Opinion
650403/2016
11-16-2020
PARLUX FRAGRANCES, LLC, Perfumania Holdings, Inc., Plaintiff, v. S. CARTER ENTERPRISES, LLC,Shawn Carter, Defendant.
For plaintiff, Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C.Chrysler Center 666 Third Avenue New York, New York 10017(212) 935-3000 For defendant, Quinn Emanuel Urquhart & Sullivan, LLP51 Madison AvenueNew York, NY 10010(212) 849-7000
For plaintiff, Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C.Chrysler Center 666 Third Avenue New York, New York 10017(212) 935-3000
For defendant, Quinn Emanuel Urquhart & Sullivan, LLP51 Madison AvenueNew York, NY 10010(212) 849-7000
Andrew Borrok, J.
The following e-filed documents, listed by NYSCEF document number (Motion 018) 1120, 1121, 1122, 1123, 1124, 1125, 1126, 1127, 1128, 1129, 1130, 1131, 1132, 1133, 1134, 1135, 1136, 1137, 1138, 1139, 1140, 1141, 1142, 1143, 1144, 1145, 1146, 1147, 1148, 1149, 1150, 1151, 1152, 1153, 1154, 1155, 1156, 1157, 1158, 1159, 1160, 1161, 1162, 1163, 1164, 1165, 1166, 1167, 1168, 1169, 1170, 1171, 1172, 1173, 1174, 1175, 1176, 1177, 1178, 1179, 1180, 1181, 1182, 1183, 1184, 1185, 1186, 1187, 1188, 1189, 1190, 1191, 1192, 1193, 1194, 1195, 1196, 1197, 1198, 1199, 1200, 1201, 1202, 1203, 1204, 1205, 1206, 1207, 1208, 1209, 1210, 1211
were read on this motion to/for JUDGMENT-SUMMARY.
The following e-filed documents, listed by NYSCEF document number (Motion 019) 1212, 1213, 1214, 1215, 1216, 1217, 1218, 1219, 1220, 1221, 1222, 1223, 1224, 1225, 1226, 1227, 1228, 1229, 1230, 1231, 1232, 1233, 1234, 1235, 1236, 1237, 1238, 1239, 1240, 1241, 1242, 1243, 1244, 1245, 1246, 1247, 1248, 1249, 1250, 1251, 1252, 1253, 1254, 1255, 1256, 1257, 1258, 1259, 1260, 1261, 1262, 1263, 1264, 1265, 1266, 1267, 1268, 1269, 1270, 1271, 1272, 1273, 1274, 1275, 1276, 1277, 1278, 1279, 1280, 1281, 1282, 1283, 1284, 1285, 1286, 1287, 1288, 1289, 1290, 1291, 1292, 1293, 1294, 1295, 1296, 1297, 1298, 1299, 1300, 1301, 1302, 1303, 1304, 1305, 1306, 1307, 1308, 1309, 1310, 1311, 1312, 1313, 1314, 1315, 1316, 1317, 1318, 1319, 1320, 1321, 1322, 1323, 1324, 1325, 1326, 1327, 1328, 1329, 1330, 1331, 1332, 1333, 1334, 1335, 1336, 1337, 1338, 1339, 1340, 1341, 1342, 1343, 1344, 1345, 1346, 1347, 1348, 1349, 1350, 1351, 1352, 1353, 1354, 1355, 1356, 1357, 1358, 1359, 1360, 1361, 1362, 1363, 1364, 1365, 1366, 1367, 1368, 1369, 1370, 1371, 1372, 1373, 1374, 1375, 1376, 1377, 1378, 1379, 1380, 1381, 1386, 1387, 1388, 1389
were read on this motion to/for SUMMARY JUDGMENT(AFTER JOINDER.
Upon the foregoing documents and for the reasons set forth below, (i) Parlux Fragrances, LLC (Parlux ) and Perfumania Holdings, Inc.'s (Perfumania ) motion (Mtn. Seq. No. 018) for partial summary judgment pursuant to CPLR § 3212 is granted solely to the extent that the portion of the counterclaim based on the failure to provide reports is dismissed as a separate counterclaim, and (ii) S. Carter Enterprises, LLC (SCE ) and Shawn Carter's motion (Mtn. Seq. No. 019) for summary judgment pursuant to CPLR § 3212 is granted solely to the extent of dismissing the claims for rescission. It is not clear on the record before the court the extent to which SCE and Mr. Carter operate as separate and distinct entities and whether Mr. Carter acted within or outside of his corporate duties and responsibilities.
I. THE RELEVANT FACTS AND CIRCUMSTANCES
Reference is made to (i) a certain Agreement (the 2009 Agreement; NYSCEF Doc. No. 1223), dated April 2, 2009, by and between Parlux and Iconic Fragrances, LLC (Iconic ), (ii) a certain letter agreement (the 2011 Agreement; NYSCEF Doc. No. 1224), dated December 23, 2011, by and among Perfumania, SCE, and Artistic Brands Development LLC (Artistic Brands ), re: Shawn Carter Licensing Transaction, (iii) a certain License Agreement (the License Agreement; NYSCEF Doc. No. 1184), dated April 18, 2012, by and between SCE, for the services of Mr. Carter, as licensor, and Artistic Brands, as licensee, (iv) a Sublicense Agreement (the Sublicense Agreement; NYSCEF Doc. No. 1185), dated of even date therewith, by and among Artistic Brands, as sublicensor, and Parlux, as sublicensee, and (v) a certain Letter of Instruction (the Perfumania Side Letter ), dated April 18, 2012, by and among Artistic Brands, as assignor, and SCE, and assignee, and accepted by Perfumania (NYSCEF Doc. No. 1186).
See NYSCEF Doc. 1186, which indicates that as of April 18, 2012, Iconic was then known as Artistic Brands.
Pursuant to the 2009 Agreement, Parlux and Iconic acknowledged that Iconic was in the process of negotiating and entering into certain license agreements with certain celebrities, including Robin Rihanna Fenty (Rihanna ), Kanye West, Shawn Carter a/k/a Jay-Z and Madonna Ciccone. With respect to Rihanna and Kanye West, agreements in principal had been finalized (NYSCEF Doc. No. 1223, § 1.1). With respect to Mr. Carter and Madonna, the parties acknowledged that negotiations were continuing (id. ). Pursuant to the 2009 Agreement, the parties agreed that Parlux would either reimburse Iconic or pay directly to Rihanna the initial advance due under her license agreement, and with respect to all of the other celebrity artists identified on Exhibit A to the 2009 Agreement (id. , § 1.2[c] ), Parlux would pay directly to such other artists any initial advances due under their license agreements that were subject to a sublicense that Parlux accepted pursuant to the terms of the 2009 Agreement (id. , § 1.3[c] ). Parlux further agreed to assume all of the obligations of Iconic under each license as the sub-licensee of Iconic and that each licensor (i.e., the celebrity artist's company that held the celebrity artist's trademark) would have a direct claim against Parlux for breach (id. , § 1.5). In addition, pursuant to the 2009 Agreement, and as consideration to induce the licensors to enter into the license agreements, Parlux offered warrants in Parlux's stock (id. , § 2.1) and agreed to make the required royalty payments under the license agreements to the licensors on account of Net Sales and agreed to permit both Iconic and the licensor the right to audit Net Profits subject to the terms of the 2009 Agreement (id. , §§ 3.3 and 3.4). Exhibit A to the 2009 License Agreement provides for 3,000,000 Warrant Shares for the licensor's license attributed to Mr. Carter (id. , Exhibit A). As one would expect, the definition of Net Profits included advertising and promotion expenses (id. , § 2.2.). In exchange, Iconic received a right to 30% of the Net Profits (as such term is defined in the 2009 Agreement) (id. , §§ 3.1 and 3.2).
It is not clear on the record before the court how many warrants SCE and Mr. Carter actually received. Parlux and Perfumania allege in their complaint that SCE and Mr. Carter received 533,333 warrants pursuant to the 2009 Agreement and 266,667 warrants pursuant to the 2011 Agreement (compl., ¶¶ 68-71). In the July 2015 Letter (hereinafter defined), however, Parlux's General Counsel, Alfred Parliani, alleges that Mr. Carter and SCE received 1.7 million warrants (NYSCEF Doc. No. 1218 at 4). In their answer, SCE and Mr. Carter admit that they received 266,667 warrants pursuant to the 2011 Agreement but deny the allegations with respect to the remaining 533,333 warrants asserted in the complaint (answer, ¶¶ 68-71). In addition, although Parlux and Perfumania demand the return of any contract advances in their complaint (compl., ¶¶ 78, 83), it is not clear whether any such advance was made or the amount of any such advance if one was in fact made.
In the 2011 Agreement, the parties acknowledged (i) pursuant to an Agreement and Plan of Merger (the Merger Agreement ), dated December 23, 2011, by and among Perfumania, PFI Merger Corp., a wholly owned subsidiary of Parent, and Parlux would merge into PFI Merger Corp. and (ii) that (a) as of the Effective Date as defined in the Merger Agreement, Mr. Carter and SCE had agreed to enter the License Agreement in the form attached as Exhibit A to the 2011 Agreement, which License Agreement provides that simultaneously with the execution of the License Agreement, the parties will execute the Perfumania Side Letter assigning 15% of the Net Profits to SCE and acknowledging SCE's "direct right to recover such Net Profits from Perfumania" (NYSCEF Doc. No. 1224, Ex. A, Art. 20A), (b) Perfumania (or its wholly owned subsidiary, Artistic Brands) and Mr. Carter (only as to certain specified provisions in the sublicense) agreed to enter into the sublicense in the form attached as Exhibit B to the 2011 Agreement, and (c) Perfumania (or its wholly-owned subsidiary), SCE and Artistic Brands agreed to enter into a side letter agreement regarding net profits in the form attached as Exhibit C to the 2011 Agreement. The 2011 Agreement was subject to and only became effective if certain conditions were satisfied, including the consummation of the merger contemplated by the Merger Agreement and the consummation of the other transactions contemplated by a different side letter agreement among Perfumania, Parlux, Artistic Brands, and Rene Garcia attached as Exhibit D to the 2011 Agreement.
