Opinion
604027/04.
Decided January 26, 2006.
Morvillo, Abramowitz, Grand, Iason Silberberg, P.C., New York, New York, (Edward M. Spiro), Levett Rockwood P.C., Westport, CT, (Madeleine F. Grossman, Frank J. Silvestri, Jr.) for Plaintiff.
Patterson, Belknap, Webb Tyler LLP, New York, New York, (Stephen P. Younger, Mark Gregory Young) for Defendant.
Motion sequence numbers 001 and 002 are consolidated for disposition.
The defendant and counterclaim plaintiff Coty Inc. (Coty) moves, pursuant to CPLR 3212, for an order granting summary judgment on Coty's first counterclaim, declaring the parties rights and liabilities in this matter, dismissing the complaint and setting the case down for a hearing on damages.
The plaintiff Yue-Sai Kan (Kan) moves, pursuant to CPLR 3212, for an order granting summary judgment as to liability with respect to her claims and dismissing Coty's counterclaims and setting the case down for a hearing on damages.
The plaintiff Kan is a television personality. The defendant Coty is a Delaware corporation and, with respect to the transactions at issue, is the successor to its parent corporation Joh. A. Benckiser GmbH (Benckiser). In 1992, relying on her name and image, Kan founded Yue-Sai Kan Cosmetics (Shenzhen), Ltd., (Shenzen) to manufacture and market cosmetics in China. The owner of Shenzen was a Delaware limited partnership, Yue-Sai Kan Cosmetics, Ltd. (U.S.A.), L.P. (the limited partnership).
In 1996, for the sum of $21.4 million, Kan sold a portion of her interest in the limited partnership to the defendant Coty, through Coty's German parent company Benckiser. Kan retained a minority ownership interest in the limited partnership. The parties entered into a number of cross-referenced and related agreements in connection with the acquisition, including a purchase and sale agreement, a governance agreement, a call agreement and a trademark license agreement. The call agreement provided that, if Coty re-sold the limited partnership within a year, for a higher price, Coty would pay a portion of that higher price to Kan. Within the applicable period of time, as extended, Coty re-sold the limited partnership to L'Oreal S.A. (L'Oreal) for the sum of $250 million.
The complaint alleges that, in breach of the agreement, Coty unilaterally and arbitrarily paid to Kan her share based on Coty's net, rather than on Coty's gross proceeds. As result, it is alleged that Coty owes to Kan 13.73% of the $27 million in expenses it deducted from the third-party price.
In 1997, the limited partnership created a wholly owned subsidiary, Yue-Sai Kan-Coty Cosmetics (Shanghai) Ltd. (the Shanghai company), to manufacture the limited partnership's cosmetic products. Coty's first counterclaim alleges that at the time Coty sold Shenzen to L'Oreal, Coty also sold separately to L'Oreal, the Shanghai company for the sum of $19,470,400 and the license for the sum of $29,770,560. The answer alleges that, although Coty initially paid Kan her proportionate share of the proceeds of the sale of the Shanghai company, the call agreement, by its terms, only allowed Kan to share in the proceeds of Coty's sale of Shenzen, not Coty's sale of the of the Shanghai company and the license.
In support of its motion for summary judgment, Coty makes the following arguments: that Coty calculated what it would pay to Kan from the L'Oreal proceeds, by deducting $27 million in legitimate expenses such as legal fees and investment banking fees, the cost of which Kan would have shared had she still been a partner at the time of the sale; that the third-party sale provision of the call agreement does not apply to the Shanghai company or the license; that prior to 1996, the majority of the Shenzen company's manufacturing was conducted through third-party manufacturers; and that Kan has not submitted an affidavit of merit.
In support of her motion for summary judgment, Kan argues that sections 1.4 and 1.5 of the call agreement require that her payment be based on the total price paid by L'Oreal, not on the net price. It is also argued that Coty's counterclaims are an afterthought and inconsistent with Coty's own prior interpretation of its obligations. By making payment to Kan, Coty waived and is estopped from claiming that Kan is not entitled to a share of the entire third-party price. Kan offers a letter determination by KPMG showing that the majority of cosmetic products that the limited partnership sold in China prior to 1997 were manufactured by the Shenzen company, not by third-party manufacturers. It is further argued that Coty's decision to separate a single business into two entities, and to transfer certain manufacturing operations to one of those entities, does not negate Kan's contractual right to share in the value of that aspect of the business.
