MY Imagination, LLC v. M.Z. Berger & Co., Inc. et al

Filing 135

MEMORANDUM AND ORDER GRANTING DEFENDANTS MOTION FOR SUMMARY JUDGMENT TO LIMIT PLAINTIFF TO NO MORE THAN NOMINAL DAMAGES (Doc. 122). Signed by District Judge Avern Cohn. (MVer)

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF MICHIGAN
SOUTHERN DIVISION

MY IMAGINATION, LLC, a
Michigan Limited Liability Company,
Plaintiff,
v.

Case No. 14-13321

M.Z. BERGER & CO., INC., a
foreign corporation; M.Z. BERGER
& CO., INC., d/b/a MZB INK; and
MZB IMAGINATION, LLC, a New York
Limited Liability Company,

HON. AVERN COHN

Defendants.
_________________________________/
MEMORANDUM AND ORDER GRANTING
DEFENDANT’S MOTION FOR SUMMARY JUDGMENT TO LIMIT PLAINTIFF TO
NO MORE THAN NOMINAL DAMAGES (Doc. 122)1
I. Introduction
This is a business dispute. Plaintiff MY Imagination LLC (“MY Imagination”) sued
defendant MZ Berger & Co. Inc. and MZB Imagination, LLC (“MZB”) asserting contract
and tort claims arising out an Asset Purchase Agreement (APA) governed by New York
law. In broad terms, the APA governed the sale of MZB’s stationary business to MY
Imagination. As will be explained, the Court granted summary judgment to MZB. MY
Imagination appealed. The Court of Appeals for the Sixth Circuit affirmed in part and
reversed in part, finding questions of fact existed on two of MY Imagination’s contract

1

Although originally scheduled for hearing, upon review of the parties’ papers, the
Court deems this matter appropriate for decision without oral argument. See Fed. R. Civ.
P. 78(b); E.D. Mich. LR 7.1(f)(2).

claims.
Before the Court is MZB’s motion for summary judgment limiting MY Imagination
to no more than nominal damages. MY Imagination says that it is entitled to lost profits
and relies on an expert report to establish the amount. For the reasons that follow, the
motion will be granted. Should liability be established, the record is clear that MY
Imagination is not entitled to lost profits but rather may be awarded only nominal
damages.
II. Background
The Court of Appeals for the Sixth Circuit set forth the relevant background and
procedural history:
For students, the back-to-school season signals new beginnings. For
retailers, it means major profits: American consumers spend nearly five-billion
dollars on school supplies every year. A new stationery company called MY
Imagination wanted to enter this lucrative market. Since the company
needed inventory, licenses, and retailer relationships to get the ball rolling, it
decided to buy the stationery division at M.Z. Berger, a well-established
consumer-goods wholesaler.
M.Z. Berger’s assets were an attractive target. The company held
licensing agreements with entities like Lego, Universal Studios [Universal], and
pop sensation One Direction. These popular brands would likely lead to large
sales with school-age kids. And M.Z. Berger agreed to help transfer these
licenses to MY Imagination as part of the deal. MY Imagination says that M.Z.
Berger promised to exit the stationery industry too.
Things went awry shortly after the companies finalized the sale.
According to MY Imagination, M.Z. Berger failed to help transfer its licensing
agreements and did not exit the stationery industry as promised. MY Imagination
sued for breach of contract, fraudulent inducement, and conversion. The district
court granted summary judgment to M.Z. Berger on all counts. MY Imagination
now appeals. We affirm in part and reverse in part.
MY Imagination, LLC. v. M.Z. Burger & Co., No. 17-1218 at p. 1 (6th Cir. Feb. 16, 2018)
(unpublished) (footnote omitted)(emphasis added).

