Machine Project, Inc. et al v. Pan American World Airways, Inc. et al

Filing 106

Judge Nathaniel M. Gorton: ENDORSED ORDER entered. MEMORANDUM AND ORDER."For the forgoing reasons, the motion of defendant Pan American World Airways, Inc. for summary judgment (Docket No. 92) is, with respect to Counts I, II and III, ALLOWED, but is, with respect to Counts IV and V, DENIED as moot because the action against Anthony Lucas has previously been dismissed. So ordered."(Caruso, Stephanie)

United States District Court
District of Massachusetts
)
Machine Project, Inc. and Kinser )
Chiu,
)
)
Plaintiffs,
)
)
v.
)
)
Pan American World Airways,
)
Inc.,
)
)
Defendant.
)
)

Civil Action No.
14-10022-NMG

MEMORANDUM & ORDER
GORTON, J.
This case arises from a dispute over a licensing agreement
between plaintiff Machine Project, Inc. (“MPI”) and co-plaintiff
Kinser Chiu, its former president, and defendant Pan American
World Airways, Inc. (“Pan Am”).

Plaintiffs generally allege

that defendant breached that license agreement and committed
fraud.

Pending before this Court is defendant’s motion for

summary judgment on all claims.

For the reasons that follow,

defendant’s motion will be allowed, in part, and denied as moot,
in part.
I.

Background
In April, 2007, Pan Am and MPI entered into a Merchandising

License Agreement (“the 2007 MLA” or “Agreement”) which is at
issue in the instant action.

At that time, Chiu and his

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colleague, Anthony Lucas, were each 50% stockholders in MPI and
they both executed the Agreement on its behalf.

The Agreement

granted MPI the
exclusive, sublicensible right...to use [Pan Am’s
trademarks] in the Territory on Merchandising Products
and in connection with the sale, distribution,
advertising and promotion of Merchandising Products in
the Territory.
The 2007 MLA also established annual gross revenue
requirements for MPI.

In the event MPI failed to generate the

required revenue, Pan Am had the option to collect from MPI the
royalty that would have been due from MPI if the requirements
for such “Royalty Year” had been satisfied or to terminate the
Agreement upon 30 days prior written notice.

The Agreement

further provided for termination by either party upon 30 days
written notice in the event that a breach of a material
provision was not cured within the 30-day notice period.
In the fall of 2007, Pan Am ostensibly became dissatisfied
with the progress of the branding program.

Several months

later, Pan Am sent a Notice of Termination of the 2007 MLA to
MPI and took the position that it was entitled to do so because,
among other reasons, the minimum gross revenue requirements set
forth in the 2007 MLA had not been met.

In or about August,

2008, Pan Am hired Lucas as its “Head of Marketing” and his wife
as a “merchandising and design manager,” intending to accomplish
what the Agreement was supposed to do.

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A.

The 2008 State Court Action

In May, 2008, Chiu and MPI brought suit against Lucas and
Pan Am in a New York state trial court for breach of the 2007
MLA, wrongful termination of the 2007 MLA and injunctive relief.
Pan Am and Lucas removed the case to the United States District
Court for the Southern District of New York but it was later
remanded to the state court for lack of diversity jurisdiction
because Chiu and Lucas were both residents of New Jersey.

Pan

Am successfully moved to dismiss the complaint in that action on
the grounds that the dispute had to be litigated in Boston,
Massachusetts in accordance with the forum selection clause of
the 2007 MLA.
B.

The 2008 Federal Action

In June, 2008, Pan Am brought an action in the United
States District Court for the Southern District of New York
against Chiu and a company controlled by Chiu, Vetements, Inc.
(“Vetements”) (“the 2008 action”).

Pan Am alleged that Chiu and

Vetements infringed its trademarks by continuing to sell Pan Ambranded products after Pan Am terminated the 2007 MLA.

In

November, 2009, Chiu and Vetements filed a motion to dismiss
that action for failure to name MPI and Lucas as parties.
September, 2010, the Court found that Lucas and MPI were
“necessary parties” and ordered that they be joined in the
action.

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In

Shortly thereafter, Chiu, Vetements and MPI asserted
counterclaims alleging that Pan Am and Lucas were part of an
unlawful scheme to defraud Chiu with respect to the geographic
scope of the 2007 MLA.

In April, 2012, the Court permanently

enjoined Vetements from manufacturing or selling goods bearing
any trademarks owned by Pan Am and dismissed the counterclaims
on improper forum grounds and for lack of standing.
C.

