Opinion
98 Civ. 6422 (JSM)
October 21, 2002
MEMORANDUM OPINION AND ORDER
Plaintiff, Dinaco, Inc. brings this action against Defendants, Time Warner Inc., Time Inc., TLPI Co., Time Life Inc. and Time Publishing Ventures Inc. (collectively, the "Defendants") seeking to hold the Defendants liable for debts incurred by an entity know as Patient Education Media, Inc. ("PEMI") as joint venturers with Defendants or on the theory that PEMI was an actual or apparent agent of Defendants. Defendants have moved for summary judgment pursuant to Rule 56 of the Federal Rules of Civil Procedure.
For the reasons stated below, Defendants' motion for summary judgment is granted.
Background
Plaintiff Dinaco is a New Jersey corporation that manufactures product display units. Plaintiff's involvement in this case began in 1994 when Paul Dinan, the brother of Dinaco's CEO, read an article in Advertising Age "announcing plans for a new joint venture" by Time Life. (Hade Aff. ¶ 4, Ex. 5.) The article stated that the new venture, "[c]alled Patient Education Media was going to produce medical videos under a licensing agreement with Time and the videos were going to be promoted under the Time Life Medical logo. (Hade Aff. ¶ 4, Ex. 5; Pl.'s Rule 56.1 Statement at 1.)
After reading the article Paul Dinan called PEMI to try and set up an interview. Several months later, Meg Walsh, the Marketing Director of the new venture, called Paul Dinan to invite him to discuss business at PEMI's offices, located in the Time-Life building. (Hade Aff. ¶ 7.) At this meeting Walsh gave Dinan a media kit, the first page of which had written Time Life Medical across the middle and Patient Education Media, Inc. across the bottom. (Gross Aff. Ex. 6.) The media kit included a video promoting the medical videos of Time Life Medical, but mentioned nothing about PEMI. At these and other meetings representatives of Dinaco accessed PEMI's offices by proceeding to the Time Life receptionist, receiving a Time Life security ID, and using a Time Life designated elevator. (Hade Aff. ¶¶ 9-13.)
After several initial meetings with Dinaco representatives in October 1995, Dinaco's proposal for production of the display units was accepted by James Arnold, then Vice President of Sales and Marketing for PEMI. (Compl. ¶ 36.) James Dinan, founder and CEO of Dinaco, and employees of Dinaco believed they were entering into an agreement with Time Life Medical, an affiliate of Time. (Dinan Aff. ¶¶ 12-15.) Dinaco then began producing the display units and in February 1996, Dinaco began distributing them. (Compl. ¶ 40.) From February to December 1996, Dinaco produced the display units and billed PEMI $2, 220, 775.85. Although Dinaco received partial payment on its invoices, $1, 284, 471.63 was left unpaid. (Compl. ¶ 48.)
In February 1997, Dinaco sent a letter to both PEMI and Time requesting payment of the unpaid invoices. (Compl. ¶ 52.) In March 1997, PEMI filed a Chapter 11 petition. (Compl. ¶ 55.) Unable to obtain relief in the Bankruptcy Court, in September 1998, PEMI filed this suit.
Plaintiff has withdrawn its complaint with respect to Defendants TLPI Co. and Time Publishing Ventures. Plaintiff has also withdrawn the third, fourth, fifth and sixth causes of action against the remaining Defendants. What remains is Plaintiff's claim that PEMI and the surviving Defendants entered into a joint venture, or, alternatively, that PEMI was either the actual or implied agent of Time, resulting in Defendants' liability for PEMI's debts.