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Specifically, the Sixth Circuit affirmed the dismissal of MY Imagination’s tort
claims and some of its contract claims. As to the contract claims, the Sixth Circuit said:
The district court granted M.Z. Berger summary judgment on all of MY
Imagination’s contract claims after finding that MY Imagination could not prove
any actual damages. But the court’s emphasis on actual damages was
misplaced. In New York, nominal damages are “always available for a
breach of contract.” Kronos, Inc. v. AVX Corp., 612 N.E. 2d 289, 292 (N.Y.
1993).
Id. at p. 2-3 (emphasis added). The Sixth Circuit went on to find that there were
disputed issues of material fact on MY Imagination’s contract claims as to whether (1)
MZB used “commercially reasonable” efforts to help MY Imagination acquire its licenses
and (2) whether after selling its goodwill, MZB solicited its former retail customers on
behalf of Universal’s new product line.
On remand, MY Imagination seeks “lost profits” damages and relies on the
expert report of Rodney Crawford, an accountant, who provides two measure of lost
profits.
MZB has moved for summary judgment contending that the record does not
support a claim for “lost profits” and therefore MY Imagination is limited to only nominal
damages if it prevails on liability.
III. Summary Judgment
“The court shall grant summary judgment if the movant shows that there is no
genuine dispute as to any material fact and the movant is entitled to judgment as a
matter of law.” Fed. R. Civ. P. 56(a). A moving party may meet that burden “by
'showing'-that is, pointing out to the district court-that there is an absence of evidence to
support the nonmoving party’s case.” Celotex Corp. v. Catrett, 477 U.S. 317, 325
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(1986). Rule 56 provides that:
A party asserting that a fact cannot be or is genuinely disputed must support the
assertion by:
(A) citing to particular parts of materials in the record, including depositions,
documents, electronically stored information, affidavits, or declarations,
stipulations (including those made for purposes of the motion only), admissions,
interrogatory answers, or other materials; or
(B) showing that the materials cited do not establish the absence or presence of
a genuine dispute, or that an adverse party cannot produce admissible evidence
to support a fact.
Fed. R. Civ. P. 56(c)(1). The Court “must view the evidence in the light most favorable
to the non-moving party.” Employers Ins. of Wausau v. Petroleum Specialties, Inc., 69
F.3d 98, 101 (6th Cir. 1995).
IV. Analysis
A. Initial Comment
As an initial matter, MZB has not argued that the Sixth Circuit’s opinion precludes
MY Imagination from seeking lost profits. The question before the Court is whether MY
Imagination has made out a triable claim for lost profit damages2 under New York law.
B. NY Law on Lost Profits
The New York Court of Appeals has a three-part test for entitlement to lost profit
damages:
Loss of future profits as damages for breach of contract have been permitted in
New York under long-established and precise rules of law. First, it must be
demonstrated with certainty that such damages have been caused by the breach
and, second, the alleged loss must be capable of proof with reasonable certainty.
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MY Imagination previously sought rescissory damages and filed a motion in
limine requesting a ruling that it could assert a claim for such damages if it proved
liability. (Doc. 67). Although the Court found the motion moot in granting MZB’s motion
for summary judgment, on remand MY Imagination has abandoned its claim for
rescissory damages. See Crawford Report (MZB’s Exhibit D) at ¶ 21.
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In other words, the damages may not be merely speculative, possible or
imaginary, but must be reasonably certain and directly traceable to the breach,
not remote or the result of other intervening causes (Wakeman v Wheeler &
Wilson Mfg. Co., 101 NY 205). In addition, there must be a showing that the
particular damages were fairly within the contemplation of the parties to the
contract at the time it was made (Witherbee v Meyer, 155 NY 446).
Kenford Co. v. County of Erie, 67 N.Y.2d 257,261 (1986) (“Kenford I”).
MZB says that MY Imagination cannot satisfy any of the three elements. Each
element is addressed in turn below.
1. Causation
Under Kenford I, a party must first prove that its lost profits were caused by the
breach. New York law provides:
[I]n order to hold a party liable for lost profits, a plaintiff must establish proximate
causation by the defendant. See Carco Grp., Inc. v. Maconachy, 718 F.3d 72, 82