Procedural History

Plaintiffs brought this action in January, 2014.
complaint contains three counts against Pan Am:

Their

breach of

contract (Count I), breach of the covenant of good faith and
fair dealing (Count II) and fraud (Count III).

Counts IV and V

allege breach of fiduciary duty and tortious interference with
contractual relations, respectively, against Lucas.
In March, 2014, this Court entered default judgment against
Lucas for failing to appear pursuant to Fed. R. Civ. P. 55(a).
After protracted discovery caused, at least in part, by the
necessity of obtaining letters rogatory, and several extensions
of deadlines, in April, 2016, Pan Am moved to dismiss all claims
for lack of federal subject matter jurisdiction.

MPI filed a

notice of voluntary dismissal of its claim against defendant
Lucas that same day.

This Court subsequently allowed

plaintiffs’ dismissal of their claims against Lucas but
otherwise denied Pan Am’s motion to dismiss.

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Now pending before the Court is Pan Am’s motion for summary
judgment on all claims.
II.

Defendant’s Motion for Summary Judgment
A.

Chiu’s Standing

As a threshold matter, defendant avers that Chiu lacks
standing to bring claims for breach of the covenant of good
faith and fair dealing (Count II) and fraud (Count III) because
there is no evidence that he has been personally injured by the
purported conduct.

Chiu responds that he has suffered personal

injuries separate from the alleged damages to MPI.
Generally, a stockholder does not have standing to assert a
claim on behalf of a business entity in which he owns stock.
Laverty v. Massad, 661 F. Supp. 2d 55, 61-62 (D. Mass. 2009).
Thus, Chiu lacks standing to bring claims in Counts II and III
to enforce the contractual rights of MPI. See Quaglieri v.
Steeves, Docket No. 11-10377, 2013 WL 1222220, at *3 (D. Mass.
Mar. 26, 2013).

The pleadings and the record are unclear,

however, as to what claims are asserted on behalf of the
individual and/or corporate plaintiffs so the Court will do its
best to differentiate.
B.

Legal Standard for Summary Judgment

The role of summary judgment is “to pierce the pleadings
and to assess the proof in order to see whether there is a
genuine need for trial.” Mesnick v. Gen. Elec. Co., 950 F.2d

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816, 822 (1st Cir. 1991).

The burden is on the moving party to

show, through the pleadings, discovery and affidavits, “that
there is no genuine dispute as to any material fact and that the
movant is entitled to judgment as a matter of law.” Fed. R. Civ.
P. 56(a).

A fact is material if it “might affect the outcome of

the suit under the governing law.” Anderson v. Liberty Lobby,
Inc., 477 U.S. 242, 248 (1986).

A genuine issue of material

fact exists where the evidence with respect to the material fact
in dispute “is such that a reasonable jury could return a
verdict for the nonmoving party.” Id.
Once the moving party has satisfied its burden, the burden
shifts to the non-moving party to set forth specific facts
showing that there is a genuine, triable issue. Celotex Corp. v.
Catrett, 477 U.S. 317, 324 (1986).

The Court must view the

entire record in the light most favorable to the non-moving
party and indulge all reasonable inferences in that party=s
favor. O’Connor v. Steeves, 994 F.2d 905, 907 (1st Cir. 1993).
Summary judgment is appropriate if, after viewing the record in
the non-moving party’s favor, the Court determines that no
genuine issue of material fact exists and that the moving party
is entitled to judgment as a matter of law.

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C.

Application
1.

Count I:

Breach of Contract

In Count I, MPI alleges defendant breached the 2007 MLA
because it:

1) did not provide MPI with a 12-month “Royalty

Year” to meet the minimum revenue requirement, 2) did not
provide an opportunity for MPI to cure any potential breach and
3) did not give notice to Chiu about the termination of the
Agreement.

Defendant generally contends that summary judgment

should be allowed with respect to Count I because it complied
with all the material terms of the Agreement and was not in
breach.
a.

“Royalty Year”

With respect to plaintiff’s first contention, the Court
agrees with defendant.
Although perhaps a misnomer is used, the 2007 MLA clearly
provides that plaintiffs had eight months to meet the minimum
sales requirement in the first “Royalty Year.”

The 2007 MLA

specifically states:
This Agreement and the provisions hereof, except as
otherwise provided herein, shall be in full force and
effect commencing on the Effective Date and shall
continue through December 31, 2011 . . . .
The Agreement then defines the “Effective Date” as “the 1st day
of January, 2007.”

Moreover, “Royalty Year” is defined as a

“one-year period commencing on January 1 of a given year.”

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Those provisions establish that the “Royalty Year” began on
January 1, 2007 and that plaintiffs had only until December 31,
2007 to meet the minimum sales requirements.

