Stoebner v. PNY Technologies Inc.
Filing
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ORDER. IT IS HEREBY ORDERED THAT: 1. The Court ADOPTS the December 30, 2013 Report and Recommendation of Chief United States Bankruptcy Judge Gregory F. Kishel, except that it will defer the entry of judgment at this time. 2. When a final deter mination as to PNY's claim in In re Polaroid Corp., Case No. 08-46617 (Bankr. D. Minn. filed Dec. 18, 2008) is made, the parties must notify the Court and submit a proposed order for judgment. (Written Opinion). Signed by Judge Patrick J. Schiltz on April 23, 2015. (CLG)
UNITED STATES DISTRICT COURT
DISTRICT OF MINNESOTA
JOHN R. STOEBNER,
Case No. 14‐CV‐0137 (PJS)
Plaintiff,
v.
ORDER
PNY TECHNOLOGIES INC.,
Defendant.
Ralph V. Mitchell and John R. Stoebner, LAPP, LIBRA, THOMSON, STOEBNER
& PUSCH, CHARTERED, for plaintiff.
David J. Adler, McCARTER & ENGLISH, LLP; Robert T. Kugler, STINSON
LEONARD STREET LLP, for defendant.
Plaintiff John Stoebner is the trustee of the bankruptcy estates of Polaroid
Corporation (“Polaroid”) and its affiliated companies. See In re Polaroid Corp., Case
No. 08‐46617 (Bankr. D. Minn. filed Dec. 18, 2008). Defendant PNY Technologies Inc.
(“PNY”) is a party to several contracts with Polaroid.1 The trustee brought this
adversary action against PNY seeking, among other things, royalties that PNY allegedly
owes to Polaroid. John R. Stoebner, Trustee, v. PNY Techs., Inc., No. ADV 10‐4595 (Bankr.
D. Minn. filed Dec. 16, 2010). The parties filed cross‐motions for summary judgment on
the trustee’s claim for the royalties.
1
Where relevant, the Court’s references to “Polaroid” are intended to encompass
its affiliated companies and the Polaroid bankruptcy estates of which Stoebner is the
trustee.
On December 30, 2013, Chief United States Bankruptcy Judge Gregory F. Kishel
issued a Report and Recommendation (“R&R”) recommending that the Court deny
PNY’s motion, grant in part the trustee’s motion, and enter judgment in the amount of
$361,233.33 in favor of the trustee. This matter is before the Court on PNY’s objection to
the R&R. The Court has conducted a de novo review. See 28 U.S.C. § 157(c)(1); Fed. R.
Bankr. P. 9033(d). Based on that review, the Court adopts the R&R, except that it will
not enter judgment until PNY’s claim for setoff is finally determined.
PNY and Polaroid are parties to a 2006 Brand License Agreement (“License”),
under which PNY agreed to pay royalties for the right to use Polaroid’s trademarks.
The trustee alleges that PNY failed to make royalty payments for the second, third, and
fourth quarters of 2008 and for the first and second quarters of 2009, in the total amount
of $472,946.93. This figure is derived in part from sales reports that PNY provided for
2008; because PNY did not provide sales reports for 2009, the trustee is seeking $100,000
per quarter, which is the minimum guaranteed royalty payment under the License. See
Dolan Decl., May 10, 2011 ¶¶ 8‐15 & Ex. A‐1 § 4(a) (setting forth the minimum
guaranteed royalty payments for each quarter).
PNY first argues that the trustee does not have the right to these royalties
because Polaroid sold its rights under the License to a third party in May 2009.
Specifically, PNY points to an Asset Purchase Agreement (“APA”) under which
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Polaroid sold its assets to PLR Holdings, LLC (“PLR”) in a sale that was approved by
the bankruptcy court in April 2009 and that closed on May 7, 2009. See Candee Decl.,
May 10, 2011 Ex. 1 [hereinafter “APA”]; Dolan Decl., May 10, 2011 ¶ 14. The trustee is
seeking only the royalties that had accrued and were due to Polaroid as of the closing
date. PNY contends that, because Polaroid assigned the License to PLR, the trustee no
longer has the right to sue for those royalties.