Discussion
Summary judgment may be granted only "if the pleadings, depositions, answers to interrogatories, and admissions. together with the affidavits, . . . show that there is no genuine issue of material fact and that the moving party is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(c); Celotex Corp. v. Catrett, 477 U.S. 317, 106 S.Ct. 2548 (1986). A dispute regarding a material fact is genuine if the evidence is such that a reasonable jury could return a verdict for the nonmoving party. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 257, 106 S.Ct. 2505, 2514 (1986)
A. Joint Venture
The law in New York is specific with respect to what is required to create a joint venture or partnership. In order to create a joint venture:
(1) two or more persons must enter into a specific agreement to carry on an enterprise for profit; (2) their agreement must evidence their intent to be joint venturers; (3) each must make a contribution of property, financing, skill, knowledge, or effort; (4) each must have some degree of joint control over the venture; and (5) there must be a provision for sharing of both profits and losses. . . . All of these elements must be present before joint venture liability may be imposed.Itel Containers Int'l Corp. v. Atlanttrafik Express Serv. Ltd., 909 F.2d 698 (2d Cir. 1990) (citations omitted)
PEMI and Defendants entered into a Trademark licensing agreement in which PEMI licensed the Time Life Medical mark to use in marketing PEMI's medical videos. It is this agreement that Plaintiff points to as evidence of a joint venture. Plaintiff also notes affidavit testimony that Defendants' personnel were often in PEMI offices, "working alongside PEMI employees, demonstrating the sharing of knowledge and skill of both parties." (Pl.'s Mot. in Opp'n at 34.) Sharing of skill and knowledge is not enough to create a partnership. See Itel Containers, 909 F.2d at 701. Central to formation of a joint venture is an agreement to share profits and losses. Plaintiff alleges that the licensing agreement between PEMI and Defendants provides the evidence of profit-sharing: "PEMI shall pay to TIME LIFE a royalty of 10% of PEMI Net Revenues." (Amended and Restated Product Development and Trademark Agreement ¶ 6.2 ("Amended Agreement"). Yet, the provision that PEMI points to is nothing more than a provision providing for payment of royalties. Royalties are the price paid for licensing a product and not evidence of profit-sharing. See Steinbeck v. Gerosa, 4 N.Y.2d 302, 317-18 (1958).
Additionally, Plaintiff argues that Defendants' return of a royalty payment amounted to a sharing of losses. Yet that payment, as explained by the Time Life letter, was an effort to assist PEMI during a cash flow problem. The returned royalty check would be issued only upon agreement by PEMI that the return of the Royalty Payment was "not new or additional funding of any kind." (Gross Aff. Ex. 41.)
Plaintiff admits in the complaint that PEMI was "a corporation duly organized and validly existing under the laws of the state of Delaware." (Compl. ¶ 11.) "A joint venture and a corporation are mutually exclusive ways of doing business." Itel Containers, 909 F.2d at 702 (citing Arditi v. Dubitzky, 354 F.2d 483, 486 (2d Cir. 1965)).
Plaintiff has not presented any evidence to allow a reasonable juror to conclude there existed a joint venture between PEMI and Time, and Defendants' motion with respect to the joint venture cause of action is granted.
B. Agency
Under Plaintiff's second cause of action, Defendants are liable for PEMI's debts because PEMI was the express or implied agent of Defendants, binding Defendants in the agreement reached between PEMI and Plaintiff and obligating Defendants to compensate Dinaco for the services they rendered to PEMI. Plaintiff relies on the theory that Defendants are liable for PEMI's debts as the express or implied agent of Time.
1. Express Agency
Whether there was an express agency between PEMI and Defendants depends upon the relationship between the Defendants and the purported agents.Restatement (Second) of Agency § 226 (1958) ("words or other conduct of the principal which, reasonably interpreted, causes the agent to believe that the principal desires him so to act on the principal's account"). "Whether such an agency is formed depends on the actual interaction between the putative principal and agent, not on any perception a third party may have of the relationship." Itel Containers, 909 F.2d at 702. Plaintiff offers no evidence of words or conduct of Defendants that PEMI could have reasonably interpreted to mean that Time wanted PEMI to act as its agent.
2. Implied Agency
Plaintiff's final theory is that there was an implied agency between PEMI and Defendants. Implied agency "depends not on the actual relationship between principal and agent but on the reasonable conclusion of a third party, derived from actions of the principal, that the person acting has authority to do so from the principal." Itel Containers, 909 F.2d at 703. See also Ford v. Unity Hospital, 32 N.Y.2d 464, 473 (1973);Gen. Overseas Films, Ltd. v. Robin Int'l, Inc., 542 F. Supp. 684, 698 (S.D.N.Y. 1982) aff'd without opinion, 718 F.2d 1085 (2d Cir. 1983). To establish a claim for implied agency, Plaintiff must establish that Defendants were responsible for PEMI's appearance of authority and that Dinaco' s reliance on the appearance of authority was reasonable. FDIC v. Providence College, 115 F.3d 136, 140 (2d Cir. 1997)
Plaintiff points to several activities of Defendants that led Dinaco to believe PEMI was an agent of Time. Time housed PEMI in their office building. Time allowed PEMI to use Time Life elevators. PEMI used Time Life security procedures and had no independent signage identifying PEMI.
