The Kayo Corp. v. Fila U.S.A., Inc.

Filing 140

JUDGMENT AGAINSTFILA U.S.A., INC. It is: ADJUDGED AND DECREED that Plaintiff The Kayo Corp. ("Plaintiff") is granted Judgment against Defendant Fila U.S.A., Inc. ("Defendant" and/or "Fila") and Judgment is hereby enter ed in the amount of $732,666.00 plus nine (9) percent interest in the amount of $177,116.00 making the total amount of the Judgment $909,776.00. Plaintiff will also be awarded costs as the prevailing party to be taxed by the Clerk on notice. ENTER., (Fila U.S.A., Inc. terminated.) (Signed by Judge Alvin K. Hellerstein on 8/1/22) (yv)

Case 1:18-cv-03981-AKH Document 139 Filed 07/28/22 Page 1 of 1

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK

Case No. 18-cv-03981-AKH

THE KAYO CORP.,

JUDGMENT AGAINST
FILA U.S.A., INC.

Plaintiff,
v.
FILA U.S.A., INC.,
Defendant.

This matter having come before the Court for trial pursuant to Rule 52(a) of the Federal
Rules of Civil Procedure on July 6, 2022, both parties appearing by counsel, the Court having
reviewed the pleadings filed herein and the evidence before the Court and heard arguments of
counsel, all as set forth in the July 6, 2022 transcript attached hereto as Exhibit A, and the Court
being fully advised of all relevant information and evidence, and having entered its findings of fact
and conclusions of law on the record; now, therefore, it is:
ADJUDGED AND DECREED that Plaintiff The Kayo Corp. (“Plaintiff”) is granted
Judgment against Defendant Fila U.S.A., Inc. (“Defendant” and/or “Fila”) and Judgment is hereby
entered in the amount of $732,666.00 plus nine (9) percent interest in the amount of $177,116.00
making the total amount of the Judgment $909,776.00. Plaintiff will also be awarded costs as the
prevailing party to be taxed by the Clerk on notice.
ENTER:

August 1
Dated: __________________,
2022

/s/ Alvin K. Hellerstein
______________________________
Alvin K. Hellerstein
U.S. District Judge

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EXHIBIT A

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2

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
------------------------------x

3

THE KAYO CORP.,

4

Plaintiff,

5
6

v.
FILA U.S.A., INC.,

7
8

18 Civ. 3981 (AKH)

Defendant.
------------------------------x
New York, N.Y.
July 6, 2022
2:34 p.m.

9
10
Before:
11

HON. ALVIN K. HELLERSTEIN,
12
District Judge
13
APPEARANCES
14
15

FOSTER GARVEY PC
Attorneys for Plaintiff
BY: ANDREW J. GOODMAN

16
17

ARENT FOX LLP
Attorneys for Defendant
BY: KATHLEEN R. HEILMAN

18
19
20
21
22
23
24
25
SOUTHERN DISTRICT REPORTERS, P.C.
[phone]

1

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(Case called)

2

MR. GOODMAN:

3

2

For plaintiff, Andrew Goodman, Foster

Garvey.

4

Your Honor, would you prefer with or without masks?

5

THE COURT:

6

would rather without masks.

If you are comfortable without masks, I

7

So it's Andrew Goodman for the plaintiff, Kayo?

8

MR. GOODMAN:

9

THE COURT:

Yes, your Honor.

And Katie Heilman for the defendant, Fila?

10

MS. HEILMAN:

11

THE COURT:

That's correct, your Honor.

So let me work out some ground rules with

12

you.

13

trial.

14

trial, you've gone through mediation without success.

15

you that because of a jam-up of criminal trials, it will be

16

well into the fall and perhaps the winter before I could reach

17

you, so I suggested this procedure, the form of a summary

18

trial.

19

The closest analogy to what we're doing is a summary
I've told you before that you folks are both ready for
I told

I thought that the following might be a good way to

20

go:

Mr. Goodman will go first for half hour, Ms. Heilman will

21

then go for a half hour, you'll each have 15 minutes to rebut

22

the other, and I'll be making comments interspersed along the

23

way.

24

What is it that you would like from me, Mr. Goodman?

25

MR. GOODMAN:

A judgment, your Honor, in the sum of

SOUTHERN DISTRICT REPORTERS, P.C.
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one million --

2

THE COURT:

No, I know your addendum.

At the end of

3

today, should I be declaring a judgment for one side or the

4

other?

5

I think not.
MR. GOODMAN:

I think, your Honor, what would be most

6

helpful would be a determination that the contract required

7

notice of default, which was not given.

8

THE COURT:

9

MR. GOODMAN:

10
11

THE COURT:

That's the key issue of the case?
Yes, your Honor.

Do you want me to deliver that without

witnesses?

12

MR. GOODMAN:

13

THE COURT:

14

MS. HEILMAN:

Yes, your Honor.

How about you, Ms. Heilman?
I think, your Honor, that ruling that

15

the plaintiff's performance was not reasonable and that the

16

plaintiff failed to perform --

17
18
19

3

THE COURT:

Well, you want me to determine the case,

also?
MS. HEILMAN:

I believe you can.

I think, typically,

20

that's a fact issue.

I think here, the record is relatively

21

black and white and you could make that determination based on

22

the evidence that we present today.

23

THE COURT:

24

MS. HEILMAN:

25

Will there be any credibility issues?
I don't believe so.

I think you could

make that determination based on the documents, determine that
SOUTHERN DISTRICT REPORTERS, P.C.
[phone]

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there was no performance, and that the agreement automatically

2

terminated or was abandoned.

3

THE COURT:

In other words, you want me to make the

4

factual determinations, if I'm able to, from your delivery of

5

your arguments at the end of the day, in effect turning this

6

into a bench trial on a Rule 52 type of findings of fact and

7

conclusions of law at the end of it.

8
9

MR. GOODMAN:

Your Honor, from plaintiff's

perspective, there are factual issues as to performance, if you

10

get to performance.

11

don't have to get to performance, but if your Honor finds that

12

notice was either not required or given, then we do get to the

13

performance issues, your Honor.

14

testimony.

15

THE COURT:

If you find on the absence of notice, you

There we do have live

I take it from what you want is that both

16

of you would like me, if I can, to make whatever determinations

17

I'm able to make on the basis of the record you present today.

18

If I can't rule, just figure out then what we do with those and

19

how we will proceed.

20

Is that satisfactory, Mr. Goodman?

21

MR. GOODMAN:

22

THE COURT:

23

MS. HEILMAN:

24

THE COURT:

25

Yes, your Honor.

And Ms. Heilman?
Yes, your Honor.

The next thing I want from both of you,

because this is not an ordinary way of proceeding, is a
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statement that you will not seek to recuse me on the basis of

2

knowledge that I'm acquiring today.

3
4

MR. GOODMAN:

5

Your Honor, plaintiff definitely will

not seek to recuse you based on today's proceeding.

5

THE COURT:

6

MS. HEILMAN:

7

THE COURT:

8

I do not plan to conduct any mediations with you today

9
10

Okay.

So everything

So why don't we begin with Mr. Goodman.
half hour.

You have a

It is now twenty minutes to 3:00.

MR. GOODMAN:

May I sit, your Honor, or should I

stand?

15

THE COURT:

16

MR. GOODMAN:

17

So then we can proceed.

will be in open court and on the record.

13
14

I will not, as well.

or maybe ever, and nothing will be ex parte.

11
12

Ms. Heilman.

Whatever is more convenient to you.
Okay.

It will be easier, given my

glasses and the documents, to sit.

18

THE COURT:

It's okay with me.

19

MR. GOODMAN:

20

So obviously the place where we start is the agreement

Thank you, your Honor.

21

itself.

The agreement is in the binder we have given your

22

Honor, which is the one with the orange cover.

23

THE COURT:

24

MR. GOODMAN:

25

I have the agreement.
We are dealing with paragraph 2.1, that

proviso that begins the last three lines of page 2.
SOUTHERN DISTRICT REPORTERS, P.C.
[phone]

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1

respect to Zumiez, Pacific Sunwear, and Tilly's.

2

shall have the right to sell -- licensor would be Fila.

3

shall have the right to sell products branded with the Fila and

4

F-Box trademarks that are not intended specifically for the

5

skateboarding market so long as the licensor consults with the

6

licensee prior to any sale being made and licensee shall be

7

entitled to a commission of 7 percent of the net purchase price

8

received by licensor.

9

The licensor
Fila

The parties understood that this required Fila to go

10

through Kayo to get to those three outlets.

11

in the binder, your Honor, is a series of emails, I would like

12

to point your Honor to the second page that bears Bates number

13

Fila 000461.

14

THE COURT:

15

MR. GOODMAN:

16

THE COURT:

17

MR. GOODMAN:

18

want to get to that one later.

19

18th email.

This is tab 6?

THE COURT:

21

MR. GOODMAN:

22

THE COURT:

23

MR. GOODMAN:

25

here.

Yes, your Honor.

All right.

20

24

On document No. 6

Actually, I'm sorry.

Wrong email.

I want to look at the January

Which one?
January 18th, 2015.

How many pages is it?
I'm sorry.

I'm not off to a great start

Let me then go to number 40, page 2.
THE COURT:

I

You want me to go to tab 40?

SOUTHERN DISTRICT REPORTERS, P.C.
[phone]

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2

MR. GOODMAN:

You will see from that tab

that in January and February of --

3
4

40, yes.

7

THE COURT:

You should have done this electronically

rather than these cumbersome books.

5

MR. GOODMAN:

6

THE COURT:

7

MR. GOODMAN:

Sorry, your Honor.

Okay.

I've got 40.

On the second page of 40 is an email,

8

dated January 25th, 2016, from Jennifer Estabrook, who was at

9

that point in time the general counsel and COO of Fila, and

10

they're in the middle of negotiating in January of 2016 with a

11

sales rep that would cut out Kayo from a number of possible

12

accounts.

