Opinion
No. C 96-0344 MJM
September 30, 1999
ORDER OPINION AND ORDER ON PARTIAL MOTION FOR SUMMARY JUDGMENT
Before the Court is a defense motion for partial summary judgment. (Doc. 132, 139.) The Defendant, the Boyds Collection, Ltd., ("Boyds"), and the Plaintiff, Gae Sharp-Richardson ("Sharp-Richardson"), presented their respective positions at oral argument on May 20, 1999. The matter is now ready for decision.
While the action was originally filed in Iowa state court, the Defendants removed to federal court on November 27, 1996. (Doc. 1.) Sharp-Richardson's Second Amended and Substituted Complaint includes the following claims: breach of contract (Count 1); fraudulent misrepresentation (Count 2); fraudulent nondisclosure (Count 3); and invasion of privacy (Count 4). (Doc. 82.)
This Court has jurisdiction pursuant to 28 U.S.C. § 1332 (1998) (diversity).
On March 12, 1998, the Court denied a defense motion to dismiss both the fraudulent misrepresentation claim and the invasion of privacy claim. (Doc. 77.) In the present motion, Boyds moves for partial summary judgment on the breach of contract claim, and summary judgment on both fraud claims and the invasion of privacy claim.
Boyds has also filed several counterclaims which are not presently at issue in this Order. (Doc. 68.)
BACKGROUND
The following facts are either not in dispute, or are those viewed in a light most favorable to Sharp-Richardson. Fed.R.Civ.P. 56(c); Celotex Corp. v. Catrett, 477 U.S. 317, 324 (1986).Gae Sharp-Richardson is a professional teddy bear artist. She began designing plush, jointed animals filled with polyurethene beads in 1980. In 1985, Sharp-Richardson designed an animal she called "Hudson Bear." Sharp-Richardson began marketing and selling handmade "Hudson Bears" at wholesale trade shows through a distributor, Wolf Creek. "Hudson Bear" proved extremely successful, and through the mid-1980's, Sharp-Richardson sold approximately 5000 handmade "Hudson Bears."
In September 1987, after learning that another company, Meravic, Inc., was marketing a "knock off" of her "Hudson Bear" design, Sharp-Richardson applied for and received a copyright registration for "Hudson Bear." At the same time, she applied for and received copyrights on several other animal designs.
Boyds was founded in 1979 by Gary and Tina Lowenthal. In 1981, Boyds began to sell plush bears manufactured in China. In January 1986, Gary Lowenthal saw a "Hudson Bear" at a trade show, and asked Sharp-Richardson's distributor if the design was available to license. The distributor stated that it was unlikely that Sharp-Richardson would agree to license "Hudson Bear" because of her concerns that the sale of a mass-marketed "Hudson Bear" would diminish the sales of her handmade "Hudson Bears."
In January 1988, while attending another trade show, Lowenthal observed samples of a plush, jointed, bean-bag animal very similar to Sharp-Richardson's "Hudson Bear" at a display booth of Meravic, Inc., ("Meravic"). Lowenthal maintains that the manufacturer of the Meravic-marketed product, Creative Marketing Concepts, Inc., ("CMC"), told him that the "Hudson Bear-type" designs were "open market goods," unprotected by copyright laws.
In April or May of 1988, after Gary Lowenthal first discovered the plush, jointed animals, he decided to have the product mass manufactured in China. To this end, he sent samples of the CMC bear he obtained to his business associates in China so that they could manufacture prototype bears. Satisfied with the prototypes from China, Boyds ordered the factories in China to begin production of the CMC plush bear in June and July, 1988. (Doc. 139, at 8.) Boyds displayed the prototype bears from China at trade shows in June, 1988. Boyds also included photographs of the prototype bears in their Fall 1988 catalog.
Soon after Boyds placed its first Order to China for the mass-produced bears, Gary Lowenthal discovered that CMC intended to file a claim against Boyds for copyright infringement. Lowenthal maintains that he immediately placed a hold on all shipments and stopped the second production run of the plush, jointed animals.
In early August of 1988 when Lowenthal heard that CMC intended to file a copyright infringement claim, Lowenthal contacted Sharp-Richardson and expressed an interest in purchasing her designs. (Doc. 169, Ex. 6.) Lowenthal proposed that Sharp-Richardson provide prototypes of her designs, and Boyds would manufacture the animals in China. Lowenthal stated that Boyds would pay Sharp-Richardson a royalty fee for her designs. Lowenthal neglected to tell Sharp-Richardson that Boyds had already marketed and produced a "Hudson Bear-type" animal or that CMC intended to file a lawsuit against Boyds over the "Hudson Bear-type" designs. (Doc. 172, at 10-11) The dispute between CMC and Boyds was ultimately resolved in an out-of-court settlement in April, 1989.
Sharp-Richardson was interested in the deal offered by Lowenthal, but only if (1) she received credit and compensation for her designs, (2) Boyds would agree not to market animals in the color "gray", and (3) Boyds would defend her designs against copyright infringers. Id. at 7. Lowenthal agreed, and on September 1, 1988, Sharp-Richardson sent Boyds two prototype plush, jointed cat designs.
The parties signed a contract on September 14, 1988. Boyds agreed to license Sharp-Richardson's designs in exchange for a 1% royalty on sales of all derivatives of Sharp-Richardson's designs. When Sharp-Richardson signed the September Licensing Agreement, she was unaware that Boyds was already manufacturing and mass marketing the plush, jointed animals. Sharp-Richardson maintains that Gary Lowenthal contacted her only because Boyds was already producing and marketing the "knock-off" bears, and he feared the potential lawsuit by CMC.
On October 12, 1988, Sharp-Richardson received a letter from Tina Lowenthal which indicated that CMC was making "threatening noises" to Boyds about the origin of its animal designs. The record reflects that Sharp-Richardson was still unaware that Boyds was manufacturing "Hudson Bear-type" designs prior to its first contact with Sharp-Richardson. Sharp-Richardson maintains that she believed the conflict between CMC and Boyds arose over the designs she had only recently provided to Boyds.
