Frank Lloyd Wright Foundation v. KROETER

• Decision Date: 15 March 2010
• Docket Number: CV-08-1125-PHX-FJM.,No. CV-08-1112-PHX-DGC,CV-08-1112-PHX-DGC
• Citation: 697 F. Supp.2d 1118
• Parties: The FRANK LLOYD WRIGHT FOUNDATION, an Arizona non-profit corporation, Plaintiff, v. Steven W. KROETER, an individual; Archetype Associates, Inc., a New York corporation; Archetype Associates, a New York general partnership; Steven Fields Design Associates, a New York general partnership, Defendants.
• Court: U.S. District Court — District of Arizona

697 F. Supp.2d 1118

The FRANK LLOYD WRIGHT FOUNDATION, an Arizona non-profit corporation, Plaintiff, v. Steven W. KROETER, an individual; Archetype Associates, Inc., a New York corporation; Archetype Associates, a New York general partnership; Steven Fields Design Associates, a New York general partnership, Defendants.

Nos. CV-08-1112-PHX-DGC, CV-08-1125-PHX-FJM.

United States District Court, D. Arizona.

March 15, 2010.

Glenn S. Bacal, David Mark Andersen, Steven Charles Lawrence, Holme Roberts & Owen LLP, Scottsdale, AZ, David Gerber, D. Gerber Law Offices, Oxnard, CA, Eric Glen Maxfield, Holme Roberts & Owen LLP, Salt Lake City, UT, for Plaintiff.

Bradley Hugh Schleier, Tod F. Schleier, Schleier Law Offices PC, Phoenix, AZ, for Plaintiff/Defendants.

ORDER

DAVID G. CAMPBELL, District Judge.

On June 13, 2008, the Frank Lloyd Wright Foundation ("the Foundation") filed suit in this Court against Steven W. Kroeter, Archetype Associates ("AA"), Archetype Associates, Inc. ("AAI"), and Steven Fields Design Associates ("SFDA") (collectively "Defendants"). Dkt. # 1. Four days later, AAI filed suit in this Court against the Foundation, Philip Allsopp (the Foundation's CEO), and Gerald Morosco (former Board Chairman of the Foundation) (collectively "the Foundation parties"). See CV-08-1125, Dkt. #2. The two cases have been consolidated.

AAI has filed a motion for summary judgment on several of the Foundation's claims and on one of its own claims (Dkt. # 142), Kroeter has filed a motion for partial summary judgment on Count V of the Foundation's complaint (Dkt. # 168), and Defendants have filed a motion to strike the Foundation's reply to their response to the Foundation's statements of facts (Dkt. # 186). In addition, the Foundation has filed a motion for summary judgment on several of AAI's claims and on several of the Foundation's own claims (Dkt. # 170), and a motion to strike Kroeter's motion for partial summary judgment on Count V of the Foundation's complaint (Dkt. # 175). No party has requested oral argument.¹

For reasons that follow, the Court will grant summary judgment in favor of AAI on AAI's breach of contract claim (with the exception of damages) and on the Foundation's breach of contract, implied covenant, and unjust enrichment claims. The Court will grant summary judgment for the Foundation on AAI's negligent misrepresentation claim. The Court will deny Kroeter's motion for partial summary judgment, the Foundation's motion to strike, and Defendants' motion to strike.

I. Background.

In 1983, the Foundation entered into a licensing agency agreement ("the 1983 Agreement") with SFDA, a New York general partnership owned by Kroeter and his former wife, Joan Fields. Dkt. # 180, ¶ 1-2. Under the 1983 Agreement, SFDA was to be the Foundation's "worldwide sales agent and representative in promoting the sale, marketing, licensing, sublicensing and commercial application" of several of Frank Lloyd Wright's decorative designs. Dkt. #142 at 2-3.² The 1983 Agreement required SFDA to secure licensing agreements for the Foundation, collect royalty payments from licensees, and forward payment to the Foundation after deducting its own commission. Id. at 3.

In August of 1987, Kroeter and Fields began conducting some of SFDA's business under the name Archetype Associates ("AA"). Id. By 1990, Fields was no longer involved in the business of SFDA or AA, and Kroeter operated AA as a sole proprietorship. Id. at 4. Although the 1983 Agreement was between SFDA and the Foundation, Kroeter used the name AA in correspondence and royalty payment checks sent to the Foundation. Id. In 1992, Kroeter formed the corporation Archetype Associates, Inc. ("AAI") and started handling the Foundation's business and sending the Foundation royalty payments under the AAI name. Id.

