Opinion
101460/03.
Decided June 3, 2004.
Plaintiff UB Properties, Ltd. (UB) moves for (1) dismissal of all five affirmative defenses, (2) dismissal of both counterclaims, and (3) summary judgment on the first and second causes of action.
Background
Both UB and defendant Aries Design Management, Inc. (Aries) are in the business of locating and securing opportunities for trademark and personality licensing. UB is the assignee of the rights of Sidney D. Bluming, Esq., under an agreement dated May 15, 1985 (1985 Agreement).
In 1984, Nat Rubin, a certified public accountant acting as a business manager for the actress Elizabeth Taylor, instructed Bluming, an attorney specializing in representing persons and other legal entities in the licensing of trademarks and copyrights, to pursue the possibilities of product endorsements by Taylor.
Ruth Manton, president and sole proprietor of Aries, communicated with Bluming, who told her that he represented Taylor, and inquired as to whether she could find any licensing opportunities for Taylor. In the Spring of 1985, Manton presented the idea of marketing Taylor's name through products launched by the cosmetics and perfume company, Cheseborough-Ponds (CP), which culminated in the 1985 Agreement. Bluming, on Taylor's behalf, and Manton, as president of Aries, executed the 1985 Agreement, which provided for the payment to Aries of 20% of Taylor's compensation from CP, and the payment to Bluming of 12.5 % of Aries' compensation from Taylor.
Through 1999, Aries had realized net compensation of $9,820,000, after all remittances to UB, as Bluming's assignee. That same year, however, Taylor stopped making payments to Aries, and, through her counsel, denied that she had any further obligations under the 1985 Agreement, alleging three grounds for her refusal to pay: (1) Bluming had a conflict of interest when he accepted a share of the Aries compensation; (2) Aries was not licensed under the California Talent Agency Law; and (3) Aries was not licensed as an employment agency under the New York General Obligations Law.
Taylor then filed a complaint against Aries with the California Department of Labor Standards seeking to void the 1985 compensation arrangement. Much litigation ensued, including six proceedings in New York and California ( Aries/Taylor actions). One of those proceedings was an action in Supreme Court, New York County, entitled Aries Design Management, Inc. v. Elizabeth Taylor and The Elizabeth Taylor Cosmetics Company, Inc., Index No. 601013/00).
Aries contends that UB, acting through Bluming, entered into an oral agreement with it, whereby UB agreed to reimburse Aries for a 12.5% proportionate share of the cost of the Aries/Taylor actions as costs were incurred, and that UB reserved the right to cease contributing its 12.5% share and thereby "opt out" of its entitlement to any further benefits under the 1985 Agreement. Jack B. Levitt, Esq., counsel to Aries in the Aries/Taylor actions, asserts that Bluming did not accede to his numerous requests for payment of UB's 12.5% share of litigation costs, and that Aries deemed UB to have thereby exercised its right to opt out.
Bluming asserts that, after numerous requests by Levitt urging UB to participate in paying the legal fees being incurred, on March 6, 2000, he wrote to Levitt with the following proposal:
"For UB Properties, and Jack Usadi and myself, we will bear 12.5% of the legal fees in connection with this matter (and its related proceedings). We understand we will be kept aware of and participate in all decisions and settlements or proceedings, and can opt out (and give up any share of future participation), should we disagree with decisions made. If I am or we are joined as party or parties in connection with the same matters, you will represent us as well, and the fees shall be handled and allocated the same way."
Bluming contends that he never received a response to this proposal, and that UB was not given the opportunity to participate. Instead, Aries continued to make demands upon UB for payment, without ever referring to the conditions of a promised defense and participation in all decisions, settlements, and proceedings, and that he had not made any commitments about contributing to the litigation costs of the Aries/Taylor actions.
The Aries/Taylor actions were settled in September 2002. According to Aries, the parties agreed to maintain as confidential the terms of the settlement agreement which (1) drastically reduced Aries' previous right to 20% of Taylor's royalties; (2) provided Aries with substantially less payment for past periods than it was otherwise entitled to; (3) formally terminated the 1985 Agreement; and (4) redefined and limited Aries' rights and obligations to the provisions of the settlement agreement.
UB alleges that Aries has refused to disclose to Bluming the terms of that settlement, but that it provided for the payment to Aries of compensation already due and to become due, and that Levitt informed Bluming that UB's claimed share is approximately $390,000. By letters dated October 4, 2002, and November 15, 2002, Bluming, on UB's behalf, made demand upon Aries for the payment due under the 1985 Agreement. Aries denied the claim. This action ensued.
The complaint contains three causes of action. The first seeks a judgment declaring the rights of the parties and, in particular, the right of UB to 12.5 % of the total compensation received and to be received under the 1985 Agreement; the second alleges that Aries' refusal to pay to UB, as Bluming's assignee, the money due under the 1985 Agreement is an actual and anticipatory breach of that agreement; the third seeks 12.5 % of all compensation that Aries derived from the 1985 Agreement under a theory of unjust enrichment.