(2d Cir. 2013) (noting that "lost profits are consequential damages that must be
proven with reasonable certainty . . . and a court must make appropriate findings
as to proximate cause"); lnt'l Minerals & Res., S.A. v. Pappas, 96 F.3d 586, 597
(2d Cir. 1996) (noting that special or consequential damages are subject to the
rules of proximate cause). If a plaintiff cannot establish "the requisite causal
connection between the alleged bad acts and the harm it claims," it cannot
survive a motion for summary judgment. Bulldog New York LLC v. Pepsico, Inc.,
8 F. Supp. 3d 152, 178 (D. Conn. 2014). "Conclusory allegations, conjecture, and
speculation" in this regard are "insufficient to create a genuine issue of fact."
Kerzer v. Kingly Mfg., 156 F.3d 396,400 (2d Cir. 1998).
ScentSational Techs, LLC v. Pepsico, 201 U.S. Dist. Lexis 91180, *18 (S.D.N.Y. May
23, 2018).
Thus, MY Imagination must establish, on a license-by-license basis that, “but for”
MZB's alleged failure to use “commercially reasonable efforts,” it would have obtained
individual licenses - which MZB did not guarantee would be transferred. Likewise, My
Imagination must show that any solicitation of former retail customers by MZB directly
caused MY Imagination to lose business.
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MY Imagination did not take discovery of any licensor other than Universal.
There is no statement from any licensor to the effect that “if MZB had done X, then
Licensor A would have transferred the license to MY Imagination.” Even as to
Universal, MY Imagination did not ask its witness at deposition as to the impact
“commercially reasonable efforts” by MZB in June 2014 which might have had on
Universal's decision.
What the record does show that it beyond obtaining the Lego license, a dispute
existed between MY Imaginations’ principals - Yu and Rosenbaum - as to whether to
enter into any other licenses. This dispute resulted in MY Imagination twice rejecting a
license from Nickelodeon and not contacting any licensor other than Universal after the
Licensor Letters were sent out. Further, MY Imagination admits that Universal decided
for its own reasons not to assign the license to it, but to instead another company in the
industry. There is simply no evidence in the record that, taken as true, would allow the
conclusion that Universal (or any other licensor) would have offered MY Imagination a
license even if MZB had provided the reasonable commercial efforts MY Imagination
says it did not, or that, unlike with Nickelodeon, MY Imagination would have accepted
the license. To conclude that any particular license would have transferred - and that
MY Imagination would have accepted the license - is speculative and fails to satisfy the
causation element of Kenford I. See Madcap Acquisitions LLC v. American Towers
LLC, 2016 N.Y. Misc. LEXIS 2714, *11 (N.Y. Sup. Ct. 2016) (granting summary
judgment and holding that claim for lost profits damages was “nothing more than
speculative projection” where dependent on assumptions that plaintiff would enter into
agreement with third-party under no contractual obligation to do so); Olsenhaus Pure
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Vegan, LLC v. Electric Wonderland, Inc., 116 A.D.3d 449,450 (N.Y. App. Div. 2014)
(rejecting lost profits claim where based upon “speculative” assumption as to duration of
contract).
2. Reasonable Certainty
MY Imagination must also establish its lost profits with “reasonable certainty.”
“The damages may not be merely speculative, possible or imaginary.” Kenford I, 67
NY.2d at 261. This is particularly true when dealing with a new business:3
If it is a new business seeking to recover for loss of future profits, a stricter
standard is imposed for the obvious reason that there does not exist a
reasonable basis of experience upon which to estimate lost profits with the
requisite degree of reasonable certainty (Cramer v Grand Rapids Show Case
Co., 223 NY 63; 25 CJS, Damages,§ 42 [b]).
Id. “Projections of future profits based upon ‘a multitude of assumptions’ that require
‘speculation and conjecture’ and few known factors do not provide the requisite
certainty.” Schonfeldv. Hilliard, 218 F.3d 164, 172 (2d Cir. 2000). Expert testimony is
required to establish that lost profits is “capable of measurement based upon known
reliable factors without undue speculation.” Id.; Celebrity Cruises, Inc. v. EssefCorp.,
478 F. Supp. 2d 440, 451-52 (S.D.N.Y. 2007).
Here, Crawford fails to establish that MY Imagination’s alleged lost profits are
“capable of measurement based upon known reliable factors without undue
speculation.” Schonfeld, 218 F.3d. at 172. Further, he cites to no “advanced and
