Embedded Moments, Inc. v. International Silver Co.

• Decision Date: 03 October 1986
• Docket Number: No. 83 CV 5490 (ERK).,83 CV 5490 (ERK).
• Parties: EMBEDDED MOMENTS, INC., Plaintiff, v. INTERNATIONAL SILVER COMPANY and Insilco Corporation, Defendants.
• Court: U.S. District Court — Eastern District of New York

648 F. Supp. 187

EMBEDDED MOMENTS, INC., Plaintiff, v. INTERNATIONAL SILVER COMPANY and Insilco Corporation, Defendants.

No. 83 CV 5490 (ERK).

United States District Court, E.D. New York.

October 3, 1986.

COPYRIGHT MATERIAL OMITTED

John Corbo, Port Washington, N.Y., for plaintiff.

Lawrence, Ciovacco & Walsh, P.C., Hempstead, N.Y., for defendants.

MEMORANDUM AND ORDER

KORMAN, District Judge.

Plaintiff Embedded Moments, Inc. ("plaintiff" or "Embedded") filed this diversity action against defendants International Silver Company ("International") and Insilco Silver Corporation ("Insilco") for the breach of two separate alleged agreements, one allegedly entered into between Embedded and International on January 5, 1979 (the "Sales Agreement") and the second allegedly entered into between Embedded and International on January 15, 1979 (the "Licensing Agreement"). Plaintiff moves for partial summary judgment on count five of the second amended complaint, which is entirely based on the Sales Agreement, pursuant to Rule 56(a) of the Federal Rules of Civil Procedure. Defendants cross-move for summary judgment on all counts of the second amended complaint pursuant to Rule 56(b) of the Federal Rules of Civil Procedure.

A. Plaintiff's Allegations

Plaintiff, a New York corporation, alleges that in 1977 its predecessor-in-interest, a partnership also called Embedded Moments (the "partnership"), obtained from approximately thirty Las Vegas casinos the right to use the decorative designs used by the casinos in their hotel and gambling operations for various commercial projects that the partnership might devise utilizing these designs. The license from the Sands casino is typical of the licenses obtained by the partnership:

This will confirm our agreement whereby we, the undersigned, grant to you, your successors and assigns, for and in consideration of $1.00 and other good and valuable consideration, the receipt of which is hereby acknowledged, the right and authority for a period of 7 (seven) years to copy and/or reproduce and/or create photographs, pictures, drawings, likenesses and facsimiles, of our hotel and/or casino, exterior and/or interior, all parts and/or places, and things used therein and/or thereout, including name, logo, emblem, trademark, designs, any and all of them, opened and/or used by any of the public and/or any of the patrons of our hotel and/or casino, for all legitimate commercial purposes, including production of souvenirs, momentos and memorabilia.

The above rights are granted on a non-exclusive basis.

The licenses obtained from the other casinos were similar in most material respects except some purported to be irrevocable and some did not state that the rights granted were non-exclusive.

Plaintiff alleges that John Corbo, plaintiff's president and one of the partners in the partnership, subsequently came up with the idea of marketing a backgammon set utilizing the casino gambling chip designs. Each of the thirty pieces would be made of one ounce of sterling silver and would be stamped with the gambling chip design of a different casino. Corbo's idea was to take advantage of the rising popularity of backgammon and casino gambling in a single product.

In need of a financial backer, plaintiff approached International in 1978. Negotiations commenced in mid-1978. According to plaintiff, the negotiations resulted in two distinct but related agreements. The first agreement (the Sales Agreement) allegedly permitted plaintiff to purchase the backgammon sets at a fixed price of $750 for resale by plaintiff through its mailing list as well as permitting plaintiff to distribute the backgammon sets to retailers, with plaintiff getting a fifteen percent discount off the normal wholesale price. Plaintiff claims that an in-house memorandum of International (the "January 5, 1979 memorandum") contains the terms of the alleged Sales Agreement.

The second alleged agreement (the Licensing Agreement) was allegedly entered into on January 15, 1979. The Licensing Agreement purports to grant International a license (in reality, a sublicense, since plaintiff was the original licensee) to utilize the casinos' chip designs on backgammon sets. In return, International is required to pay plaintiff a royalty of five per cent of its net sales of the backgammon sets, with a nonrefundable five thousand dollar advance on those royalties payable to plaintiff upon the signing of the Licensing Agreement. (Plaintiff concedes that International paid it this amount.) Paragraph seventeen of the Licensing Agreement provides that "this Agreement constitutes the entire agreement of the parties hereto relating to the subject matter hereof." The Licensing Agreement also stipulates that it is to be interpreted under Connecticut law.

