Select Creations, Inc. v. Paliafito America, Inc.

• Decision Date: 18 December 1995
• Docket Number: No. 91-C-1240.,91-C-1240.
• Citation: 911 F. Supp. 1130
• Parties: SELECT CREATIONS, INC., a Wisconsin corporation, Plaintiff, v. PALIAFITO AMERICA, INC., an Illinois corporation, Defendant, Counterplaintiff and Third-Party Plaintiff, v. Miryoung (or "Mi Ryoung") LEE a/k/a "Joy Lee" "Melody Lee", "Miryoung Song", "Miryoung Deering", "Miryoung Deering Song" and "Miryoung Melody Lee", an alien (No. A 36510736), Jong Sik (a/k/a "Jerry") Lee, an alien, Mantae Company Limited, a Korean corporation, Many Amazing Ideas, Inc. f/k/a "Mantae America, Inc.", a New York corporation, Mai Ltd., a Korean corporation, Puff Pac Production, Ltd., a Korean corporation, Best International Corp., a Korean corporation, Chusik Hosea Kyongyong a/k/a "Marue Joint Stock Trading Company" d/b/a "Best General Merchandise Corp." and "Best General Merchandise (USA)", a Korean corporation, Grip Toys, Inc., f/k/a "Mai, Ltd.", a Nevada corporation, Bertrand A. Levesque, a California citizen, Keith D. Nowak, a New Jersey Citizen, Lieberman, Rudolph & Nowak, a New York partnership, Samuel Petrovich, a Wisconsin citizen, Thomas Meisenheimer, a Wisconsin citizen, Paul Moss, a Minnesota citizen, Paul Moss & Co., Inc., a Minnesota corporation, Robert C. Hooper, a California citizen, Steven Composto, a New York citizen, Forman Marketing & Sales Corp., a New York Corporation, Keith Andes, individually and d/b/a Andes and Co., a Tennessee citizen, Andes America, Inc., a Tennessee corporation, Dayton Hudson Corporation, d/b/a "Target Stores", a Minnesota corporation, and John Does I-XX, non-Illinois citizens, Third-Party Defendants and Select Creations, Inc., a Wisconsin corporation, Counterdefendant.
• Court: U.S. District Court — Eastern District of Wisconsin

911 F. Supp. 1130

SELECT CREATIONS, INC., a Wisconsin corporation, Plaintiff, v. PALIAFITO AMERICA, INC., an Illinois corporation, Defendant, Counterplaintiff and Third-Party Plaintiff, v. Miryoung (or "Mi Ryoung") LEE a/k/a "Joy Lee" "Melody Lee", "Miryoung Song", "Miryoung Deering", "Miryoung Deering Song" and "Miryoung Melody Lee", an alien (No. A 36510736), Jong Sik (a/k/a "Jerry") Lee, an alien, Mantae Company Limited, a Korean corporation, Many Amazing Ideas, Inc. f/k/a "Mantae America, Inc.", a New York corporation, Mai Ltd., a Korean corporation, Puff Pac Production, Ltd., a Korean corporation, Best International Corp., a Korean corporation, Chusik Hosea Kyongyong a/k/a "Marue Joint Stock Trading Company" d/b/a "Best General Merchandise Corp." and "Best General Merchandise (USA)", a Korean corporation, Grip Toys, Inc., f/k/a "Mai, Ltd.", a Nevada corporation, Bertrand A. Levesque, a California citizen, Keith D. Nowak, a New Jersey Citizen, Lieberman, Rudolph & Nowak, a New York partnership, Samuel Petrovich, a Wisconsin citizen, Thomas Meisenheimer, a Wisconsin citizen, Paul Moss, a Minnesota citizen, Paul Moss & Co., Inc., a Minnesota corporation, Robert C. Hooper, a California citizen, Steven Composto, a New York citizen, Forman Marketing & Sales Corp., a New York Corporation, Keith Andes, individually and d/b/a Andes and Co., a Tennessee citizen, Andes America, Inc., a Tennessee corporation, Dayton Hudson Corporation, d/b/a "Target Stores", a Minnesota corporation, and John Does I-XX, non-Illinois citizens, Third-Party Defendants and Select Creations, Inc., a Wisconsin corporation, Counterdefendant.