Plaintiff argues that Defendants approved PEMI's promotional materials and knew that Time Life Medical was being used in a confusing fashion. In support of this argument they point to the fact that Time, Inc.'s Assistant General Counsel Jack Shapiro objected to PEMI's unchecked use of the Time Life Medical name in such a way that might confuse third parties. (Gross Aff. Ex. 26)and suggested changes to the agreement to ensure that PEMI would not use the Time Life name in a way that "would or could cause third parties to think that PEMI is a subsidiary of or controlled or managed by Time Life or any of its affihates." (Gross Aff. Ex. 26.)
Plaintiff points to other incidents that caused it to believe they were dealing with Time. Plaintiff cites the fact that C. Everett Koop was advertised as Chairman of Time Life Medical. (Gross Aff. Ex. 6.) Defendants published catalogs of Time Life materials for direct-mail sales purposes. The Time Life catalogues included Time Life Medical products with absolutely no mention of PEMI or trademark status. (Gross Aff. Ex. 27). Plaintiff argues that these actions effectively blurred the distinction between Time Life Medical and the Time family of companies and had the effect of creating implied authority in PEMI to bind Defendants.
Assuming for the purposes of this summary judgment motion that these actions were enough to create an appearance of authority, Plaintiff must also show that it reasonably relied on this appearance. Aries Ventures Ltd. v. Axa Finance S.A., 729 F. Supp. 289, 300 (S.D.N.Y. 1990) ("Essential to a finding of apparent authority is that the third party's belief that the agent had authority to act is a reasonable one.").
Dinaco is a 30-year-old business, presumably well-versed in the significance of a corporate entity. Despite the fact that Mr. Dinan testified that he only deals with Fortune 500 companies and never investigates their ability to pay their bills (Dinan Aff. ¶ 4, 51), the question before this Court is whether Plaintiff can provide evidence on which Dinaco could have reasonably relied to assume that the entity that they were doing business with was actually Time Life or an agent of Time Life. In this case Plaintiff has not "sufficiently allege[d] that he had any justifiable reason" for believing PEMI was an agent for Time once Dinaco was on notice that PEMI was a separate incorporated entity.Berliner v. Crossland Fed. Savings Bank, 886 F. Supp. 325, 330 (S.D.N.Y. 1994) (finding that experienced real estate investor could not reasonably believe that individual could bind the Bank without Executive Committee approval).
Plaintiff contends that whether its reliance was reasonable is a question of fact, inappropriate for summary judgment. This Court disagrees. In this case, the reliance was unreasonable as a matter of law. One of the very first written documents Dinaco received from PEMI was a press kit. The front of the press kit states in large bold letters, "Time Life Medical." (Gross Aff. Ex. 8.) In smaller, though clearly legible and noticeable letters, across the bottom of the page, it says Patient Education Media, Inc. Upon receipt of that press kit, Dinaco was on notice that it was dealing with a corporation. By their own admission, Dinaco made no inquiries about the relationship between PEMI and Time.
Further, as early as January 16, 1996, Jim Dinan was addressing letters to Jim Arnold as the Senior Vice President of Patient Education Media, Inc. Dinaco also had a draft contract in its files, which had been received February 21, 1996, that specifically articulated that PEMI was the company with which Dinaco was contracting. (Son Aff. Ex. E; Kelly Aff. Ex. F). Even if PEMI had been a subsidiary of Time, which it was not, Defendants would not have been responsible for the subsidiary's debts. Therefore, Plaintiff's reliance on the assumption that PEMI was a subsidiary of Time and that Time was responsible for PEMI's debts was unreasonable as a matter of law.
Plaintiff points to two Third Circuit cases, Gizzi v. Texaco, Inc., 437 F.2d 308 (3d Cir. 1970) and Drexel v. Union Prescription Centers, 582 F.2d 781 (3d Cir. 1978), in support of its claim of implied authority. In Drexel, the Third Circuit found that apparent authority was an issue of fact for trial when the franchisor, "by strictly controlling the manner in which the franchisee was perceived by the public, created an appearance of ownership and control purposefully designed to attract the patronage of the public." Drexel, 582 F.2d at 795-96. Plaintiff argues the same is true in this case when Time cloaks PEMI in Time authority by embracing confusing use of the Time Life trademark, by housing PEMI in Time's building and by issuing Time security badges. This case is easily distinguishable from the franchisor-franchisee cases cited by Plaintiff because Dinaco, unlike the consumers in the Third Circuit cases, was a corporation, knowledgeable about the formation of corporations and easily able to ascertain the corporate structure of this entity, even assuming they believed it was called Time Life Medical Patient Education Media, Inc.
Conclusion
Accordingly, Defendants' motion for summary judgment is granted and the complaint is dismissed with prejudice.