Opinion
Case No. 1:99-CV-958
July 7, 2001
ORDER
Consistent with the Opinion entered this day;
IT IS HEREBY ORDERED that Defendant's Motion for Partial Summary Judgment with Respect to J-Mar's License for the Use of the Phoneguide Trademark (Dkt. No. 117) is GRANTED. Thereby, Defendant is entitled to partial summary judgment with respect to Counts I, II, III, IV, and VII as they relate to Plaintiff's allegations regarding J-Mar's use of the Phoneguide Trademark through January 1, 2000, in those counties listed in the license between J-Mar and Defendant, except Charlevoix and Emmett Counties.
OPINION
This matter is before the Court on Defendant's Motion for Partial Summary Judgment with Respect to J-Mar's License for Use of the PhoneGuide Trademark. Defendant asks the Court to rule that J-Mar's license to use the PhoneGuide Trademark was unaffected by the sale of J-Mar stock to Defendant, thereby rendering the continued use of the PhoneGuide trademark lawful in all counties in which it is alleged to have been used except Charlevoix and Emmet counties. The Court grants Defendant's Motion.
FACTS
Plaintiff Review Directories Inc. ("RDI") owns the trademark Phoneguide, which it uses in conjunction with publishing telephone directories in northern Michigan. RDI asserts that Defendant has infringed this trademark by using it in conjunction with telephone directories published by J-Mar, Defendant's subsidiary. Defendant claims that J-Mar was licensed to use the trademark under a License Agreement between it and RDI. RDI claims that the license terminated when Defendant bought all of J-Mar's stock on July 9, 1999, and any use by J-Mar of the trademark continuing after Defendant's stock purchase was an infringing use.
RDI specifically used its trademark to publish a single directory in Charlevoix, Emmett and portions of Antrim Counties ("CEM directory"). RDI also licensed other independent directory publishers to use the trademark. J-Mar is one of these licensed entities. Under the license agreement between J-Mar and Plaintiff, J-Mar could use the trademark until January 1, 2000, absent proper termination prior to that date. The license agreement also included the following paragraphs:
2.1 The rights and licenses set forth herein shall not include the right to grant sublicenses to third parties.
2.2 Nothing in this Agreement shall be construed as extending the rights and licenses set forth in Section 2.1 to products other than Licensed Products or to rights in jurisdictions foreign to the Territory.
11.5 Assignability. This Agreement and all rights, duties, obligations, and undertakings shall be binding upon and inure to the benefit of the successors and assigns of the parties: provided, however, that this Agreement and all rights, duties, obligations and undertakings set forth herein are personal to Licensee, whereby Licensee shall not assign or otherwise transfer any of such rights, duties, obligations or undertakings to any third party without the prior written consent of Licensor, and any attempt at such assignment or transfer without prior consent shall be without effect.
Defendant bought J-Mar's stock in July 1999, after which either J-Mar or Defendant continued publishing telephone directories using the Phoneguide trademark. Defendant then expanded J-Mar's operations into Charlevoix and Emmett Counties, and RDI expanded into Cheboygan and Mackinac counties and other counties in northern Michigan. In addition, all J-Mar employees became employees of Defendant. As a result, RDI and J-Mar became competitors.
Defendant marketed its directories by calling businesses and stating that it represented Phoneguide, distributing sales literature materials incorporating its trademark and the Phoneguide trademark, and cashing checks made payable to Phoneguide. Defendant also ran radio advertisements promoting its directory as the Phoneguide and sponsored print advertisements using both trademarks.
Plaintiff claims that the licensing agreement between it and J-Mar expired when J-Mar sold its stock to Defendant, and Defendant claims that J-Mar's rights under the licensing agreement remained in effect until January 1, 2000. In the alternative, Defendant claims that even if the stock sale constituted an unauthorized assignment, the license agreement does not provide for automatic termination. Rather, J-Mar's attempt to assign its rights to Defendant would be ineffective, and J-Mar would retain its license rights.
LEGAL STANDARDS FOR RULE 56
In reviewing a motion for summary judgment, this Court will only consider the narrow question of whether there are "genuine issues as to any material fact and [whether] the moving party is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(c). A motion for summary judgment requires that the Court view the "`inferences to be drawn from the underlying facts . . . in the light most favorable to the party opposing the motion.'" Matsushita Electric Ind. Co. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986) (quoting United States v. Diebold, Inc., 369 U.S. 654, 655 (1962)). The opponent, however, has the burden of showing that a "rational trier of fact [could] find for the non-moving party [or] that there is a `genuine issue for trial.'" Matsushita, 475 U.S. at 587. "The mere existence of a scintilla of evidence in support of plaintiff's position[, however,] will be insufficient; there must be evidence on which the jury could reasonably find for the plaintiff." Anderson v. Liberty Lobby, 477 U.S. 242, 252 (1986).