The 1983 Agreement between SFDA and the Foundation was set to expire on October 31, 1998. Dkt. # 161 at 20. The Foundation and AAI continued their business relationship beyond that date and, in 2001, entered into an "Amendment To Agreement" ("the 2001 Amendment") which was made effective as of October 15, 1998. The 2001 Amendment extended the 1983 Agreement, and provided that upon expiration or termination of the 1983 Agreement as amended AAI would receive a percentage of any of the Foundation's licensing royalties for 15 years following termination, which was to be paid "not later than thirty (30) days after the FOUNDATION's receipt of the same." Dkt. # 180-11 at 12, 17 (capitalization in original). In its recitals, the 2001 Amendment stated that "since 1983, AAI, or a predecessor entity, Steven Field Design Associates, a New York general partnership, has acted as the worldwide licensing agent and representative of the FOUNDATION." Dkt. #143 at 12. The 2001 Amendment also stated:

In the event any provision of this ARTICLE VII is alleged or finally determined to constitute an "excess benefit transaction" within the meaning of Section 4958 of the Internal Revenue Code of 1986, as amended, or any successor or similar provision, the PARTIES will amend the provisions of this ARTICLE VII to give effect, to the fullest extent permitted by law, to their original intentions, as expressed in this ARTICLE VII, without constituting such an "excess benefit transaction." The provisions of this ARTICLE VII shall specifically survive expiration of the TERM of this AGREEMENT and the rights and obligations set forth in this ARTICLE VII shall inure to the benefit of and be binding upon the AGENT and the FOUNDATION and their respective successors and assigns.

Id. at 17. The 2001 Amendment also transferred responsibility for receiving, processing, and issuing royalty and licensing fee payments from AAI to the Foundation. Dkt. # 142 at 6.

The 1983 Agreement, as amended by the 2001 Amendment, was terminated by AAI on December 31, 2003. Dkt. # 180 at 17. As described above, AAI thereafter was to continue receiving post-termination royalties for 15 years. Dkt. # 143-11 at 17.

From 2003 to 2005, the Foundation made post-termination royalty payments to AAI, some of which were paid more than 30 days after the Foundation received the money, in violation of the 2001 Amendment. Dkt. # 180 at 17. In September of 2006, AAI wrote to the Foundation regarding the fact that many of the payments were late, and informed the Foundation that AAI considered the Foundation to be in material breach of contract for failing to make timely payments. Dkt. # 143-13 at 33-35. The Foundation admits that by "October 11, 2006, the Foundation had $25,485.26 in accounts payable to AAI— $12,212.26 of which was within 30 days, and $13,273.55 of which was in arrears." Dkt. #161, ¶ 43. Dan Nesbitt, the accounting manager of the Foundation, stated in his deposition that the Foundation stopped processing royalty payments to AAI altogether in June or July of 2007. Dkt. # 143-13 at 10-11.

Around August of 2007, the Foundation retained a tax attorney to determine whether payments to AAI might violate the Internal Revenue Code because they constituted "excess benefit transactions."³ Dkt. # 160 at 8. In late September of 2007, this attorney advised the Foundation to stop making payments to AAI (even though, according to Nesbitt, the Foundation had already stopped making payments) until it could reach resolution of the tax issues. Id. Based on this advice, the Foundation sent a letter to Kroeter asking him to provide documents to assist in the investigation of the tax issue. Dkt. # 143-16 at 52-54. AAI declined to provide many of the requested documents. Dkt. #161, ¶ 41.

On June 13, 2008, the Foundation filed suit in this Court against Kroeter, AA, AAI, and SFDA, claiming that AAI breached the 2001 Amendment by refusing to provide all of the requested documents and by refusing to amend the 2001 Amendment to avoid any excess benefit transaction. Dkt. # 1. The Foundation also alleged that AAI and Kroeter breached the covenant of good faith and fair dealing by failing to provide the documents, that AAI was unjustly enriched by receiving license fees actually due to SFDA under the 1983 Agreement, and that AAI and Kroeter breached their fiduciary duties by failing to disclose information. Id. The Foundation also sought a declaratory judgment as to whether past or future payments to AAI or Kroeter constitute excess benefit transactions. Id. at 14-16.

A few days later, AAI filed suit against the Foundation, Allsopp, and Morosco alleging breach of contract based on the Foundation's failure to pay all monies due under the 2001 Amendment, and also alleging breach of the implied covenant of good faith and fair dealing, fraud, and negligent misrepresentation. See CV-08-1125, Dkt. # 2.

II. Legal Standard.

A court must grant summary judgment if the pleadings and supporting documents, viewed in the light most favorable to the nonmoving party, "show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(c); see Celotex Corp. v. Catrett, 477 U.S. 317, 322-23, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986); Jesinger v. Nev. Fed. Credit Union, 24 F.3d 1127, 1130 (9th Cir. 1994). Substantive law determines which facts are material, and "only disputes over facts that might affect the outcome of the suit under the governing law will properly preclude the entry of summary judgment." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986); see Jesinger, 24 F.3d at 1130. In addition, the dispute must be genuine, that is, the evidence must be "such that a reasonable jury could return a verdict for the nonmoving party." Anderson, 477 U.S. at 248, 106 S.Ct. 2505.

A principal purpose of summary judgment is "to isolate and dispose of factually unsupported claims." Celotex, 477 U.S. at 323-24, 106 S.Ct. 2548. Summary judgment is appropriate against a party who "fails to make a showing sufficient to establish the existence of an...