13

On January 25th, Ms. Estabrook wrote --

THE COURT:

Don't you think it would make more sense

14

to start with the agreement itself and what you consider was a

15

breach?

16

Fila.

There was a notice of termination that was sent via

17

MR. GOODMAN:

18

THE COURT:

Correct.

Fila contends that it sent it because they

19

were non-curable breaches.

20

improvident sending, a breach of contract by Fila.

21

major issue of this case.

22

MR. GOODMAN:

23

THE COURT:

24
25

You contend that it was an
That's the

Yes, your Honor.

So why don't we focus on the major issue

of this case.
MR. GOODMAN:

Yes, your Honor.

So that's paragraph

SOUTHERN DISTRICT REPORTERS, P.C.
[phone]

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15.2 of the agreement.

2
3

THE COURT:

Okay.

MR. GOODMAN:

I'd

The termination is a February 10th, 2017

email in our book at 1B, as in boy.

6

THE COURT:

7

MR. GOODMAN:

8

THE COURT:

9

So what was the termination?

like to see what, in effect, was the termination.

4
5

8

In 1B?
B as in boy, your Honor.

I have it.

And it reads, by Jennifer

Estabrook, chief operating officer of Fila, writing to the

10

president, Troy Morgan, of Kayo.

11

this letter is to notify you that pursuant to section 15.2(i)

12

of the agreement --

13

Dear Troy, the purpose of

And let's look at 15.2(i) of the agreement to see what

14

it says.

A licensee sells products outside the territory.

15

That's 15.2(i).

16

exercising its right to immediately terminate the agreement as

17

a result of Kayo's complete failure to exercise any of its

18

rights or fulfill any of its obligations under the agreement

19

for a period of over 18 months.

20

representatives of Fila attempted numerous times to contact

21

you, your lawyer, and your finance team and received no

22

response.

23

being cured.

24

complete lack of business etiquette, there is simply no

25

interest or appetite to try to build a relationship with you or

That, pursuant to that section, Fila is

During this period,

At this point, these breaches are not capable of
Given these breaches of the agreement and Kayo's

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your company.

2
3

Maybe let me change this procedure and just ask now,
Ms. Heilman, these questions.

4

Was 15.2 a mistake?

5

MS. HEILMAN:

Actually, there are two 15.2(i)'s.

6

There is, if you look up into the body of the paragraph that

7

starts:

8

immediately upon any material breach of any --

9

9

"Licensor may terminate," you'll see romanette (i),

THE COURT:

I need to regulate the sound.

10

(Pause)

11

Licensor may terminate this agreement, and the license

12

is granted hereunder, immediately upon any material breach of

13

any of the provisions hereof by licensee which is not capable

14

of being cured.

15

Now, you're saying that because Kayo did not — and you

16

don't say why — exercise any of its rights or fulfill any of

17

its obligations for a period of over 18 months, shouldn't you

18

have given a notice to cure?

19

MS. HEILMAN:

20

for termination.

21

referenced.

22
23
24
25

There are actually two possible grounds

So that was the provision that was

THE COURT:

Well, that's the only provision that

counts then.
MS. HEILMAN:

So in Fila's view, by this point, it was

18 months into an agreement term that contemplated certain work
SOUTHERN DISTRICT REPORTERS, P.C.
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that was going to be done by Kayo.

2

THE COURT:

3

MS. HEILMAN:

4

Isn't this a situation of right to cure?

THE COURT:

6

MS. HEILMAN:

10

I believe -- Fila does not believe

I know, but what did the agreement say?
There is no obligation to provide a

notice to cure.

8
9

No.

that there was --

5

7

THE COURT:

Part 2 says, upon any material breach of

any of the provisions hereof by licensee which is capable of
being cured and is not cured within 45 days.

11

So how about 4, licensee fails to submit to licensor

12

for its prior approval any product advertising material or

13

plan.

14

MR. GOODMAN:

15

THE COURT:

16

MR. GOODMAN:

17

10

That's explicitly --

Cease, Mr. Goodman.
I apologize.

I thought your Honor was

done.

18

THE COURT:

Number 6, licensee fails to fulfill any

19

other material obligations it may have, and it specifics which

20

ones.

21

MS. HEILMAN:

I agree with that is what the agreement

22

says.

23

non-curable material breaches.

24

says that a non-curable breach is defined as the following.

25

I think those are examples of what constitute
I don't know that the agreement

There is also a provision on the following page,
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section 15.4.

2

THE COURT:

Can I read this language.

3

constitute a non-curable material breach.

4

covenant or is it just a preparatory wish?

5

MS. HEILMAN:

The following

Is that not a

It's an example of what constitutes a

6

non-curable material breach.

7

THE COURT:

8

11

Here, the conduct went beyond --

It doesn't say example.

It doesn't say

for example.

9

MS. HEILMAN:

10

THE COURT:

11

MS. HEILMAN:

It does not say defined as.

Following a non-curable material breach.
I agree there is some ambiguity.

I

12

would point out that the failure to submit product advertising

13

materials or plans was not the only issue here.

14

several other issues of complete and utter failure to

15

communicate for an 18-month period.

16

THE COURT:

There was

Are you not bound by the notice of

17

termination you give?

18

MS. HEILMAN:

I believe that the Court could also find

19

an alternative ground for termination under section 15.4, which

20

is automatic termination provision based on the record

21

evidence.

22

THE COURT:

23

under there, and 4 is blank.

24

on?

25

Let's read it.

MS. HEILMAN:

There is three sections

Which subsection are you relying

Subsection 3.

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THE COURT:

Either party becomes unable to pay its

2

debts as they fall due or becomes unable in the other party's

3

reasonable opinion to fulfill all of its material obligations

4

thereunder.

5

Is that what you're working on?

MS. HEILMAN:

The second clause, in the other party's

6

reasonable opinion could not fulfill all of its material

7

obligations.

8
9
10
11
12

12

THE COURT:

So you then have the obligation to show

that your termination was reasonable, right?
MS. HEILMAN:

I believe the plaintiff has the

obligation to prove that their performance was reasonable.
THE COURT:

No.

No.

The way I read it is it's an

13

exception.

Either party becomes unable to pay its debts as

14

they fall due, or becomes unable in Fila's reasonable opinion

15

to fulfill all of its material obligations thereunder.

16

it's your reasonable opinion that counts, you have the burden.

17

MS. HEILMAN:

18

THE COURT:

Since

Correct.

So why don't we let Ms. Heilman then speak

19

about how she will prove that her opinion that the notice of

20

termination was reasonable.

21

MS. HEILMAN:

So I think it might be helpful to step

22

back and talk about the nature of the arrangement generally and

23

what was sort of bargained for here.

24

So you have, under the agreement --

25

THE COURT:

Don't we find this in the agreement

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itself?

2
3
4
5

13

MS. HEILMAN:

Yes, we will find this in the agreement

itself.
THE COURT:

Because the agreement says it's the entire

agreement, doesn't it?

6

MS. HEILMAN:

7

THE COURT:

It does.

The cause is 18.4.

This agreement sets

8

forth the entire agreement and the standing with respect to the

9

business hereby contemplated by and between the parties.

This

10

agreement shall not be altered or amended except by writing

11

duly executed by the parties.

12
13
14

So we have to find the obligation that has not been
performed within the four corners of this agreement.
MS. HEILMAN:

So I would refer back to section 2.1,

15

which is grant of licenses.

16

the exclusive nontransferable right and license to use the

17

Skate Trademark in connection with the manufacturer marketing

18

and sale of the products, and the products is defined above in

19

section 1.10, products shall mean products branded with a Skate

20

Trademark.

21

THE COURT:

That is where Fila granted Kayo

Set forth in Schedule A.

Schedule A says,

22

street and skateware apparel limited to short-sleeve T-shirts,

23

long-sleeve T-shirts, jackets, sweatshirts, sweatpants, pants,

24

shorts and footwear in all cases branded Fila Skateboarding.

25

MS. HEILMAN:

Correct.

SOUTHERN DISTRICT REPORTERS, P.C.
[phone]

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2
3

THE COURT:
on these products.

So I guess it's failure to make progress
Is that what we're talking about?

MS. HEILMAN:

4

product line for Fila.

5

skate market.

6
7
8
9
10

THE COURT:

MS. HEILMAN:

So Fila is a very experienced

licensees to market its products.

MS. HEILMAN:

16

Correct.

licensor, it's a licensed business, it routinely works with

12

15

Fila had never before ventured into the

considerable experience in the skate market?

THE COURT:

14

Yes, this was to be a completely new

So working with Kayo is that Kayo had

11

13

14

So what did Kayo fail to do?
Kayo failed to develop, market, or sell

any products.
THE COURT:

Is there a provision here that gives a

time period?
MS. HEILMAN:

There isn't, but the law requires that

17

when you have an exclusive license that contemplates the

18

payment of royalties, you have a duty to act reasonably because

19

you're essentially excluding the licensor from the market and

20

they're expecting profits in return, royalty payments.

21

there is an abundance of case law, as I'm sure you're well

22

aware, that requires the licensee to engage in reasonable

23

efforts to develop in market and sell the licensed products.

24
25

THE COURT:

So

At any point in time, did you write a

letter to Kayo complaining about its lack of performance?
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MS. HEILMAN:

They did reach out.

There was at least

2

one email about a year into the agreement where the then

3

general counsel, who is now Fila's president, reached out and

4

asked for who is the contact for royalty reporting.

5

THE COURT:

6

MS. HEILMAN:

7

THE COURT:

8

MS. HEILMAN:

My book.

9

MR. GOODMAN:

It is also in ours, your Honor.