Aries' answer asserts two counterclaims. In the first for contribution and setoff against any amount that UB recovers in this action, Aries alleges that in the March 6, 2000 letter, Bluming, on UB's behalf, agreed to pay 12.5 % of the legal fees that Aries incurred in the Aries/Taylor actions, and that, on May 23, 2000, Bluming sent to Aires $2,894 in payment of its "share of fees chargeable to U B Properties with respect to fees and retainers incurred to date." Thereafter, UB refused to contribute any further to Aries in its efforts to prosecute and defend the Aries/Taylor actions. Between 2000 and 2002, Aries incurred legal fees and expenses of $619,733.89, and received only $2,894 from UB, far less than the $77,466.74 that UB should have paid. Any payment due UB should be offset by $74,572.74, plus interest.
The second counterclaim, for breach of contract, alleges that UB breached its agreement to pay 12.5 % of the legal fees that Aries incurred in the Aries/Taylor actions, causing it damages of $74,572.74, plus interest.
The answer contains five affirmative defenses: (1) UB agreed to modify the 1985 Agreement, and then breached that agreement, as modified; (2) Bluming violated the Code of Professional Conduct regarding his representation of Taylor and The Elizabeth Taylor Cosmetics Company; (3) the doctrine of equitable estoppel bars UB from obtaining the relief it requests; (4) the doctrine of unclean hands bars UB from obtaining the relief it requests; and (5) the complaint fails to state a cause of action.
In support of its motion, UB argues that the 1985 Agreement contains an irrevocable grant to Bluming (UB's assignor), analogous to the making of a gift, of a 12.5 % interest in Aries' compensation, and not an executory agreement. Additionally, the alleged modification of the grant (i.e., either payment of 12.5 % of legal fees or forfeiture of compensation under the 1985 Agreement), required the contractual requisites of offer, acceptance, and consideration, which never occurred.
Aries contends that UB's 12.5% share of the compensation under the 1985 Agreement was Bluming's idea, bargained for between the parties, and contingent upon Bluming's/UB's future performance. It contends further that UB proposed, and Aries accepted, that UB would be granted an option whereby it could choose to continue to pay its 12.5 % share of legal fees and benefit from any recovery, or cease paying that share and opt out of the 1985 Agreement, which it did, by not contributing its 12.5 % share.
Aries argues that the motion should be denied because there are numerous material issues of facts, including: (1) the nature of UB's 12.5 % interest under the 1985 Agreement; (2) the existence and terms of the UB/Aries legal fee agreement; (3) whether UB had an obligation to pay 12.5 % based upon the parties' course of conduct regarding expenses; and (4) whether UB opted out. Aries also argues that UB is also not entitled to summary judgment, because it failed to comply with Rule 19-a of the rules of the Commercial Division of the Supreme Court, New York County, that requires the moving party making a motion for summary judgment to provide a statement of material facts not in dispute.
Determination
The motion is granted only to the extent of dismissing the second affirmative defense.
Discussion
1. Summary Judgment.
Where the intent of the parties is clear from the language of the contract, its interpretation and the issue of intent are to be resolved by the court as a matter of law ( Boston Concessions Group v. Criterion Ctr. Corp., 200 AD2d 543 [1st Dept 1994]). Such is the case here.
The necessary elements for an effective gift include: (1) an intent on the part of the donor to make a present transfer; (2) delivery of the gift, either actual or constructive, to the donee; and (3) acceptance by the donee ( Rubenstein v. Rosenthal, 140 AD2d 156 [1st Dept 1988]). There must be an irrevocable present intention to make the transfer ( Speelman v. Pascal ( 10 NY2d 313, rearg denied 10 NY2d 1011). Here, the contractual language indicates an absence of an intent to make an irrevocable present transfer to Bluming of the right to receive 12.5 % every year. The 1995 Agreement provides:
"5. We acknowledge that you will have assisted us in these matters and agree to pay to you an amount equal to 12-1/2% of the aggregate amounts received by us in each year as and when received." (Emphasis added).
The language "will have assisted us in these matters" and "agree to pay" establishes that Aries' agreement to pay Bluming was conditioned upon his future performance. Indeed, at the time of the execution of the 1985 Agreement, the Taylor/CP licensing agreement was still more than six months away, thereby making the need for further assistance probable.
In interpreting the agreement, the Court must search for the parties "probable intent," aiming to accord the contract language with a "fair and reasonable meaning" ( Sutton v. East River Sav. Bank, 55 NY2d 550; Long Is. Sav. Bank v. FSB v. Geloda/Briarwood Corp., 190 AD2d 64 [1st Dept 1993]). The intent must be to make an irrevocable transfer ( Chiaro v. Chiaro, 213 AD2d 369 [2d Dept], lv denied 86 NY2d 708), and there must not be anything left for the donee to do ( Speelman v. Pascal, 10 NY2d 313, supra), which is not the case here.
UB's reliance upon Speelman v. Pascal ( 10 NY2d 313, supra), Rubenstein v. Rosenthal ( 140 AD2d 156, supra), and Knight v. Knight, 182 AD2d 342 [3d Dept 1992], lv denied 81 NY2d 704) is unpersuasive, because in each of those decisions, the donor made an unqualified gift, without any conditions that might otherwise indicate an expectation of future performance by the donee.