For the avoidance of doubt, (i) Exhibit A is an unexecuted form of the License Agreement, Exhibit B is an unexecuted form of the Sublicense Agreement and Exhibit C is an unexecuted form of the Perfumania Side Letter, and (ii) all documents executed on behalf of either Perfumania or Parlux were executed by Michael Katz as CEO.
Pursuant to the Perfumania Side Letter, which the parties acknowledged was a letter of instruction pursuant to Section 3.1 of the 2009 Agreement, (i) Artistic Brands assigned a portion (15%) of Net Profits (as defined in the 2009 Agreement) of Perfumania to SCE, and (ii) Perfumania acknowledged the assignment of the Net Profits interest to SCE and agreed (a) that SCE had the right to audit Perfumania's books and records in the manner described in the Section 3.4 of the 2009 Agreement and (b) that SCE shall have a direct right to recover any Assigned Share of Net Profits from Perfumania (NYSCEF Doc. No. 1186).
Pursuant to the License Agreement, SCE granted Artistic Brands an exclusive license to use the JAY-Z trademark (the Licensed Mark ) for the manufacture, promotion, distribution, and sale of fragrances and related products (NYSCEF Doc. No. 1184, Art. 2A). The License Agreement provided for an initial product launch and potential additional products. More specifically, the parties agreed that (i) use of the Licensed Mark required SCE and Mr. Carter's approval, which approval was not to be unreasonably withheld, and that approval was deemed in the event that Mr. Carter failed to respond within 20 business days with respect to any such request (NYSCEF Doc. No. 1184, Art. 7A[iii] ), and (ii) that the parties would work together in good faith in deciding the types of articles of Licensed Products that Parlux may manufacture subject to SCE and Mr. Carter's reasonable approval. As relevant to the current dispute, the License Agreement distinguished between the process for product development and the initial obligation to provide a product development plan and an annual business plan. To wit, Article 7C provides that:
[Parlux] shall provide Licensor with a product development plan for each line of all Licensed Products, which plan may include Licensee's assessment of market needs and competitive positioning, and such additional information as reasonably requested by [SCE]. (id., Art. 7C).
With respect to product development, the parties agreed to coordinate to establish "product development calendars" setting forth a mutually agreed timetable for Parlux to make the concepts, materials, fabrications, and other materials available to SCE for its approval, and to "make every reasonable effort to adhere to the product development calendars" (id. , Art. 7C[i] ). Parlux further agreed to prepare and deliver to SCE for its written approval product concepts and specifications for Licensed Products that it proposed to include in a line "in accordance with an approved product development plan" (id. , Art. 7C[ii] ). The various lines of Licensed Products were to be created from the concepts and specifications that were to be modified and developed cooperatively by SCE and Parlux until SCE approved, in writing, a line, including items from prior lines to be continued, as consistent with the approved product development plan (id. ).
Additionally, the parties agreed that upon SCE's approval, (i) Parlux would prepare and deliver product assortments/samples together with packaging materials "and all advertising and promotional materials to be issued in connection therewith, for SCE's prior written approval," (ii) once SCE approved the bottle design and execution and the cap and collar, Parlux could begin production of the bottle, cap, and collar notwithstanding that SCE had not yet approved the bottle contents, packaging materials, and any advertising or promotional materials associated therewith, (iii) should SCE not subsequently approve the bottle contents and/or packaging materials, then the cost of production for the bottle, cap, and collar shall be at Parlux's expense, and (iv) Parlux shall not commence production of any item or matter using the Licensed Mark including, but not limited to, the packaging materials until SCE has approved in writing "using the approval form attached as Exhibit B, a final product assortment and the associated Packaging Materials and all other items or matter utilizing the Licensed Mark" (id., Art. 7C[iii] ). Article 7C further provides that disapproval of a proposed product line by SCE and Mr. Carter may be made in their reasonable discretion and shall be accompanied by an explanation of the disapproval and, if possible, a proposed solution or alternative design (id. ). In the event of such disapproval, Article 7 requires that SCE and Mr. Carter engage in good faith negotiations with Parlux to solve any objections that SCE and Mr. Carter have and if such negotiations fail to resolve the objections, the disapproval shall become final (id. ).
Separately, and additionally, pursuant to Article 12 of the License Agreement, the parties agreed that:
C. [Parlux] shall submit to [SCE] and [Mr. Carter] for its prior written approval an annual business plan, which shall include specific product offerings, advertising and marketing strategies for distribution and sale of the Licensed Products, and sales forecasts. Such Plan shall be delivered to [SCE] at least ninety (90) days prior to the beginning of each Sales Year, except that with respect to Sales Year 1 the plan shall be delivered within one hundred and twenty (120) days prior to the First Shipment Date. (id., Art. 12C.)
In other words, the parties agreed that Parlux would first provide a product development plan. Then, in accordance with the approved product development plan, the parties would work together collaboratively and in good faith to carry out the terms of the License Agreement including developing products which were subject to SCE's approval and that, every year, Parlux would submit an annual business plan to SCE and Mr. Carter for their written approval.
In connection with this collaborative process, the parties also agreed that Parlux would submit "free of charge to [SCE] a then current sample of each Licensed Product marketed. Production samples submitted by Parlux for this purpose may be retained by [SCE] and [SCE] will pay [Parlux] for any additional production samples [SCE] requests and retains at prices equal to [Parlux]'s actual costs" (id. , Art. 7A[iv] ). Additionally, Parlux agreed that, "all approved sample Licensed Products and all original, approved production specification drawings, models, molds and patterns therefore (collectively, the ‘Sample Materials’) will be [SCE]'s property and [Parlux] shall surrender these Sample Materials to [Parlux] immediately upon the expiration or termination of the Term" (id., Art. 7C[iii] ).
As discussed above and contemplated by the 2009 Agreement, the License Agreement provided for a minimum royalty payment to be made to SCE and Mr. Carter equal to: "the greater of (A) the Sales Royalty provided by Section 9A based on [Parlux's] Net Sales during each Sales Year, or (B) the Guaranteed Minimum Royalty" (id. , Art. 8). Article 8A of the License Agreement provides that, in the event that Parlux does not meet the minimum net sales target, SCE and Mr. Carter are entitled to receive guaranteed minimum royalty payments of $750,000 in the first year and increasing to $1,750,000 in year five (id. , Art. 8A).
Article 11 of the License Agreement requires Parlux to devote sufficient resources to advertising and promoting the GOLD JAY-Z product line and any spin-off product lines or other product line extensions. To wit, Article 11A requires Parlux to spend "40% of the greater of the Net Minimum or actual net sales" in year one (with a minimum of $5,000,000), 25% in year two (with a minimum of $4,166,667), and 3% in each of the three remaining years of the initial term thereafter (with a minimum of $4,166,667, $5,000,000, and $5,833,333 spent in each of the three years, respectively) on advertising and promoting the Licensed Products (id. , Art. 11A).
Article 11A further provides:
In the event that the expenditure for Consumer Advertising and Promotion in a Sales Year is less than the minimum required under this Article 11, [Parlux] ... must spend the shortfall on Consumer Advertising and Promotion during the first quarter of the next Sales Year. Any shortfall remaining at the end of such first quarter shall be remitted to [SCE and Mr. Carter] .
(id. [emphasis added] ).
Additionally, and with respect to the royalty payments due, pursuant to Article 12 of the License Agreement, the parties further agreed that:
A. Sales Statement . [Parlux] shall deliver to [SCE] and [Mr. Carter] at the time each Sales Royalty payment is due, a reasonably detailed report in accordance with Generally Accepted Accounting Principles signed by an officer of [Parlux] and Perfumania and certified as true, accurate and complete, identifying by SKU number the items, quantities and Net Sales of each style of Licensed Product broken out by customer account and by country sold by [Parlux] and/or its Affiliates, Subsidiaries, distributors and/or sub-licensees during the quarter for which payment is being made
B. [Parlux] and Perfumania shall prepare and maintain, in such manner as will allow its accountants to audit same in accordance with GAAP complete, accurate and separate books of account and records (specifically including without limitation the original or copies of documents supporting entries in the books of account) in which accurate entries will be made covering all transactions, including advertising expenditures, arising out of or relating to this Agreement [SCE] and [Mr. Carter] and their duly authorized representatives shall have the right, for the duration of this Agreement and for three (3) years thereafter, during regular business hours and upon seven (7) business days advance notice to audit said books of account and records and examine all other documents and materials in the possession or under the control of [SCE] and/or Perfumania
The deal memorialized in the License Agreement was not merely compensation for the use of the Licensed Mark. Were that true, only SCE (and not Mr. Carter) would have needed to sign the License Agreement. To ensure Mr. Carter's personal commitment and involvement, Mr. Carter personally agreed to be bound by certain provisions of the License Agreement — i.e., Articles 2C, 2D, and 11E. As relevant to the dispute between the parties, pursuant to Article 11E, Mr. Carter agreed to make himself available at reasonable intervals and for reasonable periods for at least three appearances in any sales year upon twenty days' written notice subject to his prior professional commitments:
[SCE] undertakes, at [Parlux's] sole expense and subject to [Mr. Carter's] prior professional commitments , at [Parlux's] request to make [Mr. Carter] available at reasonable intervals and for reasonable periods (which shall involve at least three (3) appearances in each Sales Year of the Term, at least one of which shall take place in New York City) for promotional tie-ins serving to associate [Mr. Carter] with the Licensed Products.... [Mr. Carter] shall make every reasonable effort, in light of his busy schedule and subject to his prior professional commitments, at the request of [Parlux] and upon at least twenty (20) business days written notice, to arrange for [Mr. Carter's] cooperation for a reasonable number of publicity events (which shall be included in [Mr. Carter's] obligations of three (3) appearances discussed above).... If [Mr. Carter] fails to appear for a scheduled [SCE] approved event due to his willful acts or omissions, [Parlux] will have the right to deduct its non-refundable, directly related, reasonable out of pocket expenses incurred in connection with each specific event from the Sales Royalty. The failure to appear at a scheduled event could have a material adverse effect on [Parlux's] ability to market the Licensed Products. (id. , Art. 11E [emphasis added] ).