No. 91-C-1240.

United States District Court, E.D. Wisconsin.

December 18, 1995.

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David Springer and John Lyons, Skadden, Arps, Slate, Meagher & Flom, Chicago, Illinois, for plaintiff.

Herbert Monte Levy, New York City, for defendants.

DECISION AND ORDER

WARREN, District Judge.

Now before the Court are the cross-motions for summary judgment filed by defendant and third-party plaintiff Paliafito America Inc. (Paliafito) and third-party defendants Stephen Composto (Composto) and Forman Marketing & Sales Corp. (Forman) (collectively "the Forman defendants") in the above-captioned action. In this small piece of the much larger Paliafito litigation, the plaintiff has asserted claims against the Forman defendants for breaching their fiduciary duties to Paliafito and for tortiously interfering with Paliafito's contractual and prospective economic relationship with Toys R Us. The Forman defendants have asserted a counterclaim against Paliafito for allegedly unpaid commissions.

The cross-motions for summary judgment relate to each of these claims. For the following reasons, Paliafito's motion for partial summary judgment declaring the Forman defendants liable for breaching their fiduciary duties will be granted, its motion for partial summary judgment declaring the defendants liable for tortiously interfering with Paliafito's current and prospective economic relations will be granted in part, and its motion for summary judgment dismissing the Forman defendants counterclaim will be granted. Correspondingly, the defendants' motion for summary judgment dismissing all claims against it and declaring Paliafito liable for commissions allegedly owed will be denied. The Court's findings of fact and conclusions of law follow.

I. FINDINGS OF FACT¹

A. PARTIES AND RELATED NONPARTIES.

1. Paliafito is an Illinois corporation with its principal place of business in Illinois. Paliafito was in the business of marketing and distributing the Grip Ball game, and is owned by Mark and John Paliafito and Mike Barker. See Paliafito's Second Amended Counterclaim and Third-Party Complaint ("2nd Am.Ctcl.") ¶ 4; Answer of Counterdefendants Steven Composto and Forman Marketing & Sales Corp. ("Composto Ans.") ¶ 5.

2. Counterdefendant Stephen Composto is a citizen and resident of the State of New York. He is president of counterdefendant Forman Marketing & Sales Corp., a New York corporation. See 2nd Am.Ctcl. ¶¶ 19, 20; Composto Ans. ¶¶ 9, 10.

3. Judgment debtor and former counter-defendant Miryoung ("Joy") Lee was, at all relevant times, a Korean national with residences in or near Seoul, Republic of Korea, California, and New York. At all relevant times, Joy Lee was president of Many Amazing Ideas, Inc. ("MAI") and Grip Toys and the sole director and shareholder of MAI. See 2nd Am.Ctcl. ¶ 5; Composto Ans. ¶ 1. On August 13, 1993, the Court entered judgment against Joy Lee, and in favor of Paliafito, in the amount of $8 million on Paliafito's claims contained in its Second Amended Counterclaim and Third-Party Complaint. See Select Creations, Inc. v. Paliafito America, Inc., 830 F.Supp. 1223, 1240-41 (E.D.Wis.1993) ("Select II").

4. Former counterdefendant Many Amazing Ideas, Inc. ("MAI") was a New York corporation with its principal place of business in California. On February 22, 1993, Joy Lee caused MAI to file a chapter 11 petition commencing the proceeding In re Many Amazing Ideas, Inc., LA93 15924 (Bankr.C.D.Cal.) (Greenwald, J.) to avoid enforcement of the Court's Writ of Attachment, Preliminary Injunction, and Appointment of a Receiver requiring MAI to deposit $8 million with a court-appointed receiver. See Select II, 830 F.Supp. at 1232. On December 8, 1993, the Bankruptcy Court, at the request of Paliafito, converted the case to chapter 7. Pursuant to a Settlement Agreement approved by the Bankruptcy Court, the Court dismissed MAI from this action. In its Order Approving the Settlement Agreement, the Bankruptcy Court granted to Paliafito a $10 million unsecured claim, a $500,000 chapter 11 administrative claim, and other consideration.