In November 1988, Sharp-Richardson sent a number of designs to Gary Lowenthal, including a cat, a bear, and a rabbit. After Lowenthal received the designs, he sent a letter to Sharp-Richardson which stated that he wanted to develop a "whole family of things" based on Sharp-Richardson's designs, including plush animals; dressed plush animals; bear furniture (wood, wicker, vine, or woven); books and collector pamphlets; and ornaments (wood, glass, fabric, and cast plaster). (Doc. 169, Ex. 12.)
In December 1988, Boyds' copyright lawyer sent Sharp-Richardson another contract. The lawyer explained that Sharp-Richardson must sign the document because it would enable Boyds to effectively defend the impending CMC lawsuit. Sharp-Richardson signed the contract. While Sharp-Richardson maintains that the Boyds' lawyer minimized the importance of the contract, the December 1988 Copyright Agreement actually transferred all rights (past, present, and future) in Sharp-Richardson's designs to Boyds.
Throughout the next several years, Sharp-Richardson periodically provided Boyds with designs, and Boyds sent royalty checks to Sharp-Richardson. Boyds first marketed the "J.B. Bean Series" of animals in late 1988. The "J.B. Bean" animals carried a hangtag which listed Gae Sharp as the original creator. Boyds also included Sharp-Richardson's name, picture, and biographical information in its sales catalogs, sales order forms, sales brochures, and advertisements. (Doc. 169, Ex.'s 28-30.) Gary Lowenthal sent the royalty checks to Sharp-Richardson without any type of explanation or account summary. Sharp-Richardson maintains that she never asked for an accounting because she believed that she was receiving all the royalties to which she was entitled. (Doc. 172, at 18-19.) By 1992, the royalty payments Sharp-Richardson received totaled approximately $22,000 a year. (Doc. 169, Ex. 1, Gae Sharp-Richardson Affidavit, ¶ 45.)
As required under the terms of both the September Licensing Agreement and the December Copyright Agreement, Boyds filed a number of copyright registrations on Sharp-Richardson's designs and on designs that she now claims were derivatives of her designs. In a number of the copyright registrations, the Boyds' patent lawyer identified Boyds as the author of the designs. In others, he identified Sharp-Richardson as the author of the designs. Sharp-Richardson maintains that Boyds failed to provide her with copies of all the copyright registrations. She also never asked for such registrations.
In 1990, Boyds introduced a line of designs which it called the "Archives Series." Sharp-Richardson maintains that shortly after Boyds began marketing the "Archives Series," she clearly recognized one of the "Archives" teddy bears, "the Himalayan Dancing Bear," as her design. After Sharp-Richardson recognized "the Himalayan Dancing Bear," she suspected that she was not receiving royalties or credit for several of her designs. At the time, however, Sharp-Richardson did not confront the Lowenthals about the Himalayan Dancing Bear or other animals in the "Archives Series" she believed were her designs. Sharp-Richardson maintains that she never raised the issue with Gary Lowenthal because he frequently caused her to "feel guilty" and "intimidated" her. (Doc. 172, at 18-21.)
Boyds' sales increased steadily throughout the 1990's. (Doc. 139, at 11) Boyds maintains that in 1992, Sharp-Richardson stopped sending designs to Boyds, "notwithstanding repeated entreaties from Boyds to continue." Id. at 10. When Sharp-Richardson stopped sending her designs to Boyds, Gary Lowenthal and other Boyds artists generated a number of new designs. Boyds maintains that the new designs were developed from many sources, including antique plush animals purchased at flea markets and garage sales. Id. at 11. In 1993, Boyds added "resin" sculpted figurines to its product line.
In July 1995, Sharp-Richardson maintains that she first learned that she could request an "itemized inventory" which listed the sales of individual products and explained how the royalties were calculated. She promptly requested an "itemized inventory" so that she could ascertain how and from which products her one percent royalty share was calculated. When Sharp-Richardson read the inventory that Boyds provided, she discovered that she was not being paid for non-plush items she believed were derived from her designs (e.g., sculptures, flags, and pennants). Sharp-Richardson retained an attorney and instructed him to send a letter of inquiry to Boyds. Sharp-Richardson asserts that Lowenthal responded in an intimidating manner. Sharp-Richardson dropped the matter and later apologized to Lowenthal for questioning him. Lowenthal informed Sharp-Richardson that he had only been paying her royalties "out of the goodness of his heart" because her copyrights were invalid. After this exchange, Sharp-Richardson was reluctant to question Lowenthal as to (1) why her name did not appear on her designs in the "Archives Series," (2) why Boyds had removed the Gae Sharp hangtags from the J.B. Bean Series, (3) and whether she was receiving royalties for all of her designs.
Sharp Richardson learned the itemized inventory was available to her when she received an inventory from another company that had licensed her designs. (Sharp-Richardson Aff., ¶ 47.)
After Sharp-Richardson's lawyer contacted Lowenthal in 1995, Boyds removed Sharp-Richardson's name from all hangtags and removed Sharp-Richardson's name, photograph, and biographical information from all of its brochures and catalogs. (Sharp-Richardson Aff., ¶ 52.) Boyds never informed Sharp-Richardson of the removal. In early 1996, Sharp-Richardson noticed that the amount of her royalty checks began to decrease.
In an effort to mend the strained relationship with Lowenthal, Sharp-Richardson designed and sent to Boyds "Mr. Jones Bear" and "skeleton bear." (Sharp-Richardson Aff., ¶ 55.) After Sharp-Richardson sent the new designs to Boyds, she met a woman writing a book on the history of Boyds' products, Mary Jo Truax. (Sharp-Richardson Aff., ¶ 56.) Through her conversations with Truax, Sharp-Richardson became suspicious that Boyds had failed to pay her royalties for a number of plush animal designs. In an ensuing conversation between Sharp-Richardson and Lowenthal in the fall of 1996, Lowenthal stated that Sharp-Richardson was not paid for a particular design in which Boyds had changed a single stitch on the animal's foot. Sharp-Richardson maintains that it was only during this conversation that it fully dawned on her that Boyds had failed to pay royalties for a large number of her plush animal designs. Sharp-Richardson filed suit on November 4, 1996.
