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Machine Project Inc. v. Pan American World Airways, Inc.

United States District Court, D. Massachusetts

December 15, 2016

Machine Project, Inc. and Kinser Chiu, Plaintiffs,
v.
Pan American World Airways, Inc., Defendant.

          MEMORANDUM & ORDER

          Nathaniel M. Gorton United States District Judge.

         This case arises from a dispute over a licensing agreement between plaintiff Machine Project, Inc. (“MPI”) and co-plaintiff Kinser Chiu, its former president, and defendant Pan American World Airways, Inc. (“Pan Am”). Plaintiffs generally allege that defendant breached that license agreement and committed fraud. Pending before this Court is defendant's motion for summary judgment on all claims. For the reasons that follow, defendant's motion will be allowed, in part, and denied as moot, in part.

         I. Background

         In April, 2007, Pan Am and MPI entered into a Merchandising License Agreement (“the 2007 MLA” or “Agreement”) which is at issue in the instant action. At that time, Chiu and his colleague, Anthony Lucas, were each 50% stockholders in MPI and they both executed the Agreement on its behalf. The Agreement granted MPI the

exclusive, sublicensible right...to use [Pan Am's trademarks] in the Territory on Merchandising Products and in connection with the sale, distribution, advertising and promotion of Merchandising Products in the Territory.

         The 2007 MLA also established annual gross revenue requirements for MPI. In the event MPI failed to generate the required revenue, Pan Am had the option to collect from MPI the royalty that would have been due from MPI if the requirements for such “Royalty Year” had been satisfied or to terminate the Agreement upon 30 days prior written notice. The Agreement further provided for termination by either party upon 30 days written notice in the event that a breach of a material provision was not cured within the 30-day notice period.

         In the fall of 2007, Pan Am ostensibly became dissatisfied with the progress of the branding program. Several months later, Pan Am sent a Notice of Termination of the 2007 MLA to MPI and took the position that it was entitled to do so because, among other reasons, the minimum gross revenue requirements set forth in the 2007 MLA had not been met. In or about August, 2008, Pan Am hired Lucas as its “Head of Marketing” and his wife as a “merchandising and design manager, ” intending to accomplish what the Agreement was supposed to do.

         A. The 2008 State Court Action

         In May, 2008, Chiu and MPI brought suit against Lucas and Pan Am in a New York state trial court for breach of the 2007 MLA, wrongful termination of the 2007 MLA and injunctive relief. Pan Am and Lucas removed the case to the United States District Court for the Southern District of New York but it was later remanded to the state court for lack of diversity jurisdiction because Chiu and Lucas were both residents of New Jersey. Pan Am successfully moved to dismiss the complaint in that action on the grounds that the dispute had to be litigated in Boston, Massachusetts in accordance with the forum selection clause of the 2007 MLA.

         B. The 2008 Federal Action

         In June, 2008, Pan Am brought an action in the United States District Court for the Southern District of New York against Chiu and a company controlled by Chiu, Vetements, Inc. (“Vetements”) (“the 2008 action”). Pan Am alleged that Chiu and Vetements infringed its trademarks by continuing to sell Pan Am-branded products after Pan Am terminated the 2007 MLA. In November, 2009, Chiu and Vetements filed a motion to dismiss that action for failure to name MPI and Lucas as parties. In September, 2010, the Court found that Lucas and MPI were “necessary parties” and ordered that they be joined in the action.

         Shortly thereafter, Chiu, Vetements and MPI asserted counterclaims alleging that Pan Am and Lucas were part of an unlawful scheme to defraud Chiu with respect to the geographic scope of the 2007 MLA. In April, 2012, the Court permanently enjoined Vetements from manufacturing or selling goods bearing any trademarks owned by Pan Am and dismissed the counterclaims on improper forum grounds and for lack of standing.

         C. Procedural History

         Plaintiffs brought this action in January, 2014. Their complaint contains three counts against Pan Am: breach of contract (Count I), breach of the covenant of good faith and fair dealing (Count II) and fraud (Count III). Counts IV and V allege breach of fiduciary duty and tortious interference with contractual relations, respectively, against Lucas.

         In March, 2014, this Court entered default judgment against Lucas for failing to appear pursuant to Fed.R.Civ.P. 55(a). After protracted discovery caused, at least in part, by the necessity of obtaining letters rogatory, and several extensions of deadlines, in April, 2016, Pan Am moved to dismiss all claims for lack of federal subject matter jurisdiction. MPI filed a notice of voluntary dismissal of its claim against defendant Lucas that same day. This Court subsequently allowed plaintiffs' dismissal of their claims against Lucas but otherwise denied Pan Am's motion to dismiss.

         Now pending before the Court is Pan Am's motion for summary judgment on all claims.

         II. Defendant's Motion for Summary Judgment

         A. Chiu's Standing

         As a threshold matter, defendant avers that Chiu lacks standing to bring claims for breach of the covenant of good faith and fair dealing (Count II) and fraud (Count III) because there is no evidence that he has been personally injured by the purported conduct. Chiu responds that he has suffered personal injuries separate from the alleged damages to MPI.

         Generally, a stockholder does not have standing to assert a claim on behalf of a business entity in which he owns stock. Laverty v. Massad, 661 F.Supp.2d 55, 61-62 (D. Mass. 2009). Thus, Chiu lacks standing to bring claims in Counts II and III to enforce the contractual rights of MPI. See Quaglieri v. Steeves, Docket No. 11-10377, 2013 WL 1222220, at *3 (D. Mass. Mar. 26, 2013). The pleadings and the record are unclear, however, as to what claims are asserted on behalf of the individual and/or corporate plaintiffs so the Court will do its best to differentiate.

         B. Legal Standard for Summary Judgment

         The role of summary judgment is “to pierce the pleadings and to assess the proof in order to see whether there is a genuine need for trial.” Mesnick v. Gen. Elec. Co., 950 F.2d 816, 822 (1st Cir. 1991). The burden is on the moving party to show, through the pleadings, discovery and affidavits, “that there is no genuine dispute as to any material fact and that the movant is entitled to judgment as a matter of law.” Fed.R.Civ.P. 56(a). A fact is material if it “might affect the outcome of the suit under the governing law.” Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). A genuine issue of material fact exists where the evidence with respect to the material fact in dispute “is such that a reasonable jury could return a verdict for the nonmoving party.” Id.

         Once the moving party has satisfied its burden, the burden shifts to the non-moving party to set forth specific facts showing that there is a genuine, triable issue. Celotex Corp. v. Catrett, 477 U.S. 317, 324 (1986). The Court must view the entire record in the light most favorable to the non-moving party and indulge all reasonable inferences in that party's favor. O'Connor v. Steeves, 994 F.2d 905, 907 (1st Cir. 1993). Summary judgment is appropriate if, after viewing the record in the non-moving ...


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