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The Defendants have now moved for judgment as a In the spring of 1994, Mr. Morson's then fiancé, Caro-
matter of law (“JMOL”) under Rule 50(b), or, in the al- lyn Hontoria, began working for Palazzetti as a sales-
ternative, a new trial under Rule 59, of the Federal person in the New York showroom. (Id. at 150, 253).
Rules of Civil Procedure. For the reasons set forth be- She and Mr. Morson subsequently spoke with Mr.
Palazzetti about opening a Palazzetti store in Boston. cense” in the prior sentence must have been in-
(Id. at 217-18, 254-56). Those discussions led to a July tended to address defaults of the “License[e].”
18, 1995 “Palazzetti Boutique License” agreement
between Palazzetti and Mr. Morson (“License”), pursu- Finally, the License provided that the law of the State of
ant to which Mr. Morson (or a corporate assignee that New York would control. (Id. § 18).
he controlled) was granted the right to use the Palazzetti
name for a furniture store in the Boston metropolitan C. Subsequent Events
area for a period of ten years, commencing with the
opening of the store. (License §§ 2, 4, 5, 11). The Li- After Mr. Morson entered into the License Agreement,
cense granted Mr. Morson exclusivity in that area. (Id. § he and Carolyn moved to Boston, where they negotiated
13). a ten-year lease for a store which was opened on June
13, 1996. (Tr. 237, 256). Although the Morsons contin-
In exchange for the License, Mr. Morson agreed to pay ued to operate that Palazzetti store until late 1997, the
an initial fee of $100,000. (Id. § 3). Mr. Morson also relationship was not a happy one. In brief, the Defend-
agreed that the majority of the inventory on the show- ants contend that Palazzetti breached the terms of the
room floor and no less than sixty percent of the Boston License by continually failing to supply furniture in a
store's annual sales would be derived from Palazzetti's timely manner due to its cash flow problems. Palazzetti,
product line, which was to be offered to Mr. Morson or on the other hand, maintains that the Defendants
his assignee “at wholesale costs no greater than those breached the License terms by purchasing furniture dir-
amounts charged to all other retail ectly from Palazzetti's suppliers, soliciting business out-
establishments.”(Id. §§ 6, 10). As a consequence, in ad- side their designated territory, and, most importantly,
dition to the $100,000 fee, the License afforded Palazz- sending a December 17, 1997 letter to Mr. Palazzetti.
etti the opportunity to realize substantial additional in- (Pl.Ex. R). In that letter, Mr. Morson suggested that Mr.
come based upon its sales of furniture to Mr. Morson or Palazzetti had defrauded him by failing to disclose be-
his assignee. fore the License was executed that Palazzetti's financial
problems would make it impossible to deliver furniture
*2 The License gave Mr. Morson or his assignee the
on time. (Def.Ex. R). Mr. Morson also threatened legal
right to renew for additional ten-year periods, with the
action unless, by December 22, 1997, Mr. Palazzetti ac-
renewal fee fixed as “an amount equal to one and one
cepted one of the following two options:
half percent (1.5%) of the total amount of sales, net of
discounts, for the immediately preceding ten (10) year FIRST, WE WILL CONTINUE TO USE THE
period.”(Id. § 4). PALAZZETTI NAME BUT WE WILL ONLY BUY
DIRECTLY FROM THE MANUFACTURERS. WE
Pursuant to the License, any declaration of a default had
WILL IN EFFECT BE COMPLETELY INDEPEND-
to be in writing, with the allegedly defaulting party hav-
ENT, LIKE THE PALAZZETTI IN
ing a thirty-day period to cure. (Id. § 16). The License FN6
CANADA. WE WILL ONLY ACCEPT ORDERS
stated that any “[u]ncured defaults of the License[e]
FROM YOU WHICH YOU HAVE NOTIFIED U.S.
may result in the revocation of the License.”(Id.) The FN7
ARE ALREADY IN THE WATER. AND YOU
very next sentence of the License provided, however,
WILL EITHER PROMPTLY REFUND THE LI-
that any “[u]ncured defaults of the Licensor shall en-
CENSE FEE OR PROVIDE A CREDIT AGAINST
titled [sic] Licensee to damages, equity or
FN5 OUTSTANDING INVOICES FOR AN AMOUNT
both.”(Id.).
