GEEKY BABY, LLC. v. IDEA VILLAGE PRODUCTS, CORP.
Filing
103
OPINION. Signed by Chief Judge Jose L. Linares on 9/18/18. (cm )
NOT FOR PUBLICATION
UNITED STATES DISTRICT COURT
DISTRICT OF NEW JERSEY
GEEKY BABY, LLC,
Civil Action No.: 15-3454 (JLL)
Plaintiff,
OPINION
V.
IDEA VILLAGE PRODUCTS, CORP.,
Defendant.
LINARES. Chief District Judge.
This matter comes before the Court by way of Plaintiff Geeky Baby, LLC’s Motion for
Partial Summary Judgment, (ECf No. $5), and Defendant Idea Village Products, Corp.’s CrossMotion for Partial Summary Judgment, (ECF No. 88). Both parties filed briefs in opposition and
replies thereto. (ECF Nos. $9, 91, 94, 95). The Court heard oral argument on July 11, 2018. (ECF
No. 9$). for the reasons expressed below, the Court denies both Motions for Partial Summary
Judgment, and will dismiss Plaintiffs indemnification claim and Defendant’s breach of contract
claim seeking indemnification, as neither party is entitled to indemnification.
I.
BACKGROUND’
Plaintiff manufactured and sold “FunLoorn,” which were looms used to create rubber band
bracelets. (Def. $MF
¶J
1—2). On or around August 9, 2013, Plaintiff entered into an agreement
This background is taken from the parties’ statements of material facts, pursuant to Local Civil Rule 56.1. (ECf No.
85-1, Plaintiffs Rule 56.1 Statement of Material facts (“P1. SMF”) ECF No. 88-2, Defendant’s Rule 56.1 Statement
of Material Facts (“Def SMf”); ECF No. 89-1, Defendant’s Reply to Plaintiffs Statement of Material facts; ECF
No. 91-1, Plaintiffs Reply to Defendant’s Statement of Material facts). To the extent that Plaintiff admits to any
Material Facts as stated by Defendant, the Court will cite only to “Def. SMF” and the relevant paragraph.
with Defendant (“the Marketing Agreement”), whereby Defendant was given the right to
manufacture, sell, and market “loom kits containing the following items: looms, hooks, bands,
clips, and storage containers as kits with looms,” as well as “a refill package of bands consisting
of a multi-colored variety pack of solid colored hybrid silicone and rubber replacement bands.”
(ECF No. 91-2 (“Marketing Agreement”) at p. 1). Under the Marketing Agreement, Defendant
was also given a license to create a television advertisement and utilize Plaintiffs websites—
“ftmloorn.corn” and “funloornplus.corn”—to market these products.
(Id.
¶
1).
In exchange,
Defendant would make royalty payments to Plaintiff as stated in the Marketing Agreement. (Id.
¶
2). The Marketing Agreement contained an indemnification clause (“the Indemnity Clause”),
which stated,
(a) [Plaintiff] will indemnify, release, and hold [Defendant]
harmless from and against any and all claims, lawsuits, costs
(including reasonable external attorney’s fees and expenses),
liabilities, damages, fines, settlements, [sic] loses or other expense
incurred by or asserted against [Defendant] arising from (i)
[Plaintiffs] breach of any of the representations, warranties or
covenants in this Agreement, including, but not limited to third party
infringement claims; or (ii) [Plaintiffs] own negligence or the
negligence of its employees, subcontractors, agents or others acting
on its behalf [Plaintiff] will carry general liability insurance in a
minimum amount of two million U.S. Dollars ($2,000,000), with
[Defendant] named as an additional insured. Notwithstanding the
foregoing, [Plaintiff] shall not be required to indemnify [Defendant]
for any claims to be indemnified by [Defendant] as contemplated in
Section 12(b).
(b) [Defendant] will indemnify and hold [Plaintiff] harmless from
and against any and all claims, lawsuits, costs (including reasonable
attorney’s fees and expenses), liabilities, damages, fines, settlements
or other expense incurred by or asserted against [Plaintiff] arising
from (i) [Defendant’s] breach of any of the representations,
warranties or covenants in this Agreement; (ii) any infringement of
or any conflict with any copyright of any third party with respect to
any materials supplied or created by [Defendant] or its agents and
vendors (with the exception of [Plaintiff]) and used to in connection
with the manufacture, use, sale, promotion, marketing, importation,
advertising, exploitation, and distribution of the Product; (iii)
[Defendant’s] own negligence or the negligence of its employees,
subcontractors, agents or others acting on its behalf all in relation to
the Product or the manufacture (to the extent that [Defendant]
manufacturers the Product through a party of its choosing),
advertising or sale thereof or (iv) any third party claim arising out
of the Product or its manufacture, use, sale, promotion, marketing,
importation, advertising, exploitation, and distribution, including
for example any claim of personal injury, trademark infringement,
or false or deceptive advertising (with the exception of any third
party claim that results from information and/or marketing materials
provided by [Plaintiff] to [Defendant]). [Defendant] will carry
product liability insurance covering these risks for a minimum
amount of two million U.S. Dollars ($2,000,000), with [Plaintiff]
named as an additional insured.
d.