5. Former counterdefendant Select Creations, Inc. ("Select") is a Wisconsin corporation with its principal place of business in Milwaukee, Wisconsin. See 2nd Am.Ctcl. ¶ 11; Composto Ans. ¶ 7. Former counterdefendant Samuel Petrovich is a citizen and resident of Wisconsin and president and sole stockholder of Select. See 2nd Am.Ctcl. ¶ 12; Composto Ans. ¶ 8. Former counterdefendant Thomas Meisenheimer is a citizen and resident of Wisconsin and, at all relevant times, was a vice president of Select. See 2nd Am.Ctcl. ¶ 13; Composto Ans. ¶ 1. Former counterdefendant Robert C. Hooper ("Hooper") is a citizen and resident of the State of California and, at all relevant times, was the executive vice president of Select. See 2nd Am.Ctcl. ¶ 14; Composto Ans. ¶ 1. Former counterdefendant John Burke ("Burke") is a citizen and resident of the State of California and, at all relevant times, was a vice president of Select. See 2nd Am.Ctcl. ¶ 15; Composto Ans. ¶ 1.

6. Robert H. Storm ("Storm") is a citizen and resident of the State of Wisconsin, is an attorney admitted to practice in Wisconsin, and is a member of the Wisconsin law firm Canellos & Storm, S.C. At all pertinent times, Storm and Canellos & Storm have acted as agents for Select, Petrovich, Meisenheimer, Hooper, and Burke. See 2nd Am. Ctcl. ¶ 16; Composto Ans. ¶ 1.

B. JURISDICTION AND VENUE.

7. The amount in controversy in the Counterclaim exceeds the sum or value of $50,000, exclusive of interest or costs. See 2nd Am.Ctcl. ¶ 26.

8. This Court has subject matter jurisdiction over this action under 28 U.S.C. § 1332(a)(1), by reason of the complete diversity of citizenship between Paliafito and the counterdefendants, and also under 28 U.S.C. § 1367 (supplemental jurisdiction). See 2nd Am.Ctcl. ¶ 27; Composto Ans. ¶ 1.

9. This Court has personal jurisdiction over Composto and Forman because the undisputed facts set forth herein establish that they, individually, and through their agents, committed acts within Wisconsin that gave rise to injury to Paliafito's property. Wis. Stat. § 801.05(3).

10. The undisputed facts set forth herein establish that venue is proper over this Counterclaim in the Eastern District of Wisconsin because a substantial part of the events giving rise to the Counterclaim occurred in this District (28 U.S.C. § 1391(a)(2)), and because Forman and Composto are subject to personal jurisdiction in this District (28 U.S.C. § 1391(a)(3)).

C. MARKETING AND DISTRIBUTION OF GRIP BALL.

11. In 1990, Forman and Select entered into a "Representative Agreement." Declaration of Susan Jacobson ("Jacobson Dec."), Exhibit 1. In it, Select granted to Forman a territory in the eastern part of the United States and stated that Forman would be paid a 10% commission for all sales within the territory. Select and Forman also agreed not to disclose to any person or entity confidential information furnished by either party.

12. On February 15, 1991, MAI and MCL, on the one hand, and WAAC (predecessor in interest to Paliafito) on the other hand, entered into the exclusive distributorship contract (the "Exclusive Distribution Agreement"). See Select Creations, Inc. v. Paliafito America, Inc., 828 F.Supp. 1301, 1319 (E.D.Wis.1992) ("Select I") (finding of fact ¶ 203) (citing DX 11A)).

13. The Exclusive Distribution Agreement provided that MAI would grant Paliafito the exclusive right to distribute Grip Ball products in the United States subject to certain conditions. Id. (finding of fact ¶ 207) (citing DX 11A).

14. In exchange for the grant of these exclusive rights, the Exclusive Distribution Agreement required Paliafito to pay MAI $1,000,000, payments for which were to be made in four installments, the first due on signing, the second on March 1, 1991, the third on May 1, 1991 and the final payment on July 1, 1991. Id. (finding of fact ¶ 217) (citing DX 11A, ¶ 2.) Paliafito made these payments in accordance with the terms of the agreement.

15. Paliafito was also required to expend $00.70 per game on advertising, (DX 11A, ¶ 12.2), to "cooperate and consult" with MAI in all advertising and to give MAI the right to approve all...