ANALYSIS
Summary judgment is appropriate if the record shows that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law. Berryhill v. Schriro, 137 F.3d 1073, 1075 (8th Cir. 1998) (citing Fed.R.Civ.P. 56(c)). "[S]ummary judgment is properly regarded not as a disfavored procedural shortcut, but rather as an integral part of the Federal Rules as a whole, which are designed `to secure the just, speedy and inexpensive determination of every action.'" Wabun-Inini v. Sessions, 900 F.2d 1234, 1238 (8th Cir. 1990) (quoting Celotex Corp. v. Catrett, 477 U.S. 317, 327 (1986)).
Procedurally, the moving party bears the initial responsibility of informing the district court of the basis for its motion and identifying the portions of the record which show a lack of a genuine issue. Hartnagel v. Norman, 953 F.2d 394, 395 (8th Cir. 1992) (quoting Celotex, 477 U.S. at 323). When the movant has carried its burden under Rule 56(c), "its opponent must do more than simply show there is some metaphysical doubt as to the material facts." Id. (quoting Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586 (1986)). The facts and circumstances upon which the nonmoving party relies "must attain the dignity of substantial evidence and must not be such as merely to create a suspicion. Metge v. Baehler, 762 F.2d 621, 625 (8th Cir. 1985).
When a motion for summary judgment is made and properly supported, the nonmoving party may not rely on bare allegations, but must set forth specific facts showing that there is a genuine issue for trial. LeBus v. Northwestern Mutual Life Ins., 55 F.3d 1374, 1376 (8th Cir. 1995). The nonmoving party must go beyond the pleadings and employ depositions, affidavits, answers to interrogatories, and admissions on file to marshal specific facts that show a genuine issue for trial exists. Celotex, 477 U.S. at 324. If the record as a whole could not lead a rational trier of fact to find for the nonmoving party, no genuine issue for trial exists, and the district court should grant the summary judgment motion. Matsushita, 475 U.S. at 586.
A. Breach of Contract
Boyds has moved for partial summary judgment on Sharp-Richardson's breach of contract claim. Boyds advances two distinct substantive arguments in support of its motion, and one ancillary argument against only the form of relief the plaintiff has identified in her complaint. First, Boyds claims that the Court should interpret the term "derivative" and other terms of art appearing in the December Copyright Agreement strictly, and in accordance with copyright law, instead of adopting the "broad, unbounded interpretation" urged by the plaintiff. (Doc. 139, at 15.) Second, Boyds asserts that Sharp-Richardson's breach of contract claims are barred by a four-year statute of limitations, and the Court should dismiss any claim that predates November 4, 1992.
Boyds also moves for summary judgment on what it has characterized as the "plaintiff's request for rescission." (Doc. 139, at 28.) In making this characterization, Boyds points to the complaint which requests the Court "to prohibit Boyd's future production, distribution, and sales of [her] designs or any derivatives of her designs [and] to return all rights to such marketing, production, distribution and sales . . ." (Doc. 139, Ex. 7, at 7.) Sharp-Richardson maintains that her request was not a request for full rescission, but only partial or equitable rescission. (Doc. 172, at 36.) Sharp-Richardson urges the Court to deny Boyds motion, and allow its claim for equitable rescission of the contract to proceed.
1. Interpretation of the Term "Derivative"
Both the September License Agreement and the December Copyright Agreement refer to some hybrid of the term "derivative." The pertinent part of the September Agreement states:
The September Licensing Agreement uses the term "derivation." The December Copyright Agreement uses the phrase "derivative works." (Doc. 169, Ex.'s 4, 5.)
Ms. Sharp will receive a royalty of 1% (that is one percent) of the gross income derived from the production of the [design] prototypes over $50,000 per year. This royalty will be for all sizes and colors and derivations of the prototype.
(Doc. 169, Ex. 4.) The pertinent part of the December Copyright Agreement states that Boyds must pay:
a royalty of 1% of the gross income derived by Boyds from the sale of . . . present and future soft sculpture animal works authored by Gae Sharp, . . . [and] on Boyds' renditions of the works of Gae Sharp, as derivative works.
(Doc. 169, Ex. 5.)
Boyds asserts that the Court should interpret the term "derivative" according to the term's copyright law definition. Under copyright law, "a derivative work is a work based upon one or more preexisting works." 17 U.S.C. § 101 (1998). Courts will find a work is derivative of a preexisting copyrighted work if the later work is "substantially similar" to the protectable aspects of the initial work. Szabo v. Errisson, 68 F.3d 940, 944 (5th Cir. 1995); Hartman v. Hallmark, Inc., 833 F.3d 117, 120-121 (8th Cir. 1987). In contrast, Sharp-Richardson maintains that the Court should interpret the term "derivative" as "anything [Lowenthal] did with Gae's designs." (Doc. 172, at 26-27.)
Boyds maintains that under the copyright interpretation, the number of products on which Sharp-Richardson can claim royalties will be limited and definite. If the Court adopts Sharp-Richardson's more amorphous, open-ended interpretation, Boyds argues, the Plaintiff will be able to claim lost royalties on "virtually every product Boyds currently makes (at last count, 1000 of 1,200 units)." (Doc. 139, at 15.)
Interpretation of the terms of a contract is a question of law. Roman Mosaic Tile Co. v. Thomas P. Carney, Inc., 729 A.2d 73, 76 (Pa.Super.Ct. 1999). It is firmly settled that the intent of the parties to a written contract is contained in the writing itself. Bender v. Bender, 715 A.2d 1199, 1202 (Pa.Super.Ct. 1998). An unambiguous contract that contains an integration clause supercedes any prior agreements, oral or written. McGuire v. Schneider, Inc., 534 A.2d 115, 117-19 (Pa.Super.Ct. 1987), aff'd per curiam, 548 A.2d 1223(Pa. 1988). Unless the parties manifest a different intent, technical terms or words of art are given their technical meaning in contracts within their field. L.K. Comstock Co., Inc. v. Becon Const. Co., 932 F. Supp. 948, 971 n. 18 (E.D. Ky. 1994) (quoting the Restatement (Second) of Contracts § 202(3)(b)).
