P.L.A.Y., Inc. v. Nike, Inc.

• Citation: 1 F.Supp.2d 60
• Decision Date: 24 March 1998
• Docket Number: Civil Action No.97-30055-MAP.
• Parties: P.L.A.Y., INC., Plaintiff, v. NIKE, INC., Defendant.
• Court: U.S. District Court — District of Massachusetts

1 F.Supp.2d 60

P.L.A.Y., INC., Plaintiff, v. NIKE, INC., Defendant.

Civil Action No.97-30055-MAP.

United States District Court, D. Massachusetts.

March 24, 1998.

Samuel L. Rodriguez, Catala & Mervis, P.C., Boston, MA, for Plaintiff.

John A. Cvejanovich, O'Connell, Flaherty & Attmore, Springfield, MA, Michael D. O'Connell, O'Connell, Flaherty & Attmore, Hartford, CT, for Defendant.

PONSOR, District Judge.

Upon de novo review, this Report and Recommendation is hereby adopted and that portion of Ct. I seeking rescission is hereby dismissed. The settlement agreement is a substituted contract as a matter of law; Ct. I fails to state a claim for rescission. Docket No. 7 is therefore ALLOWED.

So Ordered.

NEIMAN, United States Magistrate Judge.

Pursuant to Fed.R.Civ.P. 12(b)(6), Defendant NIKE, Inc. ("NIKE") has moved to dismiss a portion of one count of Plaintiff P.L.A.Y., Inc. ("PLAY")'s five count complaint. The motion has been referred to this Court for a report and recommendation. See 28 U.S.C. § 636(b)(1)(B). For the reasons set forth below, the Court recommends that the motion to dismiss be allowed.

I. FACTUAL BACKGROUND

The following facts are plead in the complaint. PLAY is a non-profit corporation that was formed in Massachusetts in 1989 by Dennis Jackson ("Jackson") to address the problems and increase the potential of student athletes. The name "PLAY" is an acronym for "Planned Learning Achievement for Youth." NIKE is a multi-national sports conglomerate with its central office in Oregon. In March of 1994, NIKE, with basketball star Michael Jordan as its chief spokesperson, launched an advertising campaign utilizing the service mark "P.L.A.Y.," an acronym for "Participate in the Lives of America's Youth." PLAY, the organization, immediately claimed that NIKE's "P.L.A.Y." campaign was violative of the Lanham Act and that use of the acronym constituted both an infringement of trade name and unfair and deceptive trade practices.

NIKE and PLAY engaged in negotiations and, on December 29, 1994, entered into a "Settlement Agreement and Release of Claims" ("Agreement"). PLAY agreed to release any potential claim it had against NIKE in exchange for NIKE's promise to provide financial and other assistance to PLAY. Specifically, NIKE agreed to make certain annual donations to PLAY over a three year period in the amounts of $40,000 (1995), $65,000 (1996) and $40,000 (1997). NIKE also agreed to match other donations received by PLAY in both 1995 and 1997, up to a maximum of $25,000 each year, and agreed to retain Jackson as a consultant for three years at an annual fee of $10,000. Further, NIKE agreed to provide certain sports equipment to PLAY, up to a value of $13,500 per year, and to contribute scholarship monies of $20,000 per year to fund attendance at PLAY's summer camp. NIKE was also to donate $10,000 per year to fund speakers at the camp. In addition, NIKE agreed to pay PLAY's attorneys' fees of $55,000.

NIKE also promised non-financial support, namely, "to take specific steps to make the public aware of PLAY's programs, to enhance PLAY's reputation as a charitable foundation and to expand PLAY's base of support." Along these lines, NIKE promised, among other things, to generate media coverage for PLAY's programs, distribute a video regarding PLAY's activities and develop brochures and a media press kit. NIKE also promised to introduce Jackson to professional athletes and coaches who might be able to assist PLAY in soliciting donations from various charitable organizations. These non-financial contributions, according to the Agreement, had an approximate value of $80,000.

In exchange for these promises by NIKE, PLAY agreed to release all its claims. PLAY also agreed to allow NIKE to use, without objection, the name "P.L.A.Y." as the title of its youth sports and fitness initiative.

II. PROCEDURAL BACKGROUND

On March 27, 1997 — over two years after the December 29, 1994 Agreement was executed — PLAY filed this action. The complaint sounds in five counts: breach of contract (Count I); trademark infringement (Count II); false designation of origin under the Lanham Act (Count III); common law infringement of trade name and service mark and unfair competition (Count IV); and unfair and deceptive trade practices (Count V). NIKE seeks to dismiss that part of Count I which calls for rescission of the Agreement. NIKE does not seek to dismiss, at least at this juncture, either the breach of contract claim for monetary damages in Count I or Counts II through V.