NO LESS THAN $100,000.00.
FN5. The License is riddled with typographical
and grammatical errors. In context, it seems FN6. Apart from this reference, there was no
clear that the reference to “defaults of the Li- evidence at trial concerning a Canadian branch
In deciding such a motion, the court must give defer- lis, 18 F.3d 107, 109 (2d Cir.1994) (holding that failure
ence to all credibility determinations and reasonable of the nonmoving party to raise this procedural defense
inferences of the jury, and it may not itself weigh the resulted in its waiver). In LNC Investments, Inc. v. First
credibility of witnesses or consider the weight of the Fidelity Bank, 126 F.Supp.2d 778, 784-85
evidence. Thus, judgment as a matter of law should (S.D.N.Y.2001), Judge Haight recognized the “tension
not be granted unless between these two lines of Second Circuit authority,”
concluding that “the better course for me to follow is to
(1) there is such a complete absence of evidence consider the motion on its merits.”Given Palazzetti's
supporting the verdict that the jury's findings could failure to raise this defense, I, too, think it is best to
only have been the result of sheer surmise and con- reach the merits of the Defendants' motion.
jecture, or
(2) there is such an overwhelming amount of evid- 3. Defendants' Obligations Under the License
ence in favor of the movant that reasonable and fair
minded [persons] could not arrive at a verdict *6 As noted above, the main argument advanced by the
against [it]. Defendants in support of their JMOL motion is that the
License did not impose any obligation to operate a
Id. (citations omitted; brackets in original). In short, a Palazzetti store in Boston for any set period of time.
JMOL motion faces “a high bar.” Lavin McEleney v. Rather, in their view, the License merely afforded them
Marist College, 239 F.3d 476, 479 (2d Cir.2001). an option to operate a Palazzetti store under specified
conditions in exchange for a $100,000 payment. They
contend that they chose to operate such a store for one
2. Compliance with the Rule
and one-half years, after which the relationship with
Before turning to the merits of the Defendants' motion, Palazzetti became untenable and they exercised their
there is a procedural issue that merits discussion. Dur- contractual right not to remain in business using the
ing the trial, the Defendants made their JMOL motion Palazzetti name. Palazzetti disagrees with this analysis,
both at the close of Palazzetti's case and after the jury arguing that New York law imposes upon the Defend-
returned its verdict, but not at the close of all of the ants, as an exclusive licensee, an implied duty to exploit
evidence. (Tr. 200, 474). Pursuant to Rule 50, however, with due diligence the subject matter of the License.
“a motion for directed verdict at the close of all the
In support of its claim, Palazzetti relies on Justice Car-
evidence is a prerequisite for [JMOL].” Cruz v. Local
dozo's famed opinion in Wood v. Lucy, Lady Duff-
Union No. 3 of Int'l Bhd. of Elec. Workers, 34 F.3d
Gordon, 222 N.Y. 88, 90, 118 N.E. 214, 214 (1917),
1148, 1155 (2d Cir.1994) (quoting Hilord Chem. Corp.
and its progeny. In Wood, the defendant was “a creator
v. Ricoh Elec., Inc., 875 F.2d 32, 37 (2d Cir.1989)); see
of fashions” who, in exchange for one half of all profits
also Pahuta v. Massey-Ferguson, Inc., 170 F.3d 125,
gained through the relationship, granted the plaintiff an
129 (2d Cir.1999) (“the moving party must renew the
exclusive license to sell products with her endorsement.