Sharp-Richardson asserts that the September Licensing Agreement should govern this dispute. She maintains that when the parties signed the September Licensing Agreement, they understood that Sharp-Richardson would receive royalties for "anything" that Boyds did with her designs.
Even if the Court found merit in Sharp-Richardson's argument, she ignores the integration clause and the lack of any ambiguity in the December Agreement. When the parties signed the December Copyright Agreement, that document superseded any prior agreement. Accordingly, the December Copyright Agreement is the document that governs this dispute.
The December Copyright Agreement is captioned "Copyright Agreement." (Doc. 169, Ex. 4.) Throughout the document, the drafter used phrases from the language of copyright law, including "work for hire basis," "defend against copyright violations," and "exclusive copyright." A reasonable person would have expected that copyright law would provide the basis for any contractual interpretation. Accordingly, the Court finds that the terms of the contract will be interpreted in accordance with copyright law. Therefore, Boyds motion for partial summary judgment is granted. The Copyright Act, 17 U.S.C. § 101 et seq., and case law interpreting the Act, will provide the basis for determining whether the products marketed by Boyds were derived from Sharp-Richardson's designs.
2. Statute of Limitations on Breach of Contract Actions
Boyds asserts that the choice of law clause in the December Copyright Agreement requires that the Court apply Pennsylvania law to Sharp-Richardson's breach of contract claim. Boyds maintains that the Pennsylvania statute of limitations bars any claim based on conduct that occurred more than four years prior to the date Sharp-Richardson first filed suit against Boyds. See 42 Pa. Cons. Stat. Ann. § 5525(8) (1981 Supp. 1995); Refac Finan. Corp. v. Patlex Corp., 912 F. Supp. 159, 162 (E.D. Pa. 1996) (four-year statute of limitations under Pennsylvania law on a breach of contract action). Since Sharp-Richardson first filed her claim for breach of contract in state court on November 4, 1996, (Doc. 1, Ex. 1.), Boyds argues that the Court should dismiss any breach of contract claim based on conduct that predates November 4, 1992.
The clause reads, in pertinent part:
This Agreement constitutes the full understanding between the parties, shall be performed, construed, and enforced under and in accordance with the laws of the Commonwealth of Pennsylvania.
(Doc. 169, Ex. 5, at 4.)
In contrast, Sharp-Richardson maintains that Iowa's ten-year statute of limitations should govern. Iowa Code § 614.1(5) (1998); McKiness Excavating v. Morton Bldgs., 507 N.W.2d 405, 408 (Iowa 1993) (actions founded on written contracts must be brought within ten years). If the Court finds that Iowa's rule applies, the statute of limitations will not impact Sharp-Richardson's breach of contract claim because all relevant conduct occurred within a ten-year window.
Since the Court must apply the choice-of-law rules of the forum state in a diversity case, Baxter Int'l, Inc. v. Morris, 976 F.2d 1189, 1195 (8th Cir. 1995), Iowa's choice-of-law rules will govern this dispute. Iowa's choice of law rules require the Court to apply the forum state's law to matters of procedure. Brooks v. Engel, 207 N.W.2d 110, 113 (Iowa 1973). In Iowa, statutes of limitation are procedural. Cameron v. Hardisty, 407 N.W.2d 595, 596 (Iowa 1987).
Choice of law provisions in contracts are generally understood to incorporate only substantive law, not procedural law. Federal Deposit Ins. Corp. v. Petersen, 770 F.2d 141 (10th Cir. 1985). Absent an express statement of intent, contractual choice of law provisions do not apply to statutes of limitations. Gluck v. Unisys Corp., 960 F.2d 1168, 1179 (3d Cir. 1992).
The choice of law provision in the December Copyright Agreement did not expressly state that the Pennsylvania statute of limitations applied. In the absence of an express statement in the choice of law clause, this Court is bound to apply Iowa's statute of limitations. Under Iowa's ten-year statute of limitations, the Court finds that Sharp-Richardson's claim for breach of contract is not barred by the statute of limitations. Accordingly, Boyds motion for summary judgment on this point is denied.
The Court notes that even if the shorter Pennsylvania statute of limitations applied in this case, the Plaintiff has likely raised a genuine issue of material fact on the tolling on the statute of limitations. Taking the evidence in a light most favorable to Sharp-Richardson, it appears that Lowenthal failed to disclose and, at times took affirmative steps to conceal, a large amount of information directly relevant to the parties' business dealings.
3. Rescission, Partial Rescission, and Termination
Sharp-Richardson requests the following relief in her Second Amended and Substituted Complaint:
WHEREFORE, Plaintiff Gae Sharp-Richardson respectfully prays this Court will enter judgment against Defendant The Boyds Collection Ltd. for the unpaid royalties, compensatory damages, interests, and costs, to prohibit Boyds' future production, distribution and sales of Ms. Richardson's designs and any derivatives of these designs, return all rights to such marketing, production, distribution and sales exclusively to Ms. Richardson, and relieve Ms. Richardson of any further obligations to provide new designs, prototypes patterns etc. to Boyds and for such other relief as this Court determines is just and equitable under the circumstances.
(Doc. 82, at 13.) In its motion for summary judgment, Boyds asserts that the Plaintiff's above prayer for relief represents a request for the remedy of rescission. Boyds maintains that rescission is unavailable because Sharp-Richardson has (1) affirmed the December Copyright Agreement; (2) she has elected contract damages; (3) the parties at least partially performed under the contract; and (4) the Plaintiff has an adequate remedy at law.
Sharp-Richardson states that she does not seek "full rescission," but rather the remedy of equitable rescission. She concedes that rescission is an extraordinary remedy and inappropriate in this case, but she contends that the remedy of equitable rescission is triggered since Boyds only paid her partial royalties. (Doc. 172, at 38.) She asserts that the Court should "cancel all obligations each party owes to each other, [award] back-due royalties and return all of her copyrights." Id. at 37.
