Parlux Fragrances, LLC v. S. Carter Enters., LLC

• Decision Date: 24 February 2022
• Docket Number: Appeal No. 14387-14387A,Index No. 650403/16,Case Nos. 2020-04970, 2020-04972
• Parties: PARLUX FRAGRANCES, LLC, etc., et al., Plaintiffs-Appellants-Respondents, v. S. CARTER ENTERPRISES, LLC, et al., Defendants-Respondents-Appellants.
• Court: New York Supreme Court — Appellate Division

204 A.D.3d 72

164 N.Y.S.3d 108

PARLUX FRAGRANCES, LLC, etc., et al., Plaintiffs-Appellants-Respondents,

v.S. CARTER ENTERPRISES, LLC, et al., Defendants-Respondents-Appellants.

Appeal No. 14387-14387A

Index No. 650403/16

Case Nos. 2020-04970, 2020-04972

Supreme Court, Appellate Division, First Department, New York.

ENTERE February 24, 2022

Mintz Levin Cohn Ferris Glovsky and Popeo, P.C., New York (Anthony J. Viola, Andre K. Cizmarik, Kara M. Cormier and Kaitlyn A. Crowe of counsel), for appellants-respondents.

Quinn Emanuel Urquhart & Sullivan LLP, New York (Ellyde R. Thompson, Alex Spiro, Cory D. Struble and Allison McGuire of counsel), for respondents-appellants.

Barbara R. Kapnick, J.P., Anil C. Singh, Martin Shulman, Bahaati E. Pitt, John R. Higgitt, JJ.

Higgitt, J.

This appeal and cross appeal arise from the parties’ dispute relating to the development and promotion of a fragrance line involving defendant Carter, the Grammy-winning entertainment mogul otherwise known as Jay-Z.

I.

On April 18, 2012, defendants entered into a license agreement with nonparty Artistic Brands Development LLC (Artistic Brands) for the development and promotion of the fragrance line and related products. The license agreement granted nonparty Artistic Brands the exclusive right to use the trademark Jay-Z. The trademark relates to Carter and is held by S. Carter Enterprises, LLC (SCE). Carter, the sole member and manager of SCE, signed the license agreement on behalf of SCE. Additionally, Carter signed the license agreement in his personal capacity, but only with respect to sections 2C, 2D, and 11E. Carter's execution of those three aspects of the license agreement in his personal capacity reflected his personal involvement in the development and promotion of the fragrances that would be associated with his considerable professional identity and brand.

The meaning and effect of several articles of the license agreement are central to the issues disputed on appeal.

Section 2B provides, in pertinent part, that

"[Artistic Brands] is contemporaneously herewith sub-licensing the Licensed Mark to a subsidiary of Perfumania Holdings, Inc. (collectively, ‘Perfumania’), subject to and on the same terms and conditions as set forth in th[e] [licensing agreement] pursuant to a sublicense agreement between [Artistic Brands] and Perfumania dated as of even date herewith (the ‘Sublicense’) ... Pursuant to the Sublicense, Perfumania is inter alia guaranteeing to [SCE] and [Carter] the performance by Perfumania and [Artistic Brands] of all the terms, obligations, warranties, restrictions, payments and conditions contained in [the licensing] [a]greement as though Perfumania were a party hereto. It is the essence of this [licensing] [a]greement that [Artistic Brands] contemporaneously enter into the Sublicense and that Perfumania guarantees in writing to [SCE] the performance by [Artistic Brands] and Perfumania of all the terms, obligations, restrictions, warranties, payments and conditions contained in this [licensing] [a]greement and any exhibits or agreements incorporated by reference herein."

Section 7C states, in relevant part, that

"Throughout the Term of th[e] [licensing] [a]greement, [SCE] and [Artistic Brands] shall work together in good faith in deciding the types of articles of Licensed Products that [Artistic Brands] may manufacture, sell, and market, all subject to [SCE's] reasonable approval. [Artistic Brands] shall provide [SCE] with a product development plan for each line of all Licensed Products, which plan may include [Artistic Brands’] assessment of market needs and competitive positioning, and such additional information as reasonably requested by [SCE].

"(i) [Artistic Brands] and [SCE] shall jointly establish product development calendars, under which at appropriate agreed points throughout the development process of Licensed Products, [Artistic Brands] shall make available to [SCE] the concepts, materials, fabrications (if applicable), packaging and other relevant contents of each line of all Licensed Products for [SCE's] prior written approval as to concept interpretation, workmanship and quality and to assure that Licensed Products are consistent in quality with comparable prestige products such as those referred to in Section 7A(i) above and with [SCE's] standing and reputation with the public. The parties shall make every reasonable effort to adhere to the product development calendars.