motion both at the close of the evidence and within ten
The plaintiff sued for damages when he learned that the
days after entry of judgment”) (citing 9A Charles Alan
defendant had been endorsing other products without
Wright and Arthur R. Miller, Federal Practice and Pro-
his knowledge in violation of their agreement. Id. Seek-
cedure, §§ 2536, 2537 (2d ed.1995)). The Second Cir-
ing to overcome this claim, the defendant-licensor ar-
cuit case law regarding the consequence of a party's
gued that the agreement imposed no obligation upon the
failure to move for a directed verdict at the close of all
plaintiff-licensee and therefore was unenforceable for
of the evidence is not fully in accord. Compare Cruz,
want of mutual consideration. Id. In his landmark de-
34 F.3d at 1155 (“this procedural requirement may not
cision, Justice Cardozo concluded that there was an im-
be waived as a mere technicality”) with Gibeau v. Nel-
plied obligation that the plaintiff-licensee would use
reasonable efforts to exploit the defendant's product (holding that the sale of exclusive motion picture, tele-
line, and that the contract was therefore enforceable. Id. vision, and radio rights in exchange for a “minimum
at 91, 118 N.E. at 214. guarantee” of $100,000 in royalties rendered the agree-
ment “instinct with an obligation on the part of defend-
In subsequent cases, courts often have suggested that a ant to do more than merely pay the minimum guaran-
duty to use reasonable efforts to exploit a license should tee”); Mech. Ice Tray Corp., 144 F.2d 720, 725 (2d
be implied only when the resulting royalties, as in Cir.1944) (finding that parties “expected the defendant
Wood, constitute the sole consideration that the licensor to make and sell trays on which royalties would have
will receive. See, e.g., Emerson Radio Corp. v. Orion become due and not merely to pay a guaranteed minim-
Sales, Inc., 253 F.3d 159, 168 (3d Cir.2001) (applying um royalty”). Indeed, even in Wood, in the course of de-
New Jersey law); HML v. Gen. Foods Corp., 365 F.2d termining that an obligation to exploit the defendant's
77, 80 (3d Cir.1966) (applying New York law); see also name should be implied, Justice Cardozo looked not
Vacuum Concrete Corp. v. Am. Machine & Foundry just to the absence of any payment, but to many circum-
Co., 321 F.Supp. 771, 773 (S.D.N.Y.1971) (stating that stances, including a recital that the plaintiff possessed a
an implied covenant will not be found when unneces- business organization “adapted” to the marketing of the
sary to give effect to the terms of the contract). Accord- defendant's products, the plaintiff's obligation to
ingly, when a licensor is awarded either a substantial provide a monthly accounting of all sales, and his prom-
advance payment or a guaranteed minimum royalty, ise to exercise his judgment with regard to registering
courts typically have declined to imply a duty to exploit trademarks, patents, and copyrights as he saw neces-
the subject matter of the license. E.g., Emerson, 253 sary. See Wood, 222 N.Y. at 91-92, 118 N.E. at 214-15.
F.3d at 169 (affirming grant of summary judgment on
implied obligation claim where licensor received Thus, the issue in this case is ultimately whether the
“substantial minimum royalty payment totaling $4 mil- written License and all of the surrounding circum-
lion per year for three years”); Permanence Corp. v. stances indicate that a promise on the part of the Mr.
Kennametal, Inc., 908 F.2d 98, 102 (6th Cir.1990) Morson is “fairly to be implied.” See Fakhoury Enters.,
(“The key provisions of the contract ... which militate Inc. v. J.T. Distribs., No. 94 Civ. 2729, 1997 WL
against implying a convenant to use best efforts are 291961, at *5 (S.D.N.Y. June 2, 1997) (quoting Wood,
Kennametal's obligation to pay $150,000 in order to ex- 222 N.Y. at 91, 118 N.E. at 24)). There are a number of
ercise the option for the exclusive license and the circumstances from which the jury could reasonably
$150,000 in additional advance royalties paid under the conclude that the Defendants, rather than having simply
exclusive license.”); Beraha v. Baxter Health Care purchased an option, had a continuing obligation to ex-
Corp., 956 F.2d 1436, 1442 (7th Cir.1992) (“We find ploit the License.
the reasoning in Permanence persuasive); cf. Havel v.