It is basic that the proponent of a summary judgment motion must make a prima facie showing of entitlement to judgment as a matter of law, tendering sufficient evidence to eliminate any material issue of fact from the case (e.g., JMD Holding Corp. v. Congress Financial Corp., 4 NY3d 373; Alvarez v. Prospect Hosp., 68 NY2d 320; Friends of Animals v. Associated Fur Mfrs., 46 NY2d 1065). The failure to make such showing requires denial of the motion, regardless of the sufficiency of the opposing papers ( Winegrad v. New York Univ. Med. Ctr., 64 NY2d 851). Once this showing has been made, however, the burden shifts to the party opposing the motion for summary judgment to produce evidentiary proof in admissible form sufficient to establish the existence of material issues of fact which require a trial of the action. Mere conclusions, expressions of hope, or unsubstantiated allegations are insufficient for this purpose ( Zuckerman v. City of New York, 49 NY2d 557).
I turn to the issue of whether Kan's share of the proceeds should be based either on the net, or on the gross, proceeds of the sale to L'Oreal, before turning to the issue of whether Kan should share in the price L'Oreal paid for the Shanghai company.
Here, all the parties, by citing paragraphs 1.4("Third Party Sales") and 1.5 ("Public Offering") of the call agreement, fail to satisfy their burden of producing evidence, which if uncontroverted, is sufficient to warrant judgment in their favor as a matter of law. In this case, the call agreement does not define the relevant terms, and is too equivocal for summary judgment.
The relevant provisions of the call agreement provide:
1.4 Third Party Sales. The parties to this Agreement acknowledge and agree that, if Benckiser exercises its call rights hereunder and, within twelve (12) months after such exercise date, sells the Company or all of its assets and business to a third party at a price greater than 1.4 times average annual Net Sales for the three preceding fiscal years used in determining the Call Price (the "Third Party Price"), Benckiser shall pay to Ms. Kan an amount equal to the difference, if positive, between (a) the amount obtained when (i) the percentage interest in the Partnership represented by the YSK Interests being called pursuant hereto is multiplied by (ii) the Third Party Price and (b) the Call Price.
1.5 Public Offering. The parties to this Agreement acknowledge and agree that, if Benckiser exercises its call rights hereunder, and within twelve (12) months after such exercise date, completes an underwritten public offering (the "IPO") of all or a certain percentage of the equity interests (the "Publicly Offered Percentage") in the Company or an entity in which the Company accounted for more than 25% of the average annual Net Sales for the three fiscal years preceding the date of the IPO, Benckiser shall pay to Ms. Kan an amount equal to the difference, if positive, between (a) the amount obtained when (i) the percentage interest in the Partnership represented by (ii) the amount obtained when (A) the Notional Net Proceeds is multiplied by (B) the percentage of the average annual Net Sales of the issuer for the three prior fiscal years that is attributable to the Net Sales of the company, and (b) the Call Price. For purposes of this Section 1.5, "Notional Net Proceeds" shall equal the amount obtained when (x) the aggregate net proceeds (net of underwriting discounts and commissions and net of offering expenses payable by the issuer) received by Benckiser or the issuer as a result of the IPO is divided by (y) the Publicly Offered Percentage (expressed as a decimal).
Although this section is entitled "Public Offering, it is being applied by the parties to a private offering.
In the absence of ambiguity which obscures the intentions of the parties to a contract, the interpretation of a contract and the obligations of the parties thereto are questions of law and not of fact ( Greenfield v. Philles Records, Inc., 98 NY2d 562; Bethlehem Steel Co. v. Turner Constr. Co., 2 NY2d 456). In the following series of recent cases, the Court of Appeals to determined that there was a clear and complete document.
In R/S Assoc. v. New York Job Dev. Auth. ( 98 NY2d 29) the issue was the interpretation of the term "effective cost of funds" in a loan agreement. The Court, relying on the dictionary definition of "effective" in construing the phrase, found no ambiguity and under its ordinary usage, the "effective" cost of the funds meant the "actual" cost of securing such funds for a specific loan, necessarily including the interest paid to bondholders, the cost of issuing the bond, and the cost of defaults by the borrowers who received loans from bond proceeds. Any other interpretation of the agreement would ignore the import of "effective" in modifying "cost of funds." The Court held that the loss engendered by defaulting borrowers was a readily perceivable risk for any lender, which the lender was entitled to consider in calculating the interest rate charged.
