Coyne's & Co., Inc. v. Enesco, LLC

565 F.Supp.2d 1027

COYNE'S & COMPANY, INC., a Minnesota corporation, Plaintiff, v. ENESCO, LLC, an Illinois limited liability company; Country Artists, Ltd.; and Mark Jeremy Orton and Allan Watson Graham, as Receivers of Country Artists, Ltd., Defendants.

Civil File No. 07-4095 (MJD/SRN).

United States District Court, D. Minnesota.

June 21, 2008.

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Paul L. Ratelle and Thomas A. Forker, Fabyanske Westra Hart & Thomson, PA, for Plaintiff.

James V. Garvey, Vedder Price Kaufman & Kammholz, PC; Michael J. Steinlage

and Kelly A. Swanson, Larson King, LLP, for Defendant Enesco, LLC.

MEMORANDUM OF LAW & ORDER

MICHAEL J. DAVIS, District Judge.

I. INTRODUCTION

This matter is before the Court on Defendant Enesco, LLP's Motion to Dismiss Plaintiffs Second Amended Complaint. [Docket No. 56] The Court heard oral argument on February 29, 2008.

II. BACKGROUND

A. Factual Background

1. Parties

Plaintiff Coyne's & Company, Inc. ("Coyne's") is a Minnesota corporation with its principal place of business in Minneapolis, Minnesota. (Second Amended Complaint ("Compl.") ¶ 2.) Coyne's is a giftware company that has been in business for over 50 years. (Id.) It sells various product lines, including the Country Artists line manufactured by Defendant Country Artists, Ltd. ("CA"). (Id.)

Defendant CA has its principal place of business in England. (Compl.¶ 3.) The company sells gift products. (Id.) CA has been in receivership since August 10, 2007. (Id. ¶ 22.) Defendants Mark Jeremy Orton ("Orton") and Allan Watson Graham ("Graham") are the appointed Receivers of the business assets for the benefit of creditor Lloyds TSB Bank pic. (Id. ¶ 4.)

Defendant Enesco, LLC ("Enesco") is a U.S.-based company with its principal place of business in Illinois. (Compl.¶ 5.) Enesco sells giftware and home and garden decor. (Id.) Coyne's and Enesco compete in the giftware market. (Id. ¶ 26.)

2. Contracts

a. Distributor Agreement

i. General Provisions

In August 2005, Coyne's and CA entered into a Distributor Agreement. (Compl. ¶ 8; Distributor Agreement, Ex. A to Steinlage Aff.) The interpretation of the Distributor Agreement is governed by the laws of the United States and of the State of Minnesota. (Distributor Agreement § 12.4.)

In the Distributor Agreement, CA granted Coyne's

the exclusive right to sell, distribute, market and advertise certain lines of COUNTRY ARTISTS product as described in Exhibit A to this agreement and in any derivative products (cumulatively, the "Products") for the term of this Agreement ... for the territory consisting of the United States and Mexico (the "Territory").... Subject to section 1.6 [permitting internet sales and sales outside the Territory], and otherwise as herein provided COUNTRY ARTISTS will not during the term of this Agreement either actively sell any Product to any person or entity other than COYNE'S within the Territory ... without first obtaining the written consent of COYNE'S such consent not to be unreasonably withheld or delayed.

(Id. § 1.1.)

Additionally, the agreement provided that CA owns or has secured rights in the "trade names, trade marks and copyrights associated with the Products." (Id. § 7.1) CA authorized Coyne's "to use the Trade Marks in the Territory in relation to the Products for the purposes only of exercising its rights and performing its obligations under this Agreement. Such rights shall cease immediately upon termination of this Agreement, other than as is necessary to make sales pursuant to Section 5 or Section 6.2 hereof." (Id. § 7.2.)

The Distributor Agreement provided it "commences July 1, 2005 ... and shall continue until December 31, 2007 unless terminated early or extended through procedures pursuant to the provisions herein." (Id. § 5.1.)

ii. Fees

Under the Distributor Agreement, Coyne's agreed to purchase the Products from CA at a price equal to a 50% markup over "COUNTRY ARTISTS' actual FOB ... Cost for the Products." (Id. § 3.1.) Additionally, in the event that the parties were unable to agree on a Purchasing Plan for the upcoming year, Coyne's was required to purchase enough of the Products to achieve a "value of sales" equal to the greater of $5 million or the actual value of Coyne's sales in the preceding calendar year increased by 5%. (Id. § 4.2.) If Coyne's failed to achieve this level of "value of sales" for two consecutive calendar years, CA would have the right to terminate the Distributor Agreement and Coyne's would lose the right to extend the agreement beyond 2007. (Id. §§ 5.2-5.3.)