10
11

THE COURT:

15

Can you point me to that email?
Sure.

Tab 42.

Your book?

I haven't ruled yet.

You're not supposed

to duplicate exhibits.

12

What do you want me to read?

13

MS. HEILMAN:

So the email is just what's on this

14

page, your Honor.

15

23rd, 2016, which was about one year into the agreement term —

16

the agreement was effective as of June 15th, 2015 — saying can

17

you please let me know who the contact is at Kayo for royalty

18

reporting.

19

this is the apparatus of communication between the licensor and

20

the licensee, is the royalty report.

21

heard nothing from Kayo.

22

this email and received no response.

23
24
25

It's from Jennifer Estabrook, dated May

Ms. Estabrook testified that in her experience,

THE COURT:

By this point, they have

A year into the agreement, she sent

I can't hold this is any kind of a notice

of poor performance, not from this document.
Are there any other documents?
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2

MS. HEILMAN:

There were also other indicators that

there was nothing happening with this contemplated skate line.

3

THE COURT:

4

MS. HEILMAN:

5

I want to also direct your Honor to some other

6

16

For example.
There was no social media activity.

provisions of the agreement.

7

The agreement at section 5.2 contemplated that

8

licensees shall deliver to licensor for its approval one

9

concept design or color sketch of each product to be

10

distributed by licensee hereunder.

11

an admission, Kayo's witnesses admitted that no concept

12

designs, sketches, product samples.

13

references product samples being provided.

14

things were provided.

15

THE COURT:

16

MS. HEILMAN:

That never happened.

It's

This provision also
None of those

Did you ever complain?
They did not, your Honor, to -- I mean,

17

in Fila's experience, the way that the licensing agreement

18

works is that it's typically the licensee that has a sense of

19

urgency and is pushing to get products approved and is in

20

constant contact trying to collaborate with Fila, presenting

21

designs for its approval.

22

sales.

23

THE COURT:

They're very eager to generate

It may be, but that sentence is not a

24

non-curable breach that's curable within 45 days, and if there

25

isn't a cure within 45 days, you have a right to terminate.
SOUTHERN DISTRICT REPORTERS, P.C.
[phone]

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1

The separate sentence reads, upon request, Kayo shall deliver

2

to Fila for its approval one current production sample of such

3

requested product together with the tags, labels, and packaging

4

to be used in connection therewith.

5

Is there proof of any request made by Fila?

6

MS. HEILMAN:

No, there was not a request made.

But

7

as I mentioned, in Fila's experience, it's the licensee that

8

does the work, which distinguishes a license arrangement from a

9

distribution arrangement.

10

THE COURT:

This is the specific covenant under the

11

agreement which is curable, which you did not give notice to

12

cure.

13

MS. HEILMAN:

There is also a provision -- the

14

following provision is a requirement that the licensee submit

15

proposed advertising materials to the licensor for approval.

16

That also never happened.

17

THE COURT:

18

MS. HEILMAN:

19

THE COURT:

20

Upon request.

Before you finish with 5.2, it

specifically says Fila's request, doesn't it?

21

MS. HEILMAN:

22

THE COURT:

23
24
25

And in section 4.1, the licensee --

5.3 does not say that.

Under upon request, Kayo shall deliver to

Fila for its approval, et cetera.
MS. HEILMAN:

Production sample.

I'm sorry.

following sentence, the following paragraph, 5.3.
SOUTHERN DISTRICT REPORTERS, P.C.
[phone]

Not the

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THE COURT:

18

Within a reasonable period of time prior

2

to the dissemination of any advertising material, licensee

3

shall submit such proposed advertised material to licensor for

4

approval.

5

So if you didn't get it, you had to ask.

6

MS. HEILMAN:

7

THE COURT:

8

MS. HEILMAN:

9

That is not Fila's --

With notice, that's curable.
That's not their experience with dozens

other licensees worldwide and decades of experience.

They

10

don't follow up and sort of chase licensees.

11

is that the licensee will do the work to generate the products

12

and generate the sales.

13
14

THE COURT:

Mr. Goodman, what in this document makes

this a curable breach?

15
16

The expectation

MR. GOODMAN:

Everything is a curable breach except

for those that are non-curable 1, 2, and 3.

17

THE COURT:

Let's read it together.

18

MR. GOODMAN:

19

THE COURT:

15.2, is it?

Yes, your Honor.

Immediately upon any material breach of

20

any of the provisions hereof by licensee which is not capable

21

of being cured.

22
23

I can't hold that failures of 5.2 and 5.3 are not
curable.

24

MR. GOODMAN:

25

THE COURT:

That's correct, your Honor.

Ms. Heilman.

SOUTHERN DISTRICT REPORTERS, P.C.
[phone]

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1
2
3

MS. HEILMAN:

I'm sorry.

I didn't quite catch what

you said.
THE COURT:

I can't hold that any obligation of a

4

product of Kayo to be deformed under 5.2 or 5.3 is a

5

non-curable obligation.

6

there is an obligation to give notice to cure before you

7

terminate.

8

MS. HEILMAN:

9

referring to 5.2(iv)?

10

THE COURT:

11

MS. HEILMAN:

If there is a failure to perform,

Which specific provision, are you

The ones you were talking about, 5.2, 5.3.
Also, I just wanted to call your

12

attention to one other provision that's made explicit, that's

13

the licensee in section 4.1, licensee shall use commercially

14

reasonable efforts.

15

THE COURT:

Licensee shall only be permitted to sell

16

the products in the authorized distribution channels.

17

that's section D, right?

18

MS. HEILMAN:

19

THE COURT:

20

19

I think

Section 4.1.

The authorized distribution channels on

the list of companies that are set out in schedule B.

21

MS. HEILMAN:

22

THE COURT:

That's right.

Licensee shall use commercially reasonable

23

efforts to market the products and the collaboration with

24

licensor in store, online, and through its traditional and

25

social media activities.
SOUTHERN DISTRICT REPORTERS, P.C.
[phone]

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Again, this is curable.

20

Under the regime of the

2

contact, Kayo is entitled to a 45-day right of cure, and if it

3

doesn't accomplish what it has to accomplish in 45 days, you

4

have an absolute right to terminate, but you didn't give that.

5

MS. HEILMAN:

Correct.

There were a number of other

6

issues beyond just the failure to present the product designs.

7

There was, as I mentioned, no apparent outward signs that they

8

were doing any business.

9

Another big issue is that Kayo, during the agreement

10

negotiations, represented that it had these flagship retail

11

stores in these prominent locations that would be a very

12

significant source of significant distribution channel for the

13

skate products that would be developed.

14

THE COURT:

Excuse me.

On a schedule B, you both

15

agreed on the stores, whether flagship or not flagship, there

16

is a long list of stores, covering several pages.

17

MS. HEILMAN:

There is an offering memorandum provided

18

to Fila during the negotiations that made these representations

19

about the store.

20

that the store was going to be implicit in the arrangement.

21

The store closed right after the agreement was signed and Kayo

22

never notified Fila of the store closing.

Fila's witness testified that she understood

23

THE COURT:

May I see it?

24

MS. HEILMAN:

25

THE COURT:

The offering memorandum?

I have it.

Tab 12.

It's an email from Simon

SOUTHERN DISTRICT REPORTERS, P.C.
[phone]

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Grensted of Kayo to Jennifer Lopez of Fila.

2

Here is the corporate profits document I had

3

mentioned.

4

but I will leave that for you to decide.

5

next term of the agreement to you by tomorrow.

6

are really close.

7

I look forward to hearing how it goes with the online skating

8

company.

9

21

Directing them to our website may be of use, also,
I should have the
Looks like we

I don't think any contention items remain.

MS. HEILMAN:

The attachment is the document that I

10

was referencing that made representations about the prominence

11

of the store.

12

THE COURT:

13

MS. HEILMAN:

14

Where do I find that?
The very next page that was attached to

that email.

15

THE COURT:

It's a blurb about the Kayo corp.

16

MS. HEILMAN:

Correct.

The third paragraph is where

17

it talks about how it recently opened a flagship retail store

18

in a highly visible location ripe with potential.

19

secures --

20

THE COURT:

21

MS. HEILMAN:

Further

What does this have to do with anything?
This was part of the discussions and of

22

the agreement, that it had this flagship store, it had this

23

ability to distribute these products.

24

concerning when Fila learned that the store was closed

25

unbeknownst to Fila, and Kayo didn't communicate that to Fila.

So it was extremely

SOUTHERN DISTRICT REPORTERS, P.C.
[phone]

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1
2
3

THE COURT:

22

Did you give them a notice of cure that

you have to make up for what you sold here in other places?
It's plain to me, Ms. Heilman, that you didn't operate

4

pursuant to the agreement, that you gave a hasty termination

5

when there was a right to cure.

6

example after example, but they all come down to the same

7

thing, all these are curable.

8

cure, but they had a 45-day right to try, and that they were so

9

incapable of doing anything, that had to be recited.

10
11

I mean, you can go through

They may not have been able to

They had

to have a chance to show that they could do it.
MS. HEILMAN:

That would potentially read the section

12

15.4 automatic termination provision out of the agreement

13

because it realizes that that provision contemplates that there

14

are some circumstances that are so exceptional and so beyond

15

the pail of the licensor's experience where, if there is

16

nothing happening, there is no communication, there is no

17

outward sign of any business.

18

heard that there was some financial difficulty that Kayo was

19

experiencing, lack of financing --

Another indication is that Fila

20

THE COURT:

21

What was Kayo doing during the first year of this

22
23
24
25

Let's let Mr. Goodman answer that.

agreement?
MR. GOODMAN:

Kayo was doing designs and drawings,

which it forwarded to Fila on January -THE COURT:

Show me.

SOUTHERN DISTRICT REPORTERS, P.C.
[phone]

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2

MR. GOODMAN:

That's exhibits 35 and 36.