ANALYSIS
Defendant argues that the sale of J-Mar's stock does not violate the non-assignment provision in the license between J-Mar and Plaintiff. Defendant argues that although J-Mar's ownership may have changed, J-Mar remains the same, and J-Mar's contractual rights are not affected by the sale of its stock to Defendant. See generally Hall's Safe Co. v. Herring-Hall-Marvin Safe Co., 146 F.2d 37, 40-41 (1906).
Defendant cites to Instiut Pasteur c. Cambridge Biotech Corp., 104 F.3d 489 (1st Cir. 1997), wherein the plaintiff granted the defendant a license of use of the plaintiff's patented technology. The defendant declared bankruptcy and sold its stock to the plaintiff's competitor. The defendant reorganized, and the plaintiff argued that the defendant was no longer a patent licensee because the law provides that patent licenses are not assignable. See id. at 494. The court agreed that the presumptive nonassignability of patent licenses prevented the defendant from assigning its patent license. Id. at 492-3. The court, however, rejected the plaintiff's argument that the sale of the defendant's stock constituted an assignment. The court declared that stock sales were not mergers because corporations are legal entities distinct from their shareholders. The court also stated that the defendant retained ownership of its patent license notwithstanding a "drastic" change in ownership. Id. at 494.
Defendant also cites to Baxter Healthcare v. O.R. Concepts, Inc., 69 F.3d 785 (7th Cir. 1995). In Baxter, the Court held that the sale of a manufacturer's stock to a distributor's competitor did not violate a provision in the distribution agreement requiring the distributor's written consent to an assignment. Id. at 788. The Court stated that the change in corporate ownership did not constitute a variation of that corporation's contractual obligations. Id.
Defendant asserts that these two cases are similar to the one at bar because J-Mar merely sold its stock to Defendant and did not merge with Defendant. Defendant claims that J-Mar is still in existence and offers J-Mar's Certificate of Good Standing as evidence of this. Defendant argues that Plaintiff was fully aware of the possibility that J-Mar's equity ownership could change over time and could have incorporated a clause regarding the sale of stock into the license. According to Defendant, J-Mar changed its equity ownership but not its rights and obligations under the license between J-Mar and Plaintiff.
In its Opposition to this Motion, Plaintiff argues that Defendant fails to provide any evidence that it did not commit trademark infringement. Defendant need not prove this. Rather, Defendant need only show that no genuine issue of material fact exists. It is Plaintiff's burden to show that a reasonable jury could find for Plaintiff or that a genuine issue of material fact exists. Matsushita, 475 U.S. at 587. Therefore, this particular argument is invalid.
Plaintiff also argues that J-Mar does not exist as an operating entity and could not be responsible for using the trademark. As evidence of this, Plaintiff notes the deposition of Defendant's executive vice-president who stated that, after the acquisition, all J-Mar employees were transferred to Defendant. In addition, Defendant's manager stated that he believed J-Mar merged with Defendant, and Defendant's employees told customers J-Mar had merged with Defendant. Another Defendant employee stated that Defendant typically treated a stock purchase as a legal technicality, and the operation of acquired companies generally folded into Defendant's existing operations. Furthermore, J-Mar does not have internal income statements. Defendant rebuts this assertion by attaching J-Mar's separately filed tax return, its annual reports filed with the state of Michigan, and records of its shareholder meeting to its Reply Brief.
It appears that Plaintiff is asking the Court to name J-Mar Defendant's alter ego and then pierce the corporate veil. To succeed in this, Plaintiff must show that the corporate form was abused to circumvent public policy or to subvert justice. See Chrysler Corp. v. Ford Motor Co., 972 F. Supp. 1097, 1107 (E.D.Mich. 1997). To determine whether Defendant abused the corporate form in this way, the Court looks to the motives of the involved entities. See id. at 1105. Plaintiff, however, has failed to allege that Defendant has abused the corporate form to subvert justice, i.e. infringe upon its trademark. Rather, elaborate deposition testimony indicates that purchasing J-Mar's stock was a business move by Defendant, who had its own trademark and did not "need" Plaintiff's trademark. Plaintiff has not alleged facts that would allow the Court to pierce the corporate veil, and Plaintiff's argument that J-Mar was Defendant's alter ego must fail.