In order to achieve the "value of sales," Coyne's was required to "use its best efforts, at its expense, to promote the sale of the Products ... and shall be responsible for all advertising, marketing and public relations efforts in that regard." (Id. § 4.1.) Coyne's alleges that it did expend substantial time, money (over $1,500,000), and effort to develop an extensive marketing plan for the U.S. market. (Compl.¶¶ 66, 68-69.) As part of this plan, in 2006 and 2007, Coyne's developed and produced catalogs advertising the Products, which displayed a copyright notice in favor of Coyne's. (Id. ¶ 68.)

iii. Termination

A number of early termination procedures are included in the Distributor Agreement. As previously explained, CA could terminate the contract if Coyne's failed to meet its sales obligations. CA could also terminate the Distributor Agreement if Coyne's assigned or attempted to assign any interest in the agreement without CA's prior written consent. (Distributor Agreement § 5.5.) Finally, either party could serve upon the other party written notice to terminate the agreement if the other party becomes insolvent, files a bankruptcy petition, makes a general assignment for the benefit of its creditors, or has a receiver or trustee appointed for its business or properties; or if the other party committed a material breach of the agreement. (Id. § 5.4.) If CA terminated the Distributor Agreement without cause and prior to end of the agreement term, CA "shall be required" to repurchase its inventory, reimburse Coyne's for reasonable costs to discontinue as a distributor, and pay Coyne's a termination fee of $1.5 million or 20% of gross sales of the product for the prior twelve months. (Id. § 6.1.)

iv. Purchase Orders

CA agreed to use its best efforts to accept orders within ten business days of the receipt of such orders. (Distributor Agreement § 2.2.) CA also agreed to use reasonable efforts to deliver each order within the agreed-upon time period or a within a reasonable time. (Id.) "Ownership of the Products shall not pass to COYNE'S until COUNTRY ARTISTS has received in full (in cash or cleared funds) all sums due to it in respect of the Products." (Id.) CA was to bill Coyne's for its orders upon shipment, and Coyne's agreed to pay the invoice within 30 days of the invoice date. (Id. § 3.7.) Coyne's asserts that it has always made timely payment. (Compl.¶ 17.)

b. Share Purchase Agreement between CA and Coyne's

At the same time that CA and Coyne's entered into the Distributor Agreement, they also entered into an agreement for Coyne's to purchase CA's business in the United States ("Share Agreement"). (Ex. B to Steinlage Aff.) Under the agreement, Coyne's paid $989,097 for the Shares of Country Artists USA, Inc. (Id. § 2.2.)

c. Asset Sale Agreement between CA and Enesco

On August 10, 2007, Orton and Graham were appointed as Receivers for CA. (Compl.¶ 22). Orton and Graham immediately entered into an Asset Sale Agreement with Enesco. (Ex. B to Second Steinlage Aff.) Pursuant to the agreement, CA sold Enesco "such right, title and interest as it may have in the Business and Assets." (Id. § 1.2.) Enesco "acknowledge[d] that [the CA name] may not be the property of [CA] and that accordingly any use of the Name by [Enesco] shall be at [Enesco's] own risk." (Id. § 11.1.) Enesco also acknowledged that the intellectual property rights, including trademarks and copyrights, "may be subject to restrictions or deficiencies that have not been disclosed to [CA] and that as a result they may not be capable of being transferred to [Enesco]." (Id. § 8.1.)

Enesco was to operate CA's assets as a going concern, meaning that Enesco would keep the CA business operational. (Compl.¶ 24.) The asset sale did not include any products which left CA's facilities "in the course of delivery to customers" by August 10, 2007. (Asset Sale Agreement, Sched. 4 § 6.) It also did not include any assets owned by a third party. (Id. § 16.)

Finally, CA and its Receivers "agree and undertake to serve by fax between 9 a.m. and 10 a.m. on Monday 13 August 2007 the Termination Notices on all of the relevant parties to the Distribution Agreements." (Asset Sale Agreement § 5.1.4.) However, CA and the Receivers did not send the termination notice to Coyne's until August 21, 2007. (Compl.¶ 43.)

3. Enesco's Acquisition of CA Assets and Subsequent Business Dealings between CA, Coyne's, and Enesco

As of August 12, 2007, products bearing the Coyne's name and logo had already been shipped to warehouses for delivery to Coyne's, while other products were being held by manufacturers in China for future delivery and still others were in varying degrees of manufacture. (Compl.¶ 28.) The completed products and the products being manufactured were in fulfillment of purchase orders sent by Coyne's on or prior to August 12, 2007. (Id. ¶ 29.)

On August 13, 2007, Matthew Bousquette ("Bousquette"), Enesco's Chairman, and Basil Elliott ("Elliott"), Enesco's president and CEO, notified Coyne's of Enesco's acquisition of CA. (Compl.¶¶ 31-32.) They told Coyne's that Enesco was looking to acquire additional giftware companies and that it had purchased CA primarily for the "UK market." (Id. ¶ 33.) Bousquette told Coyne's that he did "not have a preordained plan for the USA market," and acknowledged Coyne's exclusivity provision...