at 12.) In Vacuum Concrete, Judge Mansfield explained:
It is settled law that the court will imply a duty on the part of an exclusive licensee to exploit the subject matter of the license with due diligence, where such a covenant is essential as a matter of equity to give meaning and effect to the contract as a whole. The reasoning of these decisions is that it would be unfair to place the productiveness of the licensed property solely within the control of the licensee, thereby putting the licensor at his mercy, without imposing an obligation to exploit upon the licensee. In effect the court is merely enforcing an obligation which the parties overlooked expressing in their contract or which they considered unnecessary to be expressed.
Id. at 772-73 (citations omitted, including to Wood v. Lucy, Lady Duff-Gordon). In Vacuum Concrete, however, Judge Mansfield found that Vacuum's revenue did not depend solely on sales by its licensee; rather, because the agreement called for a substantial minimum annual royalty payment and had an integration clause, Judge Mansfield found it unnecessary to imply an obligation to exploit the licensed device. Id. at 773-74.
Defendants have cited cases applying other states' law that have reached the same result. See, e.g., Beraha v. Baxter Health Care Corp., 956 F.2d 1436, 1442 (7th Cir. 1992) ("We will therefore infer a best efforts clause in the [exclusive] license agreement only if it is necessary to prevent the contract from failing for lack of mutuality or to otherwise achieve the clear intentions of the parties derived from their express agreement." Where license agreement contains advance royalty provision and contains a merger clause, no implied best efforts clause will be found by the court.); Permanence Corp. v. Kennametal, Inc., 908 F.2d 98, 100-03 (6th Cir. 1990) ("an obligation to employ best efforts has generally been implied in contracts in which the only consideration for a grant of property lies in payment of royalties." No such implied obligation found where contract called for $250,000 payment for the license, $150,000 for exercise of certain rights and $100,000 in advance royalties, and contract had integration clause. "Courts have held that by imposing a substantial minimum or advance royalty payment, the licensor, in lieu of obtaining an express agreement to use best efforts, has protected himself against the possibility that the licensee will do nothing."); Triple Point Tech., Inc. v. D.N.L. Risk Mgmt. Inc., No. Civ. A. 99-4888, 2000 WL 1236227 at *3-4 (D.N.J. Apr. 11, 2000) ("Generally, courts will imply an obligation to use `best efforts' to market products under an exclusive licensing agreement only if, in the absence of such a duty, `the contract at issue would lack mutuality of obligation and be inequitable.' . . .When, however, purchasers bargain for consideration apart from scheduled royalty payments, courts will not imply a `best efforts' obligation." Where contract included up-front purchase price as well as royalties, no implied obligation would be imposed.), opinion clarified in other respects, 2000 WL 1678033 (D.N.J. May 23, 2000); Emerson Radio Corp. v. Orion Sales, Inc., 41 F. Supp.2d 547, 551 (D.N.J. 1999) ("under New Jersey law, an exclusive license providing for a substantial minimum royalty payment is not subject to an implied best efforts covenant."), aff'd in part, rev'd in part on other grounds, 253 F.3d 159, 168-69 (3d Cir. 2001); ParaData Computer Networks, Inc. v. Telebit Corp., 830 F. Supp. 1001, 1006 (E.D.Mich. 1993) (no duty to use best efforts will be implied in exclusive licensing contract that included $1 million up-front payment and additional $1 million in prepaid royalties). See also Kardios Sys. Corp. v. Perkin-Elmer Corp., 645 F. Supp. 506, 509-10 (D.Md. 1986) (applying New York law, finding no best effort obligation because, inter alia, of up-front payments of almost $200,000, plus licensor's right to terminate in event of licensee's failure to successfully market the product).
Unfortunately, the law in New York is not that clear. As Magistrate Judge Maas noted:
In subsequent cases [to Wood v. Lucy, Lady Gordon], courts often have suggested that a duty to use reasonable efforts to exploit a license should be implied only when the resulting royalties, as in Wood, constitute the sole consideration that the licensor will receive [citing, inter alia, Vacuum Concrete]. Accordingly, when a licensor is awarded either a substantial advance payment or a guaranteed minimum royalty, courts typically have declined to imply a duty to exploit the subject matter of the license.
Notwithstanding this line of cases, courts have, on occasion, implied a covenant requiring a licensee to exploit a license even when the licensor has received a guaranteed minimum royalty or upfront fee. . . .
Thus, the issue in this case is ultimately whether the written License and all of the surrounding circumstances indicate that a promise on the part of [licensee] is fairly to be implied.