Rescission "amounts to the unmaking of a contract, and is not merely a termination of the rights and obligations of the parties towards each other, but is an abrogation of all rights and responsibilities of the parties towards each other from the inception of the contract." Metropolitan Property and Liability Insurance Co. v. Pennsylvania Ins. Comm'r, 509 A.2d 1346, 1348 (Pa.Commw.Ct. 1986), aff'd, 535 A.2d 588 (Pa. 1987). The purpose of an equitable rescission is to return the parties as nearly as possible to their original positions with regard to the subject matter of the contract. Keenheel v. Pennsylvania Securities Comm'n, 579 A.2d 1358, 502-02 (Pa.Commw.Ct. 1990).
Rescission is an extraordinary remedy and is proper only when the complaining party has suffered a breach so material and substantial in nature that it effects the very essence of the contract and serves to defeat the objective of the parties. Castle v. Cohen, 676 F. Supp. 620 (E.D. Pa. 1987), aff'd in part, rev'd in part, 840 F.2d 173 (3d Cir. 1988). Rescission is not the appropriate remedy when one party to a copyright agreement fails to pay a portion of royalties due. Nolan v. Sam Fox Pub. Co., Inc., 499 F.2d 1394, 1399 (2d Cir. 1974) (failure to pay 74% of royalties due did not warrant rescission because plaintiff had adequate remedy at law, i.e., damages); Cabot v. Jamie Record Co., 1999 WL 236737, *7 (E.D. Pa. 1999) (rescission denied where defendants made "irregular payments and accountings since the execution of the [copyright] agreement").
Under Pennsylvania law, partial rescission is unavailable. Jamie Record, 1999 WL 236737, at *2 (partial rescission is not allowed under Pennsylvania law); Sherman v. Medicine Shoppe Int'l, Inc., 581 F. Supp. 445, 450 (E.D. Pa. 1984) ("[I]t is axiomatic that there is no such thing as partial rescission.").
In this case, it is undisputed that Boyds paid royalties to Sharp-Richardson. By Plaintiff's own admission, the royalty payments Sharp-Richardson received totaled approximately $22,000 a year by 1992. (Sharp-Richardson Aff., ¶ 45.) Moreover, as recently as 1996, Sharp-Richardson sent designs to Boyds, the "Mr. Jones Bear" and the "skeleton bear." Even viewing the facts in a light most favorable to Sharp-Richardson, Boyds' failure to pay royalties does not constitute the type of material and substantial breach that requires the extraordinary relief of rescission. Accordingly, Boyds motion for summary judgment on Sharp-Richardson's request for rescission is granted. Additionally, since the remedy of partial rescission is unavailable under Pennsylvania law, any request for partial rescission is without merit.
In her prayer for relief, Sharp-Richardson's request to "return all rights to such marketing, production, distribution and sales," (Doc. 82, at 13.), amounts to a request for a retroactive termination of Boyds' copyrights in her past designs. Under the above analysis denying rescission, Sharp-Richardson's request for retroactive termination of Boyds' copyrights is denied. Nonetheless, Sharp-Richardson's request for money damages for all unpaid royalties will be allowed to proceed.
Although the request for retroactive termination of Boyds' copyrights is denied, the Court's rescission analysis does not preclude Sharp-Richardson's request for prospective relief. Sharp-Richardson's prayer for relief also requests that the Court "relieve Ms. Richardson of any further obligations to provide new designs, prototypes, patterns, etc., to Boyds." (Doc. 82, at 13.) Sharp-Richardson's request for prospective relief does not implicate the doctrine of rescission. Instead, Sharp-Richardson's request for prospective relief is one for termination of the contract.
If a contract is terminated, the future obligations each party owes come to an end, and the damaged party is left with "a damages or `deficiency' claim." See Dan B. Dobbs, Law of Remedies § 4.3(6), 414 n. 6 (2d ed. 1993). When a contract is terminated or canceled, it is not necessary to "disturb the performance on each side that has been previously rendered." Id. (quoting I.G. Palmer, Law of Restitution § 4.6, p. 423 (1978 Supps.)).
Professor Palmer cites Oscar Barnett Foundry Co. v. Cummings, 219 F. 50 (3d Cir. 1915), as a good example of court ordered termination of a patent and copyright agreement. As in this case, the defendant breached a contract to license patents by discontinuing royalty payments. By the terms of the contract, the plaintiff was precluded from manufacture and sale of its product designs. The court held that the breach justified termination of the contract, thereby putting an end to the rights and obligations of each party under the contract. I.G. Palmer, Law of Restitution §§ 4.6, 4.5, p. 418-23.
Even though the Court finds that rescission is inappropriate in this case, Sharp-Richardson's prospective request that she be relieved of any further obligations "to provide new designs, prototypes, patterns, etc., to Boyds" does not warrant dismissal at this stage in proceedings. Accordingly, Boyds' motion for summary judgment on Sharp-Richardson's request for prospective relief is denied. Termination of this contract, and the corresponding obligations of each party, may be appropriate at the conclusion of this litigation. If the Court finds that termination or cancellation is appropriate, Sharp-Richardson will not be required to provide her designs exclusively to Boyds, and she will be allowed to market and sell her new designs independent of Boyds.
B. Fraudulent Misrepresentation
In support of her fraudulent misrepresentation claim, Sharp-Richardson makes the following allegations:
33A. In the fall of 1995, Gary Lowenthal when questioned about payment derivatives of Bearstones and flags, told Ms. Richardson she had no copyright on her plush animal patterns when in fact copyrights had been obtained.
33B. That Ms. Richardson would be given full credit for the design of the plush animals and her name would be used to promote and used to sell the bears, but beginning in 1996 Ms. Richardson's name was removed from all Boyds catalogues and hang tags.
33C. Ms. Richardson would be paid a royalty on the plush animals and derivatives.
33D. Gary Lowenthal represented himself as the designer of the bears, rabbits and cats since 1987 when Ms. Richardson was the designer.
(Doc. 82, ¶¶ 32-33.) Each of these statements, according to Sharp-Richardson, was material to her decision to enter into the contract signed in 1988. Had these statements not been made, Sharp-Richardson maintains that she would not have entered into the contract and would not have performed her contractual obligations-i.e., she would have "taken her work elsewhere." Sharp-Richardson alleges that she was deceived into both entering the contracts and continuing performance under the contracts. Id. at ¶¶ 34-35.