Additionally, SCE and Mr. Carter covenanted that they had not and would not compete by promoting other fragrances or related products during the term of the License Agreement and represented that they own, control, or otherwise have valid rights in the Licensed Mark and all rights of publicity in Mr. Carter's name, likeness and image and all merchandizing rights associated with Mr. Carter's commercial persona (id., Art. 2C and 2D).
Article 15 of the License Agreement sets forth the conditions and occurrences that constitute an event of default, which include:
(i). the failure to pay [SCE and Mr. Carter] the full amount due ... under any of the provisions of this Agreement by the prescribed date for such payment;
(ii). the failure to deliver full and accurate reports pursuant to any of the provisions of this Agreement by the prescribed due date therefore;
(iii). the making or furnishing of a knowingly false statement in connection with or as part of any material aspect of a report, notice or request rendered pursuant to this agreement;
(iv). the failure to maintain the insurance required by Article 12;
(v). the use of the Licensed Mark in an unauthorized or unapproved manner;
(vi). [Parlux's] use of other trademarks on or in association with the Licensed Products, without prior written consent of [SCE and Mr. Carter];
(vii). the commencement against [Parlux] of any proceeding in bankruptcy, or similar law, seeking reorganization, liquidation, dissolution, arrangement, readjustment, discharge of debt, or seeking the appointment of a receiver, trustee or custodian of all or any substantial part of [Parlux's] property, not dismissed within sixty (60) days, or [Parlux's] making of an assignment for the benefit of creditors, filing of a bankruptcy petition, its acknowledgement of its insolvency or inability to pay debts, or taking advantage of any other provision of the bankruptcy laws;
(viii). the material breach of any other material promise or agreement made herein (or any agreements or exhibits incorporated by reference herein) ....(id. , Art 15A).
In the event of an event of default, the parties provided for 15 days' written notice and an opportunity to cure:
B. In the event Licensee or Licensor fails to cure an Event of Default, (in the event such Event of Default is curable) within fifteen (15) days after written notice of default is transmitted to Licensee or within such further period as the non-defaulting party may allow, this Agreement shall, at the option of the non-defaulting party, be terminated, on notice to the defaulting party.
(id. , Art. 15B).
The License Agreement provided that notices required or permitted to be given to a party to the License Agreement would be in writing "and will be considered to be duly given three (3) days after sent by certified mail or registered mail, return receipt requested, or by recognized overnight courier such as UPS or Federal Express to the party set forth in the Agreement" (id., Art. 19).
The parties further provided that the waiver of an obligation set forth in the License Agreement did not constitute a continuing waiver as to future alleged breaches of the same obligation and that acceptance of the payments by SCE or Mr. Carter did not constitute a waiver of any provision of the License Agreement:
No Waiver. No waiver by either party, whether express or implied, of any provision of this Agreement, or of any breach or default thereof, shall constitute a continuing waiver of such provision or of any other provision of this Agreement. Acceptance of payments by [SCE and Mr. Carter] shall not be deemed a waiver by [SCE and Mr. Carter] of any violation or default under any of the provisions of this Agreement by [Parlux]. (id., Art. 18).
Pursuant to Article 16 of the License Agreement, the parties agreed that in the event of a termination of the License Agreement, Parlux could sell-off remaining inventory and that SCE and Mr. Carter would be compensated for any such sales:
If this Agreement expires or is terminated for any reason, [Parlux] shall cease to manufacture Licensed Products (except for work in progress or to balance component inventory) but shall be entitled, for an additional period of (6) months only, on a non-exclusive basis, to sell and dispose of its inventory, subject, however, to the provisions of paragraph D of this Article. Such sales shall be made subject to all of the provisions of this agreement and to an accounting for and the payment of Sales Royalty thereon but not to the payment of Guaranteed Minimum Royalties.
(id. , Art. 16).
Finally, pursuant to Article 18, the parties agreed that the License Agreement "shall be construed and interpreted in accordance with the laws of the State of New York" (id. , Art. 18).
As discussed above, Article 2B of the License Agreement provides that "[Artistic Brands] is contemporaneously herewith sub-licensing the Licensed Mark to a subsidiary of [Perfumania], subject to and on the same terms and conditions as set forth in this Agreement pursuant to a sublicense agreement between [Artistic Brands] and Perfumania dated as of even date herewith" (id. , Art. 2B). Pursuant to the Sublicense Agreement, Perfumania's post-merger wholly owned subsidiary, Parlux, assumed all of Artistic Brands' rights and obligations under the License Agreement and thereby obtained the sole and exclusive right to manufacture, promote, and distribute JAY-Z branded fragrances and related products worldwide (NYSCEF Doc. No. 1185, ¶ 1). SCE and Mr. Carter signed the Sublicense Agreement solely as to Paragraph 16, which provides that Parlux shall have the right to enforce the obligations of SCE and Mr. Carter under the License Agreement to the same extent as Artistic Brands (id. , ¶ 16).
Following execution of the agreements, the GOLD JAY-Z fragrance officially launched in department stores nationwide on Black Friday, November 29, 2013 (compl., ¶ 20; NYSCEF Doc. No. 1215, Loftus Tr. at 175:5-12). The product launch was a major success and, according to Parlux, GOLD JAY-Z quickly became Parlux's top-selling fragrance in the U.S. (compl., ¶ 21; NYSCEF Doc. No. 1216, Espino Tr. at 241:12-22). Notwithstanding the successful launch, Parlux and Perfumania allege that SCE and Mr. Carter breached their contractual obligations to provide promotional support and maintain the brand's relevance, resulting in millions of dollars in lost sales.
For example, Mr. Carter met with representatives of Parlux on June 6 and June 11, 2013 to discuss ideas for promoting the launch of GOLD JAY-Z (NYSCEF Doc. No. 1270-1272), including having Mr. Carter appear on Good Morning America, at a Sephora in Times Square, and on ESPN, and having Mr. Carter flip a switch to light up New York City landmarks in gold (NYSCEF Doc. No. 1273). An internal memorandum by Parlux outlining the launch strategy also indicates that Parlux wanted Mr. Carter to appear at the Sephora Champs Elysee in Paris in June 2014 (NYSCEF Doc. No. 1274), although there is no evidence that any such request was ever formally made to SCE and Mr. Carter in writing, pursuant to the terms of the License Agreement, or that he ever accepted any such formal request. Following the meeting with Mr. Carter on June 11, 2013, Ms. Espino of Parlux emailed their public relations team at the firm Nicholas & Lence Communications, stating that "he truly liked the proposal," and that "he suggested the Freedom Tower even before we suggested it" to be lit up in gold (NYSCEF Doc. No. 1275). Ms. Espino further noted that Mr. Carter was "NOT OPPOSED to the [appearances] on Good Morning America/Sephora Times Square and ESPN trifecta," and that "[i]t may not be on exactly black (GOLD) Friday but around that date and if he is around then black friday it is" (id. ).
On July 29, 2013, Shin-Jung Hong of Nicholas & Lence Communications sent Jana Fleishman of Roc Nation, an affiliate of SCE, a first draft of a public relations plan and "run of show" for the Black Friday promotional events (NYSCEF Doc. No. 1280). An internal Parlux memorandum titled Jay Z Gold Launch Update indicates that "as of meeting on 7/18, JAY Z team on board with [appearance] on [Good Morning America] on GOLD Friday/Sephora Times Square [appearance], ESPN appearance TBD" (NYSCEF Doc. No. 1281). The notes also indicate that Mr. Carter's first preference for the lighting promotion would be the Freedom Tower and that his second choice would be the Brooklyn Bridge (id. ).
However, no evidence is adduced from SCE or Mr. Carter that he in fact agreed to do the GMA or Sephora promotions. In fact, on October 20, 2013, Desiree Perez of SCE indicated that Mr. Carter had "no plans on doing [Good Morning America]" (NYSCEF Doc. No. 1292). In addition, in an email from Ms. Espino to Stephen Nussdorf of Perfumania, Ms. Espino stated that she had been informed that "JAY Z will not go to SEPHORA on black Friday or any day" (NYSCEF Doc. No. 1293).
SCE and Mr. Carter contend that Parlux proceeded with the launch on black Friday despite knowing that it conflicted with the American leg of Mr. Carter's Magna Carta World Tour and that he was, therefore, not available. In support of their position, they adduce an email from Shahendra Ohneswere of SCE to Ms. Espino, dated September 6, 2013 providing the dates for the 34-city North American leg of the Manga Carta World Tour, which was scheduled to begin on November 30, 2013 in Saint Paul, Minnesota (NYSCEF Doc. No. 1230). In addition, as Ms. Perez explained in her deposition testimony, because the promotional events and the initial launch were scheduled right before a major tour, Mr. Carter "probably was either on rehearsals, getting fitted, making sure he's clearing his music, [and] setting up sets" (NYSCEF Doc. No. 1266, Perez Tr. at 207:10-25). Mr. Carter's calendar, however, indicates that he was at home in Manhattan on November 29, and his only scheduled items were a fitting at 1:00 PM and watching a basketball game at 8:00 PM (NYSCEF Doc. No. 1296 at 6580).