"(ii) For each new line of Licensed Products (other than items from prior lines to be continued), [Artistic Brands] shall prepare and deliver to [SCE], for its prior written approval, product concepts and specifications for those Licensed Products that it proposes to include in such line in accordance with the approved product development plan. The various lines of Licensed Products shall be created from such initial concepts and specifications, which shall then be modified and developed cooperatively by [SCE] and [Artistic Brands] until [SCE] has approved, in writing, a line which, including items from prior lines to be continued, is consistent with the approved product development plan."

Subparagraph iii of section 7C provides the specifics of the product development approval process between Artistic Brands (and, naturally, its sublicensee) and SCE. Notably, section 7C(iii) states that

"All decisions by [SCE] shall be subject to the approval timing and other approval procedures that are set forth in Section 7A above and any disapproval of any Licensed Product shall be made in [SCE's] reasonable discretion, and shall be accompanied with an explanation and, if possible, a proposed solution or alternative design, concept and/or execution. Should [SCE] fail to give its approval, [SCE] agrees to engage in good faith negotiations with [Artistic Brands] to solve whatever objections [SCE] may have. After such negotiations conclude and an agreement is not reached, then [SCE's] disapproval shall be final and binding and shall not be subject to review in any proceeding."

Section 11E states, in relevant part, that

"[SCE] undertakes, at [Artistic Brands’] sole expense and subject to [Carter's] prior professional commitments, at [Artistic Brands’] request to make [Carter] available at reasonable intervals and for reasonable periods (which shall involve at least three (3) appearances in each Sales Year of the Term, at least one of which shall take place in New York City) for promotional tie-ins serving to associate [Carter] with the Licensed Products. During the Term and in the Territory, [Artistic Brands] shall also be entitled to the non-exclusive use of [Carter's] approved likeness, and approved signature solely for advertising, packaging and promotional purposes upon [SCE's] approval first being obtained in each instance, which approval shall not be unreasonably withheld or delayed. [SCE's] failure to approve any representation of [Carter's] signature or likeness within twenty (20) business days of written request therefor shall be deemed an approval thereof. [SCE] shall make every reasonable effort, in light of [Carter's] busy schedule and subject to [Carter's] prior professional commitments, at the request of [Artistic Brands] and upon at least twenty (20) business days written notice, to arrange for [Carter's] cooperation for a reasonable number of publicity events (which shall be included in [Carter's] obligations of three (3) appearances discussed above)."

Sections A and C of article 12 specify various statements, reports, and plans that Artistic Brands (and its sublicensee) were required to deliver to defendants.

Article 15 of the license agreement addressed defaults, identifying those conditions and occurrences that constituted "events of default" (including plaintiffs’ failure to pay defendants any sum due under the license agreement, and plaintiffs’ "failure to deliver full and accurate reports pursuant to any of the provisions of th[e] [license agreement] by the prescribed due date therefor") for which the other party had to serve on the defaulting party a notice of default.

Section 18F contains the license agreement's no waiver provision. It states that "[n]o waiver by either party, whether express or implied, of any provision of th[e] [License] Agreement, or of any breach or default thereof, shall constitute a continuing waiver of such provision or of any other provision of this Agreement."

Lastly, section 20A of the license agreement sets forth a number of "conditions" that had to be satisfied before the license agreement would be effective. Notably, contemporaneous with the execution of the license agreement, "Perfumania" was required (1) to execute a sublicense agreement with Artistic Brands, (2) to issue to SCE warrants to purchase, at a designated price, a specified quantity and quality of common stock in "Perfumania," and (3) to sign a particular letter assigning certain profits to SCE. Section 20B provides that defendants "have a direct claim against Perfumania on the guaranty for breaches of the [licensing] [a]greement."

Consistent with section 20A, two other transactions occurred on April 18, 2012. In one transaction, Artistic Brands sub-licensed its rights and obligations under the license to plaintiff Parlux Fragrances, LLC (Parlux), a subsidiary of plaintiff Perfumania Holdings, Inc. (Perfumania). Parlux "assume[d] all of [Artistic Brands’] obligations ... under the [licensing] [a]greement." The signatories to the sublicense agreement were, through their respective members or agents, Parlux, defendants, and Artistic Brands. In the other transaction, Perfumania executed the assignment letter with SCE and Artistic Brands. Under the assignment letter, certain profits derived from the licensing of the Jay-Z trademark were assigned to SCE. Additionally, at some point Perfumania provided Carter with approximately $2.8 million in common stock in that corporation.

II.

During the 2013 holiday season, Parlux launched a product line called GOLD JAY-Z, ...