Furthermore, Defendant has produced conclusive evidence that J-Mar has maintained its own corporate identity. For example, Defendant produced a certificate from the state of Michigan, dated January 2001 , declaring J-Mar to be a corporation in good standing. In addition, Defendant produced minutes from J-Mar's shareholder and Board of Directors meetings. Thus, Plaintiff's argument that J-Mar ceased to exist must fail.
CONCLUSION
Although J-Mar sold its stock to Defendant, it did not assign or transfer the license. Any use of the trademark until January 1, 2000 , when the license terminated, was valid. J-Mar's use of the trademark in all geographic areas where Plaintiff alleges Defendant used the trademark, except Charlevoix and Emmett Counties was legal. Therefore, Defendant is entitled to partial summary judgment with respect to Counts I, II, III, IV, and VII.
In Skinner v. Railway Labor Executive' Ass'n., 489 U.S. 602 (1989) the Court found that a subpoena for a deep breath sample implicated Fourth Amendment rights. It would seem that a subpoena for a saliva sample would be in that same category of things and also implicate Fourth amendment rights.
An Order consistent with this Opinion will follow.
OPINION
This matter is before the Court on Defendant's Motion for Summary Judgment on Count VIII (Breach of Contract) of RDI's First Amended Complaint. The Court grants the Motion.
BACKGROUND
Only those facts relevant to this Motion will be included in this Opinion.
Plaintiff, a telephone directory publisher, was a member of Community Directory Publishing Service, Inc. ("CDPS"). CDPS is an organization of independent telephone directory publishers, and CDPS coordinates its members cross-sales. Four companies in which Defendant acquired interest were also members of CDPS. These companies were: (1) Noverr Publishing, Inc. ("NPI"), which published directories in Sault Ste. Marie, Traverse City, Cadillac, and Gaylord; (2) the Ludington Daily News, Inc., which published the West Michigan Directories ("WMD") in the Ludington, Manistee, and Benzie areas; (3) J-Mar Publishing Company, Inc. ("J-Mar'), which published directories in Cheboygan, Alpena, Arenac/Iosco/Ogemaw, Midland, the South-Central Upper Peninsula, and Marquette; and (4) Talking Directories, Inc. ("TDI"), which published directories in the Grand Rapids area. CDPS provided publishers access to various shared publishing services, reciprocal local advertising arrangements in various areas, and access to national advertisers.
On September 1, 1999, Defendant purchased directories from WMD and NPI, and Defendant also purchased J-Mar's and TDI's stock. In the fall of 1999, CDPS sent letters to publishers notifying them that CDPS was going out of business as of November 1, 1999, and would no longer provide the services it was required to perform under the Service Agreement. According to Article 7 of CDPS's Service Agreement, CDPS was required to give 60 days' written notice to a member publisher before terminating a Service Agreement. In addition, Plaintiff claims it did not receive this letter until November 1999.
Defendant terminated the relationship between both TDI and J-Mar and Plaintiff effective November 2, 1999. Defendant informed Plaintiff of this in a November 4, 1999 letter. In the letter, Defendant stated that CDPS's termination ended the reciprocal sales obligations Defendant had with RDI under CDPS's Service Agreement. Defendant also informed Plaintiff that it would expand coverage of the former J-Mar Cheboygan directory to include the Charlevoix/Emmet/Petoskey areas. These areas were RDI's home territories.
In Count VIII of its First Amended Complaint, Plaintiff alleges that Defendant breached its express and implied obligations under CDPS's Service Agreement to which Plaintiff and/or Defendant's acquired companies were parties. Plaintiff apparently bases this allegation on Article 6 of CDPS's Service Agreement as this article provides that publishers will make reasonable efforts to solicit customers in their own marketing areas to place advertisements in directories in other CDPS market areas. Article 6 also states that "[a]ll legal or corrective actions with respect to the performance of any CDPS publisher shall be determined by CDPS in its sole and absolute discretion."
Defendant argues that it cannot be held liable for breach of the Service Agreement because RDI's exclusive remedy for an alleged breach is to request CDPS to take action against Defendant.