The second amended complaint purports to state seven causes of action. Count one asserts that 2,500 backgammon sets were in fact sold by International and seeks royalties on those sales pursuant to the Licensing Agreement. Count two claims that International breached the Licensing Agreement by assigning the agreement to another company in violation of an anti-assignment provision of the agreement. Count three alleges that in violation of the Licensing Agreement International failed to promote the backgammon sets. Count four asserts that International purchased or contracted for sufficient silver to fabricate 2,500 backgammon sets (75,000 ounces), but used the silver for purposes other than manufacturing the backgammon sets as allegedly required by the Licensing Agreement. Count five is based on the failure of International to deliver the backgammon sets to plaintiff in alleged breach of the Sales Agreement. Count six claims that Insilco is jointly and severally liable for all of the foregoing on the theory that International is the alter ego of Insilco. The final count asserts that plaintiff is entitled to punitive damages.

B. The Motions for Summary Judgment

Plaintiff filed a motion for summary judgment solely with respect to the fifth cause of action, which is based on the failure of International to deliver backgammon sets to plaintiff in alleged breach of the Sales Agreement. Defendants' cross-motion for summary judgment contains a multi-pronged attack on the complaint, which may be divided into two parts. The first part relates solely to the cause of action on the Sales Agreement, on which plaintiff seeks summary judgment. Defendants argue, inter alia, that the Sales Agreement is unenforceable because it fails to satisfy the requirements of the Statute of Frauds. The second part relates to both the Sales and Licensing Agreements. Defendants claim that both agreements are invalid because of the invalidity of the licenses plaintiff received from the various casinos.

1. The Motions for Summary Judgment on The Fifth Cause of Action

Plaintiff alleges that the Sales Agreement permitted plaintiff to purchase up to 2,500 backgammon sets at a fixed price of $750 for resale by plaintiff through its mailing list. The Sales Agreement also allegedly permitted plaintiff to distribute the backgammon sets to retailers, with plaintiff getting a fifteen percent discount off the normal wholesale price. According to plaintiff the terms of the Sales Agreement are contained in an in-house memorandum of International dated January 5, 1979. The memorandum provides in pertinent part:

For the record, here is the agreement that Jim Dean and I worked out with John Corbo, Embedded Moments, Inc., the licensor of the Casino Chips.

1. Sets Sold to His Mailing List:

He will buy them from us at $750 each (our manufacturing cost approximately $350 each). The method of the mailing will be that he sic will supply him with up to 10,000 one-page, four-color sheets to be extracted from our own selling material. He will assemble and make other components of the mailing with a future delivery promise to the consumer of at least two months. The mailing will not be in our name, although our trademark can be used in direct relationship to the set itself. We will bill Corbo for the sets as they are shipped to the fulfillment house (Fosdick). Fosdick will bill Corbo for all expenses related to fulfillment. Any sets sold on this program will be ordered by Corbo and produced by us on a special request basis. No sets will be stocked for inventory.

2. Nevada Distributorship:

Corbo claims that he can place this set in all the major potential outlets for such products in Nevada. We have agreed to set him up as a distributor for Las Vegas, and at your option, for Reno and Tahoe. He would buy sets in quantity and sell on his own account. His discount will be 15% off a regular set. Standard freight and ad allowance provisions apply. His orders will be processed as our inventory permits.

On December 17, 1979, almost one year after the Sales Agreement was allegedly entered into, plaintiff attempted to exercise its alleged rights under the Sales Agreement. The letter plaintiff sent to International stated:

There are 2,500 Casino Backgammon sets that were made. How many are left. The catolog sic number is 1709986S. Our price from you is $750.00 per set.

Obviously you have sold the entire amount amount sic.

In the event that you have not sold all of the sets, or have any of them left, we hereby purchase all of the sets, the 2,500 and/or any of them that you have not sold for our agreed price of $750.00 per set. According to our agreement we also get 15 percent off this price. Delivery is to be made immediately.

It is not disputed that International did not deliver any backgammon sets to plaintiff. (International did give one set free of charge to plaintiff's president.) Plaintiff alleges that at the end of 1979, when plaintiff attempted to exercise its alleged rights under the Sales Agreement, the price of silver had risen to approximately $44.50 per ounce, from a price of approximately $4.50 per ounce at the time plaintiff and International...