In Goldstein v. AccuScan, Inc. ( 2 NY3d 811), the parties' agreement stated that AccuScan, Inc. shall pay its consultant, Amnon Goldstein, "10% of all amounts received" by AccuScan in excess of $4 million in settlements obtained or license fees awarded regarding certain patents. AccuScan argued that "all amounts received," in fact, meant all amounts received net of attorneys' fees. The Court of Appeals held that the contract's clear language does not admit of this qualification.
In Signature Realty, Inc. v. Tallman ( 2 NY3d 810), the Court of Appeals held that nothing in the parties' agreement limited the commission to the initial lease period. On the contrary, an option to renew a lease for three five-year periods, as provided for in the subject lease, fell within the broad category of "a lease, rental arrangement or other occupancy," unambiguously requiring payment of 10% of the rent over the period of occupancy.
Applying the above standards to the subject contract, sections 1.4 and 1.5 do not clearly and unambiguously set forth the formula for calculating Kan's share of the proceeds of the sale. Unlike the cases cited above, neither the dictionary, nor the contract's clear language unambiguously support either party's interpretation. Kan argues that price means the formula for determining her payment is based on notional net proceeds which, in turn, is based on aggregate net proceeds (net of underwriting discounts and commissions and net of offering expenses payable by the issuer) received by Coty or the issuer. Contrary to the parties assertions, no matter how many times one reads the foregoing contract provisions, it is impossible to glean whether Kan's share is to be based on either the net, or on the gross proceeds. Rather, the cited contract sections do not permit one to conclude, without more, whether Kan's share is to be based on either the gross or the net of the sale to L'Oreal.
Upon a finding of ambiguity, the rules governing the interpretation of ambiguous contracts come into play ( Matter of Wallace v. 600 Partners Co., 86 NY2d 543, 548). Resolution by a fact finder is required where, as here, interpretation of §§ 1.4 and 1.5 of the call agreement is susceptible of varying reasonable interpretations and intent must be gleaned from disputed evidence or from inferences outside the written words ( Mallad Constr. Corp. v. County Fed. Sav. Loan Assn., 32 NY2d 285).
Turning to the question of whether Kan is entitled to a percentage of the L'Oreal purchase price allocated to L'Oreal's acquisition of both the Shanghai company and the license, the defendant Coty argues that the call agreement plainly and unambiguously speaks of the sale of the "Company" and defines the "Company" as the Shenzen company, and not as the limited partnership that owns the Shanghai company.
Triable issue of fact are presented on these papers, including (1) the extent to which the call agreement and other contracts signed in connection the 1996 transactions included the Shanghai company in the definition of the "Company," (2) whether in 1996 the Shenzen company was conducting its manufacturing principally through third-party contract manufacturers, (3) whether the formation of the Shanghai company was for the purpose of siphoning off manufacturing assets, (4) whether substantial funds flowed from the Shenzen company to the Shanghai company, and (5) whether Coty waived this particular interpretation of the call agreement.
Generally, all rights and privileges to which one is legally entitled may be waived. A waiver, the intentional relinquishment of a known right, may be accomplished by express agreement or by such conduct or failure to act as to evince an intent not to claim the purported advantage ( Hadden v. Consolidated Edison Co. of New York, Inc., 45 NY2d 466). However, on this record, summary judgment cannot be granted to either the plaintiff, or to the defendant. Because of Coty's payment to Kan for the Shenzen company, issues of fact exist as to whether Coty waived its rights under the contract. Waiver requires the voluntary and intentional abandonment of a known right which, but for the waiver, would have been enforceable ( Nassau Trust Co. v. Montrose Concrete Prods. Corp., 56 NY2d 175, 184). From the documentary evidence proffered on these motions for summary judgment, I find that there is a triable issue of material fact whether there was an intention on Coty's part to waive the contractual provision, once the original payment to Kan was made. As a result, the award of summary judgment would be premature ( General Motors Acceptance Corp. v. Clifton-Fine Cent. School Dist., 85 NY2d 232).
Finally, the absence of an affidavit from the plaintiff Kan is not fatal to her argument, as an attorney's affirmation may serve as a vehicle to introduce documentary evidence in support of a motion for summary judgment ( Zuckerman v. City of New York, 49 NY2d 557); Lewis v. Safety Disposal Sys. of Pa., Inc., 12 AD3d 324 [1st Dept 2004]).
Accordingly, it is
ORDERED that the motions for summary judgment are denied, and it is further
ORDERED that a conference will be held on February 8, 2006 at 10:00 AM, in Part 60, Room 540, 60 Centre Street, New York, NY.