Parlux and Perfumania further allege that on November 25, 2013, just four days prior to the launch date, Mr. Carter demanded that his likeness be edited out of a promotional video produced by Parlux to introduce the GOLD JAY-Z brand (NYSCEF Doc. No. 1303). The email that Parlux relies on for this assertion, however, indicates that on November 20, 2013 (i.e., approximately nine days (not four) before the initial launch of GOLD JAY-Z, and unrelated to the subsequent sales years or the development of the flankers), SCE provided comments to a POS video which Parlux refused to make because the proposed edits were very costly and, in their view, "changed the essence of the story" and would inhibit their ability to deliver the video to the stores (id. ). Although the comments reflect removing Jay-Z "looks" (the first 3 seconds) and focusing on more shots featuring a woman, it is not clear whether the comments reflect a creative difference as to how the product should be placed or whether the comments were not made in good faith. Equally important, there is nothing which suggests that the video itself had been previously provided (and if so when) or approved or that these comments were in fact in any way delayed or provided at the "last minute." Indeed, the email suggests an iterative creative process and indicates that these are the "latest of many changes" that Parlux was directed to make and that the story board (i.e., as opposed to the video) had been first presented in mid-September. Indeed, this iterative creative process may well be the way that the parties chose to in practice work the planning and development process of the License Agreement.
In addition, Parlux and Perfumania allege that SCE pulled Spotify audio advertisements without a reasonable explanation after the scripts had already been approved. However, in his deposition testimony, Mr. Carter's personal or business manager, John Meneilly, explained that SCE "didn't like the voiceover choice" and thought that the "voice was not what we were looking for" (NYSCEF Doc. No. 1278, Meneilly Tr. at 245:2-246:12). In other words, it is not clear whether the comments reflect creative differences as to the product placement (e.g, the sound of the voice) or whether they were not made in good faith.
It appears on the record that Mr. Meneilly, who is the notice cc party to the License Agreement on behalf of SCE, was hired as Mr. Carter's personal or business manager in 1997 and not as an officer or employee of SCE and may not have been one when the License Agreement was executed or thereafter (NYSCEF Doc. No. 1278, Meneilly Tr. at 11-22).
Parlux and Perfumania cite a number of additional alleged breaches by SCE and Mr. Carter, including: (i) declining to be interviewed (NYSCEF Doc. No. 1299-1300), (ii) failing to provide a quote for an upcoming Women's Wear Daily article (NYSCEF Doc. No. 1302), (iii) failing to make various promotional appearances at Macy's in support of the product (NYSCEF Doc. No. 1298), (iv) declining to provide a quote or statement for the press release in connection with the product launch (NYSCEF Doc. No. 1301), (v) or to provide quotes or complete "Q & As" for Elle, Glamour, or Cosmopolitan (NYSCEF Doc. No. 1304), and (vi) rejecting five different concepts for a promotional contest involving a giveaway of an 18-carat gold bottle of GOLD JAY-Z created by Jacob the Jeweler valued at $20,000, and instead keeping the prototype gold bottle (NYSCEF Doc. No. 1286, 1293). With respect to the Jacob the Jeweler promotion, an internal email indicates that Mr. Carter d[id] not like any of the proposals," and notes that "[t]his is not necessary for launch" (NYSCEF Doc. No. 1293).
NYSCEF Doc No. 1302 indicates in an email from Ms. Espino, dated October 31, 2013, that she "spoke to Peter Born what he will state is that due to JAY Z's international concert tour schedule he has been unavailable for comments."
NYSCEF Doc. No. 1298 is an internal Parlux email with notes from Ms. Espino, dated October 31, 2013 to Rafael Villodo of Perfumania, and Mr. Garcia of Artistic Brands, which includes comments attributed to "JAY," identifying where and when a number of meetings took place, including a June 11th meeting at Roc Nation where JAY Z / DP / JM / RG / RV DL / DE attended and reviewed the agency deck. It notes that: "[J]ay liked the 2 images" and "Jay said never face and bottle in same page," and that, in an email dated June 18th, he stated that "he would not go to macy's or be part of macy's tv."
NYSCEF Doc. No. 1301 is an email exchange where Jana Fleishman of Roc Nation indicates that Mr. Carter had "no additional quotes" to a launch press release. The launch press release which is part of NYSCEF Doc. No. 1301 is, with the exception of a brief description about Parlux and Perfumania, entirely about Mr. Carter and his companies and his substantial accolades including his 17 Grammy awards, his unrelated businesses, and describes him as "an international entrepreneur, music legend, style icon, sports agent, philanthropist. The Press Release includes quotes from Illias Eremenidis, the GOLD JAY-Z designer describing how he created GOLD JAY-Z trying to "capture both the vibrant ambitious part of JAY-Z's charismatic persona and his effortless style that naturally embodies through a fusion of notes chosen by JAY-Z," Parlux's President Donald Loftus commenting that "JAY-Z is one of the world's leading artists entrepreneurs, philanthropists and visionaries of our time He continues to re-write rules and sets new standards, turning everything he touches into gold"
NYSCEF Doc. No, 1304 is an email exchange between Shin Jung Hon of Nicholas Lence to Ms. Fleishman of Roc Nation and cc'ing Ms. Espino. The email exchange takes places on Friday , January 10, 2014, where Ms. Hon wrote at 11:47 am that she realized that they "may be bombarded from being back in the office, but wanted to gently nudge for feedback on Elle, Glamour, and Cosmopolitan.com, especially since Elle wanted to get feedback soonest/today to coincide with Mr. Carter's upcoming show on Sunday ." [emphasis added]. At 12:01 pm, Ms. Fleishman responded "Mr. Carter is not available to supply quotes or complete a Q & A"
Undeniably, however, Parlux never sent a 15-day cure notice or a termination notice pursuant to Article 15B of the License Agreement with respect to any of these alleged breaches in connection with the initial launch or the flankers. Indeed, the first notice of Parlux claiming an alleged default was sent on July 31, 2015 — i.e., almost two years after the successful initial launch (NYSCEF Doc. No. 1181). In that letter (the July 2015 Letter ), from Mr. Parliani, Parlux's General Counsel, Parlux asserted that SCE and Mr. Carter breached the License Agreement and that such breaches were not curable:
By reason of the foregoing, Licensor and/or Mr. Carter have breached the License Agreement ( and these breaches are not reasonably curable at this point in time ). The specific breaches are set forth below:
(1) Frustrating Licensee's best efforts to launch a second line in a timely fashion in violation of Article 7 resulting in lost sales and profits on the existing GOLD JAY Z line and eliminating the prospect for additional sales and profits on the flanker line and the continuation of the GOLD JAY Z line; and
(2) The failure and/or refusal by Mr. Carter to make any appearances or do much of anything for that matter to promote the Jay Z brand in violation of Article 11(E) of the License Agreement (to which Mr. Carter also bound himself personally).
(id. [emphasis added] ).
For the avoidance of doubt, the July 2015 Letter did not purport to terminate the License Agreement.
Shortly after the launch of GOLD JAY-Z, and pursuant to the parties' agreement, Parlux began developing concepts and renderings for multiple additional or "flanker" products for the brand, including (a) the Trinity Collection, (b) the Artisanal Collection, (c) the Private Collection, and (d) the culture collection, each of which included three different bottle and "juice" fragrance options (compl., ¶ 34; NYSCEF Doc. No. 1353). However, it is not clear whether these additional submissions included the product development plan required by Article 7 of the License Agreement described above. Indeed, when SCE received these concept proposals, SCE indicated that it could not review and approve them without additional information. For example, on February 3, 2014, Jeff Geisler of Roc Nation, an affiliate of SCE, emailed Roxanne Rabasco, Parlux's Senior Director of Digital and Social Media Marketing, requesting new "visuals" and revised messaging and stating "it's going to be difficult for us to get approval on a plan if I can't present everything all together at once in one comprehensive package" (NYSCEF Doc. No. 1167 at 1409). As Ms. Perez explained in her deposition testimony, SCE grew increasingly apprehensive about moving forward with new product proposals because they "were asking for more [information] and [it] was more clear to us that they weren't prepared" (NYSCEF Doc. No. 1266, Perez Tr. at 115:7-11).
Indeed, in response to an email from Ms. Fleishman of Roc Nation that was forwarded by Ms. Perez indicating that the Fragrance Foundation announced that GOLD JAY-Z was both (i) the fragrance of the year and (ii) the packaging of the year and was a finalist in the Consumer Choice Awards, Mr. Carter wrote:
This is all I want to do
Great things (although the partners suck so it doesn't feel great)
I believe we have made enough money and need to cut our margin down.
And only do great things with great people. Barney's was a great example minus
The bullshit (NYSCEF Doc. No. 1345).
It is unclear what Mr. Carter meant by this email. Parlux argues that this is evidence that he did not meaningfully participate in the development of the flankers. However, it is not clear that this is so. This internal email simply may be an expression that he was dissatisfied with his partnership with Parlux and Perfumania and that going forward he only wanted to do "great things" (i.e., be associated with products that are the best) and that he will be more discerning about who he partners with in the future.
Parlux, however, alleges that the problem was not that the submissions were not complete and properly delivered to SCE and Mr. Carter. The problem, according to Parlux, was that SCE and Mr. Carter breached the License Agreement by failing to provide any substantive feedback or otherwise engage in good faith to work together to develop these flanker products, which were both critical to the License Agreement as follow-on products, but also in refreshing the initial launch GOLD JAY-Z product. Stated differently, Parlux argues that SCE and Mr. Carter, after having received substantial compensation, were essentially absent from or unhelpful to the process and failed to properly multi-task his various professional commitments to allow him to meaningfully participate in this arrangement, and otherwise, due to his lack of engagement, frustrated SCE's ability to perform under the License Agreement. This, Parlux alleges, was critical as nothing could move forward without Mr. Carter's approval, which was a fundamental part of the bargain set forth in the License Agreement and the other agreements. In an attempt to try to advance the development of these additional product lines, Parlux alleges that they made a number of attempts to meet with Mr. Carter personally, which he did not accommodate.