III. STANDARD OF REVIEW

When faced with a Rule 12(b)(6) motion to dismiss, a court accepts as true the factual allegations contained in the complaint and draws all reasonable inferences in favor of the plaintiff. Kiely v. Raytheon Co., 105 F.3d 734, 735 (1st Cir.1997). Dismissal is appropriate "only if it is clear that no relief could be granted, under any theory, `under any set of facts that could be proved consistent with the allegations.'" Id. (quoting Hishon v. King & Spalding, 467 U.S. 69, 73, 104 S.Ct. 2229, 81 L.Ed.2d 59 (1984)). Accord Vartanian v. Monsanto Co., 14 F.3d 697, 700 (1st Cir.1994). A court, however, "need not credit bald assertions, periphrastic circumlocutions, unsubstantiated conclusions, or outright vituperation." Correa-Martinez v. Arrillaga-Belendez, 903 F.2d 49, 52 (1st Cir. 1990). See also Coyne v. City of Somerville, 972 F.2d 440, 444 (1st Cir.1992).

IV. FRAMING THE ISSUE

In its motion to dismiss, NIKE proceeds on the assumption that the Agreement is a contract. As such, NIKE claims, PLAY fails to allege facts in Count I which constitute grounds for rescission of the contract. In particular, NIKE asserts that Count I does not allege that PLAY was fraudulently induced to enter into the Agreement, that the parties were acting under a mistake of fact when they entered into the Agreement, or that the "essence" or "foundation" of the Agreement was destroyed or rendered obsolete by NIKE's subsequent actions. NIKE also contends that Count I fails to allege another essential element of rescission — that PLAY restored, or even offered to restore, the financial benefits already received pursuant to the Agreement. Finally, NIKE asserts that PLAY's prayer for rescission should be dismissed due to its failure to bring the claim within a reasonable time.

In response, PLAY asserts that the Agreement is actually an executory accord for which the remedy of rescission is available. In essence, PLAY argues, its prior claims against NIKE are not extinguished until NIKE fully performs all of its obligations under the Agreement.

Distilled to its purest form, the issue before the Court is whether the parties' Agreement is a "substituted contract," as NIKE contends, or an "executory accord," as PLAY maintains, the resolution of which determines whether the remedy of rescission is available. Both parties invite the Court to answer the question, although PLAY, as is appropriate, puts a somewhat different spin on the issue. PLAY maintains that the actual question before the Court is whether the complaint pleads sufficient facts for the Agreement to be considered an executory accord and thereby subject to the remedy of rescission. However framed, the question requires the Court to first determine the character of the Agreement. Once that question is resolved, the Court can determine whether Count I of the complaint adequately alleges facts which constitute grounds for its rescission.

V. DISCUSSION

Where the terms of a settlement agreement are plain and unambiguous, as here, the question of whether it was intended to be a "substituted contract" or an "executory accord" can be decided by a court as a matter of law. Tuttle v. Metz Co., 229 Mass. 272, 118 N.E. 291 (1918). See also Lipson v. Adelson, 17 Mass.App.Ct. 90, 456 N.E.2d 470, 471 (1983); Poskus v. Braemoor Nursing Home, Inc., 6 Mass.App.Ct. 896, 377 N.E.2d 705, 706 (1978). Although the parties are diverse, there is no dispute that Massachusetts law applies to this case.

Under Massachusetts law, an executory accord is a "contract under which an obligee promises to accept a stated performance in satisfaction of the obligor's existing dut[ies]." Restatement (Second) of Contracts, § 281. A violation of the accord enables a party to "enforce ... the original duty or any duty under the accord." Id. at § 281(2). In essence, the prior claim is not extinguished until full performance of the accord. In contrast, "a substituted contract is a contract that is itself accepted by the obligee in satisfaction of the obligor's existing duty." Restatement (Second) of Contracts, § 279. Unlike an executory accord, "[t]he substituted contract discharges the original duty and breach of the substituted contract by the obligor does not give the obligee a right to enforce the original duty." Id. See also Lipson, 456 N.E.2d at 471; McFaden v. Nordblom, 307 Mass. 574, 30 N.E.2d 852, 853 (1941).

When parties resolve disputed claims they frequently refer to the agreement as a "compromise and settlement." Corbin on Contracts, § 1278. See Dunbar v. Dunbar, 180 Mass. 170, 62 N.E. 248, 248-49 (1901). "When so described, the agreement, even though executory, is usually intended to operate as a substituted contract and an immediate discharge of the prior claims so compromised. After such a discharge, no action is maintainable on the previous claims, whether for an alleged breach of contract or otherwise. Rather, the rights of the parties are now determined by the substituted contract — the `compromise and settlement'". Corbin on Contracts, § 1293 n. 1 (citing Eastern Steel Products Corp. v. Chestnutt, 252 N.C. 269, 113 S.E.2d 587 (1960)). Massachusetts courts often find that an agreement is a substituted contract where it reflects, either expressly or by clear implication, an intention that it serve as an immediate satisfaction and discharge of existing claims. See Lipson, 456 N.E.2d at 471; Banionis, 193 N.E. at...