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Although MY Imagination argues that it was not a “new business” because its
principals were “both experienced businesses men with extensive familiarity with
product licensing” and MY Imagination was “staffed with a veteran licensing team.”
These assertions fly in the face of the Sixth Circuit’s statement that MY Imagination was
a “new stationary company” and Crawford’s Report in which he says MY Imagination is
a “new business.” Crawford Report at ¶ 23.
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sophisticated method for predicting the probable results of contemplated projects.”
Kenford I, 67 N.Y.2d at 262. Rather, he relies on the projections by Rosenbaum,
including one created for the purpose of enticing Yu to be his partner. First, Crawford’s
reliance on projections created by MY Imagination and interviews with Yu and
Rosenbaum ignores that MY Imagination, Yu, and Rosenbaum have admitted in the
record that lost profits are speculative.
Throughout the course of this case, MY Imagination has maintained that it could
not demonstrate lost profits. In its Statement of Claims, MY Imagination presented only
“rescissory” damages, and not any lost profits. See Doc. 45 at p.4. This position is
consistent with its representation to the Court in its prior motion in limine that it should
be permitted to seek rescissory damages because of the “admittedly speculative nature
of Plaintiff’s damages relative to lost profits or lost business opportunities ....” See Doc.
67 at p. 13.
Yu and Rosenbaum admitted at deposition that a claim by MY Imagination for
lost profits was speculative. Yu testified as follows:
Q.
Would you agree with me that it's difficult to project profitability in
stationery licensing?
A.
Yes.
See MZB’s Exhibit B-1, dep. of Yu at 57:3-57:5. Rosenbaum testified more directly that,
even if we assume a particular license had transferred to MY Imagination in June 2014,
that “you could speculate, but you couldn't say definitively” how much net profit [MY
Imagination] would have realized.” See MZB’s Exhibit B-2, dep. of Rosenbaum at
155:23-158:10 (emphasis added).
Putting aside these admissions that MY Imagination’s lost profits would be
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speculative, Crawford's two-step process still fails under New York law. He uses MZB's
purported sales from 2013 and applies a "profit margin" derived from MY Imagination’s
2014 projection of sales. Crawford rejects MY Imagination’s projections of 2014 gross
sales - finding that, instead, MZB's "2013 net sales provides a reasonable foundation to
sustain a claim for lost profits." Crawford Report at ¶ 35. However, Crawford relies on
the MY Imaginations projections in forecasting a profit margin on future, unknown sales
in 2014 and beyond.
Crawford also does not address the possibility that not every license would be
transferred. The record shows otherwise. Crawford ignores the fact that MY
Imagination got the most lucrative license, Lego, twice rejected the Nickelodeon license
and Universal said that it would not have transferred its license to MY Imagination.
Crawford therefore has no basis to conclude which licenses would or would not be
transferred, and the terms of any such transferred license. Crawford’s calculation that
all licenses would transfer is contradicted by the record and unreliable.
Moreover, Crawford’s reliance on projections of what MY Imagination thinks
“might” have happened in 2014/2015 has been repeatedly rejected in New York as
failing the standards of Kenford I. In Ho Myung Moolsan v. Manitou Mineral Water, Inc.,
2010 U.S. Dist. LEXIS 127869 (S.D.N.Y. Dec. 2, 2010), the plaintiff offered only
projections of sales of bottles of water in support of its lost profits claim, with no
documentary evidence to support the projections. The district court rejected plaintiffs
expert report, finding that "[w]ith such a lack of foundation, including lack of any
independent research, Smith's Report stood for nothing more than the Court's
characterization of it: 'My client tells me I can sell three million bottles and get fifteen
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dollars a bottle."' Moolsan, at *25-26. The same rationale applies here. Crawford's
assumption as to profit margin is based on MY Imagination telling him that it would have
sales in 2014 of $25 million and that its profit margin would increase over that of MZB.
Crawford, in fact, appears entirely unaware that MY Imagination and later IQHK, Yu's
other company, controlled the Lego license since May 2014 and that actual sales data
exists within the possession of Yu for 2015.
In sum, Crawford's “calculation, which assumes the occurrence of numerous
