In re Gucci
| Decision Date | 09 October 1996 |
| Docket Number | Bankruptcy No. 94 B 40614 (JHG). |
| Parties | In re Paolo GUCCI, et al., Debtors. |
| Court | United States Bankruptcy Courts. Second Circuit. U.S. Bankruptcy Court — Southern District of New York |
Pryor, Cashman, Sherman & Flynn (Harold Jones, of counsel), New York City, for Paolo Gucci Design Studio.
Winick & Rich (Jonathan Flaxer and Scott Wyner, of counsel), New York City, for the Trustee.
Gibson Dunn & Crutcher (Kevin Barrett, of counsel), New York City, for Guccio Gucci.
Parker Duryee Rosoff & Haft (Allan Samuels, of counsel), New York City, for Orologi Paolo Inc.
DECISION ON MOTION TO DETERMINE WHETHER POST PETITION DESIGNS ARE PROPERTY OF THE ESTATE
Paolo Gucci Design Studio ("PGDS") moves1 to declare that certain designs, created by Paolo Gucci ("Paolo"), after the filing of his bankruptcy petition, are not property of the bankruptcy estate. Frank G. Sinatra, the chapter 11 trustee (the "Trustee"), opposes the motion. Orologi Paolo, Inc. ("OPI") and Guccio Gucci ("GG") oppose the motion.2
This motion springs from the Trustee's motion to approve a settlement (the "Global Settlement") among the Trustee, Paolo, PGDS, Normans Ltd., Penelope Jayne Armstrong and her company, Centralbest Limited. That motion was made on December 19, 1995, shortly after Paolo's death in October. The center piece of the Global Settlement was the formation of a licensing entity, PGDS, in which Paolo and Enzo Stancato ("Stancato") would hold the master license for all of Paolo's licensing rights in the United States. Paolo would hold the remaining worldwide rights. PGDS would enter into various sublicenses, the income from which would be used to pay the Trustee for the rights.
The Committee of Unsecured Creditors (the "Committee") objected to the Global Settlement, arguing that it was essentially a sale of the estate's most valuable asset, the Paolo Gucci name and trademark, which must be done by sale pursuant to 11 U.S.C. § 363. The Committee then presented a bid by GG to buy the name and trademark. I ordered an auction.
PGDS, claiming ownership of certain post petition designs, then moved to determine whether Paolo's post petition designs were property of the estate.
At the auction, GG was the successful bidder. One of the requirements of the GG bid was a determination that the name, trademarks and post petition designs were property of the estate. GG and the Trustee claim that the purchased assets include:
The parties concede that the primary commercial value of the post petition designs is that they can be marketed under Paolo's name.
In 1981, after leaving GG, Paolo started licensing the name "Paolo Gucci" for various products.
In November 1988, he entered into an agreement with Creazioni Creative Corp. (The "CCC Agreement" and "CCC"). CCC was granted the exclusive right to sublicense Paolo's trademark outside of the United States. In addition, CCC and Paolo entered into a second agreement whereby CCC agreed to hire Paolo, as an independent contractor to create designs for CCC, act as a consultant and make promotional appearances.
At about the same time, Paolo entered into an agreement with P.G. Creative Ltd. (The "PG Agreement" and "PG Creative") under which he gave PG Creative the "exclusive right to use for any or all lawful purposes the name `Paolo Gucci', `Gucci' or any other similar name or mark that in any way represents or reflects goodwill or commercial value available to Paolo legally to use for commercial purposes." In addition, he conveyed "all designs, creations, inventions, ideas and similar intellectual property . . . now or hereafter created by Paolo for commercial purposes." Moreover, the PG Agreement granted PG Creative "the exclusive right to license the rights described . . . above."
PG Creative and CCC each entered into various sublicensing agreements,3 allowing their sublicensees to use Paolo's designs, the name "Paolo Gucci" and the phrase "Paolo Designed by Palo Gucci." The agreements provided that the designs, ornamental appearances and copyrights for the licensed products were the "sole property of Licensor," and that Paolo was to be employed, appointed or retained as the respective licensor's designer. Paolo was also required to make public appearances and provide design and consultation services as required by the sublicensees.
In November 1992, Paolo entered into yet another agreement, this time with Licensing by Paolo (the "L.P. Agreement" and "L.P."). Under that agreement, L.P. was to regulate Paolo's licensing business in the United States with various sublicensees. Like the CCC and PG Creative agreements, Paolo agreed to provide design services and make personal appearances to promote the products.4
It is significant to note that each of the agreements contemplated that products other than those actually designed by Paolo would bear his name and/or trademark.
In December 1992, Paolo and PG Creative agreed to terminate the PG Creative Agreement. In April 1993, it appears that Paolo terminated the CCC Agreement. Paolo then assumed the rights and obligations of CCC and PG Creative under their respective sublicensing agreements.
In September 1993, Paolo entered into an agreement with Marketing Group Establishment (The "MGE Agreement" and "MGE"), granting MGE the "exclusive right to sublicense, manage and to use Paolo's `trademarks' in the United States and a nonexclusive right to sub-license, manage and to use Paolo's `trademarks' outside of the United States." The MGE Agreement further provided that all goodwill in the trademarks inured solely to the benefit of Paolo and that any trademark registrations with respect to such "trademarks" shall be in Paolo's name and be his sole property. Paolo agreed to provide design and consultation services to MGE.
On February 4, 1994, Paolo filed a voluntary petition for relief under Chapter 11 of the Bankruptcy Code. Pursuant to Local Bankruptcy Rule 52, Soo Kim, Paolo's authorized representative, filed an affidavit which stated:
Paolo is an individual whose principal business consists of the licensing of trademarks for use in various commercial ventures and design work in conjunction therewith. This petition is necessitated by several disparate litigated matters which are threatening the commercial viability of the trademarks and licenses.
In his schedules, Paolo listed his interest in certain trademarks in the United States and Korea as an asset valued at $5,000,000. In addition, in response to a question concerning the nature of his business, including sole proprietorships, Paolo listed his interest in "Paolo Gucci Designs," his sole proprietorship licensing business, which utilized his trademarks and name.
After the filing, I ordered the appointment of a chapter 11 trustee to administer Paolo's estate. One of the Trustee's first tasks was to investigate the various licensing businesses. He discovered that several sublicensees were actively marketing Paolo Gucci products and that there was some litigation resulting from Paolo's failure to live up to his obligations under the various licensing agreements. The litigation prevented the launching of certain products and, in addition, damaged the reputation of Paolo's licensing business. Moreover, the bad publicity that Paolo had been receiving regarding his pending divorce proceedings and his mistreatment of certain horses on his horse farm further damaged the goodwill associated with his trademarks and name.
Paolo did not assist the Trustee with his efforts to work with the various licensees and sublicensees. He does not know if Paolo created any designs post petition. However, Stancato testified that Paolo told him that he created numerous designs after the commencement of the case.
11 U.S.C. § 541 defines property of the estate as "all legal or equitable interests of the debtor in property as of the commencement of the case."
As previously stated, under section 541(a) the estate is normally comprised only of property and interests therein belonging to the debtor at the time the petition is filed. In general, property not then owned but subsequently acquired by the debtor does not become property of the estate, but becomes the debtor\'s, clear of all claims that are discharged by the bankruptcy proceeding.
L. King, Collier on Bankruptcy, ¶ 541.05 (15th Edition, 1996).
11 U.S.C. § 541(a)(6) and (7) provide that property of the estate includes:
11 U.S.C. § 541(a)(6) and (7).
There is no dispute that Paolo's prepetition property is now owned by the estate. At issue is what happens to any...
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