Kelsey-Hayes Co., 83 A.D.2d 380, 383, 445 N.Y.S.2d First, pursuant to the License, Mr. Morson had the right
333, 336 (4th Dep't 1981) (indicating in dicta that “a to renew for an unlimited number of ten-year periods in
guaranteed stipulated minimum payment is relevant in exchange for a fee that was purely a function of the Bo-
determining the intent of the parties on the question of ston store's sales during the prior period. If the Defend-
whether the covenant should be implied”). ants' interpretation were correct, the License would
have required a minimum payment of $100,000 for the
*7 Notwithstanding this line of cases, courts have, on first ten years, but then could have been renewed for ad-
occasion, implied a covenant requiring a licensee to ex- ditional ten-year periods for substantially less. For ex-
ploit a license even when the licensor has received a ample, after operating a Palazzetti store for only eight-
guaranteed minimum royalty or upfront fee. See, e.g., een months, the Defendants could have renewed the Li-
Reback v. Story Prods., Inc., 15 Misc.2d 681, 683, 181 cense in eight and one-half years (and therefore could
N.Y.S.2d 980, 982 (Sup.Ct. N.Y. County 1958) have locked Palazzetti out of the Boston market for an
additional ten years) simply by tendering a fee equal to Mr. Palazzetti explained in testimony which went un-
one and one-half percent of their net purchases during challenged by the Defendants:
that period. Then, after continuing not to operate a
Palazzetti store for an additional ten years, the Defend- The value of the territory that was involved in the li-
ants presumably could have sought to lock Palazzetti cense was worth a lot more than $100,000 in ten
out of the Boston market for another ten-year period years. Obviously, I could have opened a store there
FN* and make [sic] a lot of money, much more than
without having to pay any money at all.
$100,000 worth of profit. Therefore, the [L]icense ...
FN* There is, of course, an issue whether such was done in a way that there would be a smaller
an attempt at extending the License would fail amount up front and then obviously Palazzetti would
for lack of consideration. See generally Weiner make a profit selling furniture throughout the period
v. McGraw Hill, Inc., 57 N.Y.2d 458, 468, 457 of ten years.
N.Y .S.2d 193, 197 (1982).
(Tr. 381-82).
*8 Second, the initial term of the License was fixed as a
period of ten years, which was to commence with the These facts and circumstances, taken together, permit
opening of the store. If the parties contemplated that the inference that, at the time that they entered into the
Mr. Morson might not operate a store, the License pre- License, the parties expected that Mr. Morson or his as-
sumably would have commenced on the date that the signee would exercise reasonable diligence to operate a
$100,000 fee was paid (or earlier) so that Mr. Morson Palazzetti store for a period of ten years. Additionally,
would be unable to sit on his rights for a lengthy period the $100,000 initial license fee, when compared to the
before activating the License by beginning to operate a possible profits over the life of the license, could be
Palazzetti store. viewed as insubstantial. While these obviously are not
the only factual conclusions that could be drawn from
Third, the License obligated Palazzetti to advertise the the evidence, they are reasonable ones. Accordingly, the
location of Mr. Morson's store as part of its national and Defendants have failed to meet their heavy burden un-
regional publicity campaigns, in exchange for which der Rule 50(b).
Mr. Morson or his assignee was to make an annual con-
tribution of $5,000 payable quarterly. (License § 8).
4. Other Contract Issues
This provision also suggests that the parties to the Li-
cense in fact contemplated that the Defendants would Although the Defendants' JMOL motion with respect to
operate a Palazzetti store rather than simply having the the License claim was predicated solely on the premise
option to do so. that Mr. Morson had no obligation to exploit the Li-
cense, two subsidiary issues not specifically raised by
Fourth, within a matter of months after signing the Li-
the parties merit brief discussion.
cense, Mr. Morson entered into a lease for the Boston
store. Although the License did not place any limita- First, the License claim was presented to the jury pursu-
tions on the length of that lease, Mr. Morson agreed to a ant to instructions which required the jurors to find
ten-year term. either that Palazzetti breached or that the Defendants
anticipatorily repudiated the terms of the License. With
Finally, although the $100,000 initial fee for the license
respect to the Defendants' potential liability, the jury
was not inconsiderable, Palazzetti earned an additional
was instructed that “an anticipatory repudiation occurs
$100,000 from its sales of furniture to the Defendants
when a party [ ] whose performance under the contract
during the last six months of their relationship alone, a
is not yet due [ ] unequivocally advises the other party
period when the Defendants contended that numerous
that it intends not to perform the contract.”(Id. at 456).
orders were being lost due to customer cancellations. As
*9 Under New York law, when a party repudiates its notice of Mr. Morson's default.