LEGAL STANDARDS FOR RULE 56
In reviewing a motion for summary judgment, this Court will only consider the narrow question of whether there are "genuine issues as to any material fact and [whether] the moving party is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(c). A motion for summary judgment requires that the Court view the "`inferences to be drawn from the underlying facts . . . in the light most favorable to the party opposing the motion.'" Matsushita Electric Ind Co. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986) (quoting United States v. Diebold, Inc., 369 U.S. 654, 655 (1962)). The opponent, however, has the burden of showing that a "rational trier of fact [could] find for the non-moving party [or] that there is a' genuine issue for trial.'" Matsushita, 475 U.S. at 587. "The mere existence of a scintilla of evidence in support of plaintiffs position[, however,] will be insufficient; there must be evidence on which the jury could reasonably find for the plaintiff." Anderson v. Liberty Lobby, 477 U.S. 242, 252 (1986).
ANALYSIS
According to Defendant, even if it could be held responsible for the obligations under the CDPS contracts of the companies it purchased, no basis exists for imposing liability on Defendant in this case. Defendant argues that the Service Agreement must be read as a whole. Therefore, Article 6, which obliges publishers to use commercially reasonable efforts to cross-sell advertisements, also limits a publisher's remedy to asking CDPS to take action against a breaching publisher.
Defendant also argues that even if Plaintiff could pursue damages under Article 6 of the Service Agreement, the extent of these damages must be limited as a matter of law. When Defendant notified Plaintiff in a letter that it would no longer uphold CDPS's Service Agreement, it also referenced CDPS's termination. Furthermore, Plaintiff has admitted that on November 5, 1999, it expanded distribution of its directories throughout Cheboygan and Mackinac counties and other northern Michigan counties. Because Plaintiff could not have expanded under the CDPS Service Agreement, Defendant argues that this action indicates that Plaintiff acquiesced in the termination of the CDPS Service Agreement. Plaintiff also discontinued paying fees to CDPS.
Plaintiff argues that the Service Agreement simply permits a member publisher to request CDPS's review of another member publisher's performance, and the Service Agreement does not limit a member publisher to resolution through CDPS. Plaintiff alternatively argues that if it was required to approach CDPS for resolution of obligations under the Service Agreement, it is no longer required to do so because CDPS is no longer operating.
The Court finds the language of the Service Agreement unambiguous. The Service Agreement is permissive regarding whether a publisher requests CDPS's review of another publisher's performance. The Service Agreement is not permissive, however, when it describes a member publisher's legal or corrective remedy. Rather, the Service Agreement vests CDPS with the "sole and absolute discretion" to determine whether "legal or corrective" action is necessary. Furthermore, the Service Agreement states that "all" legal or corrective actions shall be determined by CDPS. In other words, Plaintiff did not have to seek review through CDPS, but it could not seek legal or corrective actions itself. Plaintiff should have approached CDPS to request review of Defendant's performance. If after making such a request, CDPS determined no legal or corrective action was warranted, then Plaintiff may have been able to bring a breach of contract action against CDPS. The Service Agreement was between individual publishers and CDPS, and not between individual publishers themselves. This, in addition, to the exclusive language in the Service Agreement relieve Defendant of liability under that Agreement.
Moreover, Plaintiff's assertion that CDPS is no longer available is without merit. In the September 1, 1999 letter from CDPS to Plaintiff informing Plaintiff that CDPS would discontinue its operations, CDPS indicates that the "publisher code is being transferred to Genesis Publisher Services, a new company being formed by. . . ." In addition, CDPS maintains a website that indicates CDPS is still active in publishing directories. In fact, the website shows that CDPS is operated by some of the same people that operated the CDPS involved in this suit.
Therefore, Plaintiff cannot hold Defendant liable for a breaching a contract between CDPS and Plaintiff, and Defendant is entitle to summary judgment with respect to Count VIII of Plaintiff's First Amended Complaint.
CONCLUSION
For the reasons stated herein, the Court grants Defendant's Motion for Summary Judgment. An Order consistent with this Opinion is forthcoming.
PARTIAL FINAL ORDER
In accordance with the Opinion entered this day,
IT IS HEREBY ORDERED that Defendant's Motion for Summary Judgment on Count VIII (Breach of Contract) of RDI's First Amended Complaint (Dkt. No. 130) is GRANTED, and Plaintiff's Count VIII, Breach of Contract claim, is DISMISSED with PREJUDICE.