Ametex Fabrics, Inc. v. Just In Materials, Inc.

• Decision Date: 17 March 1998
• Docket Number: 137,D,Nos. 136,s. 136
• Citation: 140 F.3d 101
• Parties: AMETEX FABRICS, INC., Plaintiff, v. JUST IN MATERIALS, INC. and General Textile Printing and Processing Corp., Defendants-Third-Party-Plaintiffs-Appellants, v. AMERICAN FAST PRINT, LTD., Third-Party-Defendant-Appellee. ockets 96-7396(L), 96-9536(CON).
• Court: U.S. Court of Appeals — Second Circuit

Page 101

140 F.3d 101

39 Fed.R.Serv.3d 1223

AMETEX FABRICS, INC., Plaintiff, v. JUST IN MATERIALS, INC. and General Textile Printing and Processing Corp., Defendants-Third-Party-Plaintiffs-Appellants, v. AMERICAN FAST PRINT, LTD., Third-Party-Defendant-Appellee.

Nos. 136, 137, Dockets 96-7396(L), 96-9536(CON).

United States Court of Appeals, Second Circuit.

Argued Sept. 17, 1997.

Decided March 17, 1998.

Robert J. Miller, Parker, Duryee, Rosoff & Haft, P.C., New York City (Jed R. Schlacter, Schlacter and Schlacter, New York City, on the brief) for Defendants-Third-Party-Plaintiffs-Appellants.

Brett J. Meyer, (Michael G. Goldberg, on the brief) Kreindler & Relkin, P.C., New York City, for Third-Party-Defendant-Appellee.

Before FEINBERG, WALKER, and CABRANES, Circuit Judges.

JOHN M. WALKER, Circuit Judge:

Third-party-plaintiffs-appellants Just In Materials, Inc. ("Materials") and General Textile Printing and Processing Corporation ("General Textile") appeal from the March 8, 1996 judgment of the United States District Court for the Southern District of New York (Denise L. Cote, District Judge ), awarding summary judgment to third-party-defendant-appellee American Fast Print, Ltd. ("AFP") and dismissing third-party-plaintiffs-appellants' complaint alleging intentional and negligent misrepresentation, failure to disclose, and breach of contract claims under New York law. (No. 96-7396). Materials's attorney Jed R. Schlacter ("Schlacter"), Materials, and General Textile also appeal from the judgment of October 31, 1996 of the same court, imposing sanctions against Schlacter in the amount of $13,422 pursuant to 28 U.S.C. § 1927 and the district court's inherent powers, for Schlacter's alleged false representations to that court and for his refusal to concede that privity is a necessary element of the third-party cause of action. (No. 96-9536).

We vacate the judgment of March 8, 1996 and reverse the judgment of October 31, 1996.

Factual Background

Ametex Fabrics, Inc. ("Ametex") is a textile "converter" of decorative fabrics and the apparent copyright owner of a floral pattern ("the pattern") that is at the center of the present lawsuit. Textile converters purchase raw, uncolored textile goods, hire print plants such as AFP to print those goods with patterns or solid colors, and then sell the finished fabric to their customers. In and around May or June 1990, an AFP representative met with Roger Nemet ("Nemet") and Anne Erde ("Erde"), representatives of Just In Materials Designs, Ltd. ("Designs"), another textile converter, to discuss AFP's sale to Designs of fabric bearing the pattern. AFP claims to have informed Nemet and Erde at that meeting that Ametex owned the copyright in the pattern and that Designs could use and produce the pattern only with Ametex's permission. Nemet and Erde claim, however, that AFP represented that Designs could use the pattern for apparel without anyone's permission. In any event, Nemet and Erde, without Ametex's permission, engaged an AFP printing plant in September 1990 to print 14,000 yards of the pattern, which Designs then sold to its customers. AFP claims to have informed Designs a second time of the necessity of receiving Ametex's permission to use and produce fabric bearing the pattern. AFP then sent and Erde executed an agreement indemnifying AFP in the event Designs was sued for copyright infringement. Thereafter, AFP and Designs engaged in no further business relating to the pattern.

In April 1993, pursuant to an Asset Purchase Agreement ("Agreement"), Designs agreed to "sell, transfer, convey, assign and deliver" to Materials its "Purchased Assets," including under p 1.1(a) "all of the Products in [Designs's] inventory" including the fabric bearing the pattern, under p 1.1(c) "all trade names, trademarks, patents, copyrights and like proprietary items ... owned by [Designs] or in which [Designs] has rights," under p 1.1(g) "all licenses, franchises, processes, know-how, [and] trade secrets," and under p 1.1(k) any "claim which [Designs] may have against any party, whether or not [Designs] has commenced a lawsuit with respect thereto, and prospective recovery by [Designs] from any such action, proceeding or claim." The Agreement contains an "As Is" clause (p 2.20) that applies exclusively to Designs's inventory and various sales equipment (pp 1.1(a) and 1.1(b)). In addition, p 2.10 warrants the "good and marketable title to all of the Purchased Assets" enumerated above, "except as described" in the Agreement. Finally, the Agreement contains a general merger clause (p 8.13), providing that "[t]here are no restrictions, promises, warranties, covenants, or undertakings, other than those expressly set forth or referred to [in the Agreement]." Having obtained the pattern from Designs, Materials hired General Textile to print the pattern onto fabric, which Materials then sold to its customers.