¶
11).
Pursuant to the Marketing Agreement, Plaintiff represented that (i) it has frill authority to
enter into the Marketing Agreement and perform its obligations; “(ii) it owns all right, title, and
interest in and to all Licensed [intellectual property],” such as patents, trademarks, and copyrights
related to the product; (iii) the Marketing Agreement does not conflict with any other agreement
or contract; and “(iv) the intellectual property licensed (including any commercial) hereunder does
not, to the best of [Plaintiffs] knowledge, infringe on any intellectual property rights or any other
rights of any third party and that no claim, suit or action is pending against [Plaintiff] for any such
infringement.” (Id.
¶
12(a)). Defendant made similar representations. (See Id.
¶
12(b)).
Before the parties entered into the Marketing Agreement, Plaintiff had received two cease
and desist letters from Choon’s Design, LLC (“Choon’s”) in June 2013, which claimed that
Plaintiff’s FunLoom was infringing on certain intellectual property rights Choon’s possessed in its
product, “Rainbow Loom.” (Def. SMf ¶ 9, 14; see also ECF No. 91-8 (cease and desist letters)).
Though the parties dispute whether Plaintiff provided Defendant with Choon’s cease and desist
letters, the parties agree that Plaintiff informed Jason Drangel, an attorney who occasionally
performs legal services for Defendant, about Choon’s position on infringement prior to the parties
3
entering into the Marketing Agreement. (Def. SMF
¶
15; P1. SMF
¶ 5;
ECf No. 89-1
¶ 5).
The
parties also agree that Plaintiff provided Mr. Drangel with a copy of a letter it sent to Choon’s
lawyer in response to the cease and desist letters. (P1. SMF
¶ 5; ECf No.
89-1
¶ 5).
On August 19, 2013, ten days after the parties entered into the Marketing Agreement,
Choon’s filed suit against Plaintiff in the United States District Court for the Eastern District of
Michigan asserting the same claims raised in its cease and desist letters (“the Choon’s Action”).
(Def. SMF
¶
10).
Specifically, Choon’s brought claims including but
not
limited to direct and
induced patent infringement of its “565 Patent” and “420 Patent,” relating to its Rainbow Loom
design. (ECF No. 9 1-4).
Defendant claims it was “not selling FunLoom products prior to August 19, 2013.” (Def.
SMF
¶1
11). Instead, Defendant claims that it began selling FunLoorn “sometime in late August
[2013],” which is around the same time Defendant claims it became aware of the Choon’s Action.
(Hr’g Tr. at 52:18—22). On April 22, 2014, Choon’s added Defendant to the Choon’s Action in its
Third Amended Complaint. (Def SMF ¶113). Both Plaintiff and Defendant participated in the
Choon’s Action, and Plaintiff eventually settled all of Choon’s claims against it. (P1. SMF
¶J 3,
6). Defendant continued to litigate the Choon’s Action and eventually won on summary judgment,
which is currently pending on appeal.
(Def. SMF
¶
17—18).
Plaintiff claims it incurred
$339,705.42 in costs associated with litigating and settling the Choon’s Action, (P1. SMF ¶ 7), and
Defendant claims it incurred costs of around $1.2 million in the Choon’s Action, (Def SMF ¶ 17).
In part based on the Choon’s Action and in part based on other disputes between Plaintiff
and Defendant not relevant to the Court’s current analysis, Plaintiff subsequently brought this
action against Defendant on May 19, 2015 asserting the following claims: Breach of the Marketing
Agreement (“Count I”); Declaratory Judgment (“Count II”); Breach of the Addendum to the
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Marketing Agreement entered into between the parties (“Count III”); Indemnification (“Count
IV”); and Trademark Violation (“Count V”).2 (ECF No. 1
¶ 43—80).
Defendant answered and
filed the fotlowing counter-claims: Breach of Contract as to the Indemnity Clause (“First Counter
Claim”); Breach of the Addendum to the Marketing Agreement entered into between the parties
(“Second Counter-Claim”); and Breach of the Implied Contract of Good Faith and Fair Dealing
(“Third Counter-Claim”). (ECF No. 31). Both Plaintiff and Defendant now move for summary
judgment on their claims for indemnification, i.e. Plaintiffs Count IV and Defendant’s First
Counter-Claim, seeking to recover from the other party the costs they inculTed defending
themselves in the Choon’s Action.
II.
