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Zuckert v. Fraen Mechatronics, LLC

Superior Court of Massachusetts, Suffolk, Business Litigation Session

October 29, 2015

Joshua S. Zuckert
v.
Fraen Mechatronics, LLC et al Opinion No. 132336

MEMORANDUM OF DECISION AND ORDER ON DEFENDANTS' MOTION TO DISMISS

Janet L. Sanders, Justice

This is a contract-based action alleging breaches of two agreements, both of which are attached to the Complaint as exhibits. The defendants now move to dismiss the Complaint on the grounds that it fails to contain any allegations that they breached the terms of those agreements or made misrepresentations that would support the counts asserting fraud and violation of Chapter 93A. Certainly, the Complaint is not artfully drafted. Applying the standard that I must at this early stage in the case, however, this Court concludes the motion must be DENIED.

Stripped of characterization, the allegations of the Complaint are as follows. The plaintiff Joshua Zuckert was the holder of a patent related to a device described as a " torque motor" that is used in automobiles. Zuckert approached Fraen Corporation and suggested that there was a real business opportunity available through the marketing of such devices. The upshot of the discussions was the execution of two agreements in May 2012: the Patent Purchase Agreement (PPA), attached to the Complaint as Exhibit A, and the Sales Representative Agreement, (SRA) attached to the Complaint as Exhibit B.

The parties to the PPA are Zuckert as the " Assignor, " Fraen Corporation and its " Affiliates, " (collectively, " Fraen") and the defendant SK Patent, LLC (SK) the " Assignee." Pursuant to the PPA, Zuckert assigned all his rights and interest in the Patent Application that related to the torque motor to SK, described as a wholly owned subsidiary of Fraen. The transfer of rights was subject to Fraen's payment to Zuckert of " not less than an aggregate" of $162, 000 on or before December 15, 2013 as set forth in the separate PPA. Failure to make those payments would mean that the assignment reverted back to Zuckert, but if the payments were made, then this " reversion right" automatically terminated. In addition to the $162, 000 aggregate payment, defendant SK also agreed to pay Zuckert a royalty of .25 percent based on the net sales of torque motors up to a total of $500, 000, at which point the right to receive a royalty would terminate.

The SRA was executed on the same day as the PPA; the parties were the defendant Esen Corporation and Zuckert. Pursuant to the SRA, Fraen appointed Zuckert to be its sales representative for the torque motor. The SRA imposed various responsibilities on Zuckert, including his duty to use his " best efforts" to generate customers, promote the sale of the product, and submit any orders obtained for it promptly to Fraen. In return, Fraen agreed to: a) establish the " prices charges, and terms and conditions of the sale, " b) provide its " current customary literature and samples concerning the products" to Zuckert or to his customers upon request, and c) provide " reasonable Product and policy training." ¶ 4 of SRA. Paragraph 5 of the SRA spelled out Zuckert's right to receive commissions on any sales that he made. Apart from the commissions, the SRA stated that Fraen would pay Zuckert $9, 000 a month over the next 24 months; this was the $162, 000 aggregate payment referenced in the PPA.

The Complaint alleges that sometime after these agreements were executed, a principal of Fraen Corporation, Nicole Scarfo, " intentionally, purposefully and willfully slowed the development and pursuit of the torque motor business." ¶ 17 of Complaint. From August 2012 to February 2013, Fraen Corporation failed and refused to make payments to Zuckert for the torque motor project as required by the SRA. ¶ 18 of Complaint. In March 2013, Zuckert was advised that Fraen had " unilaterally decided not to allocate any more money toward the torque motor project, " apparently because of financial difficulties. ¶ 21 of Complaint. Zuckert had relied not just on Fraen Corporation to provide the financial backing, however, but also its " Affiliates" as specified in the PPA. In May 2013, Fraen Corporation and SK assigned the torque motor IP rights to defendant Fraen Mechatronics, LLC an entity with the same business address as Fraen Corporation but with " no money and no resources in hand to produce the torque motor." ¶ 23 of Complaint. The Complaint alleges that the sole purpose of this assignment was to " ruin plaintiff's opportunities to earn royalty and sales commissions" and that the assignment was a " sham" designed to deprive plaintiff of the use and sale of the patent. " Due to the time required for delivery of production equipment and the setup of a factory and the testing and sampling and qualification requirement that a supplier to the automotive industry must pass, there is virtually no possibility at serious production of torque motors and subsequent payment of royalties" for at least another three years, if ever. ¶ 27 of Compliant.

DISCUSSION

The standard that this Court applies to the instant motion is well established. Although the complaint must contain more than " labels and conclusions, " Iannacchino v. Ford Motor Co., 451 Mass. 623, 636, 888 N.E.2d 879 (2008), the ultimate inquiry is whether the plaintiff has alleged facts that are " adequately detailed so as to plausibly suggest an entitlement to relief." Greenleaf Arms Realty Trust, LLC v. New Boston Fund, Inc., 81 Mass.App.Ct. 282, 288, 962 N.E.2d 221 (2012) (reversing lower court's allowance of Rule 12(b)(6) motion). Although this has been described as a heightened standard, it is still a generous one, with the Court drawing all reasonable inferences from those facts that are alleged in favor of the nonmoving party.

In the instant case, the Complaint alleges among other things that in return for assigning certain valuable patent rights, Zuckert received a promise from defendants to pay him at least $162, 000 within a certain time frame and pay him royalties and commissions on any sales of the product based on the patent. The defendants failed to pay Zuckert the amount due under the SRA and PPA. Moreover, they assigned the patent rights to a corporation with no money or employees and thus no ability to develop the torque motor, thus making it impossible for Zuckert to sell the product. While inartfully drafted this is enough to state a claim.

Defendants point out (quite correctly) that there is nothing in the PPA that prevented such an assignment of the patent rights. But the Complaint alleges that the purpose of the assignment was done simply to allow Fraen to escape its own obligations to assist in some fashion in the marketing of the torque motor, if only by preparing product samples. That is, the assignment was a " sham." Although the Complaint is obtuse as to how this assignment interfered with the performance of Zuckert's contractual duties, this Court draws all reasonable inferences in favor of the plaintiff at this point. In a nutshell, the plaintiff alleges that he was tricked into giving up his patents rights because of promises that the defendants made to assist him in the sale of the torque motor--promises which they never intended to keep.

This case may well be a " strategic preemptive strike" launched by plaintiff before the defendants could make their own claims against him that he failed to use his best efforts to promote and sell the torque motor as required by the SRA. The Complaint is also decidedly thin to the role of certain of these defendants, aside from the bare allegations that they are all " affiliates" of Fraen Corporation and thus bound at least by the PPA. Moreover, the Complaint says nothing about what plaintiff did to fulfill his end of the bargain. Discovery may very well reveal that plaintiff's claims should be disposed of by way ...


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