Palazzetti Imp./Exp., Inc. v. Morson, 98 Civ. 722, 2001 WL 1568317 at *6-7 (S.D.N.Y. Dec. 6, 2001) (citations omitted).
In Palazzetti, Morson agreed to pay $100,000 for a license to open a Palazzetti store in Boston, and was to pay royalties on sales. Id. at *1-2. Morson soon began selling similar products instead of Palazzetti items, Palazzetti sued for lost royalties, and the jury awarded it over $1.6 million. Id. at *1-3. Magistrate Judge Maas denied Morson's JMOL motion , finding that there was evidence from which the jury could find that "the parties expected that Mr. Morson or his assignee would exercise reasonable diligence to operate a Palazzetti store for" the license period. Id. at *6-8.
Indeed, in a decision (not cited by either party) a few years after Vacuum Concrete, the Second Circuit — noting "that the New York law is far from clear" — implied an obligation to use reasonable sales efforts in an exclusive license agreement despite an up-front payment to the licensor of $4 million. Bloor v. Falstaff Brewing Corp., 601 F.2d 609, 610, 613 n. 7, 614 (2d Cir. 1979) (Friendly, C.J.). While the contract there contained an explicit "best efforts" clause, the Second Circuit held that the "royalty of $.50 a barrel on sales was an essential part of the purchase price," and "[e]ven without the best efforts clause, Falstaff would have been bound to make a good faith effort to see that substantial sales of Ballantine products were made. . . ." Id. at 614.
Other federal court decisions applying New York law have implied some obligation on the licensee despite an up-front or other payment in addition to the payment of royalties. For example, in Zilg v. Prentice-Hall, Inc., 717 F.2d 671 (2d Cir. 1983), the publisher paid $6,500 up front to an author for the exclusive right to publish the author's book. Id. at 679. Although the contract did not contain a "best efforts" clause, id., the Second Circuit held that the up front payment did not relieve the publisher of an obligation to publish the book:
Once [publisher] accepted the book, it obtained the exclusive right to publish it. Were the clause empowering the publisher to determine promotional expenses read literally, the contract would allow a publisher to refuse to print or distribute any copies of a book while having exclusive rights to it. In effect, authors would be guaranteed nothing but whatever up-front money had been negotiated, and the promise to publish would be meaningless. We think the promise to publish must be given some content and that it implies a good faith effort to promote the book. . . .
Id. at 680. See also, e.g., Trecom Bus. Sys., Inc. v. Prasad, 980 F. Supp. 770, 774-75 n. 2 (D.N.J. 1997) (Applying New York law, the court implied a "duty to make a good faith and reasonably diligent effort to perfect and market the software," finding it "necessary to imply this duty because the extent of the consideration received by the assignor in the form of royalty income is wholly dependent on the efforts of the assignee to exploit, develop, and market the product." Unlike the minimum royalty payment in Vacuum Concrete, defendant's "$100 advance payment cannot be considered sufficient consideration to persuade this Court not to impose a duty on [defendant] to act in good faith with due diligence to develop and market the software. This is a minimal amount and does not constitute the type of `substantial up-front or advance royalty payment' necessary to preclude a court from implying such a covenant."); Havel v. Kelsey-Hayes Co., 83 A.D.2d 380, 383, 445 N.Y.S.2d 333, 336 (4th Dep't 1981) (Implied promise of exploitation found despite defendant's payment of minimum royalties of $20,000 per year. "While it is true that a guaranteed stipulated minimum payment is relevant in determining the intent of the parties on the question of whether the covenant should be implied . . . ," the court found that the clause was "of little or no consequence" given that the contract did not "obligate the defendant to the payment of minimum royalties. Plaintiff's only recourse for defendant's failure to complete the annual minimum payment was to withdraw the license."); Reback v. Story Prods., Inc., 15 Misc.2d 681, 683, 181 N.Y.S.2d 980, 982-83 (Sup.Ct. N.Y. Co. 1958) ("Plaintiffs had conveyed to the defendant the exclusive motion picture, television, and radio rights, for the entire world, in perpetuity, in return for defendant's promise to pay them specified percentages of the proceeds." Despite absence of express agreement to produce a motion picture or television program, "the agreement is instinct with an obligation on the part of defendant to do more than merely pay the minimum guarantee of $100,000. The only way in which plaintiffs could ever be paid anything above the minimum guarantee was if a motion picture was produced. . . . Clearly the defendant was under an implied obligation either to exploit the rights transferred to it or else, at least, to use its best efforts to do so.") (citation omitted).