THE COURT:

Mr. Goodman, let's go very slowly so I can

4

see as you go along.

5

witnesses, so let me look at the documents.

6

This is documentary, we have no

MR. GOODMAN:

THE COURT:

9

MR. GOODMAN:

THE COURT:

your Honor.

30 and 31.

The associate who was working on this

case with me, your Honor, is on her honeymoon.
THE COURT:

Okay.

I've got 30.

What do you want me

to look at?
MR. GOODMAN:

Those are all the drawings and the

mockups.

23

THE COURT:

24

MR. GOODMAN:

25

I'm sorry,

Why don't you guys have help with all the

MR. GOODMAN:

21
22

You said

things you have to master yourself?

19
20

Those are the wrong numbers.

I apologize.

THE COURT:

17
18

Let me look at 35 and 36 first.

MR. GOODMAN:

15
16

Let me, if I may direct your Honor's

it, let me look at it.

13
14

Yes.

attention --

11
12

Does deposition testimony count, your

Honor?

8

10

Once we get

to issues of performance, your Honor --

3

7

23

Of what?
Of the proposed skate program between

Fila and Kayo.
SOUTHERN DISTRICT REPORTERS, P.C.
[phone]

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THE COURT:

2

MR. GOODMAN:

3

2017.

What did you do with those?
We sent them to Fila on January 10th,

There was a series of emails, your Honor.

4
5

24

THE COURT:

So that's a year and a half into the

agreement.

6

MR. GOODMAN:

Yeah, but there had never been any

7

notice.

But when we get into the performance and we call

8

witnesses -- and why I said we would need witnesses because we

9

do have testimony --

10

THE COURT:

11

The inception date was when?

12

MS. HEILMAN:

13

THE COURT:

14
15

Let me get some dates clear first.

June 15, 2015.

And the first notice given by Kayo about

its performance is when?
MR. GOODMAN:

Well, the first written notice was

16

January 10th, 2017.

17

was in constant verbal communication with Mr. Epstein of Fila.

18

In fact, there are documents in the record that show that not

19

only were they working on the designs that were transmitted on

20

January 10th, 2017, but they were also recruiting a sponsor for

21

the Fila marks, and we have those documents --

22
23

THE COURT:

Mr. Morgan is prepared to testify that he

What was the date of termination,

Ms. Heilman?

24

MS. HEILMAN:

25

THE COURT:

I believe it was February 10th, 2017.

So one month after you receive Fila's

SOUTHERN DISTRICT REPORTERS, P.C.
[phone]

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mockup, you terminate?

2

MS. HEILMAN:

3

sailed for Fila, to be candid.

4
5
6
7
8
9

25

I think, by this point, the ship had

Just to respond to Mr. Goodman's comments about
constant contact with Mr. Epstein, that's -THE COURT:

I'm not interested in that.

I'm just

focusing on this.
So I'm looking at tab 30, Fila's skateboarding product
initiatives, February 2016 to January 2017.

So eight months

10

after the inception date, you're getting a pretty full book of

11

products.

12

MS. HEILMAN:

It would be 18 months, your Honor.

And

13

there is no evidence in the record that Fila received this.

14

Fila's witness has a shoe designer, has a vague recollection

15

that he received a package that may have had some sketches in

16

them that showed, in his view, that they had an intent to begin

17

work on the product --

18
19
20

THE COURT:

You're saying this document was not

received?
MS. HEILMAN:

I don't believe that there is any clear

21

recollection that this was received and it's at odds with the

22

testimony in the record with what Fila believe it received.

23

THE COURT:

24

MR. GOODMAN:

25

You believe, Mr. Goodman, it was sent?
Yes, and we have the documentary

evidence and the deposition testimony, your Honor.
SOUTHERN DISTRICT REPORTERS, P.C.
[phone]

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1
2

Let's start with, if I may, the deposition testimony
of the person who was coordinating and who introduced --

3
4

THE COURT:
me about that.

You're going to offer that, you're telling

Is there a document that covers this?

5

MR. GOODMAN:

6

THE COURT:

7

MR. GOODMAN:

8

26

Email, your Honor, document 12.

Document 12 in your book?
Yes, your Honor.

There is a series of

email communications back and forth --

9

THE COURT:

10

Mr. Goodman, one at a time.

11

Wait a minute.

Let's do one at a time,

This is an email from Mark Eggert.

Who is he with?

12

He is vice president of footwear design and advance concepts of

13

Fila?

14

MR. GOODMAN:

15

THE COURT:

16

MR. GOODMAN:

17

Correct, your Honor.

And he sends it to John Epstein of Kayo.
Your Honor, 12 is a January 10th, 2017

email from Troy --

18

THE COURT:

I've got the wrong -- sorry.

This is from

19

Troy Morgan to Mark Eggert of Fila.

20

Mark.

21

out and see if we can get the ball rolling again on modifying

22

the Original Tennis and the Original Fitness to be ready to

23

launch and skate.

24

are fully ready with a great game plan.

25

I can forward you some notes to get started, and maybe we can

It's been a while.

Troy Morgan was Kayo.

I hope you're good.

Hi,

I want to reach

Not sure how the timing is for you, but we
Please let me know if

SOUTHERN DISTRICT REPORTERS, P.C.
[phone]

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jump on a call to go over some details in the notes.

2

This is dated January 10, 2017.

3

MR. GOODMAN:

4

THE COURT:

5

MR. GOODMAN:

Correct, your Honor.

This doesn't say they forwarded anything.
Then you look at the next email, your

6

Honor, which is Mr. Morgan -- I'm sorry.

7

Morgan.

8

THE COURT:

9

MR. GOODMAN:

It is Eggert back to

Where do I find that?

10

THE COURT:

11

MR. GOODMAN:

12

27

That's 13.

Eggert to Epstein.
It says I'll be happy to look at the

product.

13

THE COURT:

Where?

14

MR. GOODMAN:

The first one.

This is Eggert to

15

Epstein, who is the president, wrote back, said, I'd be happy

16

to look into product again and I asked him if he knew where we

17

stand as far as any contract.

18

we're back from China.

I said I'd be able to chat after

19

THE COURT:

20

MS. HEILMAN:

He's a shoe designer for Fila.

21

MR. GOODMAN:

He's the head designer.

22

THE COURT:

23

And Mark Eggert, again, is Fila or Kayo?

He's with Fila and he writes to Epstein,

who is?

24

MR. GOODMAN:

25

THE COURT:

The president.

Of?

SOUTHERN DISTRICT REPORTERS, P.C.
[phone]

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MR. GOODMAN:

2

THE COURT:

3

MR. GOODMAN:

4

THE COURT:

5

MR. GOODMAN:

28

Fila.

So this is one Fila person to another?
Correct.

What do you want me to take from this?
That, in fact, Mr. Eggert expressed to

6

today Kayo that they were ready to proceed and told Mr. Epstein

7

just that fact.

8
9

THE COURT:

Mr. Goodman, I don't want you to shift

from product to product.

The question I put to you is what

10

proof do you have that that fixed chief of materials, showing

11

product design and the like, is sent on January 10, 2017?

12

MR. GOODMAN:

13

THE COURT:

14

for sure.

Tab 16.

Don't tell me the tab, that you don't know

Is it tab 16 that I'm going to find this?

15

MR. GOODMAN:

16

THE COURT:

Tab 16.

And this is from Eggert to Morgan?

Thanks

17

for following up, we got the package in, looks pretty good.

18

We'll get into it a bit and we'll get back to you as soon as we

19

get something.

20

MR. GOODMAN:

That's it.

That's it.

21

THE COURT:

22

February 7 from Troy Morgan.

23

see if you received a package with notes on the OF and OT.

This is a response to an email of

24

What is OF and OT?

25

MS. HEILMAN:

Hi, Mark.

Following up again to

Original Fitness and Original Tennis.

SOUTHERN DISTRICT REPORTERS, P.C.
[phone]

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Those are the Fila Heritage shoes.

2
3

THE COURT:

Does this pertain to that document that

was at 40?

4

MR. GOODMAN:

5

THE COURT:

6

document?
MR. GOODMAN:

8

THE COURT:

9

MR. GOODMAN:

Mr. Eggert's testimony, your Honor.

Where shall I find it?
So his deposition transcript is at tab

28, starting on page 96 and going through page 111.

11
12

Yes, your Honor.

How do I know it pertains to that

7

10

29

THE COURT:

Where is the testimony about sending that

sheath of materials?

13

MR. GOODMAN:

14

111, line 5, line 10, line 22.

15

THE COURT:

It's page 110, line 17, through page

Just a minute.

Don't do that.

Read the

16

testimony into the record that you think is relevant, giving

17

page and line references.

18

MR. GOODMAN:

This is page 110, line 3.

19

"Q.

20

you mockups and going forward with the process; correct?"

21

So at that time, Kayo was communicating to you and sending

MR. GOODMAN:

There was an objection.

Answer over

22

objection.

23

"A.

24

believe I received mockups, but I would presume that it was

25

more of competitive samples and evidently a document of some

There was a package there.

To my recollection, I don't

SOUTHERN DISTRICT REPORTERS, P.C.
[phone]

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1

sort.

2

"Q.

3

received it, the impression that Kayo was working on the file

4

at Kayo project?

5

"A.

I would put it as intent to work on the Kayo Fila project.

6

"Q.

Did you have the same intent as of February 8th, 2017?

7

"A.

Yes.

8

"Q.

When you said the package looks pretty good, was that

9

truthful at the time you said it?

Did -- what was in the package conveyed to you when you

10

"A.

Yes, I have no reason to believe otherwise.

11

"Q.

Now, the next phrase reads, let me get into it a bit and I

12

will get back to you as soon as I get something together.

13

you see that?

14

"A.

Yes.