Although

plaintiffs contend that the meaning of the terms are ambiguous,
mere disagreement with respect to the meaning of a term is not
sufficient to create ambiguity. See Dasey v. Anderson 304 F.3d
148, 158 (1st Cir. 2002) (citing Citation Ins. Co. v. Gomez, 688
N.E.2d 951, 953 (Mass. 1998)).
b.

Opportunity to cure provisions

Alternatively, plaintiffs submit that defendant did not
provide it an opportunity to cure its insufficient sales by
paying the royalty that would have been due had it met its
performance requirement, in violation of § 4.D of the Agreement.
That provision permits a party to terminate the Agreement on 30days’ notice if the other party breaches a “material provision”
of the Agreement and does not cure the breach.
Defendant counters by citing § 4.B.ii, which provides that
in the event MPI does not meet the minimum performance
requirement, defendant may provide the opportunity to cure or
terminate the Agreement on 30-days’ notice.
The question of whether a contract is ambiguous is a
question of law. Nicolaci v. Anapol, 387 F.3dd 21, 26 (1st Cir.
2004).

Moreover, if a contract is unambiguous, its meaning is

also a question of law which can be determined on summary

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judgment. See Dasey, 304 F.3d at 158 (quoting Seaco Ins. Co. v.
Barbosa, 761 N.E.2d 946, 951 (Mass. 2002)).
Contracts are interpreted as a whole and terms are not
construed in isolation. Nicolaci, 387 F.3d at 26.

The 2007 MLA

must thus be read to “give effect to all of its provisions.”
PowerShare, Inc. v. Syntel, Inc., 597 F.3d 10, 17 (1st Cir.
2010).
In PowerShare, the First Circuit Court of Appeals (“First
Circuit”) interpreted the following paragraph of an agreement
between the parties by giving effect to the second sentence:
All . . . claims . . . arising out of . . . this
Agreement . . . shall be resolved amicably between
Syntel and PowerShare . . . . If any such Dispute
cannot be resolved . . ., the same shall be settled in
accordance with the principles and procedures of the
American Arbitration Association . . . . Nothing in
this clause shall prejudice Syntel or PowerShare's
right to seek injunctive relief or any other
equitable/legal relief or remedies available . . . .
Id.
The plaintiff in PowerShare averred that a jury trial was
preserved as a “remedy” in the third sentence of that provision.
The First Circuit disagreed, however, because such a reading
would violate the arbitration provision in the second sentence.
Id.

“Confronted with two competing interpretations” of the

meaning of “remedies,” the First Circuit gave preference to the
interpretation that gave effect to all provisions in the
paragraph. Id. at 17-18.

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Similarly, here, plaintiffs’ interpretation of the general
cure provision does not account for the express language of
§ 4.B.ii, which gives Pan Am the right to terminate the
Agreement on 30-days’ notice or to allow MPI to cure if it fails
to meet the minimum performance requirement.

As defendants

contend, plaintiffs’ reading renders § 4.B.ii superfluous.
Accordingly, the 2007 MLA as a whole is subject to only one
interpretation:

failure to meet the performance requirement

does not guarantee a right to cure. See id. at 18.
Plaintiffs further submit that even if the contract is
unambiguous, defendant is estopped from re-litigating the issue
of whether a failure to reach the minimum performance
requirement is curable.
For collateral estoppel to apply, an issue must have been
decided by a “valid and final judgment.” Kowalski v. Gagne, 914
F.2d 299, 302 (1st Cir. 1990).

Plaintiffs rely on defendant’s

motion for summary judgment in Pan American World Airways, Inc.
v. Vetements, Inc., No. 08 Civ. 5480 (S.D.N.Y. 2008) to support
their argument.

The court denied Pan Am’s motion in that case,

however, and thus the issue was not decided by a valid and final
judgment. De-Jesus-Rivera v. Abbott Labs., No. 10-1144, 2011 WL
2669080, at *2 n.3 (D.P.R. July 6, 2011).

Therefore, collateral

estoppel does not apply to the issue of whether the 2007 MLA

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gives plaintiffs the right to cure a failure to meet the minimum
performance requirement.
c.

Notice of termination

Finally, plaintiffs contend that defendant breached the
Agreement when it refused to provide Chiu with personal notice
of the termination.

Defendant responds that it mailed the

notice of termination to MPI pursuant to § 9 of the Agreement
and thus fulfilled its contractual obligation.
Parties may specify the manner in which notice is to be
given in the terms of the contract. Univ. Emergency Med. Found.
v. Rapier Invs., Ltd., 197 F.3d 18, 21 (1st Cir.1999).