For example, after months of trying to set up a meeting with Mr. Carter and Parlux's design team to discuss concepts for the next fragrance, which at Mr. Carter's request was to be called ROSE GOLD JAY-Z, and which Parlux wanted to be available in stores by February 2015 (NYSCEF Doc. No. 1347-1349), Parlux flew its team to Miami to meet with Mr. Carter backstage before the first concert of a 19-city tour (NYSCEF Doc. No. 1351). However, Mr. Carter did not attend the meeting. Instead, according to Donald Loftus of Parlux, Ms. Perez of SCE met with the Parlux team, reviewed the materials they brought, committed to review the materials with Mr. Carter, and explained that Mr. Carter regrettably could not meet with them before the concert because there were "pre-concert difficulties" (id. ). In addition, she committed to setting up a meeting with Mr. Carter in New York within the next 10 days (id. ; compl. ¶ 37), which did not happen.
Subsequently, on August 27, 2014, Mr. Garcia emailed Ms. Perez indicating that the new designs were ready and requesting a time to meet in person to discuss them (NYSCEF Doc. No. 1358). Ms. Perez simply replied "[h]e's not here" (NYSCEF Doc. No. 1358). Mr. Garcia asked if she knew when they might be able to schedule a meeting, and Ms. Perez replied that, "[h]e's not back till October" because Mr. Carter was on a European tour (NYSCEF Doc. No. 1358). When pressed by Mr. Garcia if Parlux were willing to travel, Ms. Perez indicated that maybe they could meet somewhere while he was on tour (NYSCEF Doc. No. 1266, Perez Tr. at 302:8-14, 16-22). Subsequently, on October 8, 2014, Mr. Garcia informed Ms. Perez that Parlux's bottle designer was in Paris and requested a meeting with Mr. Carter (id. at 302:23-303:2). Mr. Perez responded that Mr. Carter was not working at that time (id. at 303:5-7).
On December 5, 2014, Parlux's package designer contacted Ms. Perez by email to request a meeting with Mr. Carter to go over the revisions to the flanker packaging (NYSCEF Doc. No. 1362). However, by email, dated December 9, 2014, Ms. Perez responded that Mr. Carter was "not available this year" (id. ). As discussed in this court's prior decision, dated October 27, 2020 (NYSCEF Doc. No. 1115), Mr. Carter's emails were deleted in January and not in December because SCE's offices were generally closed as its staff generally took time off in December (NYSCEF Doc. No. 928, Allen Tr. at 69:5-6).
While Parlux was trying, unsuccessfully, to get a meeting with Mr. Carter, Parlux alleges that it faced obstacles in getting feedback on its designs. For example, in July 2014, Mr. Garcia submitted certain renditions of GOLD JAY-Z line extensions. However, the record reflects that Ms. Perez promptly forwarded back handwritten notes on the images via email indicating, "Let's discuss" but that it was not approved (NYSCEF Doc. No. 1353-1355). On October 14, 2014, Parlux sent bottles, cartons, and fragrance "juices" to Ms. Perez for the GOLD JAY-Z NOIR, GOLD JAY-Z PARIS LIGHTS, and GOLD JAY-Z LONDON UNDERGROUND flanker products for SCE and Mr. Carter's approval (NYSCEF Doc. No. 1356). SCE and Mr. Carter suggested certain changes, including changes to the colors of the boxes (id. ).
Parlux also alleges that it had intended to present the GOLD JAY-Z product line's new flankers at the International Sales Conference during the week of January 26, 2015 (compl., ¶ 46), but because it was unable to get SCE or Mr. Carter's approval for the proposed bottles, packaging, or fragrances, Parlux had nothing new to present for the brand (id. ).
Subsequently, in February 2015, Parlux sent several samples of proposed fragrances to Mr. Carter's team. Parlux alleges that Mr. Carter's team apparently lost them each time (id. , ¶ 47). By the end of February, Mr. Carter's team acknowledged receipt of the samples (id. ). Over the next several months, however, Parlux did not receive a response from SCE and Mr. Carter regarding the samples (id. , ¶ 48). By email, dated April 14, 2015, Ms. Perez indicated that, "we are super busy on [another] project and can't dedicate time to anything else at the moment" (NYSCEF Doc. No. 1165). The flanker products never launched.
Parlux further alleges that as a result of SCE and Mr. Carter's failure to meaningfully and in good faith participate in the development of these additional flanker products, sales of GOLD JAY-Z declined sharply and ultimately, department stores stopped carrying the brand due to a lack of consumer demand. Parlux struggled to achieve sufficient net sales to cover its guaranteed minimum royalty payments and minimum advertising expenditure obligations under the License Agreement.
According to Parlux's estimates, the JAY-Z fragrance brand was projected to achieve $15 million in sales in the first year and $35 million in each subsequent year at wholesale (id. , ¶ 55). In reality, the brand's performance fell significantly short of those targets. In the first year after launch, the brand generated approximately $14 million in net sales (id. , ¶ 57). In the second year, it generated only $6.1 million (id. , ¶ 58). Parlux asserts that after accounting for its marketing and promotional expenses, guaranteed minimum royalty payments to Mr. Carter of nearly $2 million, and other operating expenses, Parlux has experienced a net loss on the brand, including a diminution of the value of the brand's equity (id. , ¶¶ 57-61).
Parlux and Perfumania sued SCE and Mr. Carter for (i) rescission of the License Agreement and Sublicense Agreement (first cause of action), (ii) breach of the License Agreement and Sublicense Agreement (second cause of action), (iii) breach of the 2011 Agreement (third cause of action), (iv) breach of the 2009 Agreement (fourth cause of action), (v) breach of the implied covenant of good faith and fair dealing (fifth cause of action), and (vi) declaratory judgment that the License Agreement and Sublicense Agreement should be rescinded and are void ab initio (sixth cause of action). In their complaint, Parlux and Perfumania allege that SCE and Mr. Carter failed to participate in good faith to develop the fragrance line as well as additional spin-off products by, among other things, failing to appear at required public appearances and promotional events and failing to approve or provide feedback on proposed products. Parlux and Perfumania allege that SCE and Mr. Carter's conduct resulted in millions of dollars in lost sales while SCE and Mr. Carter collected sizable guaranteed royalty payments despite their alleged misconduct. In addition, the complaint alleges that to induce Mr. Carter to enter the License Agreement and the Sublicense Agreement, Mr. Carter received 300,000 shares of Perfumania common stock and 800,000 warrants to purchase additional Perfumania common stock — i.e., as opposed to the (i) 3,000,000 warrants of Parlux stock, and (ii) as opposed to the licensor, in each case as provided for in the 2009 Agreement (NYSCEF Doc. No. 1, ¶¶ 64-69). In response, SCE and Mr. Carter asserted a single counterclaim against Parlux and Perfumania for breach of contract alleging that they failed to (i) remit millions of dollars in royalty payments, (ii) devote the required resources to advertise and promote the JAY-Z trademark, and (iii) provide certain required accounting reports and product development plans.
II. DISCUSSION
Summary judgment will be granted only when the movant presents evidentiary proof in admissible form that there are no triable issues of material fact and that there is either no defense to the cause of action or that the cause of action or defense has no merit ( CPLR § 3212[b] ; Alvarez v. Prospect Hosp. , 68 NY2d 320, 324 [1986] ). The proponent of a summary judgment motion carries the initial burden to make a prima facie showing of entitlement to judgment as a matter of law ( Alvarez , 68 NY2d at 324 ). Failure to make such a showing requires denial of the motion (id., citing Winegrad v. New York Univ. Med. Ctr. , 64 NY2d 851, 853 [1985] ). Once this showing is made, the burden shifts to the opposing party to produce evidence in admissible form sufficient to establish the existence of a triable issue of fact ( Alvarez , 68 NY2d at 324 ).
A. Parlux and Perfumania's Motion for Partial Summary Judgment (Mtn. Seq. No. 018) is Granted in Part
Parlux and Perfumania move for summary judgment and dismissal of SCE and Mr. Carter's counterclaim, arguing that (1) SCE and Mr. Carter waived any claims based on failure to provide the requisite business plans and reports under Articles 7 and 12 of the License Agreement, (2) summary judgment is warranted as to the counterclaim for breach of Article 11A of the License Agreement relating to advertising and promotion spending requirements, (3) Mr. Carter lacks standing to assert a counterclaim in his individual capacity, and (4) SCE and Mr. Carter cannot pursue any counterclaims against Perfumania because it is not a party to the License or the Sublicense.
i. Article 7 and 12 Reporting Requirements
Parlux and Perfumania argue that SCE and Mr. Carter waived their rights to assert a defense based on the alleged failure to provide business development plans or reports as required under Articles 7 and 12 of the License Agreement because they continued to accept Parlux's performance without objection and their conduct was inconsistent with an intent to enforce the reporting requirements (NYSCEF Doc. No. 1121, Pl. Mem. in Supp. at 14-15). Specifically, Parlux and Perfumania argue that SCE and Mr. Carter waived compliance with Articles 7 and 12 by failing to request any plans or reports at any time and failing to request any information at all after February 18, 2014 (id. ). In addition, Parlux and Perfumania argue that SCE and Mr. Carter waived any defense based on an alleged failure to provide plans or reports by failing to raise it as an affirmative defense in its answer and that, in any event, production of the plans and reports is not a condition precedent to SCE and Mr. Carter's obligations to "work together" with Parlux in good faith in the development of flanker products (id. at 16-21).