The Court notes that New Paradigm's counsel did not cite any of these cases. The Court is tired of attorneys who do a mediocre research job and thereby impose a heavy research burden on the Court. Nevertheless, this is not moot court, and this Court must determine the law, not decide which party would win based solely on the cases cited in the parties' briefs.
In short, the law in New York is far from clear. This Court, unlike the Second Circuit, cannot certify the question to the New York Court of Appeals. The Court cannot rule as a matter of law that the Agreement may not contain an implicit obligation to use reasonable efforts to market the Copernicus software despite the absence of any express provision in the Agreement and despite the $2 million up-front payment.
Future contracting parties obviously could avoid the problem of any ambiguity in the law by including an express "reasonable efforts" provision (or conversely, by explicitly disclaiming in the contract any such requirement).
The issue of whether the parties intended the Agreement to include a reasonable efforts provision because of the royalty clause, and if so whether defendants violated the Agreement, cannot be determined on summary judgment. The Court therefore should deny summary judgment to defendants on New Paradigm's claim that defendants breached an implied contractual obligation to market Copernicus. However, as discussed in Point III.C below, the Court should grant summary judgment to defendants on New Paradigm's breach of contract claims for New Paradigm's failure to produce any evidence of its damages.
B. New Paradigm's Fifth Claim: Breach of Contract for Allegedly Licensing Similar Products
New Paradigm's fifth claim asserts that NEON breached its "obligation to undertake a reasonable and good faith effort to license Copernicus so as to generate royalty income" by "suppressing Copernicus in favor of NEONet," a similar software product. (Dkt. No. 6: Am. Compl. ¶¶ 114-15.)
The Court has held in the prior section that because of the $2 million up-front payment to New Paradigm, there may be an implied obligation in the Agreement for VIE/NEON to use reasonable efforts to market Copernicus. (See Point III.A above.) The related issue, therefore, is whether there is an implied restriction in the Agreement preventing VIE/NEON from marketing a competing product.
There is no such express prohibition in the Agreement. (See generally Agreement.)
New York law does not impose an implied obligation not to market a competing product, so long as defendants made reasonable efforts to market Copernicus. The leading case is Van Valkenburgh, Nooger Neville, Inc. v. Hayden Publ'g Co., 30 N.Y.2d 34, 330 N.Y.S.2d 329 (1972). The defendant publisher had a contract to pay the author a royalty of 15% on the author's electronics books, and the contract specifically contained a requirement that the publisher use "best efforts" to promote the books. Id. at 43, 330 N.Y.S.2d at 331. Thereafter, when the author would not agree to a reduction in royalties, the publisher hired a second author to write similar books, which the publisher promoted while suspending advertisement of plaintiff's books. Id. at 43-44, 330 N.Y.S.2d at 331-32. While acknowledging that "[t]here is implicit in all contracts . . . an implied covenant of fair dealing and good faith," id. at 45, 330 N.Y.S.2d at 333, the New York Court of Appeals found that even a specific "best efforts" clause in the contract would not imply an obligation to refrain from selling competing products:
It has already been observed that in this contract there was an undertaking by the publisher to use its "best efforts" to promote the author's works. Such a contract does not close off the right of a publisher to issue books on the same subject, to negotiate with and pay authors to write such books and to promote them fully according to the publisher's economic interests, even though those later publications adversely affect the contracting author's sales. . . .
By analogizing the Federal cases growing out of patent and copyright licensing agreements which are governed by parallel principles, it will be observed that licensees are not deemed to limit themselves in their ususal business enterprise to the promotion of the licensor's product, absent specific agreement to this effect; and an agreement to use due diligence or best efforts does not alone limit their activity to the licensor's interests.
Id.
The Court of Appeals noted, however, that "[a]lthough a publisher has a general right to act on its own interests in a way that may incidentally lessen an author's royalties, there may be a point where that activity is so manifestly harmful to the author, and must have been seen by the publisher so to be harmful, as to justify the court in saying there was a breach of the covenant to promote the author's work. This, of course, is essentially a fact value question. . . ." Id. at 46, 330 N.Y.S.2d at 334.
Not surprisingly, defendants do not mention this latter aspect of the Van Valkenburgh decision (Defs. Br. at 10) and, amazingly, New Paradigm fails to refer to it either.