An issue of fact remains, however, whether contributing 12.5% of the litigation expenses constitutes the type of assistance that the parties contemplated by the "will have assisted us in these matters" language of the agreement. It would appear that this issue could be resolved based upon the parties' course of conduct, i.e., whether Bluming/UB previously contributed to the costs of other legal matters and administrative expenses, and whether any of those costs were extraordinary, as is the case here.
Other issues of fact include the existence and terms of the alleged UB/Aries legal fee agreement, whether the parties complied with any such agreement, and whether UB exercised its right to opt out of the payment of legal fees and its entitlement to a percentage of benefits under the 1985 Agreement. Aries' allegation that the parties entered into an oral agreement in February 2000 regarding the payment of fees, raises issues of credibility not germane to resolution on a summary judgment motion ( MJM Advertising v. Panasonic Indus. Co., 2 AD3d 252 [1st Dept 2003]).
As for Bluming's March 6 letter to Levitt (quoted above), that letter constituted an offer to make a unilateral contract, that would be unenforceable until acted upon by the promisee ( Papa v. New York Tel. Co., 72 NY2d 879, rearg denied 72 NY2d 953). In its offer, UB offered to pay 12.5 % of the Aries's legal fees, provided that it be kept informed of the legal decisions, and be given the right to participate and assist in the making of strategic decisions, and it reserved the right to opt out of future participation of the benefits under the 1985 Agreement, if it disagreed with the decisions being made in the Aries/Taylor actions.
The record is replete with controverting evidence as to whether Aries, as promisee, acted upon the offer, and, if so, whether Bluming opted out ( see, e.g., letter dated August 8, 2000, from Bluming to Manton, seeking information about the proceedings; letter dated December 28, 2000, from Bluming to Manton, with a copy to Levitt, opining that it would be unfair to contribute without obtaining copies of all pleadings and a complete status report; letters dated December 22, 2000 to Levitt, and December 28, 2000 to Manton, expressing similar concerns; and letter dated December 21, 2000 from Levitt to Bluming, requesting reimbursement of 12.5% of legal expenses).
UB is not entitled to summary judgment on the first two causes of action for the additional reason that it failed to comply with Rule 19-a, that requires the moving party making a motion for summary judgment to provide a statement of the material facts as to which the moving party contends there is no genuine issue to be tried. Failure to submit such a statement may constitute grounds for denial of the motion. Counsel for UB stated that no such statement is required, because UB is only seeking to dismiss the counterclaims and affirmative defenses. However, UB's order to show cause seeks (1) dismissal of all five affirmative defenses, (2) dismissal of both counterclaims, and (3) summary judgment on the first and second causes of action (emphasis added).
Rules of the Justices, New York County Supreme Court, Civil Branch (Commercial Division).
2. Dismissal of Counterclaims.
The first counterclaim is for contribution and setoff of any recovery by UB of the amount of the legal fees it should have paid. The second counterclaim for breach of contract alleges that UB breached its agreement to pay 12.5 % of the legal fees that Aries incurred in the Aries/Taylor actions. Considering the foregoing, the request for dismissal of the counterclaims is also denied.
3. Dismissal of the Affirmative Defenses.
The first affirmative defense states that UB is not entitled to the relief sought in the complaint, because it subsequently agreed to modify the 1985 Agreement, and then breached that agreement, as modified. UB argues that there is no enforceable agreement by UB to subsidize Aries' legal fees, and that even if it breached an enforceable agreement to "bear" Aries' legal expenses, Aries is not entitled to the forfeiture of UB's property interest, as set forth in its first affirmative defense. Notwithstanding this assertion, dismissal of this affirmative defense is not warranted, because it raises issues of fact similar to those presented by the complaint, and the amount of any setoff to which Aries may be entitled, if it prevails, is an issue for trial.
The second affirmative defense alleges that Bluming violated the Code of Professional Conduct in connection with his representation of Taylor and The Elizabeth Taylor Cosmetics Company. Aries does not have standing to assert this claim ( see Reichenbaum v. Reichenbaum Silberstein, P.C., 162 AD2d 599 [2d Dept 1990], appeal dismissed 77 NY2d 873 [law firm owed no duty to the movant whom it never represented]).
The third and fourth affirmative defenses contend that the doctrines of equitable estoppel and unclean hands, respectively, bar UB from obtaining the relief requested in the complaint. UB argues that these defenses are unavailable, because they pertain only to claims seeking equitable relief. However, the third cause of action is based upon the doctrine of unjust enrichment, which is equitable ( see Kleeger v. Kleeger, 261 AD2d 587 [2d Dept 1999] [appellant barred by doctrine of unclean hands from seeking equitable remedy of recovering money through unjust enrichment]).
As for the fifth affirmative defense, a motion to dismiss an affirmative defense of failure to state a cause of action is "harmless surplusage," and should be denied, because such motion is unnecessary ( D'Agostino v. Harding, 217 AD2d 835 [3d Dept 1995]).
Accordingly, it is
ORDERED that the motion is granted only to the extent of dismissing the second affirmative defense.