LEGAL STANDARD
Summary judgment is appropriate when, drawing all reasonable inferences in the non
movant’s favor, there exists no “genuine dispute as to any material fact” and the movant is entitled
to judgment as a matter of law. See Fed. R. Civ. P. 56(a); Anderson v. Liberty Lobby, Inc., 477
U.S. 242, 255 (1986). “[T]he moving party must show that the non-moving party has failed to
establish one or more essential elements of its case on which the non-moving party has the burden
of proof at trial.” McCabe v. Ernst & Young, LLP, 494 F.3d 418, 424 (3d Cir. 2007) (citing Cetotex
Corp. v. Catrett, 477 U.S. 317, 322—23 (1986)).
The Court must consider all facts and their reasonable inferences in the light most favorable
to the non-moving party. See Pa. Coat Ass’n v. Babbitt, 63 F.3d 231, 236 (3d Cir. 1995). If a
reasonable juror could return a verdict for the non-moving party regarding material disputed
factual issues, summary judgment is not appropriate. See Anderson, 477 U.S. at 249 (“[A]t
2
The addendum to the Marketing Agreement referenced above was discussed extensively in the Court’s previous
Opinion, (ECF No. 5$), but said addendum is not relevant to the issue currently before the Court.
5
the summary judgment stage the judge’s ftinction is not himself to weigh the evidence and
determine the truth of the matter but to determine whether there is a genuine issue for trial.”).
III.
ANALYSIS
The main issue before this Court is whether the uncontested facts in the record entitle either
Plaintiff or Defendant as a matter of law to indemnification under the Indemnity Clause from the
other party for the expenses that each one incurred litigating the Choon’s Action. The Marketing
Agreement is governed by New Jersey law. (Marketing Agreement
¶
15). “As a matter of well-
settled legal doctrine, it is clear that an indemnity provision is to be construed in accordance with
the rules for construction of contracts generally, and hence that the judicial task is to ascertain the
intention of the parties.” Mantilla v. NCMallAssocs., 167 N.J. 262, 272 (2001) (citation omitted).
“When the meaning of the clause is ambiguous, however, the clause should be strictly construed
against the indemnitee.” Ramos v. Browning ferris Inthts. of S. Jersey, Inc., 103 N.J. 177, 191
(1986).
Having extensively reviewed the Indemnity Clause restated above and the arguments raised
in the parties’ briefs and at oral argument, the Court finds that neither party is entitled to
indemnification. The Court bases this conclusion on the New Jersey “common-law principle that
‘an indemnitee who has defended against allegations of its independent fault may not recover its
[defense] costs,” absent explicit contractual language to the contrary. Mantifla, 167 N.J. at 272
(quoting Cent. Motor Parts Corp. v. LI. duPont deNemoztrs & Co., Inc.. 251 N.J. Super. 5, 10
(App. Div. 1991)). Though traditionally applied to cases of personal injury and negligence, the
Court finds that the underlying legal principles driving Mantilla, 167 N.J. at 272, and Cent. Motors
Parts Corp., 251 N.J. Super. at 10—specifically, that there is an assumption against
indemnification in independent fault cases—applies the same to this case.
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Indeed, it seems
contrary to public policy and principles of fairness for a party to receive the benefit of
indemnification for its
own
alleged wrongdoing unless there is clear contractual language to the
contrary, regardless of whether that alleged wrongdoing relates to a claim of personal injury or
patent infringement, such as the claims alleged in the Choon’s Action. See SGS US. Testing Co.,
Inc. v. Takata Coip., Civ. No. 09-6007, 2016 WL 1382364, at *8 (D.N.J. Apr. 6, 2016) (explaining
that an indemnitee cannot recover from its co-defendant indemnitor for its own alleged
wrongdoing, because “the party who caused that needless expenditure was not Defendant #2, but
the overreaching plaintiff”); see also Promautayko v. Johns Manvitte Sates Corp., 116 N.J. 505,
509 (1989) (“[t]he purpose of indemnification is restitution to prevent an active wrongdoer from
being unjustly enriched by having another party discharge the obligation of the active
wrongdoer.”) (citation omitted).
As an initial matter, the Court finds that the Indemnity Clause does not allow the parties to
be indemnified for their own alleged wrongdoing, as there is nothing in the indemnity clause
specifically stating that either party in the position of indemnitee can recover for claims they are
independently responsible for.
Indeed, the Indemnity Clause sttpports a finding against
indemnification in independent fault cases, as the language in the contract limits an indemnitee to
recovery solely for the conduct of the indemnitor. For example, the Indemnity Clause states that
Plaintiff shall be indemnified by Defendant for claims arising from Defendant’s “own negligence.”