15

"Q.

What were you going to look into?

16

"A.

From what I gather in looking at the previous exhibit,

17

there were samples of some sort and a document in there,

18

perhaps requesting or suggesting some design ideas to which I

19

would presumably put that information together and submit

20

something back out to Troy.

21

"Q.

And that would be in the normal course?

22

"A.

Yes."

23

THE COURT:

Do

How does that show that there was

24

performance going on by Kayo, which, if you didn't like, you

25

would have to give a notice of some kind of breach and
SOUTHERN DISTRICT REPORTERS, P.C.
[phone]

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2

31

opportunity to cure?
MS. HEILMAN:

I think, by this point, it was too late.

3

I think Mr. Eggert is a shoe designer.

4

management.

5

serious concerns about Kayo's performance and believed that the

6

agreement had been abandoned or had been terminated.

7

At this point, Fila's management already had

THE COURT:

Mr. Eggert had been set up to perform with

8

and to work with Kayo.

9

until a month later.
MS. HEILMAN:

11

tab 33 in our binder.

13
14

THE COURT:

The notice of termination doesn't come

This is January.

10

12

He's not Fila's

If I could direct your attention back to

I have it.

What do you want me to take

from this?
MS. HEILMAN:

This is a January 2016 email where there

15

is some discussion about this other sales agent that Fila

16

ultimately engaged to pursue sales with these retailers, who

17

were skatecentric, that Fila was interested in distributing its

18

skate and non-skate products to.

19

In the context of this email chain, Kayo came up --

20

THE COURT:

21

MS. HEILMAN:

Excuse me.

Tell me what I should read.

You can read the very first page, Bates

22

label 460.

You have Mark Eggert saying, in January of 2016 —

23

now this is only about six months into the agreement — have

24

heard nothing from Troy.

25

president.

Meaning Troy Morgan, Kayo's

Then you have Mr. Epstein, the then president of
SOUTHERN DISTRICT REPORTERS, P.C.
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Fila saying, amazing.

2

happened to Willy Wonka.

3

Jennifer, let's discuss.

32

Whatever

So this, again, goes back to the representations that

4

Mr. Morgan made at the outset.

There are a number of documents

5

and early communications between Mr. Epstein and Mr. Morgan

6

where Mr. Morgan conveyed he was the Willy Wonka of the

7

skateboarding industry.

8

urgency to get this deal done so that he could get to work on

9

these skate products.

There was a sense of fervor and

So Fila had heard nothing, and this is

10

only six months into the agreement, and they're expressing some

11

surprise.

12

Now fast forward to tab No. 43 --

13

THE COURT:

14

I'm not finished with tab 33.

Who's Todd

and his group?

15

MR. GOODMAN:

That's an important issue --

16

MS. HEILMAN:

Todd Milspa is with the sales agency

17

that Fila ultimately engaged to pursue sales to these

18

skatecentric retailers when Kayo did not perform.

19

THE COURT:

In place of Kayo?

20

MS. HEILMAN:

Correct.

Well, initially, it was

21

supposed to not be in place of Kayo.

They engaged Money Ruins

22

Everything — it's the name of the company — they were going to

23

pursue other retailers, but then when Kayo did not perform,

24

Money Ruins Everything ultimately stepped in and engaged these

25

skatecentric retailers.
SOUTHERN DISTRICT REPORTERS, P.C.
[phone]

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MR. GOODMAN:

33

Your Honor, may I broaden this

2

perspective a little bit and talk about Money Ruins Everything

3

and talk about what really happened?

4

THE COURT:

5

MR. GOODMAN:

6

THE COURT:

7
8
9
10
11
12

presented to me?

No.
Okay.

How do I deal with what Mr. Goodman has

Is Mark Eggert not an executive of Fila?

MS. HEILMAN:

I believe he had the title of vice

president, but he is in footwear designs.

He's not Fila's

management, and that's in the record, as well.
THE COURT:

Do you have any explanation why he's

receiving documents and information from Troy Morgan?

13

MS. HEILMAN:

14

provided comments on a design.

15

specifications or shoe specifications or design specifications,

16

he would be the person that would provide, because the intent

17

of the agreement was that Kayo was actually going to work from

18

an existing Fila shoe mold.

19

scratch, if you will.

20

Fitness and the Original Tennis shoe and sort of modify the

21

sole of the shoe to make it fit for skateboarding.

22

Eggert would have been the point of contact for those types of

23

technical questions.

24
25

THE COURT:

He would be the person who would have
If Mr. Morgan needed some

They weren't going to start from

They were going to take the Original

So Mark

Mr. Goodman, where is the document we

looked at before, the sheath of products and advertising?
SOUTHERN DISTRICT REPORTERS, P.C.
[phone]

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MR. GOODMAN:

2

THE COURT:

3

MR. GOODMAN:

4

clothing, but it's -THE COURT:

6

MR. GOODMAN:

8
9
10

That's 30 and 31.

This is all footwear?

5

7

34

Yes, your Honor.

There is some

There is clothing, also?
More than two pages, but it's

predominantly footwear.
THE COURT:

So why wasn't this performance under the

agreement?
MS. HEILMAN:

I don't know that it's entirely clear

11

from the record or the witness testimony that this is exactly

12

the document that Mr. Eggert received.

13

that Mr. Eggert received anything from Kayo, by that point, if

14

Fila's management viewed the contract as having been abandoned

15

or terminated, given the fact that they felt conduct of the

16

licensee was so at odds with the representations and

17

discussions during the negotiation period, which are also

18

reflected in the record.

19
20

MR. GOODMAN:

And by the pint in time

Your Honor, this is attorney

representation and the underlying evidence is to the contrary.

21

MS. HEILMAN:

It's not --

22

MR. GOODMAN:

February 8th of 2017, Fila received a

23

written confirmation by email from Zumiez that it agreed to

24

enter an agreement with Fila through this MRE.

25

coincidence that that happened on February 8th and the

It is no

SOUTHERN DISTRICT REPORTERS, P.C.
[phone]

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35

termination letter got sent on February 10th.

2

THE COURT:

What was the name of that other company?

3

MR. GOODMAN:

Zumiez, Z-u-m-i-e-z.

If your Honor goes

4

back to 2.1, you'll see that Zumiez is one of the three

5

retailers as to which Kayo was entitled to receive commission.

6

THE COURT:

7

MR. GOODMAN:

8

THE COURT:

9

Presumably, because it introduced?
What's that, your Honor?

Presumably because it introduced Fila to

Zumiez?

10

MR. GOODMAN:

Your Honor, it doesn't say that, but on

11

the other hand, there is an email from Mr. Morgan to

12

Mr. Epstein showing him Mr. Morgan's relationship with Zumiez.

13

That is in the latter part of the book, 39, the second page

14

of --

15

THE COURT:

39 only has one?

16

MR. GOODMAN:

Yes.

The second email is from Zumiez to

17

Mr. Morgan about the nature of their relationship.

18

July 21st, 2015.

On July 22nd, 2015 --

19

THE COURT:

20

MR. GOODMAN:

21

THE COURT:

22

MR. GOODMAN:

23

THE COURT:

24
25

That's

Wait a minute.
Okay.

Tell me where I should go.

This is 39, your Honor.

Number 39?
Yes.

It's an email.

It's two pages.

It's

email traffic between Troy Morgan and Jennifer Lopez.
MR. GOODMAN:

No, your Honor.

I know which book, if

SOUTHERN DISTRICT REPORTERS, P.C.
[phone]

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you look in plaintiff's book, 39, there are two emails.

2

THE COURT:

3

MR. GOODMAN:

4

THE COURT:

Which is your book?
The one with the orange cover.

Got it, 39.

5

Jennifer Lopez and Troy Morgan.

6

MR. GOODMAN:

7

THE COURT:

9

MR. GOODMAN:

11
12
13
14
15

THE COURT:

MR. GOODMAN:

And then look at the one above that by

which Mr. Morgan sent this email to Mr. Epstein.
What I would like you to take from these documents,
your Honor --

MR. GOODMAN:

21

What do you want me to

take from this document?

17

20

The bottom one is from

Yes.

So let me do it.

THE COURT:

19

No, your Honor.

Is that what you want me to look at?

16

18

It's email traffic between

Josh Birch to Troy Morgan on July 21 --

8

10

This is October 18, 2017?
No, your Honor.

It's July 21st and

July 22nd, 2015.
THE COURT:

I see.

So from this, you want me to take

that the Zumiez was introduced to Fila by you, by Kayo?
MR. GOODMAN:

No, your Honor.

It doesn't say that.

22

What it does say, though, is the relationship between Zumiez

23

and Kayo, the contract does not require --

24
25

36

THE COURT:

That's why I would infer that there was an

obligation to pay royalties by Fila to Kayo, even though Fila
SOUTHERN DISTRICT REPORTERS, P.C.
[phone]

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sold directly to Zumiez.

2
3

37

MR. GOODMAN:

That's correct, your Honor, without

regard to whether there was an introduction --

4

THE COURT:

5

I have to say, Ms. Heilman, from everything I've seen,

6

This is not part of our case.

you did not comply with the contract to give notice to cure.

7

MS. HEILMAN:

I think, at a minimum, your Honor, it

8

would behoove you to hear testimony from the Fila witnesses

9

about the unique circumstances of this arrangement and why they

10

believed they could invoke section 15.4 and 15.2(i),

11

non-curable material breach.

12

THE COURT:

13

MS. HEILMAN:

14

Were these depositions taken?
There were depositions taken and there

was testimony taken.

15

THE COURT:

16

MS. HEILMAN:

Turn to tab 2.

17

MR. GOODMAN:

Whose depositions?

18

MS. HEILMAN:

This is Jennifer Estabrook, who was

19

Fila's then general counsel, who is now Fila's president.