In their opposition papers, SCE and Mr. Carter argue that the portion of Parlux's motion based on the reporting requirements should be denied as moot as the parties previously stipulated that SCE and Mr. Carter only waived monetary damages on this ground (NYSCEF Doc. No. 1176, Def. Mem. in Opp. at 13). They further argue that their affirmative defense is not barred under CPLR § 3018(b) because they pled that Parlux's claims fail to state a claim upon which relief can be granted and, in any event, assertion of Parlux's failure to perform its contractual obligations would not result in any surprise or prejudice (id. at 16-18). In addition, SCE and Mr. Carter argue that they never expressed a clear intention to waive their right to assert a defense based on Parlux's failure to provide business plans and reports, and that Parlux and Perfumania's waiver argument is directly contradicted by the License Agreement's express "no waiver" clause (id. at 18-22). Moreover, they argue that the reporting requirements constitute a condition precedent because their obligations under the License Agreement were only triggered by Parlux and Perfumania's preparation and delivery of product development and business plans and reports (id. at 23-24).
Both parties are partially correct. Parlux and Perfumania are entitled to dismissal of a separate counterclaim based on the alleged failure to provide business development plans or reports as required under Articles 7 and 12 of the License Agreement. They did not however waive this defense.
Inasmuch as SCE and Mr. Carter agreed not to assert any affirmative counterclaims seeking monetary damages or equitable relief based on a failure to provide the required plans and reports (NYSCEF Doc. No. 1203) (presumably because Mr. Carter was prepared to accept the Guaranteed Minimum Royalty and there was no need to exercise their audit rights under Article 12, and the flanker products were not developed and that he was, therefore, not entitled to royalties related to these unapproved and not developed products), this portion of the counter-claim must be dismissed.
SCE and Mr. Carter however did not waive the right to assert Parlux and Perfumania's failure to provide the required plans and reports as a defense. They have consistently argued that Parlux and Perfumania failed to perform their obligations under the License Agreement, which is a required element of a cause of action for breach of contract (NYSCEF Doc. No. 1202 at 10). In addition, Parlux and Perfumania fail to establish surprise or prejudice as they have had a full and fair opportunity to respond to and oppose the defense ( CPLR § 3018[b] ; Diversified Group, Inc. v. Marcum & Kliegman LLP , 129 AD3d 552, 553 [1st Dept 2015] ). Moreover, pursuant to Article 18F of the License Agreement, as discussed above, the parties agreed that neither the acceptance of money nor a prior waiver of a condition of the contract would constitute a continuing waiver of that requirement. Contractual "no waiver" provisions such as this are valid and enforceable under New York law ( Katz v. 215 W. 91st St. Corp , 215 AD2d 265, 267 [1st Dept 1995] ["Such a clause is fully enforceable"] ).
Thus, neither SCE and Mr. Carter's alleged choice not to require the plans and reports in connection with the initial launch of GOLD JAY-Z, nor their acceptance of royalty payments, constituted a waiver of their rights to receive such plans and reports in the future nor to assert Parlux and Perfumania's failure to provide them in connection with the GOLD JAY-Z extension or the flanker products as a defense. It is of no moment that SCE and Mr. Carter did not declare breach, give notice and an opportunity to cure, and then terminate the License Agreement. Stated differently, the fact that Mr. Carter did not invoke the termination provision of the License Agreement does not bar him from asserting Parlux's failure to comply with the License Agreement as a shield and as a defense to Parlux's claim of breach of the License Agreement. However, this is not to say that evidence of their actual conduct may ultimately constitute either evidence of a breach or evidence that estops them from claiming against Parlux. Each of these points are different than waiver and a non-waiver provision does not provide a license to do "bad things" that ultimately undermine or frustrate the contract.
To the extent that Parlux and Perfumania argue that providing plans and reports was not a condition precedent to SCE and Mr. Carter's obligations, the argument is contradicted by the language and structure of the License Agreement. As the Court of Appeals has observed, "a condition precedent is ‘an act or event, other than a lapse of time, which, unless the condition is excused, must occur before a duty to perform a promise in the agreement arises’ " ( MHR Capital Partners LP v. Presstek, Inc. , 12 NY3d 640, 645 [2009], quoting Oppenheimer & Co. v. Oppenheim, Appel, Dixon & Co. , 86 NY2d 685, 690 [1995] ). As discussed above, Article 7C of the License Agreement provides: "[f]or each new line of Licensed Products ..., [Parlux] shall prepare and deliver to [SCE and Mr. Carter], product concepts and specifications ... in accordance with the approved product development plan" (NYSCEF Doc. No. 1184, Art. 7C[ii] ). Article 7C further provides that the concepts and specifications are to be "modified and developed cooperatively ... until [SCE and Mr. Carter have] approved, in writing, a line which ... is consistent with the approved product development plan" (id. ). In other words, the clear and unambiguous language of the License Agreement states that SCE and Mr. Carter's obligations to discuss and approve concepts and specifications for new products arise only after Parlux has submitted a product development plan. However, what a "plan" is and what constitutes delivery are issues of fact that would preclude the grant of summary judgment of default by Parlux in SCE and Mr. Carter's favor. Put another way, Parlux may well have done enough given that SCE and Mr. Carter accepted substantial sums of money and may have breached the covenant of good faith and fair dealing (see below).
For the avoidance of doubt, to the extent that Parlux and Perfumania argue that SCE and Mr. Carter waived their right to receive any plans or reports because they "affirmatively told Parlux that they had all the information they needed to consider the" proposed flanker concepts and specifications, (Pl. Mem. in Supp., NYSCEF Doc. No. 11121 at 20), the argument fails. In support of their argument, Parlux and Perfumania submit an email, dated October 14, 2014, sent from Ms. Espino of Parlux to Ms. Perez, in which Ms. Espino indicated that Parlux had sent a package by messenger containing certain proposed products, bottles, cartons, and juices for approval (NYSCEF Doc. No. 1155). Ms. Perez replied: "Thank you so much, I don't need anything else. I will look out for the package" (NYSCEF Doc. No. 115). On October 29, 2014, Laura Reid from SCE emailed Mr. Garcia stating: "Per Desiree, Jay would like the boxes all white and only one of the cubes the color of perfume (not the whole box)" (NYSCEF Doc. No. 1156). It is therefore, at best, disingenuous to argue that Ms. Perez's email constitutes a waiver of SCE and Mr. Carter's rights to receive any plans and reports as she had not yet received the package and, once she did, Mr. Carter reviewed it and provided feedback. Stated differently, the argument fails because the email sent prior to delivery of the package indicates that Parlux was eliciting feedback on the packaging material which, as discussed above, was addressed by a different provision in the License Agreement and her response was not a knowing and intelligent waiver of the requirement that plans and reports be provided before approval of a flanker product. It is clear from the email that Ms. Perez's response was to indicate that she would look for the package and review the proposed packaging and fragrance samples once received. However, it should be noted that the more the jury were to find that SCE or Mr. Carter did not cooperate and/or breached the covenant of good faith and fair dealing, the more likely it is that Parlux satisfied its obligation to provide plans given that without Mr. Carter's active participation (for which they bargained for and paid) they were limited in their ability to develop detailed additional products as to GOLD JAY-Z and new product lines. Accordingly, Parlux and Perfumania's motion for summary judgment is denied as it relates to SCE and Mr. Carter's affirmative defense based on the failure to prepare and deliver the required plans and reports under Articles 7 and 12 of the License Agreement.
ii. Article 11 Advertising and Promotion Spending Requirements
Paragraphs (b) and (c) of SCE and Mr. Carter's counterclaim for breach of contract are based on Parlux's alleged failure to invest sufficient resources in advertising and promotion or to remit the applicable shortfalls as required under Article 11A of the License Agreement. Parlux argues that this counterclaim must be dismissed because the requirement to spend the proper amounts on advertising and promotion is a joint obligation of Artistic Brands, Parlux, and their distributors and does not fall solely on Parlux (Pl. Mem. in Supp., NYSCEF Doc. No. 1121 at 21). SCE and Mr. Carter argue that pursuant to Section 1 of the Sublicensing Agreement, Parlux assumed all of Artistic Brands' obligations under the Licensing Agreement, including the obligation to spend the required minimum amounts on advertising and promotion (Def. Mem. in Opp., NYSCEF Doc. No. 1176 at 10-11). In addition, SCE and Mr. Carter argue that even if the minimum advertising and promotion spending is a joint obligation, in the absence of express contractual language of severance, each promisor is individually liable (id. at 11-12).
SCE and Mr. Carter are correct. Article 11 of the License Agreement provides: "[Parlux] and its sublicensee and distributors will jointly spend in the Territory for ‘Consumer Advertising and Promotion’ ... no less than the" required minimum amounts as set forth therein on advertising and promoting the GOLD JAY-Z product line and any flankers and product line extensions (NYSCEF Doc. No. 1184, Art. 11). Parlux and Perfumania's arguments fail because pursuant to Section 1 of the Sublicense Agreement, Parlux expressly "assume[d] all of [Artistic Brands'] obligations to [SCE and Mr. Carter] under the License Agreement and guarantee[d] to [SCE and Mr. Carter] that it will perform as the licensee under the License Agreement, as if the License Agreement were directly entered into with [Parlux]" (NYSCEF Doc. No. 1185, § 1). In other words, Parlux stepped into the shoes of Artistic Brands and assumed all of its obligations, including the obligation to meet its advertising and promotional spending obligations. Perfumania is also bound by this obligation as it expressly guaranteed Parlux's obligations pursuant to Article 2B of the License Agreement (NYSCEF Doc. No. 1184, Art. 2B).