For its part, Boyds asserts that the four allegedly fraudulent statements upon which Sharp-Richardson relies are legally and/or factually insufficient to survive summary judgment.
To prove fraudulent misrepresentation, a plaintiff must establish the following elements by a preponderance of clear, satisfactory, and convincing proof: (1) representation, (2) falsity, (3) materiality, (4) scienter, (5) intent to deceive, (6) reliance, (7) resulting injury and damage. McGregor v. Janett, 546 N.W.2d 616, 619 (Iowa 1996). A statement of intent to perform a future act is actionable only when spoken with the existing intention not to perform. Robinson v. Perpetual Servs. Corp., 412 N.W.2d 562, 565 (Iowa 1987). Mere failure of future performance cannot alone prove deceit; otherwise every breach of contract would give rise to an action for fraud. Id. at 565-66 (citing W. Prosser, The Law of Torts § 109, at 730-31 (4th ed. 1971)).
The choice of law clause did not cover fraud claims, and the parties do not dispute that Iowa law applies.
Reliance on the alleged misrepresentation must be justifiable. Clark v. McDaniel, 546 N.W.2d 590, 592 (Iowa 1996). Reliance is justified when a reasonably careful person would be justified in relying on the information supplied. Pollman v. Belle Plaine Livestock Auction, Inc., 567 N.W.2d 405, 410 (Iowa 1997). Reliance is not justified if the person receiving the information knows, or in the exercise of ordinary care should know, that the information is false. Id.
1. No Copyrights on Plush Animal Patterns
Sharp-Richardson maintains that Boyds is liable for fraudulent misrepresentation because, in the fall of 1995, Gary Lowenthal told her that she had no copyrights on her plush animal patterns when, in fact, copyrights had been obtained. While Lowenthal's statement, if he made it to Sharp-Richardson, was certainly false, the statement is legally insufficient to constitute actionable fraud.
The Plaintiff personally applied for and obtained several copyright registrations from the Copyright Office of the United States. (Doc. 135, Ex.'s 12, 14, 15.) Two of the copyright registrations, "Hudson Bear" and B. Rabbit," were explicitly mentioned in the September License Agreement. (Doc. 169, Ex. 4.) Since the Plaintiff knew she had applied for and obtained the copyright registrations, she could not have justifiably relied on Lowenthal's 1995 statement to the contrary. Accordingly, Boyds' motion for summary judgment as to the allegedly fraudulent statement in ¶ 33A is granted.
2. Hang Tag Design Credit
In 1988, Gary Lowenthal allegedly told Sharp-Richardson that she would be given full credit for the design of the plush animals and her name would be used to promote and sell the animals. Neither the September Licensing Agreement or the December Copyright Agreement mention design credit. In 1996, however, Boyds removed Sharp-Richardson's name from all Boyds catalogues and promotional materials and her name ceased to appear on any hang tags. Sharp-Richardson asserts that the alleged 1988 promise fraudulently induced her both to sign the contracts and continue performance under the contracts.
In order to survive summary judgment, Sharp-Richardson must prove by a preponderance of clear and convincing evidence that, in 1988, Lowenthal intended to deprive Sharp-Richardson of credit for her designs. In the record before the Court, the plaintiff has failed to set forth any facts which show that Lowenthal had a present intent when he signed the contracts in 1988, to withhold design credit from Sharp-Richardson. The fact that Sharp-Richardson received credit for seven years actually compels an inference that Lowenthal did intend to give Sharp-Richardson credit for her designs when he signed the contracts. Accordingly, Sharp-Richardson claim that she was fraudulently induced to sign the 1988 contracts by Lowenthal's alleged promise to give her design credit is without merit.
Sharp-Richardson also maintains that Lowenthal's promise to give her design credit induced her to continue performance under the 1988 contracts. However, Boyds only discontinued its practice of crediting Sharp-Richardson after it received a letter from her attorney inquiring about unpaid royalties. Quite obviously in 1995, Sharp-Richardson already believed that Boyds was in breach of the 1988 contracts. If she believed that Boyds materially breached the 1988 contracts, she could not have justifiably relied on a noncontractual promise by Lowenthal eight years earlier to induce her to continue sending designs to Boyds. Accordingly, Sharp-Richardson's claim that she was fraudulently induced to continue providing designs to Boyds by a promise to give design credit is without merit. Boyds motion for summary as to the allegedly fraudulent statement in ¶ 33B is granted.
3. Non-Payment of Royalties
In order to survive summary judgment, Sharp-Richardson must prove by a preponderance of clear and convincing evidence that, in 1988, Lowenthal intended to withhold payment of royalties to Sharp-Richardson. As with her allegation that Lowenthal fraudulently withheld design credit, the Plaintiff has again failed to set forth any facts which show that Lowenthal had an intent, when he signed the contracts in 1988, to withhold royalties. See section B1 supra. Sharp-Richardson received royalties during the majority of the relationship between the parties. Mere failure of future performance cannot alone prove fraud, otherwise every breach of contract would give rise to an action for fraud. Robinson, 412 N.W.2d at 565. Accordingly, Sharp-Richardson's claim that she was fraudulently induced to sign the 1988 contracts by Lowenthal's alleged promise to pay royalties is without merit. Boyds motion for summary as to the allegedly fraudulent statement in ¶ 33C is granted.
4. Design Credit to Lowenthal for "the bears, rabbits, and, cats since 1987"
In her complaint, Sharp-Richardson asserts that Gary Lowenthal fraudulently misrepresented himself as "the designer of the bears, rabbits and cats since 1987 when Ms. Richardson was the designer." (Doc. 82, ¶¶ 33B.) In her reply brief, Sharp-Richardson did not discuss this aspect of her fraud claim. Apparently, Sharp-Richardson has abandoned this aspect of her fraud claim. However, it is important to note that, by Sharp-Richardson's own admission, the statement in ¶ 33B of her complaint is not false. As she stated in a letter to a friend produced in discovery, "I come up with the new design and Gary gets to pick the fur, the size, the clothes, the name . . . Two designs for each critter. What a deal!!" (Doc. 139, Ex. 37.) Falsity is a required element of fraud. McGregor, 546 N.W.2d at 619. Accordingly, Boyds motion for summary judgment as to the statement in ¶ 33B is granted.