successive hypothetical transactions [i.e., the transfer of licenses], constitutes precisely
the sort of conjecture that the reasonable certainty standard prohibits and will not
support an award of lost profit damages under New York law.” Kidder , Peabody & Co.
v. JAG Int'! Acceptance Group N.V., 28 F.Supp.2d 126, 132 (S.D.N.Y. 1998) (granting
summary judgment, in part, "because defendant corporation was not entitled to lost
profits as a matter of law").
The same result holds under the alternate, more conservative projection
Crawford offers which is based solely on the Universal license. Again, Crawford relies
entirely on an overly optimistic projection by MZB's CEO (projecting $3 million to $5
million of sales in a one line email with no supporting data). No actual data is utilized.
MY Imagination did not request any actual sales figures from any licensee, including
Universal, nor from any customer, such as Target and Walmart. Crawford’s alternate
calculation is therefore does not support a claim for lost profits.
3. Within the Parties’ Contemplation
The final element of the Kenford I test requires MY Imagination to demonstrate
that the parties contemplated the availability of lost profits as an element of damages for
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a breach of contract. MZB says they did not, as evidenced by the following provision in
the APA:
Sole Remedy. The provisions of Section 16.1 ... constitute the sole and exclusive
remedy .. . for any Loss ... ; provided that, the foregoing limitation shall not apply
in any case of fraud or willful misconduct.... In no event will any Buyer
Indemnified Party or Seller Indemnified party be entitled to loss of profit ... arising
out of or resulting from any matter to which such person is entitled to
indemnification under Section 16.1 .... (Ex. A, §16.4.2) (emphasis added)
According to MZB, the APA expressly provides that MY Imagination is not entitled to
damages for loss of profit resulting from a breach of the APA.
MY Imagination disagrees, contending that the above provision applies only in
instances of indemnification, not a dispute between the parties. The Court need not
resolve this issue because as demonstrated above, MY Imagination cannot satisfy the
other two elements of Kenford I.
4. Nominal Damages
As the Sixth Circuit noted, under New York law, where, as here, lost profits or
other damages cannot be shown, plaintiffs are limited to nominal damages. In
Washington v. Kellwood Co., 714 F. App’x 35, 41-42 (2d Cir. 2017), the Second Circuit,
applying New York law, affirmed the award of nominal damages of $1 in a case where
plaintiff could not satisfy New York's requirement of reasonable certainty in proving lost
profits. See also Hirsch Elec. Co. v. Community Servs., Inc., 145 A.D.2d 603, 605 (App.
Div. 1988) (holding that where plaintiff failed to prove its lost profits claim, "the injured
party is entitled to recover as nominal damages a small sum fixed without regard to the
amount of the loss, if any (Farnsworth, Contracts§ 12.8, at 838-839)").
As lost profits are not available MY Imagination, it is entitled only to an award of
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nominal damages should it prove a material breach at trial.
C. MY Imagination’s Response
MY Imagination says that there is evidence to support its claim for lost profits.
This argument attempts to down play the statements in the record in which it conceded
that lost profits are not a viable damage theory and statements indicating that MY
Imagination was a new business entity. MY Imagination’s assertions fly in the face of
the record evidence noted above. Most to the point, in its reply brief on its motion in
limine seeking to establish the damages available at trial, MY Imagination advocated for
rescissory damages and expressly rejected lost profits damages, stating:
Here, Plaintiff was a new business with no established history and approval
of specific license transfers would be difficult to establish. Under these
circumstances, due to the admittedly speculative nature of Plaintiff's
damages relative to lost profits or lost business opportunities, rescissory
damages are an available, appropriate and proper measure of damages for
Breach of Contract.
(Doc. 89 at p. 4-5) (emphasis added). These statements are significant. MY
Imagination represented to the Court that (1) it is a new business; (2) has no history of
sales; (3) cannot establish which, if any, licenses would transfer, and, most importantly,
(4) any lost profits damages are speculative. As a matter of law, these and other
admissions made by MY Imagination warrant summary judgment limiting it no more
than nominal damages.
