Adelaide Productions, Inc. v. Bkn International Ag

• Decision Date: 06 March 2007
• Docket Number: 8829.,8828.
• Citation: 834 N.Y.S.2d 3,38 A.D.3d 221,2007 NY Slip Op 01795
• Parties: ADELAIDE PRODUCTIONS, INC., et al., Respondents, v. BKN INTERNATIONAL AG et al., Appellants.
• Court: New York Supreme Court — Appellate Division

38 A.D.3d 221

834 N.Y.S.2d 3

2007 NY Slip Op 01795

ADELAIDE PRODUCTIONS, INC., et al., Respondents, v. BKN INTERNATIONAL AG et al., Appellants.

8828.

8829.

Appellate Division of the Supreme Court of the State of New York, First Department.

Decided March 6, 2007.

Order, Supreme Court, New York County (Richard B. Lowe, III, J.), entered on or about May 27, 2005, which denied defendants' motion for leave to amend their answer to plead the statute of frauds as an affirmative defense, and granted plaintiffs' cross motion for costs and sanctions to the extent of referring the matter to a Special Referee to hear and report, unanimously modified, on the law and the facts, to deny the cross motion, and otherwise affirmed, without costs. Order, same court and Justice, entered September 21, 2005, which,

insofar as appealed from, denied defendants' motion for summary judgment dismissing the complaint, unanimously modified, on the law, to grant the motion to the extent of dismissing the first, second and fourth causes of action, and otherwise affirmed, without costs.

Plaintiffs Adelaide Productions, Inc. and ELP Communications (collectively, Adelaide/ELP) are part of the Sony group of entertainment companies and are engaged in the production of animated television programs for children. From September 1996 through January 2000, Adelaide/ELP entered into a series of licensing agreements (the Licensing Agreements) with BKN, Inc. (BKN), under which BKN was licensed to distribute and broadcast certain of Adelaide/ELP's programs.¹

In the fall of 2000, BKN and defendant Allen Bohbot, who was then BKN's chief executive officer, began to negotiate a restructuring of BKN's relationship with Adelaide/ELP, in which it was contemplated that BKN's rights to distribute and broadcast Adelaide/ELP programming would be assigned to BKN's subsidiary, defendant BKN International AG (BKNIAG), a German corporation of which Bohbot was also chief executive officer. These negotiations culminated in the execution of a "Restructuring Agreement," dated March 30, 2001. In the preamble to the Restructuring Agreement, BKN acknowledged that it had an outstanding obligation to pay Adelaide/ELP licensing fees of $14.43 million ($8.775 million of which was past due), and that, upon Adelaide/ELP's delivery of 40 episodes of the program "Heavy Gear," BKN would owe Adelaide/ELP an additional $10 million, such obligations being referred to collectively as the "Outstanding Obligations." The Restructuring Agreement provided, among other things, that BKN would pay Adelaide/ELP $4 million of the Outstanding Obligations upon execution of the agreement, with the balance to be paid in 2002. At the same time, BKN, BKNIAG and Adelaide/ELP entered into a letter agreement, also dated March 30, 2001 (the Letter Agreement), under which it was agreed, among other things, that the Licensing Agreements were amended to provide as follows: "BKN shall have the right to assign the [Licensing Agreements] to BKNIAG, provided, however, BKN shall not be discharged of, and shall remain liable for, all of its duties, obligations and liabilities under the [Licensing Agreements], notwithstanding the assignment. Any such assignment must be in writing and must therein require that BKNIAG assume all of BKG's duties, obligations and liabilities arising under the [Licensing Agreements] other than BKN's obligation to pay the Outstanding Obligations. BKN shall promptly provide [Adelaide/ELP] with a fully executed copy of any such assignment." (Emphasis added.)

BKN made the initial $4 million payment required by the Restructuring Agreement, but thereafter failed to pay any of the $20.43 million balance, and also failed to air Adelaide/ELP's programs. While BKN had transferred a block of BKNIAG stock (which was traded on the Neuer Market in Frankfurt, Germany) to Adelaide/ELP to secure payment of part of the Outstanding Obligations, the Frankfurt market crashed in late 2001, causing the value of the BKNIAG stock to decline precipitously. Since declaring BKN in default of the Restructuring Agreement in December 2001, Adelaide/ELP has obtained a judgment for $20.43 million (before interest) against BKN in a separate action. That judgment has not been satisfied.

In this action, Adelaide/ELP is suing BKNIAG and Bohbot, asserting causes of action for fraud, unjust enrichment, breach of contract as alleged third-party beneficiaries, and (against BKNIAG only) breach of contract. After discovery, defendants moved for summary judgment dismissing the complaint, which relief was denied by the order entered September 21, 2005. We now modify this order to dismiss the causes of action for fraud, unjust enrichment, and breach of contract as alleged third-party beneficiaries (the first, second and fourth causes of action). We affirm the denial of the summary judgment motion solely as to the breach of contract claim against BKNIAG alone (the third cause of action).

We turn first to the first cause of action, for fraud. The theory of this claim is that Bohbot's and BKNIAG's alleged misrepresentations during the period from the September 2000 to March 2001 fraudulently induced Adelaide/ELP to forego taking immediate legal action to enforce its rights under the Licensing Agreements while BKN still had substantial assets. On this record, however, none of the misrepresentations alleged by Adelaide/ELP is actionable, as a matter of law.

The misrepresentation on which Adelaide/ELP places most emphasis is defendants' alleged failure, during the negotiation of the Restructuring and Letter Agreements, to disclose that BKN had already assigned BKNIAG its rights to Adelaide/ELP's programming by an agreement dated January 5, 2001 (the Assignment), under which BKN retained liability "for paying all [preexisting] obligations ... under the [Licensing Agreements] for any guarantees, advances or similar fixed payments" (apparently including the Outstanding Obligations). Even if defendants failed to disclose the Assignment, the nondisclosure would not be actionable, since Adelaide/ELP cannot prove that it was damaged in any way by the nondisclosure.² This is because the Assignment did not violate the requirements for an assignment of rights from BKN to BKNIAG on which the parties ultimately agreed in the Letter Agreement. As demonstrated by the above-quoted excerpt from the Letter Agreement, that document specifically provides that, in such a transaction, BKNIAG would not be required to assume "BKN's obligation to pay the Outstanding Obligations." Adelaide/ELP does not identify any other specific obligation under the Licensing Agreements that BKNIAG failed to assume under the terms of the Assignment that the Letter Agreement subsequently required it to assume.

Nor can the fraud claim be supported by the statement in Bohbot's letter to Adelaide/ELP, dated March 5, 2001, that BKN, at that time, had a ...