C. Fraudulent Nondisclosure
Boyds has also moved for summary judgment on Sharp-Richardson's fraudulent nondisclosure claim. Sharp-Richardson's maintains that her fraudulent nondisclosure claim is viable because (1) Lowenthal failed to tell Sharp-Richardson that Boyds was marketing "Hudson Bears-type" animals it had copied from CMC and (2) Lowenthal failed to provide Sharp-Richardson with a royalty accounting. (Doc. 82, ¶¶ 41, 49.)
Sharp-Richardson must prove all of the following propositions by a preponderance of clear, satisfactory, and convincing evidence in order to state a claim for fraudulent nondisclosure: (1) a special relationship giving rise to a duty of disclosure; (2) while such relationship existed, Boyds was aware of certain facts; (3) Boyds concealed or failed to disclose those facts; (4) the undisclosed information was material to the transaction; (5) Boyds knowingly failed to make the disclosure; (6) Boyds intended to deceive Sharp-Richardson by withholding such information; (7) Sharp-Richardson acted in reliance upon Boyds' failure to disclose and was justified in such reliance; (8) Sharp-Richardson was damaged; and (9) the failure to disclose was a proximate cause of Sharp-Richardson's damage. Iowa Civil Jury Instruction 810.2 (1998).
A special relationship giving rise to a duty of disclosure exists between two persons when one of them is under a duty to act for or to give advice for the benefit of another upon matters within the scope of the relationship. Wilson v. IBP, Inc., 558 N.W.2d 132, 138 (Iowa 1996). Defined another way, a special relationship exists when one person has gained the confidence of another and purports to act or advise with the other's interest in mind. Id.
A special relationship giving rise to a duty of disclosure arises between attorneys and clients, guardians and wards, and principals and agents. Kurth v. Van Horn, 380 N.W.2d 693, 696 (Iowa 1986). In contrast, a bank's relationship with its customers, whether they are borrowers or depositors, is not the type of special relationship which gives rise to a duty of disclosure. Engstrand v. West Des Moines State Bank, 516 N.W.2d 797, 798-99 (Iowa 1994).
While Iowa courts have not addressed the issue, several courts in other jurisdictions have refused to find a fiduciary relationship existed between the parties to a licensing or copyright agreement. See, e.g, Cardiovascular Diagnostics v. Boehringer Mannheim, 985 F. Supp. 615, 620 (E.D. N.C. 1997); Flight Concepts Limited Partnership v. Boeing Co., 819 F. Supp. 1535 (D. Kan. 1993), aff'd, 38 F.3d 1152 (10th Cir. 1994). As one court stated, "The Agreement between the parties was negotiated at arm's length, and the relationship between them is no more than contractual. Neither has been shown to have imposed any trust in the other beyond that called for by the contracts. No fiduciary duty is involved." PRC Realty Systems, Inc. v. National Ass'n of Realtors, Inc., 766 F. Supp. 453 (E.D. Va. 1991), aff'd in relevant part, 972 F.2d 341 (4th Cir. 1992).
While the fraudulent nondisclosure claim suffers from a number of problems, the claim's primary legal deficiency is the nature of the business relationship between the parties. When Boyds first approached Sharp-Richardson, Sharp-Richardson already manufactured and sold, through a distributor, several hundred handmade, plush animals per year. She personally applied for and held several copyright registrations. Boyds offered Sharp-Richardson a standard licensing agreement, later modified to include copyrights, that benefitted both parties financially. The parties' agreement, premised as it was upon a conventional business relationship, establishing at arms length no more than routine licensing and royalties rights and obligations, did not implicate or give rise to a special relationship. In the absence of a special relationship, the Court finds as a matter of law that Boyds had no duty to disclose information to Sharp-Richardson. Accordingly, Boyds motion for summary judgment on Sharp-Richardson's fraudulent nondisclosure claim is granted.
D. Invasion of Privacy Claim
In her complaint, Sharp-Richardson claims that "Boyds used her name and likeness to promote products for which it never paid and/or were not derived from her designs." (Doc. 172, at 68.) Sharp-Richardson asserts that Boyds' appropriation of her name and likeness caused her damage and the publicity placed her in a false light. Boyds maintains that summary judgment is appropriate because Sharp-Richardson repeatedly associated herself publicly with Boyds in an effort to enhance her own business interests.
Iowa recognizes an action in tort for the invasion of privacy, drawing the elements of this action from the Second Restatement of Torts. Coplin v. Fairfield Public Access Television Comm., 111 F.3d 1395, 1403 (8th Cir. 1997); Stessman v. American Black Hawk Broadcasting Co., 416 N.W.2d 685, 686 (Iowa 1987). Under Iowa law, "`[t]he right of privacy is invaded by . . . unreasonable intrusion upon the seclusion of another . . . [or] unreasonable publicity given to the other's private life. . . .'" Id. (quoting the Restatement (Second) of Torts § 652A(2) (1977)). These actions are subject to certain limitations, however, that are informed by First Amendment concerns. Fairfield Public Access Television Comm., 111 F.3d at 1403; Howard v. Des Moines Register Tribune Co., 283 N.W.2d 289, 297-98 (Iowa 1979). In general, a plaintiff cannot bring an action for an invasion of privacy if a reasonable person would not find the intrusion highly offensive, the facts revealed are already in the public domain, or the matter publicized is a legitimate concern of public interest. See Stessman, 416 N.W.2d at 686-87; Howard, 283 N.W.2d at 298; Winegard v. Larsen, 260 N.W.2d 816, 822-23 (Iowa 1977).
Initially, it is important to note that Sharp-Richardson also claims in Count I (breach of contract) that Boyds breached the December Copyright Agreement when it failed to give her design credit on plush animal hangtags and other derivative products. The allegations in Sharp-Richardson's breach of contract claim are thus inconsistent with her invasion of privacy allegations. Additionally, the record is replete with instances where Sharp-Richardson attempted to capitalize on her association with Boyds. She has distributed flyers to plush animal retailers which promote her association with Boyds. (Doc. 139, Ex.'s 9, 22, 23, 45, 46.) As recently as the Fall of 1998, Sharp-Richardson scheduled an event in Conrad, Iowa where she volunteered to sign Boyds' products. A newspaper advertisement in The Record, Conrad's newspaper, invited Teddy Bear collectors to "Bring your Boyds Bears to be signed by Teddy Bear Artist Gae Sharp-Richardson."