In opposing summary judgment, MY Imagination has not offered a declaration
from anyone with personal knowledge, such as Yu, Rosenberg, Crawford, a licensor, to
rebut the factual admissions. Rather, MY Imagination relies on Rosenbaum' s
speculation about what others might have said or thought about MY Imagination’s ability
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to secure licenses. This is insufficient.
MY Imagination also takes issue with the case law cited by MZB. MY
Imagination first argues that the analysis set forth in Kenford I is not subject to summary
judgment. This argument lacks merit. In Schonfeld v. Hilliard, 218 F.3d 164, 172 (2d
Cir. 2000), the Second Circuit affirmed the grant of summary judgment where, applying
Kenford I, plaintiffs lost profits were not “capable of measurement based upon known
reliable factors without undue speculation.”
MY Imagination also misstates the holding in Haven Assoc. v. Donro Realty
Corp., 121 Ad.2d 504 (N.Y. App. Div. 1986), to argue that, once MY Imagination shows
that MZB failed to use commercially reasonable efforts to assist the transfer of licenses,
the burden of causation shifts to MZB to prove that individual licenses would not have
transferred anyway. As both the Second Circuit and other courts have held, Haven
does not provide for shifting of the burden of causation. See Nat 'I MKt. Share, Inc. v.
Sterling Nat'l Bank, 392 F.3d 520, 527 (2d Cir. 2004) (rejecting Haven as standing for
shift of burden of causation- “[i]n Haven, the plaintiff had already established proximate
causation, and the court therefore shifted to the defendant the burden of proving the
extent to which economic recession, rather than defendant's breach, had contributed to
plaintiffs loss of future profits.”); Nycal Offshore Dev. Corp. v. United States, 743 F.3d
837, 846, n.4 (Fed. Cir. 2014) (“as the Second Circuit explained in [Ntl. Mkt.], the
plaintiff in Haven had already established proximate causation, and the court shifted to
the defendant the burden of proof with respect to a factor that went to the quantum of
damages.”).
To show causation, MY Imagination, not MZB, must established that (1) MZB did
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not use commercially reasonable efforts (which the Court presumes for purposes of
MZB’s motion) and (2) if it had, which licenses would have transferred to MY
Imagination. For Universal, MY Imagination relies entirely on a self-serving, hearsay
statement of Rosenbaum that the Universal license would have transferred.
Rosenbaum's own belief cannot overcome the contradictory (and admitted) testimony
given directly by Universal “made its own decision not to consent to the transfer of a
stationary license from [MZB] to [MY Imagination] Doc. 124-2, Joint Statement of Facts
at ¶ 73. As to Nickelodeon, MY Imagination admits that it received and then turned
down an offered license. See Doc. 124-2, Joint Statement of Fact at ¶ 69 (“After the
Licensor Letters were served, [MY Imagination] rejected the second license offer from
Nickelodeon.”)
Summary judgment is appropriate because MY Imagination cannot as a matter of
law establish what, if any, licenses would have transferred. See Madcap Acquisitions
LLC v. American Towers LLC, 2016 N.Y. Misc. LEXIS 2714, *11 (Sup. Ct. 2016)
(granting summary judgment where plaintiff could not demonstrate that it would have
entered into an agreement with a third-party under no obligation to do so).
In the end, is MY Imagination’s own statements in its papers which establish that
any calculation of lost profits is speculative. There are no genuine issues of material
fact to case doubt on the record on MY Imagination’s damage claim. MY Imagination
simply does not have a triable claim for lost profit damages.
Finally, MY Imagination says that MZB failed to address Crawford’s opinion on a
theory for loss of business value. This argument does not carry the day. Crawford
plainly states that: “it is my opinion that in these circumstances a short horizon lost
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profits calculation is more appropriate than a calculation of business value based on
long-term projections.” Doc. 124-28, Crawford Report at ¶ 33. Crawford did not offer
an opinion as to loss of business value.
V. Conclusion
For the reasons stated above, MZB’s motion for summary judgment is
GRANTED. MY Imagination is limited to nominal damages in the event the jury finds
MZB breached the APA in failing to use reasonable commercial efforts to help transfer
the licenses and/or improperly solicited customers.
SO ORDERED.

S/Avern Cohn
AVERN COHN
UNITED STATES DISTRICT JUDGE
Dated:
Detroit, Michigan

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