Jakks Pac., Inc. v. Wicked Cool Toys, LLC
| Decision Date | 31 January 2017 |
| Docket Number | Index No. 159812/2015 |
| Parties | JAKKS PACIFIC, INC., Plaintiff, v. WICKED COOL TOYS, LLC and JEREMY PADAWER, Defendants. |
| Court | New York Supreme Court |
In this action for, inter alia, tortious interference with contract, tortious interference with prospective economic advantage, unfair competition and breach of fiduciary duty, JAKKS Pacific, Inc. ("JAKKS" or "plaintiff") moves for partial summary judgment pursuant to CPLR 3212 as against Jeremy Padawer ("Padawer") and Wicked Cool Toys, LLC ("WCT" and together with Padawer, "defendants'") (mot. seq. 004). Defendants' move for summary judgment pursuant to CPLR 3212 as against JAKKS (mot. seq. 007). The parties oppose each other's motions. These motions have been consolidated for purposes of this decision.
JAKKS and WCT are competitors in the toy industry. Cabbage Patch Kids ("CPK") is a globally recognized brand and for the preceding ten years, JAKKS had operated as the exclusive CPK licensee for Original Appalachian Artworks, Inc. ("OAA"), the CPK license holder. In May 2014, the CPK license was awarded by OAA to WCT, whose co-president Padawer, previously served as a JAKKS executive. JAKKS alleges that Padawer on multiple occasions disparaged JAKKS to OAA and formed JAKKS competitor, WCT, while still employed by JAKKS. See Compl. ¶¶ 21-26, 35, 38.
In a related action, JAKKS and OAA each claimed that the other had breached the underlying exclusive license, for reasons that are not pertinent to this decision. Pursuant to the license agreement, the parties entered into an arbitration in Georgia. See License Agreement ¶XXX; XXIX (the license is "governed by and construed in accordance with the laws of the State of Georgia."). WCT was not a party to the arbitration as it was not a party to the underlying license agreement. WCT sought to intervene in the arbitration and was denied by a Special Arbitrator. See Robins Affirmation, Exh. C, Sec. IV. On January 26, 2016, the arbitrator declared that, among other things, OAA had not breached the license agreement. See Arbitration Decision and Award, dated January 28, 2016 at 44-45. JAKKS alleges that this decision by the arbitrator was made in error and has since moved to vacate the arbitrators finding. This decision is allegedly pending sub judice before the United States District Court for the Northern District of Georgia. See Case No. 1:14-cv-02861-MHS.
The standard for summary judgment is well settled. "The proponent of a summary judgment motion must make a prima facie showing of entitlement to judgment as a matter of law, tendering sufficient evidence to eliminate any material issues of fact in the case." Winegrad v. New York Univ. Med. Ctr., 64 N.Y.2d 851, 853 (1985). Despite sufficiency of the opposing papers, the failure to make such a showing requires denial of the motion. Id. Summary judgment is a drastic remedy and should only be granted if the moving part has sufficiently established that it is warranted as matter of law. See Alvarez v. Prospect Hosp., 68 N.Y.2d 320, 324 (1986).
Moreover, summary judgment motions should be denied if the opposing party presents admissible evidence establishing that there is a genuine issue of fact remaining. Zuckerman v. City of New York, 49 N.Y.2d 557, 560 (1980). "In determining whether summary judgment is appropriate, the motion court should draw all inferences in favor of the non-moving party and should not pass on the issues of credibility." Garcia v. J.C. Duggan, Inc., 180 A.D.2d 579, 580 (1st Dept 1992) (citing Assaf v. Ropog Cab Corp., 153 A.D.2d 520, 521 (1st Dept 1989)). The court's role is "issue finding, rather than issue determination." Sillman v. Twentieth Century Fox- Film Corp., 3 N.Y.2d 395, 404 (1957) (internal quotations omitted).
JAKKS motion for partial summary judgment is denied. JAKKS motion rests on the proposition that Padawer's bad acts breached his fiduciary and good faith duties to JAKKS. JAKKS alleges that this is illustrated in two ways, the first is Padawer's co-founding of WCT while employed by JAKKS and the second is Padawer's disparagement of JAKKS to OAA while still employed by JAKKS. It is undisputed by either party that "an employee is to be loyal to his or her employer and is prohibited from acting in any manner inconsistent with his or her agency or trust and is at all times bound to exercise the utmost good faith and loyalty in performance of his or her duties." Western Elec. Co. v. Brenner, 41 N.Y.2d 291, 295 (1997); City of Binghamton v. Whalen, 141 A.D.3d 145 (3d Dept 2016).