Parlux and Perfumania's argument that because it was a joint obligation and SCE and Mr. Carter do not produce evidence that every distributor did not collectively spend the requirement amount is equally unavailing. Under Article 11, Parlux, its sublicensee, and distributors are jointly liable for the entire amount and there are no words of severance indicating a contrary intention ( Breed, Abbott & Morgan v. Hulko , 139 AD2d 71, 79 [1st Dept 1988] ). Accordingly, Parlux and Perfumania's motion for summary judgment is denied with respect to SCE and Mr. Carter's counterclaim alleging a breach of the advertising and promotion obligations under Article 11 of the License Agreement.
iii. Mr. Carter has Standing to Assert a Counterclaim Against Parlux and Perfumania
The counterclaim for breach of contract is asserted against Parlux by both SCE and Mr. Carter. Parlux argues that Mr. Carter cannot assert a counterclaim for breach of Articles 8, 9, 7C, 11E, 12A, and 12C because he is not a party to those provisions (Pl. Mem. in Supp., NYSCEF Doc. No. 1121 at 22). The argument fails. Although Mr. Carter's personal obligations are grounded in Articles 2C, 2D and 11E of the License Agreement, Mr. Carter is an intended third party beneficiary of the contractual provisions on which the counterclaim is based and Article 20 expressly gives Mr. Carter "a direct claim" to sue Parlux for breach of the License Agreement ( Highland Crusader Offshore Partners, L.P. v. Targeted Delivery Tech. Holdings, Ltd. , 124 NYS3d 346, 356 [1st Dept 2020] ).
iv. Perfumania is a Proper Counterclaim Defendant
Parlux argues that the counterclaim must be dismissed with prejudice as to Perfumania because it is not a party to the License Agreement or the Sublicense Agreement and cannot breach a contract to which it is not a party (Pl. Mem. in Supp., NYSCEF Doc. No. 1121 at 22-23). In opposition, however, SCE and Mr. Carter argue that Perfumania is a proper counterclaim-defendant because it guaranteed Parlux's performance and contemporaneously executed the Perfumania Side Letter, which is incorporated into and made part of the integrated agreements (Def. Mem. in Opp., NYSCEF Doc. No. 1176 at 13-15).
First, Perfumania, as the 100% owner of Parlux, caused Parlux to enter the Sublicense Agreement, which was annexed as Exhibit A to the License Agreement. Exhibit A is the form of sublicense agreement, which is the same form that was executed by the parties. Article 2B of the License Agreement provides, in relevant part:
Pursuant to the Sublicense [Agreement], Perfumania is inter alia guaranteeing to [SCE and Mr. Carter] the performance by Perfumania and [Parlux] of all the terms, obligations, warranties, restrictions, payments and conditions contained in this [License] Agreement as though Perfumania were a party hereto. It is the essence of this [License] Agreement that ... Perfumania guarantees in writing to [SCE] the performance by Parlux and Perfumania of all the terms, obligations, warranties, restrictions, payments and conditions contained in this [License] Agreement and any exhibits or agreements incorporated by reference herein.
(NYSCEF Doc. No. 1184, Art. 2B; see id. , Art. 9B [emphasis added] ).
Article 20 of the License Agreement provides that SCE and Mr. Carter shall have a direct claim against Perfumania for any breach of the License Agreement (id. , Art. 20B). In addition, Perfumania acted in furtherance of the License Agreement by accepting the assignment of the 15% interest by Artistic Brands in the Perfumania Side Letter which is both incorporated by refence into and made part of the License Agreement, and which Perfumania Side Letter was executed contemporaneously therewith (id. , Art 20; NYSCEF Doc. No. 1186). Put another way, the License Agreement, the Sublicense Agreement, and the Perfumania Side Letter, all executed contemporaneously and which cross-reference one another, evidence an integrated transaction pursuant to which Perfumania agreed to be bound and pursuant to which it was understood that both SCE and Mr. Carter would have a direct private right of action against Perfumania ( PETRA CRE 2007-1 CDO, Ltd. v. Morgans Group LLC , 84 AD3d 614, 615 [1st Dept 2011] ). Thus, Perfumania is a proper counterclaim defendant and the motion for summary judgment on this ground is denied.
B. SCE and Mr. Carter's Motion for Summary Judgment (Mtn. Seq. No. 019) is Granted in Part.
i. SCE and Mr. Carter's Motion for Summary Judgment on its Counterclaim for Breach of Contract is Granted.
In their counterclaim for breach of contract, SCE and Mr. Carter allege that Parlux and Perfumania failed to pay the required minimum royalty payments in violation of Articles 8 and 9 of the License Agreement and seek to recover $4.5 million in allegedly unpaid royalties. SCE and Mr. Carter argue that Parlux and Perfumania never terminated the License Agreement but rather continued to market and sell GOLD JAY-Z products using the Licensed Mark until at least May of 2017, well beyond the date of the July 2015 demand letter (Def. Mem. in Supp., NYSCEF Doc. No. 1213 at 7). They argue that Parlux and Perfumania paid $1.5 million of the $5.5 to which they were entitled and made no royalty payments after April 2015, when they made the third quarterly payment for the sales year (id. at 7-8). In support of their motion, SCE and Mr. Carter submit certain Parlux and Perfumania's Jay Z Sales Detail spreadsheets and a screenshot of the Parlux website from May 3, 2017, which establish that Parlux and Perfumania sold GOLD JAY-Z products from November 2013 through at least May 2017 (NYSCEF Doc. No. 21, 1246-1254). Accordingly, SCE and Mr. Carter argue that Parlux and Perfumania breached Articles 8 and 9 of the License Agreement and that they are entitled to judgment as a matter of law on their counterclaim (id. at 8).
In their opposition papers, Parlux and Perfumania argue that SCE and Mr. Carter's motion is procedurally improper as they previously moved for summary judgment and the court (Ramos, J.) denied the motion (Pl. Mem. in Opp., NYSCEF 1268 at 8-10). In addition, Parlux and Perfumania argue that SCE and Mr. Carter materially breached the License Agreement prior to July 2015 and therefore any further performance of Parlux was excused, and that they properly terminated the License Agreement pursuant to the July 2015 Letter and were entitled to mitigate their damages after termination by selling off the existing inventory (id. at 10-11). They argue that whether such mitigation was proper is a question of fact that cannot be resolved on this motion for summary judgment (id. at 11).
Their position is wholly without merit. This motion does not violate the general policy against successive summary judgment motions as there has been significant discovery exchanged since the prior motion, including numerous depositions, which "place[s] the court in a far better position to determine the critical issue[s]" in this case ( Kobre v. United Jewish Appeal-Federation of Jewish Philanthropies of New York, Inc. , 32 AD3d 218, 222 [1st Dept 2006] ). In addition, the court (Ramos, J.) did not reach the merits of SCE and Mr. Carter's prior motion (Feb. 28, 2018 Hearing Tr. at 15:5-6).
Putting that aside, Parlux and Perfumania did not terminate the License Agreement in the July 2015 Letter pursuant to Article 15B of the License Agreement. Indeed, on the record before the court, even if the July 2015 Letter purported to terminate the License Agreement, which it does not, it fails to provide the required opportunity to cure. Indeed, the July 2015 Letter sent approximately two years following some of the grounds asserted for breach, in fact, indicates that the breaches were then (as Parlux and Perfumania never previously declared any such default) incurable. Having waited to provide notice of the alleged default, Parlux and Perfumania cannot then unilaterally declare that the bargained-for cure rights are not available. Additionally, the record is bereft of evidence that Parlux and Perfumania delivered a complete and accurate schedule of their inventory of Licensed Products as required in the event of termination under Article 16D. Accordingly, Parlux and Perfumania were required to provide Guaranteed Minimum Royalty payments to SCE and Mr. Carter. However, Parlux's obligation here may well be subject to significant set-off if the jury were to find that either SCE or Mr. Carter breached or frustrated the contract or the implied covenant of good faith and fair and dealing.
ii. SCE and Mr. Carter's Motion for Summary Judgment Dismissing Parlux and Perfumania's First, Third, and Fourth Causes of Action (Rescission) is Granted.
In the complaint, Parlux seeks rescission of the License Agreement (first cause of action), the 2011 Agreement (third cause of action), and the 2009 Agreement (fourth cause of action), and a declaratory judgment that the License Agreement and Sublicense Agreement should be rescinded and are void ab initio (fifth cause of action). Rescission is an equitable remedy which "is to be invoked only when there is lacking complete and adequate remedy at law and where the status quo may be substantially restored" ( Sokolow, Dunaud, Mercadier & Carreras LLP v. Lacher , 299 AD2d 64, 71 [1st Dept 2002] ).
SCE and Mr. Carter argue that Parlux has alleged monetary harm in its breach of contract claim and has submitted an expert report on the issue of the amount of damages to which it believes it is entitled, and therefore, by its own admission, Parlux's damages are compensable by the payment of money and there is an adequate remedy at law (Def. Mem. in Supp., NYSCEF Doc. No. 1213 at 9). In addition, they argue that Parlux cannot show that the status quo can be restored through rescission, as the GOLD JAY-Z line will now forever be associated with the JAY-Z mark and the diminution in the goodwill suffered by SCE and Mr. Carter can never be restored (id. at 9-10). In its opposition papers, Parlux argues that rescission would help vindicate Parlux in the eyes of its customers, which monetary damages alone cannot achieve (Pl. Mem. in Opp., NYSCEF Doc. No. 1268 at 23). Parlux and Perfumania further argue, among other things, that SCE and Mr. Carter fail to offer any evidence that they have suffered diminution of goodwill (id. ).
Parlux and Perfumania's arguments fail. Parlux and Perfumania seek between $40 and $90 million of damages and fail to explain how this would not, if awarded, adequately compensate them ( Lantau Holdings Ltd. v. General Pac. Group Ltd. , 163 AD3d 407, 409 [1st Dept 2018] ). To the extent that Parlux argues its reputation and good will were damaged (as do SCE and Mr. Carter), rescission simply will not restore anything. Parlux's alleged injury stems from SCE and Mr. Carter's alleged failure to participate in good faith in the initial launch and subsequent development of the flanker products. If they are awarded damages at trial, any reputational harm will be addressed. In addition, rescission simply is not appropriate as Perfumania's common stock was cancelled following its bankruptcy filing, rendering its stock and warrants valueless (NYSCEF Doc. No. 1262 ["On the effective date, all interests in Perfumania shall be cancelled without further action"]; see Lantau Holdings , 163 AD3d at 409 ["the status quo cannot be substantially restored, as some of the stock has been sold already"] ). Accordingly, Parlux and Perfumania's rescission claims fail as a matter of law and SCE and Mr. Carter's motion for summary judgment is granted with respect to the first, third, fourth, and sixth causes of action.
iii. SCE and Mr. Carter's Motion for Summary Judgment on Parlux and Perfumania's Second Cause of Action (breach of contract) is Denied.