The federal court decisions have recognized that the law in New York is not particularly clear on this issue. For example, in G. Golden Assoc. of Oceanside, Inc. v. Arnold Foods Co., 870 F. Supp. 472 (E.D.N.Y. 1994), the Court found that "it is unclear under New York law whether an assignee's/licensee's covenant to act in good faith should limit that party from entering into arrangements in competition with the items assigned/licensed." Id. at 477. The Court held, however, that:
The absence of a contractual restriction on competitive activities by [defendant] or [its] affiliates does not, however, release defendant from any liability with respect to its obligations under the Agreement. Defendant must still satisfy its general contractual obligation to act in good faith.
Whether a party has acted in good faith is typically a question to be answered by the trier of fact, not in a summary judgment motion.
See also, e.g., Joyce Beverages of New York, Inc. v. Royal Crown Cola Co., 555 F. Supp. 271, 275 (S.D.N.Y. 1983) ("A best efforts clause is not per se breached by a mere undertaking of a competitive product line . . . it depends on the circumstances.") (citation omitted); Polyglycoat Corp. v. C.P.C. Distribs., Inc., 534 F. Supp. 200, 203 (S.D.N.Y. 1982) ("[I]n the absence of a specific negative covenant not to compete, an exclusive distributor's decision to market a competing brand is not a per se violation of `best efforts.'" But disputed facts "could potentially support a finding that defendants violated the `best efforts' provision of the agreement," so summary judgment denied.); 1 Lindey on Entertainment, Publishing the Arts § 1.02, Practice Comment to Form 1.02-57 ("While the author may be prohibited from publication of competitive works, the publisher is not. Van Valkenburgh . . . specifically recognizes the publisher's rights to publish other books on the same subject but requires that the publisher use his best efforts to promote and sell the author's work or be liable to the author for damages.").
Thus, New York law appears to allow VIE/NEON to market NEONet, so long as defendants also continued to use reasonable efforts to market Copernicus. That issue is fully raised in New Paradigm's second cause of action; the fifth cause of action thus is duplicative. The Court therefore should grant summary judgment to defendants on New Paradigm's fifth cause of action as a separate claim, while the evidence of defendants' efforts to market NEONet over Copernicus will be admissible with respect to New Paradigm's second cause of action. Put another way, there is no breach of contract per se from marketing NEONet; the only issue is whether defendants used reasonable efforts to market Copernicus, and that is the issue before the Court in the second cause of action. The fifth cause of action should be dismissed as duplicative.
C. New Paradigm's Breach of Contract Claim Fails Because It Has Not Proved Damages
While the question of whether defendants breached an implied obligation to use reasonable efforts to market Copernicus is not susceptible to resolution on summary judgment (see Point III.A above), defendants are entitled to summary judgment on that claim because New Paradigm has not presented any evidence of its damages.
New Paradigm has responded to this argument by listing "categories" of damages:
Defendants frivolously claim that plaintiff has offered no evidence to substantiate its claim for damages on the breach of contract claims. On the contrary, there is overwhelming evidence of several different categories of damages which plaintiff would be entitled to upon the proving of its claims. First, plaintiff has suffered the loss of the Termination Payment of $1,000,000 which should have been paid over upon the transfer of Copernicus, as took place here, and upon the receiving party not actually assuming the royalty obligation applicable thereto, as also occurred. Second, plaintiff has suffered the loss of the five percent royalty it would have received had NEON abided by its contractual obligations, both express and implied, as discussed above, to market Copernicus. Third, plaintiff has not received a five percent royalty on the substitute products which NEON is offering in place of Copernicus in violation of NEON's express and implied obligations to market Copernicus.
(New Paradigm Br. at 22, emphasis added; accord, Bludell Aff. ¶ 24; see also Golenbock Aff. Ex. 5: New Paradigm Int. Response No. 7, categorizing but not calculating amount of damages claimed.)