(Marketing Agreement ¶ 11(b) (emphasis added)). Additionally, Plaintiff can be indemnified for
any third party claim arising out of the manufacturing and marketing of FunLoom, “including for
example any claim of personal injury, trademark infringement, or false or deceptive advertising
(with the exception of any third party claim that restttts from in/brmation and/or marketing
materials provided by [Plaintiffi to [Defendant]).” (Id. (emphasis added)). Similarly, Defendant
7
is to be indemnified by Plaintiff oniy for claims arising from Plaintiffs breach of its
representations or warranties “including, but not limited to third party infringement claims,” or
Plaintiffs “own negligence.” (Marketing Agreement ¶ 11(a) (emphasis added)). As this language
does not include indemnification in independent fault based cases, neither party is entitled to
indemnification under the Indemnity Clause if the Choon’s Action was based on their independent
alleged wrongdoing.
Here, Choon’s sued Plaintiff and Defendant for their independent alleged infringements of
the Rainbow Loom. It is clear to the Court that Plaintiff was sued for its own acts of infringement,
considering Choon’s initially sued Plaintiff based on its alleged infringement of Choon’s
trademarks and patents, which occurred prior to Plaintiff and Defendant entering into the
Marketing Agreement. (Def SMF ¶ 10; see also ECF No. 91-4 (Choon’s Initial Complaint)). The
Court also finds that Defendant was sued for its own alleged infringement, because it individually
manufactured and marketed the FunLoorn product for its own sales pursuant to the Marketing
Agreement beginning in late August of 2013, after it was already aware of the Choon’s Action.
Whether explicitly or implied, each party seems to accept that it was sued by Choon’s based on its
own independent conduct, as Plaintiff specifically argued in its reply brief in support of its motion
for summary judgment that “[p]erhaps it could be fairly stated that nobody here caused anyone
else’s costs; they were caused by the baseless claim of another,” (ECF No. 91 at 10 n.5), and
Defendant conceded at oral argument that it was “theoretically true” that it would not have been
added to the Choon’s Action had it not made its own sales of FunLoorn, (Hr’g Tr. at 52:10—22).
Anecdotally, the settlement agreement between Plaintiff and Choon’s specifically states that “[Defendant] sells
its own fun Loom (IV fun Loom’) through its own channels of trade and under license from [Plaintiffj.”
(ECF No. 85-5 at I (emphasis added)).
8
Furthermore, the parties entered into the Marketing Agreement, and engaged in the alleged
infringement against Choon’s, with “open eyes” regarding Choon’s claim of infringement. It is
clear that Plaintiff was aware of Choon’s claims based on Choon’s cease and desist letters, which
it received prior to entering into the Marketing Agreement. (ECF No. 91-8 (showing that Choon’s
cease and desist letters were sent in June 2013, prior to the Marketing Agreement)). Defendant
argues that it was not aware of Choon’s claim of infringement before entering the Marketing
Agreement, because Plaintiff failed to inform Defendant of Choon’ s cease and desist letter. (ECF
No. 95 at 9; Def. SMF
¶
16). However, aside from the fact that Plaintiff communicated Choon’s
claim to a lawyer affiliated with Defendant, Defendant conceded that it was aware of the Choon’s
Action before it began selling FunLoorn pursuant to the Marketing Agreement and went forward
with selling the allegedly infringing product regardless, (Hr’g Tr. at 52:4—22; Def. SMF
¶ 11).
See
Bonutti Skeletal Innovations LLC v. Conformis, Inc., Civil Action No. 12-1109, 2013 WL
6040377, at *2 n.5 (D. Del. Nov. 14, 2013) (stating that it is “objectively reckless” to continue
selling a potentially infringing product despite knowing the risk of the potential infringement)
(citing Fairchild Semiconductor Corp. v. Power Integrations, Inc., 935 F. Supp. 2d 772, 779 (D.
Del. 2013)). Because each party was sued by Choon’s for their individual conduct, the Marketing
Agreement does not explicitly allow recovery in such circumstances, and both parties entered the
Marketing Agreement with “open eyes” regarding Choon’s claim of infringement, the Court finds
that neither Plaintiff nor Defendant is entitled to indemnification for the expenses they incurred
litigating the Choon’s Action as a matter of law.4
Because the Indemnity Clause does not apply to either party in this case pursuant to New Jersey law, the Court
finds it unnecessary to discuss any additional arguments for or against indemnification raised by the parties.
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IV.
CONCLUSION
for the reasons expressed above, Plaintiffs Motion for Partial Summary Judgment and
Defendant’s Cross-Motion for Partial Summary are hereby denied, and Plaintiffs claim for
indemnification (Count IV) and Defendant’s breach of contract claim seeking indemnification
(First Counter-Claim) are both dismissed as a matter of law. An appropriate Order follows this
Opinion.
Dated: September
/g, 2018
United States District Court
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