SCE and Mr. Carter argue that they are also entitled to summary judgment and dismissal of Parlux and Perfumania's second cause of action for breach of the License Agreement and Sublicense Agreement because (i) Parlux and Perfumania breached their obligations by continuing to sell Licensed Products without paying them royalties, thereby excusing any further performance by SCE and Mr. Carter, (ii) Parlux and Perfumania failed to formally request promotional appearances by Mr. Carter in the manner set forth in the License Agreement, (iii) neither the License Agreement nor the Sublicense Agreement require or guarantee the development and promotion of flankers or other product line extensions, or that any such products would be approved under any specific timeline, and (iv) Parlux and Perfumania's claim for lost profits is speculative and legally impermissible (Def. Mem. in Supp., NYSCEF Doc. No. 1213 at 12-20).
With respect to the claim for lost profits, SCE and Mr. Carter submit the Expert Witness Rebuttal Report of H. Thomas Malloy (NYSCEF Doc. No. 1377). Mr. Malloy concludes that Parlux and Perfumania's expert report misconstrues brand authenticity, grossly overstates the importance of personal appearances and publicity events, and fails to adequately support the need for flankers and other product line extensions (id. at 1-6). In addition, Mr. Malloy states that Parlux and Perfumania's expert report improperly compares GOLD JAY-Z to non-comparable celebrity fragrances, that predictions about long-term success of celebrity fragrances are highly speculative, and that Parlux and Perfumania's expert report fails to account for the celebrity fragrance industry's decline (id. at 7- 12).
In their opposition papers, Parlux and Perfumania argue that SCE and Mr. Carter breached Article 11E of the License Agreement by agreeing to make appearances in support of the brand and then backing out without any legitimate reasons or excuses and without providing alternative availability (Pl. Mem. in Opp., NYSCEF Doc. No. 1268 at 13). They argue that SCE and Mr. Carter fail to submit any evidence that Mr. Carter's unavailability was due to prior "professional commitments" within the meaning of the License Agreement (id. at 13-14). In addition, Parlux and Perfumania argue that SCE and Mr. Carter breached Article 7 of the License Agreement by failing to work cooperatively and in good with Parlux to develop flanker products and other product line extensions (id. at 15-17). Moreover, they argue that they fully performed their obligations under the License Agreement and that any alleged breaches including failing to invest the required amounts on advertising and promotion and failing to pay the required royalties was excused by SCE and Mr. Carter's earlier breaches (id. at 17-18).
In support of their lost profits claim, Parlux and Perfumania submit the expert report of Sue Phillips (NYSCEF Doc. No. 1264). Ms. Phillips explains that a celebrity's personal participation in the marketing and promotion of a fragrance is critical to its success (id. at 5). She states that a celebrity's lack of personal involvement with the brand results in a lack of authenticity, which leads to diminished sales and damages prospects to commercial success (id. ). Ms. Phillips further explains that introducing "newness" through flankers and other product extensions is strongly correlated with increased brand awareness and product sales (id. ). Ms. Phillips estimates the damages resulting from SCE and Mr. Carter's failures to fulfil their promotional obligations and to support the development of new fragrances to be between $43.432 million and $91.824 million, with the mid-point of that range or $67.628 million being a reasonable assessment of damages (id. at 6). Ms. Phillips attributes 46.875% ($31.7 million) of the damages to Mr. Carter's lack of personal appearances and 53.125% ($35.927 million) to lack of newness (id. at 7).
To the extent that Mr. Carter argues that the portion of the breach of contract claim alleging a breach of Article 7 of the License Agreement against Mr. Carter personally must be dismissed because he is not a party to that provision and has no personal obligations thereunder, the argument, at this stage, is unavailing. On the record before the court, it cannot be said that SCE is separate and distinct from Mr. Carter, and vice versa, with respect to the obligations at issue. In other words, if this were a Venn Diagram with a circle for SCE and a circle for Mr. Carter personally, it is not clear the extent to which SCE's circle is separate from and does not overlap with Mr. Carter's circle and the extent to which Mr. Carter acted within or outside his corporate duties and responsibilities of SCE. Indeed, Ms. Perez testified at her deposition that Mr. Carter had the sole authority on behalf of SCE:
Q: Did you have authority on behalf of [SCE] to give product approvals without the approval of Mr. Carter?"
* * *
A: No, I can't. I'm not making decisions for him in terms of creative taste and tone or scent. I have approval to send forward what he approves. (NYSCEF Doc. No. 1266, Perez Tr. at 121:16-25).
This is certainly an issue of fact for trial.
In addition, and by way of example, although SCE and Mr. Carter submit evidence that Ms. Perez met with Parlux in Miami in June 2014 and provided feedback on Parlux's proposals until at least October 2014 (NYSCEF Doc. No. 1216, Espino Tr. at 392:18-393:7; NYSCEF Doc. No. 1232-1234), Parlux and Perfumania submit evidence that it took 6 months for SCE to send minimal feedback (i.e., a few handwritten notes and an email saying that it was not approved without any further comments or alternatives) on the flanker proposals in July 2014, (NYSCEF Doc. No. 1353-1355), waited another 3 months to provide any additional feedback, when SCE simply wrote that "Jay would like the boxes all white and only one of the cubes the color of perfume (not the whole box)" (NYSCEF Doc. No. 1234) and not that SCE wanted these changes. To wit, it may very well be that the trier of fact finds that Mr. Carter as an officer of SCE acted outside of his corporate duties and responsibilities and frustrated SCE's ability to perform its obligations under the License Agreement with respect to the flankers and other product line extensions and is therefore liable for SCE's alleged breach of Article 7. Therefore, summary judgment is inappropriate as to either SCE or Mr. Carter.
Given the conflicting expert reports concerning Parlux and Perfumania's claim for lost profits, there are also issues of material fact as to the proper calculation of damages, if any, to which Parlux and Perfumania would be entitled. Finally, there are issues of fact including whether Parlux and Perfumania made formal requests for Mr. Carter to make personal appearances in the manner required under Article 11E of the License Agreement, whether he waived any such requirement by agreeing to do any such personal appearances and then cancelling or whether his failure to do any such personal appearances were due to prior professional commitments as contemplated by the License Agreement.
This may also include whether certain categories of damages are limited based on the failure to give the requisite notice and opportunity to cure.
iv. SCE and Mr. Carter's Motion for Summary Judgment on Parlux and Perfumania's Fifth Cause of Action (Duty of Good Faith and Fair Dealing) is Denied.
All contracts contain an implied covenant of good faith and fair dealing, which provides that no party to a contract shall take any actions to spoil the rights of another party to receive the fruits of the contract ( Forman v. Guardian Life Ins. Co. of Am. , 76 AD3d 886, 888 [1st Dept 2010] ). The covenant "is breached when a party to a contract acts in a manner that, although not expressly forbidden by any contractual provisions, would deprive the other party of the right to receive the benefits under their agreement" ( Jaffe v. Paramount Comms. Inc. , 222 AD2d 17, 22-23 [1996] ).
SCE and Mr. Carter argue that the cause of action for breach of the implied covenant of good faith and fair dealing is duplicative of the cause of action for breach of the License Agreement and Sublicense Agreement and seeks to impose an implied obligation that is inconsistent with the contract terms (Def. Mem. in Supp., NYSCEF Doc. No. 1213 at 20-21). SCE is in effect positing a bright line between itself and Mr. Carter. As noted above, substantial issues of fact preclude this conclusion at this stage of the litigation on the record before the court.
The breach of the implied covenant of good faith and fair dealing claim highlights the mismatch of the parties expectations and performance regarding Mr. Carter's personal involvement in the process of the development and placement of GOLD JAY-Z both leading up to and during the initial launch and afterwards and the development of the flanker products. The claim here is not necessarily duplicative because it is not grounded in Mr. Carter's alleged failure to perform certain discrete obligations under Articles 2C, 2D and 11E of the License Agreement, but rather in his and potentially SCE's alleged failure to act in good faith by, among other things, failing to provide quotes in connection with the promotion materials with the initial launch, failing to appear in promotional materials which he had previously allegedly understood and agreed to be part of based on presented and approved story boards, and to generally be available and meaningfully and substantively participate in the continued success of GOLD JAY-Z and the iterative development of the brand and the flanker products (see Credit Agricole Corporate v. BDC Finance, LLC , 135 AD3d 561, 561 [1st Dept 2016] [holding that even if no express provisions were violated, defendants breached implied covenant of good faith and fair dealing by deliberately manipulating and depressing bids thereby depriving plaintiffs of the benefit of their bargain] ). Therefore, the motion for summary judgment as to the fifth cause of action is denied.
Accordingly, it is
ORDERED that Parlux and Perfumania's motion (Mtn. Seq. No. 018) for partial summary judgment pursuant to CPLR § 3212 is granted solely to the extent that the portion of the counterclaim based on the failure to provide reports is dismissed as a separate counterclaim; and it is further
ORDERED that SCE and Mr. Carter's motion (Mtn. Seq. No. 019) for summary judgment pursuant to CPLR § 3212 is granted solely to the extent of dismissing the first, third, fourth, and fifth causes of action for rescission; and it is further
ORDERED that the parties are directed to appear for a pre-trial conference on December 16, 2020 at 11:30 AM via Microsoft Teams.