The problem with this, of course, is that at the summary judgment stage, listing "categories" of damages is not enough; evidence of the amount of such damages (or at least a fair estimation of same) is necessary. See, e.g., W.S.A., Inc. v. ACA Corp., 94 Civ. 1493 1868, 1998 WL 635536 at *6 n. 3 (S.D.N.Y. Sept. 15, 1998) (Summary judgment for defendant on plaintiff's breach of contract claim for compensatory damages. Plaintiff "does not have the luxury of waiting until trial to produce evidence of damages; it must come forward with sufficient evidence of damages to defeat the present summary judgment motion." Plaintiff's "efforts to produce additional evidence of damages are limited to statements by [plaintiff's treasurer] that there were additional costs which will be proven at trial. As I have already stated at some length, under the Federal Rules of Civil Procedure that is too late."); Lovely Peoples Fashion, Inc. v. Magna Fabrics, Inc., 95 Civ. 8450, 1998 WL 422482 at *4-6 (S.D.N.Y. July 22, 1998) (Summary judgment granted for defendants where "plaintiffs have only their unsubstantiated and conclusory assertions . . . of lost profits, and they have presented no competent evidence which can support their claim with reasonable certainty. Plaintiffs' claim for lost profit damages resulting from defendants' breach of contract is totally speculative and has not been supported by any evidence that would provide a jury with a reasonable basis upon which to return a verdict in plaintiffs' favor."). As numerous decisions have put it in colorful language, at the summary judgment stage, it is time to "put up or shut up." See, e.g., Weinstock v. Columbia Univ., 224 F.3d 33, 41 (2d Cir. 2000) ("When the [summary judgment] motion is made, . . . [t]he time has come . . . `to put up or shut up.'") (quoting Fleming James, Jr. Geoffrey C. Hazard, Jr., Civil Procedure 150 (2d ed. 1977)); accord, e.g., Fleet Capital Corp. v. Yamaha Motor Corp., 01 Civ. 1047, 2002 WL 31174470 at *11 (S.D.N.Y. Sept. 26, 2002) (Peck, M.J.); Brown v. Cushman Wakefield, Inc., 01 Civ. 6637, 2002 WL 1751269 at *12 (Peck, M.J.); Hogan v. Metromail, 99 Civ. 11204, 2002 WL 373245 at *12 (S.D.N.Y. Mar. 8, 2002) (Peck, M.J.); Chudnovsky v. Prudential Sec., Inc., 98 Civ. 7753, 2000 WL 1576876 at *9 (S.D.N.Y. Oct. 23, 2000), aff'd, No. 00-9531, 2002 WL 31664452 (2d Cir. Nov. 20, 2002); Kaplan v. Axelrod, 85 Civ. 6975, 1990 WL 16148 at *6 (S.D.N.Y. Feb. 15, 1990) ("Stated more colloquially, at the summary judgment stage, the plaintiff must either `put up or shut up.'").
The first damage "category" is specific — the $1 million Termination Payment — but that only would apply to the first and third causes of action (breach of contract, and tortious interference, for failure to pay the Termination Payment), and the Court has recommended, in Point II.A-B above, granting summary judgment for defendants on those claims. The third category, damages on sales of NEONet, is not legally viable; as discussed in Point III.B above, defendants could market NEONet, so long as they used reasonable efforts to market Copernicus. (Moreover, New Paradigm has offered no evidence on this motion as to the sales of NEONet.) The second category, the 5% royalty on the sales that defendants should have made of Copernicus is the legally correct measure of damages, but New Paradigm has offered no evidence as to what those sales should have been. (Indeed, even if New Paradigm could prove that every sale of NEONet should have been a sale of Copernicus, it has offered no evidence as to the sales of NEONet.)
In the absence of evidence of damages, defendants are entitled to summary judgment on New Paradigm's claim for breach of the implied contractual obligation to make reasonable efforts to market Copernicus.
IV. BECAUSE NEW PARADIGM IS NOT THE PREVAILING PARTY, ITS CLAIM FOR ATTORNEY FEES SHOULD BE DISMISSED
Because Judge Berman previously dismissed two of New Paradigm's claims and this Report and Recommendation recommends granting summary judgment to defendants on New Paradigm's remaining claims, New Paradigm is not the prevailing party and is not entitled to costs or attorneys' fees. See, e.g., Siegel v. Reno, No. 97-6229, 152 F.3d 920 (table), 1998 WL 386013 at *1 (2d Cir. May 27, 1998) (Given that defendant's motion for summary judgment was granted, plaintiff "lost this case on the merits, [and] . . . is not entitled to recover any damages or attorney's fees because he was not a `prevailing' party for Title VII, or any other, purposes."); Harder v. Glass, 234 A.D.2d 293, 294, 651 N.Y.S.2d 82, 83 (2d Dep't 1996) ("As the petitioner is not a prevailing party, she is not entitled to attorney's fees."); 25 E. 83 Corp. v. 83rd St. Assoc., 213 A.D.2d 269, 269, 624 N.Y.S.2d 125, 125 (1st Dep't 1995) ("It is settled that only a prevailing party is ordinarily entitled to attorney's fees and that to be considered a prevailing party, there must be success with respect to the central relief sought. Applying that standard, the Supreme Court properly concluded that plaintiff was not the prevailing party since all of its substantive claims . . . were dismissed.")
(citation omitted).
CONCLUSION
For the reasons set forth above, the Court should grant summary judgment to defendants dismissing New Paradigm's amended complaint in its entirety.