Section

9 of the 2007 MLA provides that notice be given in writing “to
the other designated party at its above stated address.”

The

other designated party in this instance is MPI and its address
is listed in the contract.

It is undisputed that defendant sent

notice to MPI at its listed address.

Thus, it has not breached

the contract for failing to provide Chiu personally with notice
of the termination.
Because there are no genuine issues of material fact with
respect to plaintiffs’ breach of contract claims, the Court will
allow summary judgment in favor of defendant on Count I.

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2.

Count II: Breach of the Covenant of Good Faith
and Fair Dealing

In Count II, plaintiffs claim that defendant breached the
covenant of good faith and fair dealing because defendant:
1) failed to provide plaintiffs an opportunity to cure,
2) failed to provide a 12-month Royalty Year, 3) failed to
notify Chiu personally of the termination, 4) failed to deliver
on a promise that Japan would be covered in the geographic area
of the license and 5) claimed that Chiu had no ownership stake
in MPI.

The Court will, for the following reasons, allow

defendant’s motion for summary judgment with respect to
Count II.
a.

Claims with respect to the termination of
the 2007 MLA

Plaintiffs’ first three arguments reiterate those asserted
with respect to the breach of contract claim.

Those allegations

fail to support a claim for breach of covenant of good faith and
fair dealing (“the covenant”).
Under Massachusetts law, every contract is subject to an
implied covenant of good faith and fair dealing. FAMM Steel,
Inc. v. Sovereign Bank, 571 F.3d 93, 100 (1st Cir. 2009).
Although the covenant protects the parties’ expectations of the
contract, it does not create rights or duties beyond the four
corners of the contract. Id.

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As discussed above, the contract specified the “Royalty
Year,” terms of cure and the notice requirements.

Plaintiffs

cannot now invoke the covenant to read in additional terms.
Therefore, plaintiffs’ allegations with respect to the
termination of the 2007 MLA do not establish a breach of the
covenant of good faith and fair dealing. See id. at 100-01.
b.

Claim with respect to the geographic
area of the Agreement

Next, plaintiffs allege that defendant breached the
covenant by failing to deliver on a promise that Japan would be
included within the geographic area of the license.

Defendants

respond that the 2007 MLA granted MPI the exclusive right to use
the Pan Am trademarks in Japan, but only to the extent Pan Am
owned such trademarks.
Although defendant’s purported lack of due diligence in
first determining whether it owned trademark rights in Japan is
disconcerting, there is no evidence that defendant acted with an
improper purpose.

Chiu admitted in his deposition that MPI’s

failure to succeed in Japan was at least partially due to his
own mistakes.

The record also shows that Pan Am did not become

aware of issues with its trademark rights in Japan until
September, 2007, five months after the Agreement was signed.
Therefore, plaintiffs have not shown that defendant acted in bad
faith or with a lack of good faith in purporting to grant them

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trademark rights in Japan. See Young v. Wells Fargo Bank, N.A.,
717 F.3d 224, 238-39 (1st Cir. 2013) (defendant’s careless
conduct was “troubling” but not sufficient to support a claim
for breach of the covenant).
c.

Claim with respect to Chiu’s ownership
of MPI

Finally, plaintiffs claim that defendant breached the
covenant by refusing to acknowledge that Chiu had an ownership
stake in MPI.

Because the covenant cannot supersede the express

terms of a contract, however, the fact that defendant did not
acknowledge Chiu’s ownership in MPI is irrelevant, regardless of
defendant’s motives.

Defendant was within its contractual

rights to terminate the Agreement without notifying Chiu and
without providing Chiu an opportunity to cure. See Dunkin’
Donuts Inc. v. Gav-Stra Donuts, Inc., 139 F. Supp. 2d 147, 156
(D. Mass. 2001).

Plaintiffs thus have not established a claim

for breach of the covenant of good faith and fair dealing on
that ground.
3.

Count III:

Fraudulent Misrepresentation

Plaintiffs claim fraudulent misrepresentation in Count III,
alleging that defendant misrepresented that it had exclusive
rights to market and sell Pan Am-branded products in Japan and
then acted to exclude Chiu from the Pan Am venture.