JAKKS alleges that Padawer breached his fiduciary duty when he allegedly co-founded WCT and WCT (HK), which are direct competitors of JAKKS in the toy industry. JAKKS highlights the cases of Duane Jones Co. v. Burke, 306 N.Y.172, 188 (1954), Maritime Fish Products, Inc. v. World-Wide Fish Products, Inc., 100 A.D.2d 81, 88 (1st Dept 1984), and Foley v. D'Agostino, 211 A.D.2d 60 (1st Dept 1960) for the proposition that an employee may not engage in a business which competes directly with his employer's because it is a breach of the duty of loyaltyand good faith that the employee owed to the corporation. This court agrees with JAKKS analysis of the case law. However, JAKKS fails to make a showing that the facts, as alleged in this case warrant summary judgment.
JAKKS has not adequately alleged that Padawer co-founded WCT and WCT (HK) at the time that Padawer was employed with JAKKS. JAKKS alleges that Padawer co-founded WCT on June 11, 2012, more than nine months before leaving JAKKS on March 21, 2013. JAKKS points to the WCT Operating Agreement, which states that "the Members formed a limited liability company under the Delaware Limited Liability Company Act...by filing the Company's Certificate of Organization...effective June 11, 2012." WCT Operating Agreement §1.1. Padawer is then listed as an initial member as defined in the WCT Operating Agreement. Id. §2.1; Exh. A-1. Additionally, JAKKS contends that according to the Certificate of Incorporation, Padawer co-founded WCT (HK), which acted as WCT's overseas affiliate in August 2012.
However, there is an issue of fact as to the time frame of Padawer's involvement in WCT and WCT (HK). Regarding WCT (HK)'s Certificate of Incorporation defendants contend that the incorporation form, which predates the unsigned certificate of incorporation is executed by Mr. Poon and Mr. Rinzler, who were both the original co-founders of WCT and not Padawer. Additionally, defendants have produced a declaration of trust, after the certificate of incorporationwas issued that shows that Mr. Poon and Mr. Rinzler, and not Padawer own shares in WCT (HK). See Rinzler Aff. Ex. D. Finally, defendants have produced the WCT (HK) Interest Purchase Agreement entered into and executed on January 1, 2014 by Padawer and stating that WCT (HK) is issuing shares to Padawer and thereby representing ownership effective as of the date of execution. See Rinzler Aff. Ex. O. This admissible evidence presented by defendants is more than sufficient to deny JAKKS claims as it relates to WCT (HK). See Zuckerman, 49 N.Y.2d at 560.
Regarding WCT, defendants' produce multiple documents that raise a triable issue of fact as to whether Padawer was a founding member. First is an August 16, 2013 email between Padawer and Mr. Rinzler discussing proposed amendments to the WCT Operating Agreement and Interest Purchase Agreement that would vest Padawer with an interest in WCT. See Rinzler Aff. Ex. J. Next is the Amended and Restated Operating Agreement for WCT executed on December 23, 2013 by and among Mr. Rinzler, Mr. Poon and Padawer, and effective April 1, 2013. See Rinzler Aff. Ex. M. JAKKS alleges that Padawer was a "secret co-founder" of WCT, and that the WCT Amended and Restated Operating Agreement identifies Padawer as an "Initial Member." See Pl. Reply Memo., pp. 2-6.
A question of fact exists as to whether Padawer was an initial member of the original operating agreement signed in 2012. The Amended and Restated Operating Agreement amends and restates the 2012 operating agreement to include Padawer.Although the Amended and Restated Operating Agreement does define Padawer as an Initial Member, it is at best unclear as to whether Padawer was a founding member in 2012, before his employment with JAKKS ended. Defendants' contentions are only buttressed by a September 4, 2013 WCT Proposed Ownership chart that shows Padawer had no initial ownership in the company, Padawer's Interest Purchase Agreement with WCT, signed after Padawer left JAKKS, and a Padawer's 83(b) election of shares form to the IRS, dated January 8, 2014 indicating that Padawer's membership in WCT started on that date. See Rinzler Aff. Ex. L, N, R. As there is sufficient evidence presented by defendants to raise a triable issue of fact, JAKKS claims as it relates to WCT are denied.
JAKKS also suggests that Padawer created a domain name for WCT before he left his employment with JAKKS, which shows that he was a co-founder of WCT during his employment with JAKKS. See Plaintiffs Memo, p. 6. Defendants' have provided evidence that the domain name was first registered in 2007 by an unrelated third party working at Carweek and that Mr. Padawer did not purchase the domain name until May 2014. See Padawer Ex. A, B, C, and D. This is enough to raise a triable issue of fact.
Finally, as it relates to Padawer's alleged co-founding of WCT while employed at JAKKS, plaintiff contends that multiple publications have stated that Padawer was a co-founder of WCT. See Pl. Memo, pp. 8-10. However, theseallegations, made by third-parties are not enough to overcome the genuine issue of fact that still exists as to when Padawer became a member of WCT....
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