The question, then, is one of contract interpretation: Did Polaroid, through the
APA, assign its right to pre‐sale royalties to PLR? Having reviewed the relevant
contract language, the Court agrees with Judge Kishel’s analysis of the APA. As
Judge Kishel explained, the APA specifically carves out “royalties . . . due and owing
under the Acquired Contracts and accruing on or before the Closing Date” as assets that
are retained by Polaroid. APA § 1.2(p) (emphasis added).3 This specific provision
controls over the more general provisions that PNY cites, particularly as this specific
provision says that it applies “[n]otwithstanding anything to the contrary in this
Agreement . . . .” APA § 1.2; see Fortune Funding, LLC v. Ceridian Corp., 368 F.3d 985, 990
3
The record does not appear to contain Schedule 1.1(c), which lists the “Acquired
Contracts,” see APA § 1.1(c), but the parties do not dispute that the License is listed as
an “Acquired Contract” on the schedule. See ECF No. 1‐2 at 6 (PNY’s memorandum in
support of its motion for summary judgment referring to documents in the main
bankruptcy case to show that the License is an “Acquired Contract”).
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(8th Cir. 2004) (“Under Minnesota law, if a conflict exists between two contract
provisions, a contract’s specific term controls over a general term.”).4
PNY next objects that the Court should not enter judgment at this time because
PNY has the right to set off its claim in the main bankruptcy proceeding against the
trustee’s claim in this adversary proceeding. In the main bankruptcy proceeding, PNY
filed a claim for $686,837.57 arising out of a separate contract with Polaroid called the
“Support Services Agreement” (“SSA”). In this adversary proceeding, PNY argues that
it is entitled to set off its SSA claim in the bankruptcy proceeding against the trustee’s
claim for royalties. If PNY’s full claim were allowed, PNY’s claim under the SSA would
wipe out the trustee’s claim under the License. Judge Kishel agreed that PNY is entitled
to set off its SSA claim against the trustee’s claim for royalties, but in a separate order he
reduced the amount of PNY’s claim to $111,713.60, which results in a net judgment in
favor of the trustee in this action. PNY’s appeal of that separate order recently resulted
in a remand for further discovery. See PNY Techs. Inc. v. Polaroid Corp., No. 14‐CV‐0754
(JRT), ECF No. 25 (D. Minn. Mar. 19, 2015). The trustee agrees that this Court should
defer the entry of judgment on the trustee’s claim until the amount of PNY’s setoff is
finally determined, and the trustee’s concession adequately resolves PNY’s objection on
this issue.
4
The APA is construed under Minnesota law. APA § 10.4.
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PNY also objects that it has not had any opportunity to take discovery. The
proper method to raise such an objection is to file an affidavit under Fed. R. Civ.
P. 56(d). See Fed. R. Bankr. P. 7056 (Fed. R. Civ. P. 56 is applicable in adversary
proceedings). PNY did not file a Rule 56(d) affidavit, however. Nor has PNY identified
any discovery that it could take that would be relevant in this proceeding.5 For the most
part, the issues discussed by PNY relate to the SSA claim that it has asserted in the
bankruptcy proceeding. That claim relates to a completely separate contract, however,
and has nothing to do with this case (except insofar as any amounts due to PNY under
the SSA may be set off against the trustee’s claim for royalties under the License).
PNY makes much of the fact that it did not get an opportunity to depose James
Dolan, the former vice president and controller of Polaroid who submitted a declaration
attesting to the amounts due under the License. But PNY does not explain why it needs
to depose Dolan, whose calculations were based on PNY’s own sales reports (which are
attached to Dolan’s declaration). PNY does not contend, for example, that Dolan’s
calculations are incorrect or that the sales reports attached to Dolan’s declaration are not
the actual sales reports that PNY submitted to Polaroid. PNY also complains that it was
not permitted to depose Bradford Kullberg, another Polaroid employee, who authored
5
PNY repeatedly says that it served discovery shortly after receiving the trustee’s
motion for summary judgment. PNY has not provided its discovery requests to the
Court, however.
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an email in which PNY is particularly interested. The discussion in the email concerns
the parties’ dispute under the SSA, however, and is therefore not relevant in this case.
As a last resort, PNY contends that it needs discovery to determine whether the
License was actually assigned to PLR. This issue apparently arose somewhat belatedly
in the bankruptcy court when, in response to PNY’s motion for summary judgment, the
trustee suggested that Polaroid may not have assigned the License to PLR after all. ECF
No. 1‐3 at 7. The trustee pointed to a letter agreement, dated April 16, 2009, under
which Polaroid and PLR agreed that the License (and a few other contracts) would not
be assigned at closing but would instead be subject to further negotiations between PLR
and the counterparties to the specified contracts.6 Candee Decl., May 26, 2011 Ex. 3.
Accordingly, the trustee claimed that there were issues of fact concerning whether the
License was ever assigned (although the trustee later submitted an email from counsel
for a PLR affiliate confirming that the License had in fact been assigned to PLR ).
