Beram v. Ceaco, Inc.

219 F.Supp.3d 274

Harvey BERAM, as Administrator of the Estate of Sandy Beram, Plaintiff,

v.CEACO, INC.; Carol J. Glazer; and Cynthia A. Basque, Defendants.

Civil Action No. 16–10569–PBS

United States District Court, D. Massachusetts.

Signed December 1, 2016

Philip M. Giordano, Reed & Giordano, P.A. Giordano & Company, P.C., Boston, MA, for Plaintiff.

Jon C. Cowen, Gary W. Smith, James E. Kruzer, Posternak Blankstein & Lund LLP, Boston, MA, for Defendants.

MEMORANDUM AND ORDER

Saris, Chief Judge.

INTRODUCTION

Sandy Beram,¹ a puzzle inventor, brought this suit against Ceaco, Inc. ("Ceaco"), its President, Carol Glazer, and its CFO, Cynthia Basque, alleging that they failed to make contractually required royalty payments on puzzle product designs.

Much of the complaint is time-barred, and other claims are without merit. Further, Glazer and Basque are not personally liable for the contract claims. Ceaco's motion to dismiss (Docket No. 11) is ALLOWED in part and DENIED in part. Glazer and Basque's motion to dismiss (Docket No. 13) is ALLOWED in part and DENIED in part.

BACKGROUND

I. Factual Allegations

For purposes of the motion to dismiss, the facts are taken as alleged in the complaint. In re Loestrin 24 Fe Antitrust Litig. , 814 F.3d 538, 545 (1st Cir. 2016). The contract between Beram and Ceaco, which is attached to the complaint, is also considered because it is incorporated by reference in the complaint and central to Beram's claim. Giragosian v. Ryan , 547 F.3d 59, 65 (1st Cir. 2008).

Sandy Beram was a puzzle inventor. On November 2, 1993, she and Ceaco entered into a contract by which Ceaco licensed several of Beram's puzzles for manufacture and sale. The covered products were listed in Schedule 1 of the contract, which initially referenced two puzzle designs: "Fuzzy Grip" and "Search for Small Stuff." Additional puzzle designs were added to Schedule 1 in subsequent amendments, for a total of fourteen licensed puzzle designs. One of those additional puzzle designs was "Puzzle Stix," which was added to Schedule 1 on September 3, 1999.

The contract contained the following provision regarding royalty payments:

3. Royalties and Other Payments. Subject to the terms and conditions of this Agreement, CEACO, Inc. agrees to pay to Sandy Beram, for each type of Merchandise, the Merchandise Royalty Rate applicable to such Merchandise multiplied by the Selling Price (as defined below) for each item of such Merchandise sold in the Territory by CEACO Inc. and all sublicensees ("Royalty Payments" ). As used in this Agreement, (i) the "Selling Price" shall mean the greater of (1) the actual sales price for such item if sold on a wholesale basis, and (2) if the item is sold other than on a wholesale basis, (x) the actual sales price less (y) returns, reasonable and customary discounts, sales tax, freight and insurance; and (ii) any product incorporating an Item will be considered Merchandise for purposes of this Agreement, and any product will be deemed to incorporate an Item when it is based in whole or in part on the Item or any part thereof. Sales shall be deemed to have been made when invoiced or shipped, whichever occurs first.

Schedule 1 provided the royalty rates for each of the puzzle designs.

In section 5 of the contract, Ceaco agreed to provide Beram with quarterly reports listing selling prices, gross sales, merchandise royalty rates, and royalty payments for her puzzle designs.

Under section 16 of the contract, the effective term of the contract is one hundred years following the death of Sandy Beram, unless the contract is terminated earlier. The contract provided for three early termination scenarios. First, if a party breaches the agreement, the nonbreaching party may terminate the agreement if the breaching party does not cure the breach upon notice. Second, Beram may terminate the contract if aggregate royalty payments for four consecutive quarters are less than the "minimum annual royalty payment" amounts set forth for each product in Schedule 1. Third, the contract may automatically terminate upon certain conditions not present here.

Beram alleges that the defendants have long failed to submit payment reports or to pay total royalties, including purportedly required minimum royalty payments. Beram also alleges that Ceaco "fraudulently concealed" its books and records relating to sales and royalties. Beram further alleges that "[i]n or about the 2000's," Ceaco began to reduce and ultimately eliminate the royalty payments. Upon inquiry, Glazer told Beram that sales of her puzzles were being ended.

Beram also alleges that between 2011 and 2015, Ceaco sold a product named "Puzzlestix" that Ceaco attributed to a different inventor. Beram did not receive royalty payments for sales of this product.