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To succeed on a claim for fraudulent misrepresentation,
plaintiffs must show that:

1) defendant knowingly made a false

representation to induce plaintiffs to act to their detriment
and 2) plaintiffs reasonably relied on the false representation.
FAMM Steel, 571 F.3d at 105-06.
With respect to the latter element, plaintiffs have failed
to show that they reasonably relied on a false representation.
Reliance on alleged misrepresentations that contradict the terms
of a contract is unreasonable as a matter of law. HSBC Realty
Credit Corp. (USA) v. O’Neill, 745 F.3d 564, 571 (1st Cir.
2014).
Plaintiffs specifically allege that defendant falsely
stated that Japan was “covered” and would be “no problem” even
though defendant knew, or was at least reckless in failing to
discover, that it had no trademark rights in Japan.

Plaintiffs

cannot avoid summary judgment on this count, however, because
§ 12 of the 2007 MLA specifically provides that defendant:
makes no representations or warranties concerning its
ownership of copyrights . . . nor with respect to the
Trademarks, other than that . . . it owns the
trademark registrations listed in Exhibit A to this
agreement.
Exhibit A does not list any trademark registrations.
Therefore, even assuming that defendant orally represented
that it had trademark rights in Japan, plaintiffs could not
have reasonably relied on such statements because the 2007

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MLA provides otherwise. See HSBC Realty, 745 F.3d at 57174.
b.

Actions with respect to Chiu

Defendant’s motion on Count III is unopposed with respect
to plaintiffs’ contention that defendant worked to exclude Chiu
from the Pan Am licensing venture.

Although the Court considers

the motion on its merits, Aguiar-Carrasquillo v. Agosto-Alicea,
445 F.3d 19, 25 (1st Cir. 2006), a lack of opposition is often
“fatal.” Perez-Cordero v. Wal-Mart Puerto Rico, 440 F.3d 531,
534 (1st Cir. 2006).
To the extent Count III is asserted against Lucas, the
Court will allow summary judgment because plaintiffs have
voluntarily dismissed Lucas from the case.
Moreover, to the extent plaintiffs allege common law fraud
against Pan Am for its conduct with respect to Chiu, the Court
will also allow summary judgment in favor of defendant.
First, plaintiffs claim Pan Am falsified corporate
documents for MPI.

Even viewing the record in a light most

favorable to plaintiffs, there is no evidence that defendant
took such actions.

Such “unsupported speculation” will not

negate summary judgment. Nieves–Romero v. United States, 715
F.3d 375, 378 (1st Cir.2013) (quoting Rogan v. City of Boston,
267 F.3d 24, 27 (1st Cir.2001)).

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Next, plaintiffs assert that defendant fraudulently
withheld the notice of termination.

As discussed above,

however, defendant properly complied with § 9 of 2007 MLA in
notifying MPI of its intention to terminate the contract.
Plaintiffs also submit that defendant was fraudulent in
withholding information about its trademark rights in Japan.
Plaintiffs could not, however, reasonably rely on any such
purported fraud because of specific terms of the contract.

See

HSBC Reality Credit Corp., 745 F.3d at 571-74.
Finally, plaintiffs contend Pan Am fraudulently withheld
information about its plan to form a new venture with Lucas.
To establish a claim for fraud based on a failure to
disclose, a plaintiff must show that the defendant had a duty to
disclose. In re Neurontin Mktg., Sales Practices & Prods. Liab.
Litig., 618 F. Supp. 2d 96, 109 (D. Mass. 2009).
Plaintiffs have not alleged that Pan Am had any duty to
disclose to them a plan to form a new company with Lucas.
plaintiffs cannot survive a motion for summary judgment.

Thus,
See

Schneider v. Harrison Elec. Workers Tr. Fund, 382 F. Supp. 2d
261, 264 (D. Mass. 2005) (concluding that summary judgment is
appropriate when plaintiff did not allege facts that would
constitute a cause of action).
Because there are no genuine issues of material fact with
respect to plaintiffs’ claims for fraudulent misrepresentation,

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the Court will allow defendant’s motion for summary judgment on
Count III.
4.

Counts IV and V:

Claims Against Lucas

As noted above, plaintiffs originally stated claims against
defendant Anthony Lucas for breach of fiduciary duty (Count IV)
and tortious interference with contractual relations (Count V).
Because plaintiffs have voluntarily dismissed Lucas as a party
to this action, defendant’s motion for summary judgment with
respect to Counts IV and V will be denied as moot.

ORDER
For the forgoing reasons, the motion of defendant Pan
American World Airways, Inc. for summary judgment (Docket No.
92) is, with respect to Counts I, II and III, ALLOWED, but is,
with respect to Counts IV and V, DENIED as moot because the
action against Anthony Lucas has previously been dismissed.

So ordered.

/s/ Nathaniel M. Gorton_____
Nathaniel M. Gorton
United States District Judge
Dated December 15, 2016

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