contractual obligations prior to the agreed time for per-
formance, the other party is entitled to claim damages The second issue relates to the remedies available under
for a total breach. See Norcon Power Partners, L.P. v. the License in the event of a default. As noted above,
Niagara Mohawk Power Corp., 92 N.Y.2d 458, 462-63, the License provides that in the event of a default by the
682 N.Y.S.2d 664, 667 (1998). The renunciation, licensee, the licensor “may” revoke the License, but
however, must rise to the level of a clear and unquali- provides no other remedies. (License § 16). Nonethe-
fied refusal to perform the entire contract. DeLorenzo v. less, under New York law, contractual remedies are
BAC Agency, Inc., 256 A.D.2d 906, 908, 681 N.Y.S.2d deemed to be nonexclusive absent some indication of
846, 848 (3d Dep't 1998). The renunciation can consist contrary intent. See, e.g., In re Hale Desk Co., 97 F.2d
of an attempt to advance an unwarranted interpretation 372, 373 (2d Cir.1938) ( “whether the provision for
of the contract or an indication that the renouncing party damages in a contract should be treated as an exclusive
will perform only if certain “extracontractual” condi- remedy is to be determined by the intent of the parties
tions are satisfied. SPI Communications, Inc. v. WTZA- as revealed in all the facts of the particular case”); Papa
TV Assocs. Ltd. P'ship, 229 A.D.2d 644, 645, 644 Gino's of Amer., Inc. v. Plaza at Latham Assocs., 135
N.Y.S.2d 788, 790 (3d Dep't 1996). Once a party has re- A.D.2d 74, 76, 524 N.Y.S.2d 536, 538 (3d Dep't 1988)
pudiated a contract, the other party may bring suit im- (“a liquidated damages clause does not bar the equitable
mediately without satisfying conditions precedent that relief of specific performance unless there is explicit
might otherwise apply. Lace v. Shapiro, 249 N.Y. 68, language that it is to be the sole remedy”); see
72-73, 162 N.E. 586, 588 (1928); Sunshine Steak, Salad alsoN.Y.U.C.C. § 2-719(b) (resort to a remedy is
& Seafood, Inc. v. W.I.M. Realty, Inc., 135 A.D.2d 891, “optional unless the remedy is expressly agreed to be
522 N.Y.S.2d 292 (3d Dep't 1987); see also Long Is- exclusive, in which case it is the sole remedy”). Accord-
land Rail Road Co. v. Northville Inds. Corp., 41 N.Y.2d ingly, Palazzetti was free to seek monetary damages if,
455, 463, 393 N.Y.S.2d 925, 930 (1977) (injured party as the jury found, Mr. Morson unequivocally repudiated
may recover damages for total breach with stream of fu- the License.
ture payments discounted to present value).
5. Mr. Morson's Liability on the Account Stated Claim
Mr. Morson's December 17th letter expressed an inten-
tion not to perform further pursuant to the License un- *10 Mr. Morson also has moved for JMOL with regard
less Palazzetti agreed to one of two “options,” both of to the account stated claim against him because the
which were contrary to the original License terms. The transactions from which the account stated arises al-
jury could have concluded that the letter was a mere legedly were executed by The Morson Group rather
bargaining ploy rather than an unequivocal renunciation than by him in his individual capacity. This motion
of the License because the letter contained language in- must be denied on at least two grounds. First, pursuant
dicating that these were the options that Mr. Morson to the License, Mr. Morson was granted permission to
was putting forth “at this time.” On the other hand, from do business as Palazzetti in the Boston area and to as-
the tenor and text of the letter that Mr. Morson had sent sign his rights to a corporate entity in which he held “a
to his counsel less than one month earlier, the jury also majority of the outstanding shares.”(License § 11).