See Stoebner Aff., June 20, 2011 & Ex. A.
PNY now argues that it needs discovery on the issue of whether Polaroid
assigned the License to PLR. If Polaroid did not assign the License, PNY argues, then
6
The letter agreement is actually between Polaroid and an entity entitled PLR
Acquisition, LLC. In addition, and somewhat confusingly, the agreement describes
PLR Acquisition, LLC as the buyer under the APA. As noted earlier, the APA is
between Polaroid and PLR Holdings, LLC. Insofar as neither side has even mentioned
this discrepancy (much less contended that it makes any difference), the Court follows
the parties’ lead and treats it as irrelevant.
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the License was not included among the “Acquired Contracts” (that is, among the
contracts assigned to PLR under the APA), and the carveout for royalties due under
“Acquired Contracts” would not apply. See APA § 1.2(p). According to PNY, this
raises the possibility that the royalties that it owed Polaroid under the License could be
considered part of the receivables that were assigned to PLR under § 1.1(q) of the APA.
To avoid summary judgment on the ground that further discovery is necessary,
the party resisting summary judgment must identify what facts it seeks and how those
facts could reasonably be expected to create an issue of fact. Johnson v. United States, 534
F.3d 958, 965 (8th Cir. 2008). PNY does not identify any facts that it could discover that
would raise a factual issue concerning whether Polaroid assigned the License to PLR.
This failure is particularly noteworthy because, as between PNY and the trustee, PNY is
in the far better position to know whether Polaroid assigned the License to PLR.
As noted, under the April 16 letter agreement, whether any of the contracts at
issue were ultimately assigned to PLR depended entirely on negotiations between PLR
and the counterparties to those contracts. In particular, if the counterparty to a contract
failed to irrevocably waive certain rights under § 365 of the Bankruptcy Code within
90 days after closing, then that contract became an “Acquired Contract” that was
assigned to PLR.
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The counterparty to the License, of course, is PNY. For the License to remain
with Polaroid, then, PNY would have had to irrevocably waive certain § 365 rights.
PNY obviously does not need discovery to find out whether it waived its rights, which
is the only fact that determines whether the License was assigned to PLR. Moreover,
PNY has never suggested that it waived its § 365 rights. To the contrary, PNY contends
that it needs discovery because, if the License was not assigned to PLR, then PNY has
“significant rights under Section 365(n) of the Bankruptcy Code . . . .” ECF No. 3 at 7
n.5. These would seem to be the very rights that PNY would have had to waive in
order to prevent the License from being assigned to PLR. See Candee Decl., May 26,
2011 Ex. 3. In any event, given PNY’s failure to contend that it waived any § 365 rights
(much less offer any evidence that it did so), the Court concludes that there is no real
issue of material fact and that the License was assigned to PLR.
Finally, at the hearing before Judge Kishel, PNY contended that the APA
required Polaroid to provide PLR a list of receivables that were being conveyed to PLR.
ECF No. 2 at 36‐37. PNY suggested that it needed to look at this document in order to
determine whether, notwithstanding the language in the APA reserving pre‐sale
royalties to Polaroid, Polaroid nevertheless conveyed its right to those royalties to PLR.
PNY does not seem to be pursuing this argument and did not cite the provision of the
APA that requires such a list. (It appears to the Court that PNY is referring to
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Polaroid’s obligation under § 3.2 of the APA to convey the “Acquired Assets”—that is,
the assets being sold under the APA—via the appropriate instruments at closing.)
Under the plain language of the APA, however, the pre‐sale royalties that accrued
under the License are not “Acquired Assets.” There is no reason to believe that Polaroid
voluntarily gave away its pre‐sale royalties to PLR in some other document despite the
plain language in the APA reserving those royalties to Polaroid. The Court therefore
overrules PNY’s objection and adopts the R&R.
ORDER
Based on all of the files, records, and proceedings herein, IT IS HEREBY
ORDERED THAT:
1.
The Court ADOPTS the December 30, 2013 Report and Recommendation
of Chief United States Bankruptcy Judge Gregory F. Kishel, except that it
will defer the entry of judgment at this time.
2.
When a final determination as to PNY’s claim in In re Polaroid Corp., Case
No. 08‐46617 (Bankr. D. Minn. filed Dec. 18, 2008) is made, the parties
must notify the Court and submit a proposed order for judgment.
Dated: April 23, 2015
s/Patrick J. Schiltz
Patrick J. Schiltz
United States District Judge
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