In her promotional efforts, Sharp-Richardson fails to distinguish between the animals she designed and the animals other Boyds' associates designed. She aggressively promoted a general association with Boyds. It is difficult to find merit in her position that Boyds invaded her privacy. Accordingly, the Court finds as a matter of law that a reasonable person would not find Boyds use of Sharp-Richardson's name and likeness "highly offensive." See, e.g., Stessman, 416 N.W.2d at 686-87; Howard, 283 N.W.2d at 298. Additionally, Sharp-Richardson's association with Boyds was already in the public domain. Indeed, Sharp-Richardson's own promotional efforts will likely keep that association in the public domain. Therefore, Sharp-Richardson's invasion of privacy claim is without merit.
Sharp-Richardson also asserts that Boyds misappropriated her publicity rights by using her name and likeness on products that she did not design. The tort of misappropriation of one's name or likeness is generally referred to as the "right of publicity." Matthews v. Wozencraft, 15 F.3d 432, 437 (5th Cir. 1994). The "right of publicity" protects the ability of public personae to control the types of publicity they receive. Ventura v. Titan Sports, Inc., 65 F.3d 725, 730 (8th Cir. 1995). Sharp-Richardson asserts that Boyds used her name and likeness on hangtags, in brochures, and in catalogs "to promote products which she had no connection with and, therefore, no control over in regard to design quality." (Doc. 172, at 71.) Sharp-Richardson also maintains that the unauthorized use of her name and likeness resulted in commercial damage.
Boyds maintains that Sharp-Richardson's claim is without merit because (1) she consented to the use of her name and likeness on the products and (2) she suffered no damages, either through commercial loss or mental distress.
In order to prove a violation of the right of publicity, Sharp-Richardson must prove (1) the defendant appropriated the plaintiff's name or likeness for the value associated with it, and not in an incidental manner or for a newsworthy purpose; (2) the plaintiff can be identified from the publication; and (3) there was some advantage or benefit to the defendant. Matthews v.. Wozencraft, 15 F.3d 432, 437 (5th Cir. 1994). The "right of publicity" protects pecuniary, not emotional interests, Ventura, 65 F.3d at 730, and is designed to protect the commercial interests of celebrities in their identities. Carson v. Here's Johnny Portable Toilets, Inc., 698 F.2d 831, 835 (6th Cir. 1983); Henley v. Dillard Dept. Stores, 46 F. Supp.2d 587, 590 (N.D. Tx. 1999). Such celebrities have an exclusive legal right to control and profit from the commercial use of their name, personality, and identity. Id. at 590.
Iowa courts have not specifically recognized a "right to publicity." However, the Eighth Circuit recently predicted that the Minnesota Supreme Court would recognize a "right of publicity" even though Minnesota courts do not recognize a common law cause of action for invasion of privacy. Ventura, 65 F.3d at 730. In contrast to Minnesota, Iowa has long recognized a common law cause of action for invasion of privacy. See, e.g., Anderson v. Low Rent Housing Comm'n, 304 N.W.2d 239, 249 (Iowa 1981). Accordingly, this Court believes that the Iowa Supreme Court, if faced directly with a "right of publicity claim, would allow such a claim to proceed.
Viewing the record in a light most favorable to Sharp-Richardson, the Court finds that Sharp-Richardson has raised genuine issues for trial on every element of the "right of publicity" claim. First, Sharp-Richardson alleges in her resistance that Boyds has placed her name on "approximately 30 products" that are not derived from her designs. (Doc. 172, 71.) Second, the record reflects that Boyds used Sharp-Richardson's name and likeness on a number of the nonderivative products it sold in order to garner commercial benefit. Finally, Sharp-Richardson asserts that she suffered damage because she would have discontinued performance under the contract if she knew that Lowenthal was using her name and likeness to promote nonderivative bears for which she was not being paid. Accordingly, the Court denies Boyds' motion for summary judgment on the "right of publicity" claim.
Boyds has moved to amend her complaint to include a claim under § 43a of the Lanham Act, 35 U.S.C. § 1125(a). (Doc. 174.) Federal Rule of Civil Procedure 15(a) provides that leave to amend "shall be freely given when justice so requires." Fed.R.Civ.P. 15(a) (1998); Becker v. Univ. of Nebraska, at Omaha, 1999 WL 718453, *3 (8th Cir., Sept. 16, 1999). Since Boyds has failed to show that it will be prejudiced and discovery in this case is still open, the motion to amend and add the Lanham Act claim is granted.
ORDER
Accordingly, it is ORDERED that Boyds' motion for partial summary judgment is GRANTED as to the breach of contract claim (Count I) to the extent that the Copyright Act, 17 U.S.C. § 101 et seq., and case law interpreting the Act, will provide the basis for determining whether the products marketed by Boyds were derived from Sharp-Richardson's designs.
Boyds' motion for partial summary judgment is DENIED as to Boyds' argument that the breach of contract claim (Count I) is barred by Pennsylvania's four-year statute of limitations.
Boyds motion for partial summary judgment on Sharp-Richardson's request for rescission is GRANTED. Nonetheless, Sharp-Richardson's prospective request that she be relieved of any further obligations "to provide new designs, prototypes, patterns, etc., to Boyds" does not warrant dismissal at this stage in proceedings. Therefore, Boyds' motion for summary judgment as to Sharp-Richardson's request for prospective relief is DENIED.
Boyds motion for summary judgment on Sharp-Richardson's fraudulent misrepresentation (Count II) and fraudulent nondisclosure (Count III) is GRANTED.
Boyds motion for summary judgment on Sharp-Richardson's claim for invasion of privacy (Count IV) is GRANTED, except for the portion of the claim that alleges that Boyds misappropriated her publicity rights. The Court finds that Sharp-Richardson has raised genuine issues for trial on her "right of publicity" claim and Boyds motion as to this claim is DENIED.