20
21

Why don't you point me to the depositions.

MR. GOODMAN:
Honor.

22

THE COURT:

23

MR. GOODMAN:

24
25

It's also tab 27 in our book, your

Please don't do that.
I'm sorry.

I was just trying to be

helpful.
THE COURT:

You're not helpful.

Don't interrupt each

SOUTHERN DISTRICT REPORTERS, P.C.
[phone]

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other.

2

I'm on tab 2, deposition of Jennifer Estabrook.

3

MS. HEILMAN:

4

38

point your Honor to.

So there are several references I'll
The first one is on page 1 of 3.

5

THE COURT:

Yes.

6

MS. HEILMAN:

What do you want me to read?

Beginning at line 16.

This is

7

Ms. Estabrook responding to, why don't you follow up after you

8

didn't hear back after you sent the email regarding the royalty

9

reporting.

10
11

THE COURT:

Where is the question --

12
13

Read the question and answer, please.

MS. HEILMAN:
myself.

I believe it's at the top of page 104.

14

THE COURT:

15

MS. HEILMAN:

16

THE COURT:

17

"Q.

I'm trying to locate the question

Top of 104?
At line 2.

Line 2.

So is it your testimony that the May 23, 2016 email --

18

THE COURT:

And what was that?

19

MS. HEILMAN:

That's the email she sent inquiring

20

about the contact for royalty reporting almost a year into the

21

agreement when they had heard nothing.

22

THE COURT:

Sorry?

23

MS. HEILMAN:

The email that Ms. Estabrook sent Kayo

24

in May of 2016, approximately a year into the agreement's term,

25

inquiring about the contact for royalty reporting that went
SOUTHERN DISTRICT REPORTERS, P.C.
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unanswered.

2

THE COURT:

Yes.

3

"Q.

4

ordinary course of business like you would with any of your

5

other licensees?

6

"A.

7

royalty report because there was no communication from Kayo

8

corporation."

9

So is it your testimony that that email was sent in the

Yes.

You are mischaracterizing it.

THE COURT:

I'm asking for a

What do you want me to take from this?

10

MS. HEILMAN:

11

page 103, beginning at line 16.

12

"A.

13

business..."

14

39

If you continue down to the bottom of

I'm just going to give the same answer.

THE COURT:

That?

We are a licensed

So the question is, she's not

15

getting royalties.

16

royalties and Kayo is telling us that it's working on

17

development, and if you felt that the development was too slow

18

or that you were entitled immediately to royalties of a certain

19

level, you had to do that.

20

time by which Kayo has to offer sales.

21

So Fila is complaining it's not getting

MS. HEILMAN:

The agreement doesn't establish a

It doesn't, but the law implies an

22

obligation to act reasonably, and if you hear nothing from your

23

licensee almost a year into the agreement, that's cause for

24

significant concern.

25

THE COURT:

I would agree if you expect royalties

SOUTHERN DISTRICT REPORTERS, P.C.
[phone]

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immediately, that will be a concern, but it's also a

2

requirement to give a notice to cure.

3

What in this agreement, Mr. Goodman, tells me that it

4

was an obligation of Kayo immediately to sell and not to

5

develop?

6
7

40

MR. GOODMAN:

Nothing, your Honor.

It's quite to the

contrary.

8

THE COURT:

Tell me how you read this agreement.

9

MR. GOODMAN:

10

timelines, for one.

11

THE COURT:

12

MR. GOODMAN:

The very fact that there are no

There is testimony, there is a letter.
Let's look at the agreement.
Okay.

13

here, your Honor.

14

provision, 15.2(vi) says --

15

THE COURT:

There is absolutely no timeline

Then, if you go to 15, the termination

Excuse me.

Doesn't 5.1, 5.2, 5.3, and 5.4

16

deal with advertising material which has to precede any

17

effective selling, and the fact that it has to be accepted and

18

approved by Fila suggest that there is a period of development

19

that's involved?

20

agreement, Fila was not selling skateboards and it had no

21

products that was involved in skateboard sales and was looking

22

to Kayo for help to develop products.

23

this agreement.

We also know that, up to the time in the

24

MR. GOODMAN:

25

THE COURT:

That's how I understand

Correct, your Honor.

It would be nice to point me to some

SOUTHERN DISTRICT REPORTERS, P.C.
[phone]

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41

testimony that says something like that.

2

MR. GOODMAN:

There is Ms. Estabrook's testimony on

3

page 51, starting at line 7.

4

THE COURT:

Okay.

I'm there.

5

"Q.

To the best of your present recollection, what was

6

discussed about the term of the agreement prior to July 2nd,

7

2015 with the representatives of Kayo in which you participate?

8

"A.

9

longevity of this agreement.

I distinctly remember Mr. Morgan being concerned about the

10

"Q.

11

during these conversations regarding the longevity of this

12

agreement?

13

"A.

14

terminate this license at the end of the initial term was very

15

limited.

16

that there be an opportunity for him to have control over the

17

renewal of this license.

18

effort, and money, and then have us and build up Fila

19

Skateboarding as a brand and have us take it back and take it

20

over."

21

To the best of your recollection, what did Mr. Morgan say

I remembered him wanting to make sure that our ability to

I mean -- let me restate that.

MR. GOODMAN:

He was very concerned

He did not want to invest time, and

There is also a precontract

22

communication between Mr. Morgan and Ms. Blacker and

23

Mr. Epstein, Ms. Estabrook and Mr. Eggert at Fila.

24

document 37 in our book.

25

THE COURT:

Okay.

SOUTHERN DISTRICT REPORTERS, P.C.
[phone]

That's

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MR. GOODMAN:

2

THE COURT:

42

And the penultimate paragraph.

I anticipate the first two years being a

3

lot of marketing work supported by small sales volume and this

4

is why we need this to be a long-term partnership, that one.

5

MR. GOODMAN:

6

THE COURT:

7

That's a pretty powerful comment,

Ms. Heilman.

8
9

Yes, your Honor.

MS. HEILMAN:

Yes, I think it was contemplated that

there would be a development period.

I think this testimony

10

that he just referenced goes back to the idea that Kayo was

11

going to pour all of its energy and effort into building this

12

brand and it pushed for exclusivity, it pushed for a longer

13

term, and that was why it was so shocking to Fila that the

14

performance and the conduct was so at odds with the fervor and

15

the intensity of the negotiation period.

16

THE COURT:

I recognize all that, but that just

17

evidences more the requirement of a notice to terminate, notice

18

to cure.

19

The only thing I find in this agreement that sets a

20

standard of how much selling there should be is in 15.1 where

21

if Kayo does not achieve net sales exceeding $850,000, there is

22

no obligation to extend the initial term of five years, and

23

there is no statement in here that those sales have to be

24

occurring in any particular part of the five-year period.

25

MS. HEILMAN:

That's right, your Honor.

SOUTHERN DISTRICT REPORTERS, P.C.
[phone]

I think --

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2
3

THE COURT:

43

The end of the initial term in net sales

have to exceed that.
MS. HEILMAN:

That's right, but if you're still in the

4

exploratory design phase, this is 18 months in, and this is

5

also testimony of Ms. Estabrook that, by that point, you still

6

have to go through the process of submitting design to Fila for

7

approval, a sample, then have you to go through a four- to

8

six-month period of manufacturing, then a sale period.

9

that point — and this is her testimony — there was no curable

10

breach because, by this point, they didn't have the ability to

11

develop sales within the time period that was contemplated.

12

THE COURT:

Ms. Heilman, from everything that's shown

13

to me so far, this is not a non-curable breach.

14

within the meaning of 15.2 or the meaning of 15.4(iii).

15

to hold that your termination notice was breached.

16

So by

MS. HEILMAN:

This is not
I have

I believe, your Honor, if you look at

17

some of the additional testimony, that this was not just a

18

situation with --

19

THE COURT:

20

MS. HEILMAN:

21
22
23

Where do I look?
On page 121 of Ms. Estabrook's

testimony.
THE COURT:

Ms. Estabrook was a general counsel,

wasn't she?

24

MS. HEILMAN:

25

THE COURT:

She was.

She was not a principle involved in the

SOUTHERN DISTRICT REPORTERS, P.C.
[phone]

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development of the products.

Her testimony is really hearsay.

2

What page do you want me to look at?

3

MS. HEILMAN:

4

THE COURT:

6

MS. HEILMAN:

7

THE COURT:

8

Page 121.

She served in dual roles.

She was a business person and general counsel.

5

44

She was --

But there's no evidence --- licensing since 2007.

There was no evidence that she was charged

in the actual production.

9

Page 121, I have it.

10

MS. HEILMAN:

So she's talking about at line 13.

I'm

11

sorry.

12

were discussing the absence of Kayo.

13

down to line 13, the gist of the conversations were that Troy

14

basically had disappeared shortly after we signed the contract

15

and that there had been various reach-outs that were

16

unresponded to.

17

somebody who was so dead set on getting this license and

18

protecting it and worrying about the term and not protecting

19

what he was going to build would go completely dark for such a

20

long period of time.

21

that the reason was because he didn't have financing --

22

If you scroll up to line 4, in the fall of 2016, we
And then if you scroll

And then we heard -- we were curious as to why

THE COURT:

So we were discussing and then we heard

-- the testimony.

The gist of the

23

conversations, these were internal conversations at Fila.

24

gist of the conversations were that Troy — I guess that means

25

Troy Morgan of Kayo — basically had disappeared shortly after
SOUTHERN DISTRICT REPORTERS, P.C.
[phone]

The

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we signed the contract and that there had been various

2

reach-outs that were unresponded to.

3

we were curious as to why somebody who was so dead set on

4

getting the license and protecting it and worrying about the

5

term and not protecting what he was going to build would go

6

completely dark for such a long period of time.

7

discussing and then we heard that the reason was because he

8

didn't have financing.