II. Procedural History

Beram filed the complaint on March 23, 2016, listing fourteen causes of action:

(1) Copyright infringement by Ceaco and Glazer,

(2) Trademark infringement by Ceaco and Glazer,

(3) Breach of contract by all defendants,

(4) Breach of implied covenant of good faith and fair dealing by all defendants,

(5) Promissory estoppel/detrimental reliance by all defendants,

(6) Unjust enrichment by Ceaco and Glazer,

(7) Conversion by Ceaco and Glazer,

(8) Misappropriation by Ceaco and Glazer,

(9) Fraud and deceit by all defendants,

(10) Negligent misrepresentation by all defendants,

(11) Fraudulent transfer/fraudulent conveyance by all defendants,

(12) Violation of Mass. Gen. Laws ch. 93A by all defendants,

(13) Civil conspiracy by all defendants, and

(14) Accounting as to all defendants.

As relief, Beram sought $4 million in compensatory and punitive damages, in addition to equitable and declaratory relief.

On June 3, 2016, Ceaco moved to dismiss. On the same day, Basque and Glazer moved to dismiss.

DISCUSSION

I. Standard of Review

A Rule 12(b)(6) motion is used to dismiss complaints that "fail[ ] to state a claim upon which relief can be granted." See Fed. R. Civ. P. 12(b)(6). In evaluating a Rule 12(b)(6) motion, this Court must accept the factual allegations in Beram's amended complaint as true, construe reasonable inferences in her favor, and "determine whether the factual allegations in the plaintiff's complaint set forth a plausible claim upon which relief may be granted." Foley v. Wells Fargo Bank, N.A. , 772 F.3d 63, 71 (1st Cir. 2014).

II. Choice of Law

The contract claims are governed by New York law because of the choice-of-law provision in the contract.²

The parties agreed at the motion hearing that Massachusetts law would apply to the tort claims. See James L. Miniter Ins. Agency, Inc. v. Ohio Indem. Co. , 112 F.3d 1240, 1245 (1st Cir. 1997) (federal court sitting in diversity is free to forego an independent choice-of-law analysis and accept the parties' agreement).

III. Time Bar

Beram alleges that Ceaco has not paid a full royalty amount or submitted royalty reports since 1994. Beram's claims are time-barred to the extent that they fall outside the following limitations periods:

• Count III , Breach of Contract. N.Y. C.P.L.R. 213(2) (six-year statute of limitations for New York contract actions).

• Count IV , Breach of Implied Covenant of Good Faith and Fair Dealing. N.Y. C.P.L.R. 213(2) (six-year statute of limitations for New York contract actions); McCormick v. Favreau , 82 A.D.3d 1537, 1540, 919 N.Y.S.2d 572 (App. Div. 2011).

• Count V , Promissory Estoppel/Detrimental Reliance. N.Y. C.P.L.R. 213(2) (six-year statute of limitations for New York contract actions).

• Count VI , Unjust Enrichment. Sentinel Prod. Corp. v. Mobile Chem. Co. , No. CIV. A. 98–11782–PBS, 2001 WL 92272, at *23 (D. Mass. Jan. 17, 2001) (three- or six-year statute of limitations on Massachusetts unjust enrichment depending on whether the essential nature of the claim is tort or quasi-contract).

• Count VII , Conversion. Mass. Gen. Laws ch. 260, § 2A (three-year statute of limitations for Massachusetts tort actions).

• Count VIII , Misappropriation. Mass. Gen. Laws ch. 260, § 2A (three-year statute of limitations for Massachusetts tort actions).

• Count IX , Fraud. Mass. Gen. Laws ch. 260, § 2A (three-year statute of limitations for Massachusetts tort actions).

• Count X , Negligent Misrepresentation. Mass. Gen. Laws ch. 260, § 2A (three-year statute of limitations for Massachusetts tort actions).

• Count XI , Fraudulent Conveyance/Fraudulent Transfer. Mass. Gen. Laws, ch. 109A, § 10 (four-year statute of limitations for Massachusetts fraudulent transfer).

• Count XII , Violation of Mass. Gen. Laws ch. 93A. See Mass. Gen. Laws ch. 260, § 5A (four-year statute of limitations for Chapter 93A claims).

• Count XIII , Civil Conspiracy. See Pagliuca v. City of Boston , 35 Mass.App.Ct. 820, 626 N.E.2d 625, 628 (1994) (three-year statute of limitations for Massachusetts civil conspiracy).

Beram makes two arguments with regard to the time-bar issue. First, Beram argues that the Massachusetts fraudulent concealment statute tolls the statute of limitations. See Mass. Gen. Laws ch. 260, § 12. Beram argues that Ceaco fraudulently concealed its misconduct by failing to provide Beram with quarterly sale reports, as required by section 5 of the contract.

Beram is correct that Ceaco has had a continuing contractual obligation to provide quarterly sale reports. While Ceaco suggests that it stopped selling Beram puzzle products years ago, none of the termination conditions in the contract have been met. Ceaco still has the obligation to keep providing quarterly sale reports—even if those reports reflect zero sales. But while Ceaco's failure to provide quarterly reports is a potential contract violation, it does not rise to the level of fraudulent concealment. Beram cites a number of cases for the proposition that fraudulent concealment does not require an affirmative act of concealment and that a mere failure to disclose may count. But every one of those cases concerned a failure to disclose within a fiduciary relationship. See, e.g. , Demoulas v. Demoulas Super Markets, Inc. , 424 Mass....