Prior Proceedings

On July 18, 1994, Ametex filed suit in federal court against Materials and General Textile (collectively, "third-party plaintiffs") for copyright infringement of the pattern. On September 15, 1994, third-party plaintiffs filed a third-party complaint against AFP for intentional and negligent misrepresentation, failure to disclose, and breach of the alleged contract between Designs and AFP transferring rights in the pattern. Defendants-third-party plaintiffs settled their case with plaintiff Ametex and, on November 29, 1994, the district court signed a "stipulated order of dismissal with prejudice" of Ametex's action, which left only the third-party complaint against AFP.

AFP then moved for summary judgment against third-party plaintiffs. AFP first asserted that no privity existed between Materials and AFP to maintain any of third-party plaintiffs' causes of action. Third-party plaintiffs responded with an affidavit of Michael Glick, Materials's President ("Glick"), which stated that the Designs-Materials Agreement in April 1993 assigned to Materials Designs's rights in the pattern under p 1.1(c) and all of Designs's claims under p 1.1(k). In its Memorandum of Law in Opposition to AFP's summary judgment motion, third-party plaintiffs noted that p 1.1(c) of the Agreement assigned rights in the pattern, but focused primarily upon the p 1.1(k) transfer of claims to overcome third-party plaintiffs' lack of privity with AFP. The district court rejected third-party plaintiffs' p 1.1(k) "claims" argument for lack of privity, on the basis that "Designs has never been sued by Ametex or anyone else for copyright infringement [of the pattern].... Since Designs has never been sued, it has not incurred any damages for which it might claim that AFP ... is responsible. Consequently Designs has no claim to assign to Materials." On October 5, 1995, the district court therefore granted AFP's motion for summary judgment and dismissed all four claims in the third-party complaint. The district court, however, never addressed third-party plaintiffs' "rights" argument under p 1.1(c).

AFP also moved for summary judgment on the ground that AFP never represented to Designs that the pattern could be used without Ametex's permission. AFP supplied an affidavit of an AFP engraving manager to support this claim. In a hearing on October 5, 1995, the district court questioned the failure of Materials's counsel Schlacter to obtain affidavits to oppose this alternative ground for summary judgment. In response, Schlacter represented to the district court that Nemet and Erde had told Schlacter that AFP had permitted Designs to use the pattern without anyone else's permission. Pending submission of affidavits from Erde and Nemet, the district court declined to rule on the summary judgment motion on the basis of AFP's alleged representations to Designs. Nemet later submitted an affidavit asserting that AFP represented that Designs could use the pattern for apparel without permission, as a result of which AFP has apparently conceded and the district court properly acknowledged that there exists a genuine issue of material fact on this point.

On October 16, 1995, third-party plaintiffs moved for reconsideration of the district court's award of summary judgment, based on the "rights" argument under p 1.1(c) of the Agreement. On February 9, 1996, the district court orally denied the motion for reconsideration in the belief that third-party plaintiffs had not raised the "rights" argument in opposition to the original summary judgment motion. The district court also ruled that, had it granted the motion for reconsideration, it would have denied the "rights" argument on the merits because the Agreement's merger clause (p 8.13) precluded Materials from asserting any causes of action against AFP arising out of rights transferred by the Agreement. On March 8, 1996, the district court reduced to final judgment the award of summary judgment to AFP and the denial of third-party plaintiffs' motion for reconsideration.

AFP subsequently moved for sanctions against Schlacter for alleged abuse of discovery, bad-faith litigation, and refusal to concede that privity was a legal requirement of the third-party action. After a hearing on April 11 and 15, 1996, the district court issued an opinion sanctioning Schlacter under 28 U.S.C. § 1927 and the court's inherent powers (i) for falsely representing to the district court on October 5, 1995 the substance of alleged conversations between Schlacter and both Nemet and Erde, and (ii) for Schlacter's refusal to concede that privity was a necessary element of the third-party action. See Ametex v. Just In Materials, Inc., 1996 WL 428391 (S.D.N.Y.1996). The district court declined, however, to sanction Schlacter for filing a third-party complaint against AFP in bad faith or for alleged discovery abuse. The district court subsequently set the amount of sanctions at $13,422 and on October 31, 1996, reduced this order to judgment.

Third-party plaintiffs appeal from the...