9

that point in time.

10

And then we heard -- then

So we were

So we were discussing what to do at

You know, again, this is something that you put to the

11

other party.

12

that you have adequately financed this, but you didn't.

13

Let me see your production schedule, let me see

In any event, Ms. Estabrook is a general counsel who

14

justified the termination and she's not a principal who has

15

knowledge, really.

16
17
18
19
20

45

I have to repeat, I have to find that the termination
was a breach.
Let's go on the next question.

How do you prove your

loss commissions?
MR. GOODMAN:

Thank you, your Honor.

There are two

21

other elements of damage beyond the loss commission, one is for

22

the renewal period and the other is factual out-of-pocket

23

expenses.

24

THE COURT:

Well, you have to prove that you would

25

reach $850,000 in net sales.
SOUTHERN DISTRICT REPORTERS, P.C.
[phone]

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MR. GOODMAN:

2

THE COURT:

3

first.

4

period?

5

Correct, your Honor.

So let's look at the additional period

How do you prove lost commissions in the initial

MR. GOODMAN:

We have an expert report, your Honor.

6

The expert report is document 32, and the expert computes the

7

actual loss commissions at page 25 of 35 of his report.

8

that's virtually illegible to my eyes.

9

your Honor, for ease of reference in a blowup that is

10

THE COURT:

12

MR. GOODMAN:

13

THE COURT:

14

MR. GOODMAN:

15

THE COURT:

So we have reproduced,

Tell me, in words first, where are we.
Document 32.

I have that.
Page 25 of 35.

So these are a set of projections, I'm

sure.

17

MR. GOODMAN:

18

THE COURT:

19

MR. GOODMAN:

20

THE COURT:

21

MR. GOODMAN:

22

Now,

significantly more legible, if I may hand it up.

11

16

46

No, these are actuals, your Honor.

These were actual sales?
Correct, your Honor.

What do they show?

I can't read this.

It shows actual commissions at 7 percent

due on actual sales for the initial term of $761,411.24.

23

THE COURT:

$761,411 and?

24

MR. GOODMAN:

25

THE COURT:

24 cents.

Any comment about that figure,

SOUTHERN DISTRICT REPORTERS, P.C.
[phone]

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2

47

Ms. Heilman?
MS. HEILMAN:

So the commissions are obviously a

3

percentage of Fila's net sales, so there is really not much to

4

dispute here, but for whatever reason, our calculations are

5

different.

6

brief period before the expiration of the initial term where we

7

didn't have actual sales, so it could be a difference of

8

projections.

9

differences.

10
11
12

We have 732 or thereabouts.

I believe there was a

We probably just have to reconcile the

THE COURT:

Mr. Goodman is saying these are not

projections, they were actual sales.
MS. HEILMAN:

I can't explain the discrepancy, but we

13

worked from Fila's own members with Fila's personnel who are in

14

the business of computing commissions, and that's their job,

15

and they calculated a different number.

16

THE COURT:

Can you explain your calculation.

17

MS. HEILMAN:

7 percent of net sales to a non-Fila --

18

actually, it's possible.

19

that were produced included some products that were, I think,

20

not supposed to be included.

21

non-Fila products and there was some sales maybe to Canada that

22

were included.

23

discrepancies that could be ironed out.

24

and reverified --

25

I believe some initial spreadsheets

It was only supposed to be

So I do believe that there are some

THE COURT:

Our sales, we verified

So there is some number between $732,000

SOUTHERN DISTRICT REPORTERS, P.C.
[phone]

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and $761,000 that would reflect the loss commissions not paid

2

to Kayo?

3

MS. HEILMAN:

For the entire term.

But I don't know

4

that you would automatically find that he was entitled to

5

commissions for the entire term, I think perhaps up to the

6

termination date.

7

and --

I mean, the termination was the termination

8

THE COURT:

9

MS. HEILMAN:

There was a duty to mitigate.
I believe that there was a duty to

10

mitigate and this is a windfall situation, right?

11

the work to introduce --

12

THE COURT:

13

MS. HEILMAN:

14

THE COURT:

15

He didn't do

Have either of you briefed that issue?
Excuse me?

I'm sorry.

Have either of you briefed that issue,

whether --

16

MS. HEILMAN:

17

THE COURT:

No.

-- there was?

Was this contract supposed

18

to be an exclusive on the part of Kayo, meaning that it could

19

not manufacture for others?

20
21
22

MS. HEILMAN:

Kayo was given the exclusive right to

manufacture skate products only.
THE COURT:

But was it allowed to expand its business

23

and deal with others?

24

MS. HEILMAN:

25

48

Beyond the authorized distribution

channels in the agreement?
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THE COURT:

2

(Indiscernible crosstalk)

3

MR. GOODMAN:

4
5
6
7

49

Different product, for example.

Your Honor eliminated all those damages

by -THE COURT:

Would you please answer my question.

What

was Kayo's business?
MR. GOODMAN:

Kayo's business was skateboards, the

8

sale, distribution of skateboards and attendant products.

9

sales to Zumiez and Tilly's, the three outlets that we're

The

10

talking about, that was on any product that was sold by Fila to

11

those three outlets.

12

THE COURT:

You calculated that?

13

MR. GOODMAN:

Yes.

So the total sales based on

14

discovery, based on Fila's sales to Zumiez, Tilly, and PacSun

15

totaled $10 million during the first term, not counting any

16

renewals, during the first term totaled $10,877,303.49.

17

THE COURT:

18

MR. GOODMAN:

19

THE COURT:

20

MR. GOODMAN:

21

THE COURT:

22

MR. GOODMAN:

23

THE COURT:

24
25

You're entitled to 7 percent of that?
Yes, your Honor.

And you calculated that?
Yes, your Honor, and it's $761,411.24.

So that's the number you gave me before?
Yes, your Honor.

So that $761,411 is the sum of the

commissions that you were supposed to get?
MR. GOODMAN:

During the first term, during the

SOUTHERN DISTRICT REPORTERS, P.C.
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initial term.

2
3

THE COURT:

Weren't you required to pay commissions to

Fila?

4

MR. GOODMAN:

No, your Honor.

That was on something

5

different.

6

the case in your in limine rulings.

7

Fila a royalty on Fila-branded skateboard products, but those

8

never went to market because of what we were talking about

9

during the course of this afternoon, the submission and

10

Your Honor already has eliminated that aspect of
We were supposed to pay

approval and so forth.

11

So there are two separate buckets here in 2.1, your

12

Honor.

13

that Kayo would have had of the Fila-branded merchandise.

The one bucket, what we're talking about, is the sales

14

THE COURT:

15

MR. GOODMAN:

16

How much was that?
Your Honor eliminated that.

Your Honor

knocked that out as being too speculative.

17

THE COURT:

18

MR. GOODMAN:

19

I knocked out your claim for damages?
No, you knocked out my claim for lost

profits, your Honor.

20

THE COURT:

21

MR. GOODMAN:

We're talking about commissions.
But the commissions are not on that

22

breach.

23

sales of any Fila product by Fila, and that's the $761,000

24

number that we've been talking about.

25

50

The commissions are on the Zumiez, Tilly's, and PacSun

THE COURT:

Excuse me one moment.

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(Pause)

2

So the damages are between $732,000 and $761,000 for

51

3

the loss commissions and I will give you an opportunity to work

4

out the precise number

5

MS. HEILMAN:

Your Honor, I just clarify that, would

6

your Honor consider that the damages should be the commissions

7

that were earned up until the termination?

8

the provision --

9
10
11
12
13
14

THE COURT:

I mean, this is in

This is the initial term.

MS. HEILMAN:

No, I'm talking about up until 2017 of

February when the agreement terminated.
MR. GOODMAN:

Your Honor has already ruled that the

termination was a breach.
THE COURT:

Just a minute.

If you mean up to the

15

termination date, no.

If your termination is a breach, they're

16

entitled to commissions through that initial period, all sales

17

you made to the three companies, and you said you calculate

18

about $732,000.

19

to you of $761,000.

20

I'll give you some time to work it out, otherwise you'll be

21

liable for $761,411.24 plus interest.

Mr. Goodman has a calculation that he's given
If you take issue with anything in there,

22

Is there an interest figure in the agreement?

23

MR. GOODMAN:

No, your Honor, not for this.

But there

24

was a motion made to strike a claim for interest, which your

25

Honor denied.

New York legal rate is 9 percent.
SOUTHERN DISTRICT REPORTERS, P.C.
[phone]

Our expert

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did a 20-percent calculation.

2

THE COURT:

3

MR. GOODMAN:

4

THE COURT:

5

MR. GOODMAN:

6
7
8
9
10
11
12

I'm bound to give 9 percent?
Yes.

What binds me to give 9 percent?
It is a diversity case, your Honor,

9 percent is the New York legal rate under the CPLR.
THE COURT:

Does diversity carry forward with

interest?
MR. GOODMAN:

The interest runs from the date that the

commission should have been paid, which is within 30 days.
THE COURT:

I'd like to see some law that binds me to

9 percent.

13

MR. GOODMAN:

14

THE COURT:

15

MR. GOODMAN:

Sure.

How much is the figure at 9 percent?
$177,286.

So our total with interest on

16

loss commission incomes for the initial term comes out to

17

$938,697.

18

THE COURT:

19

MR. GOODMAN:

20

Okay.
Then there was $21,961 of out-of-pocket

expenses.

21

THE COURT:

22

MR. GOODMAN:

Where are you allowed to recover?
So there was on standard breach of

23

contract damages to be made whole in reliance on the licensee

24

agreement.

25

52

THE COURT:

What in the licensee agreement covers this

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point?

2
3

MR. GOODMAN:

No, the licensee agreement does not,

your Honor.