could have reasonably concluded that the Defendants When he was recalled as a witness to testify about his
had no intention of performing further under the Li- relationship to The Morson Group, Mr. Morson testified
cense. Here, as the verdict sheet makes apparent, the that he orally assigned his interest in the License to that
jury reached the second conclusion. Accordingly, be- entity in December 1995. (Tr. 375). Mr. Palazzetti,
cause the jury found that Mr. Morson anticipatorily re- however, testified that he was never informed of this as-
pudiated the License, there is no basis to grant JMOL signment. (Id. at 384). More importantly, the invoices
on the theory that Palazzetti failed to provide written which gave rise to the account stated claim each are ad-
dressed to “Palazzetti-Boston,” not to The Morson court therefore has substantial discretion in ruling on a
Group. The Palazzetti store in Boston was, of course, motion for a new trial. Metromedia Co. v. Fugazy, 983
the business entity that Mr. Morson individually had F.2d 350, 363 (2d Cir.1992); Caruolo, 226 F.3d at
sought a license to operate. 54.Nevertheless, the Second Circuit has held that a new
trial motion “ordinarily should not be granted unless the
In addition, during the trial, the Defendants never trial court is convinced that the jury has reached a seri-
sought to distinguish Mr. Morson from The Morson ously erroneous result or that the verdict is a miscar-
Group with respect to the account stated claim. Indeed, riage of justice. Lightfoot v. Union Carbide Corp., 110
during his JMOL motions at trial, counsel for the De- F.3d 898, 911 (2d Cir.1997) (quoting Hugh v. Jacobs,
fendants never addressed the theory that Mr. Morson 961 F.2d 359, 365 (2d Cir.1992)) (emphasis supplied).
was not individually liable. (Id. at 200, 474). Rather, in
his summation, the Defendants' counsel stated that “we *11 Had this case been tried without a jury, I might well
owe Mr. Palazzetti the $92,000 .... We agree that we have reached a different conclusion. For example, the
owe that ....”(Id. at 421). In keeping with that conces- evidence that the parties contemplated a ten-year rela-
sion, the Defendants' counsel also did not object to the tionship was, in my view, far from overwhelming. In
Court's instructions to the jury which referred to Mr. addition, although the jury evidently adopted Professor
Morson and The Morson Group collectively as Barcun's damages analysis in its entirety, it rested on
“Morson” and directed that a verdict be entered for the same shaky assumption that Mr. Morson was con-
Palazzetti on the account stated claim because “Morson tractually required to remain in business as a Palazzetti
concedes that it owes these sums.”(Id. at 405, 453). The store for at least ten years.
Defendants similarly did not object to the verdict sheet,
which asked whether Palazzetti was entitled to recover Nonetheless, I am unable to say that the jury necessarily
$92.147.96 “from Morson” on the account stated claim. erred in its determination of the liability and damages
issues that were presented for its consideration. The
In sum, there is no factual or legal basis for the conten- evidentiary support for the jury's finding that the De-
tion that Mr. Morson is not individually liable on the fendants repudiated an agreement whereby they were to
account stated claim. run a Palazzetti store in the Boston area has been set
forth in the discussion of their JMOL motion. On the is-
sue of damages, by the time of trial the Boston store had
B. Rule 59
been in operation for more than five years. The jury
The Defendants also have moved, in the alternative, for consequently could reasonably have concluded that, but
a new trial pursuant to Rule 59 of the Federal Rules of for their repudiation of the License, the Defendants
Civil Procedure. Insofar as pertinent, that Rule provides would have operated a Palazzetti store for a minimum
that a new trial may be granted in an action tried before of five years.
a jury “for any of the reasons for which new trials have
Although there was less evidence that Mr. Palazzetti
heretofore been granted in actions at law in the courts of
and the Defendants had agreed that the store would re-
the United States.”Fed.R.Civ.P. 59(a)(1). The Rule im-
main open for an additional five years, I am unable to
poses a lower threshold for the granting of a new trial
say that such a finding is necessarily erroneous.
than for JMOL because the trial judge may reassess the
Moreover, Professor Barcun did provide a reasoned
trial evidence and need not view it in the light most fa-
basis for the jury to find that Palazzetti would have
vorable to the nonmovant. United States v. Landau, 155
earned profits of more than $1.7 million over the re-
F.3d 93, 104 (2d Cir.1998). Accordingly, a motion for a
maining eight and one-half years of the initial License
new trial may be granted even when the jury's verdict is
term. Although Professor Barcun's analysis was rather
supported by substantial evidence. Caruolo v. John
cursory, it is settled law that the Defendants are not en-
Crane, Inc., 226 F.3d 46, 54 (2d Cir.2000). The trial
titled to avoid responsibility for the monetary damages
IV. Conclusion
SO ORDERED.
S.D.N.Y.,2001.
Palazzetti Import/Export, Inc. v. Morson
Not Reported in F.Supp.2d, 2001 WL 1568317
(S.D.N.Y.)
END OF DOCUMENT