Opinion
00-CV-753A.
September 27, 2004
DECISION AND ORDER
This case was referred to Magistrate Judge Leslie G. Foschio, pursuant to 28 U.S.C. § 636(b)(1), on February 12, 2001. On March 16, 2001, defendants Supplemental Shack, Nutrition Investments d/b/a/ Health Fitness and Kamal Shaham a/k/a Cal Shaham (collectively, "Supplemental Shack Defendants") filed a motion to dismiss the Second Amended Complaint in its entirety. On November 12, 2002, defendant Peter Klein also filed a motion to dismiss relying on the submissions of the Supplemental Shack Defendants. Plaintiffs MuscleTech Research and Development, Inc. ("MuscleTech") and SN Warehousing, Inc. opposed the motions to dismiss.
On November 13, 2002, MuscleTech filed a motion for partial summary judgment against defendants Sho Me Natural Products, Inc. ("Sho Me"), Christopher K. Reckner, and the Supplemental Shack Defendants. On that same date, defendants Sho Me, Reckner and Theodore Irving (collectively, the "Sho Me Defendants"), filed a motion to dismiss and/or for summary judgment as to plaintiffs' fourth cause of action (civil RICO claim).
On March 25, 2004, Magistrate Judge Foschio filed a Report and Recommendation, recommending that: (1) the Supplemental Shack Defendants' motion to dismiss be denied; (2) the Sho Me Defendants' motion to dismiss and/or for summary judgment be denied; (3) MuscleTech's motion for partial summary judgment be granted as to its first cause of action (trademark infringement) and second cause of action (false designation of origin and false representation), but denied as to its third cause of action (for copyright infringement); and (4) summary judgment be granted to MuscleTech with respect to various counterclaims and affirmative defenses raised by the defendants.
On April 21, 2004, the Supplemental Shack Defendants filed objections to Magistrate Judge Foschio's Report and Recommendation. The Sho Me Defendants filed objections to the Report and Recommendation on April 23, 2004. Plaintiffs filed responses to the objections, and on September 10, 2004, the Court heard oral argument.
Pursuant to 28 U.S.C. § 636(b)(1), this Court must make a de novo determination of those portions of the Report and Recommendation to which objections have been made. Upon a de novo review of the Report and Recommendation, and after carefully reviewing the submissions from the parties, the Court adopts the proposed findings and conclusions of the Report and Recommendation, except to the extent set forth herein.
As to the Sho Me Defendants' objections to the Magistrate Judge's recommendation that they be precluded from raising the affirmative defense of apparent authority, the Court agrees that a material issue of fact exists as to that issue. A party asserting a claim of "apparent authority" must show that: (1) the principal was responsible for the appearance of authority in the agent to conduct the transaction in question; and (2) the third party reasonably relied on the representations of the agent.See Herbert Constr. Co. v. Continental Ins. Co., 931 F.2d 989, 993-94 (2d Cir. 1991). Apparent authority is created only by the representations of the principal to the third party, and cannot be created by the representations of the a gent himself.Fennell v. TLB Kent Co., 865 F.2d 498, 502 (2d Cir. 1989). The existence of apparent authority is ordinarily a question of fact for the jury. Minskoff v. Amer. Express Travel Related Servs. Co., 98 F.3d 703, 708 (2d Cir. 1996).
The Sho Me defendants provided evidence showing that MuscleTech: (1) gave Derek Obukuro the title of Operations Manager; (2) gave him a company credit card, business cards identifying him as MuscleTech's Operations Manager, caps, shirts and other paraphernalia embossed with the MuscleTech logo; (3) gave him authority to represent MuscleTech at trade shows; (4) ran industry ads prominently displaying Obukuro's picture and holding him out as MuscleTech's Operations Manager and research scientist; (5) gave Obukuro formulas for MuscleTech's products; and (6) referred calls by potential contract manufacturers interested in manufacturing MuscleTech's products to Obukuro. Viewing this evidence in the light most favorable to the nonmoving party, the Court finds that a material issue of fact exists as to whether MuscleTech created the appearance that Derek Obukuro had authority to enter into a contract with Sho Me for the manufacture of MuscleTech products.FDIC v. Providence College, 115 F.3d 136, 140 (2d Cir. 1997) (finding that the job title and responsibilities given by principal to employee created the appearance of authority).
There is also a question of fact as to whether Sho Me reasonably relied on those representations when it agreed to manufacture MuscleTech's products. In general, a third party is not required to inquire into the scope of the agent's authority.Herbert, 931 F.2d at 995. However, in the apparent authority context, the duty of inquiry arises "when (1) the facts and circumstances are such as to put the third party on inquiry; (2) the transaction is extraordinary; or (3) the novelty of the transaction alerts the third party to the danger of fraud."Johnson v. Nationwide General Ins. Co., 971 F. Supp. 725, 734-35 (N.D.N.Y. 1997). Asking whether the third party had a "duty to inquire" is an alternative way of asking whether the third party reasonably relied on the representations of apparent authority. Herbert, 931 F.2d at 995. The question of whether a particular transaction is "novel" or "extraordinary" turns upon "whether the particular transaction falls within the range of transactions in which [the principal] or similarly situated institutions normally engage." Providence College, 115 F.3d at 141-42.
The transaction at issue here — entering into a contract for the manufacture of MuscleTech products — was within the range of transactions in which MuscleTech was ordinarily engaged. Whether the particular facts and circumstances of the transaction at issue were sufficient to put Sho Me on notice and trigger its duty to inquire as to Obukuro's authority is a question of fact for the jury. MuscleTech has failed to provide evidence demonstrating that, as a matter of law, that Sho Me could not have reasonably relied on the representations of authority. Because a material issue of fact exists as to whether Obukuro acted with apparent authority, MuscleTech's motion for partial summary judgment as this affirmative defense is denied. Consequently, MuscleTech's motion for partial summary judgment on its first and second causes of action, and its motion for summary judgment on the Sho Me Defendants' counterclaims is also denied.
Although the Sho Me Defendants bear the burden of establishing their affirmative defense of apparent authority at trial, as this is a motion for summary judgment, the plaintiffs bear the burden of showing that no material issue of fact exists and that they are entitled to judgment as a matter of law.
The remaining objections to the Magistrate Judge's Report and Recommendation are rejected. Accordingly, for the reasons set forth herein and in the Magistrate Judge's Report and Recommendation, the Court hereby: (1) denies the motions to dismiss the Second Amended Complaint by the Supplemental Shack Defendants and Klein; (2) denies the Sho Me Defendants' motion to dismiss and/or for summary judgment as to plaintiffs' fourth cause of action (civil RICO); (3) grants MuscleTech's motion for partial summary judgment as against the Supplemental Shack Defendants on its first and second causes of action, and on the affirmative defenses of laches, actual authority and implied authority raised by one or more of the defendants; and (4) grants MuscleTech's motion for partial summary judgment as to the Sho Me Defendants' first affirmative defense (failure to state a claim) and seventh affirmative defense (bona fide licensee); but (5) denies MuscleTech's motion for partial summary judgment in all other respects.
The parties are directed to appear before the Court for a meeting to set a trial date on October 15, 2004, at 9:00 a.m.
IT IS SO ORDERED.