4

THE COURT:

5

MR. GOODMAN:

So why are you entitled to it?
Because under New York law, breach of

6

contract damages is to put the plaintiff in the position, as

7

you know, as it would have been had the contract been

8

performed.

9
10

13
14
15

That flowed directly from the breach.

THE COURT:

So what in the contract gives you

entitlement to those kinds of expenses?

11
12

MR. GOODMAN:

No, your Honor, but it doesn't bar it

either.
THE COURT:

So why are you telling it to me if there

is no authorization in the contract for it?
MR. GOODMAN:

Because it's the direct and natural

16

consequence of the breach, your Honor.

17

that $21,000 would not have had to have been paid.

18

THE COURT:

19

MR. GOODMAN:

Without the breach,

What makes up this $21,000?
It was a payment made to a skateboarder

20

with whom Kayo had entered into an agreement to sponsor the

21

Fila-Kayo skateboard product.

22

THE COURT:

23

53

That agreement is in --

Wasn't that something that was required to

be done by Kayo under the contract?

24

MR. GOODMAN:

It was not required, your Honor.

25

part of the overall strategy -SOUTHERN DISTRICT REPORTERS, P.C.
[phone]

It was

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THE COURT:

2

MR. GOODMAN:

3

THE COURT:

4

-- marketing --

I hold that you're not entitled to that amount.
MR. GOODMAN:

6

THE COURT:

8
9

Yes.

And you were compensated by commissions.

5

7

54

Then what's left is the renewal period.

Now how do you prove you have exceeded

$850,000 in net sales?
MR. GOODMAN:

In January of 2016, contemporaneously,

Kayo also entered into a similar collaboration with Adidas.

10

That collaboration is not in the record.

11

documents we provided at document No. 26 and based on the sales

12

information that's part of No. 26, the sales information, it

13

was a three-month period, the sales information appended to the

14

agreement in No. 26.

15

$354,000 for one quarter.

16

one quarter in U.S. sales of $354,000 in the Adidas deal, one

17

year, that would have been $1.4 million and change, and five

18

years of that would have been $7 million-plus.

19

THE COURT:

It was in the

The expert reviewed and calculated at
So now we're looking at, if you take

Now the agreement, tell me if I'm right,

20

talks about $850,000 of net sales in the final year of the

21

initial term; am I right?

22
23
24
25

MR. GOODMAN:

I'm double checking, your Honor.

I

don't want to guess.
THE COURT:

It says, provided that in the event that

at the end of the initial term the net sales of the products
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2
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exceeds $850,000.
MR. GOODMAN:

THE COURT:

5

MS. HEILMAN:

So it's for the entire initial

Ms. Heilman.
The Adidas-DGK comparison is not a valid

comparator.

7

THE COURT:

8

MS. HEILMAN:

9

Yes.

term, your Honor, not just the last year.

4

6

55

Let's interpret this agreement first.
I don't read it as requiring $850,000 in

the last year, I just read it as requiring $850,000 in sales in

10

the initial term.

And there is no factual predicate that they

11

would have achieved that because there were no skate products

12

ever developed, and you can't rely on sales of Adidas.

13

is not on the same footing of Fila, it's a massive company.

14

There is also sales under the DGK brand, which is a very well

15

established skate brand that's been around for decades.

16

Kayo's brand, is the DGK brand.

17

Kayo of new Fila skate products that consumers have never heard

18

of with sales of DGK products by Adidas.

19

THE COURT:

20

MS. HEILMAN:

DGK is Kayo?
That's their brand.

So they were

co-branded with the Adidas logo.

22

co-branded products sold and manufactured by Adidas.
THE COURT:

That's

So you can't compare sales by

21

23

Adidas

So they were Adidas-DGK

So your argument is there is no separate

24

selling shown by DGK?

25

MS. HEILMAN:

So there were no sales under this

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agreement.

2

collaboration, a separate agreement as a yardstick to

3

extrapolate and project hypothetical sales under this

4

agreement.

5

So what they did is they used the Adidas DGK

I'm saying you can't do that --

THE COURT:

Had they been performed or been allowed to

6

perform your agreement, would they also have been able to

7

perform for Adidas?

8
9

56

MS. HEILMAN:

It's completely speculative.

I mean,

it's apples and oranges.

10

THE COURT:

Is there anything that barred them from

11

their agreement with Adidas if they were to continue to perform

12

under the license agreement?

13
14

MS. HEILMAN:

No.

I think, potentially, they may have

been barred under their Adidas agreement, but think it's --

15

THE COURT:

I don't think mitigation is applicable.

I

16

think they're entitled to the full loss commissions and I'm

17

still on this question, we're still on this issue of whether or

18

not there was or could be a successive term based on the level

19

of net sales.

20

for Adidas is comparable.

21

value.

22

I don't think, Mr. Goodman, that your production

MR. GOODMAN:

I don't think it's of evidentiary

Your Honor, given that the defendant's

23

breach foreclosed any performance under the initial term of the

24

agreement, we can't look to anything involving Fila in the

25

skateboard market.
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57

Secondly, as your Honor knows, apparently the analogue

2

doesn't have to be specific, it just has to be to a reasonable

3

degree of certainty if we were dealing here with a close

4

question.

5

been, let's say, a million over a five-year period, then he had

6

you to do a close calculation, it becomes a tougher comparison.

7

If we're looking for a reasonable predicate, a reasonable basis

8

and remembering that the inferences are construed against the

9

party breaching the agreement, since the Adidas number would

If we're talking if the Adidas net sales would have

10

have come to, over five years, over $7 million, and we're

11

talking roughly 10 percent, is it a reasonable basis under

12

these facts and circumstances, given that the breach by Fila

13

made a more specific comparison possible, is it a reasonable

14

basis to say that they would have done with Fila approximately

15

10 percent of what they did with Adidas?

16

fairly safe assumption.

17

THE COURT:

I think that's a

I recognize the presumptions and the

18

assumptions, but damages also have to be proved.

I have no

19

ratios to work on between Fila's sales and Adidas's sales.

20

can't tell whether they're comparable, whether Adidas is a much

21

more marketable item than Fila, I can't decide on the market

22

penetration, and I can't make any comparison between what you

23

did with Adidas and what you did with Fila.

24

say that the net sales would have exceeded $850,000 for the

25

initial term and you had no right to a successive term, unless

I

I am not able to

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58

you exceeded $850,000 in net sales.

2

Accordingly, I hold that you are not entitled to loss

3

commissions in the renewal period.

4

subject to further working with Ms. Heilman, is $938,697.

5

you submit any agreement, I will grant judgment for that

6

amount.

7

So your total damage,
When

So I find that this agreement is the entire agreement

8

of the parties.

The arguments in the counterclaims for fraud

9

in the inducement are outside this agreement and not

10

contemplated by this agreement, and that this agreement is the

11

entire agreement between the parties.

12

in the inducement.

13

It has no room for fraud

Under this agreement, the termination rights to

14

non-curable breaches are limited and defined that the slowness

15

in production complained of by Fila were curable, at least Kayo

16

had the right to try to cure within the 45-day period provided

17

in the agreement, and that termination without a right to cure

18

under paragraph 15.1, 15.2, and 15.4 was not appropriate and

19

was a breach.

20

reason for all this treatment of any slowness on the part of

21

Kayo as a non-curable breach under 15.4.

22

burden to show that its actions were reasonable.

23

Fila has not been able to show that it had good

And it fails on its

Moreover, the instances of what is a curable breach

24

set out in seven subparagraphs under 15.2 cover the items sold

25

here.

Subparagraph 4, failing to submit the licensor for its
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prior approval any product, advertising material, or plan and

2

failure to fulfill any of the material obligations under the

3

agreement.

4

59

The evidence shows that a full package of materials

5

for the development and sale of the shoes that were a key part

6

of the product was submitted January 10 of 2017, that there

7

were conversations back and forth about it, which were boarded

8

by the notice of termination on February 10, 2017, and whether

9

it was a reflection of what Fila might have thought was a more

10

favorable deal with another company or exasperation with Kayo

11

is not important.

12

45-day period to cure and it was not given this right.

13

Accordingly, I hold that Fila breached the contract.

14

What is material is that Kayo had right to a

I had held previously that Kayo was not entitled to

15

lost profits, and I incorporate here my findings and

16

conclusions in that previous decision.

17

I hold that Kayo is entitled to prove its lost

18

commissions on sales directly made by Fila through the three

19

companies mentioned in the agreement, that the total is

20

$761,411.24 subject to any correction on the part of Fila, at

21

9 percent interest, which is the state rate of interest, is

22

appropriate, again, subject to being shown by Fila that a

23

lesser rate is the correct rate, and that the total of the loss

24

commissions and the interest is $938,697.

25

I'll give the parties a week to work out any
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disagreements, and if there can't be a workout, Kayo should

2

submit a form of judgment giving it the amount I mentioned

3

$938,697 inclusive of interest.

4

principal and the interest.

It should break out the

5

Anything further, Mr. Goodman?

6

MR. GOODMAN:

7

THE COURT:

8

MS. HEILMAN:

9
10

60

No, your Honor.

Thank you very much.

Ms. Heilman?
Just in the event that Kayo does not

accept our correction, is there a mechanism by which we could
raise that with the Court?

11

THE COURT:

Yes, the mechanism is my individual rule

12

2.E.

13

respective positions and I will rule upon it and, if necessary,

14

call you for an oral argument to explain the positions.

15
16

Write me a joint letter within that week giving me your

MS. HEILMAN:

And that goes both to the commissions

and the availability and amount of interest?

17

THE COURT:

18

I thank you very much.

19
20
21

Yes, everything having to do with damages.
My only observation is that

you took upon yourselves much too much work, you need help.
I'm returning these books.
* * *

22
23
24
25
SOUTHERN DISTRICT REPORTERS, P.C.
[phone]