Vanderbilt Univ. v. Scholastic, Inc.

541 F.Supp.3d 844

VANDERBILT UNIVERSITY, Plaintiff,

v.SCHOLASTIC, INC. ; Houghton Mifflin Harcourt Publishing Company; and Ted S. Hasselbring, Defendants.

No. 3:18-cv-00046

United States District Court, M.D. Tennessee, Nashville Division.

Filed May 26, 2021

Ashleigh D. Karnell, Audrey Jane Anderson, Mary Leigh Pirtle, Paige Waldrop Mills, Robert E. Cooper, Jr., Bass, Berry & Sims, Nashville, TN, John W. Harbin, Mary Katherine Bates, Meunier Carlin & Curfman, LLC, Atlanta, GA, for Plaintiff.

Caren Decter, Edward H. Rosenthal, Kimberly Maynard, Matt Woleske, Nicole Bergstrom, Viviane K. Scott, Frankfurt, Kurnit, Klein & Selz, P.C., New York, NY, Kimberly M. Ingram, Thor Y. Urness, Bradley Arant Boult Cummings LLP, Michael G. Abelow, Sherrard Roe Voight & Harbison, PLC, Nashville, TN, for Defendant Scholastic, Inc.

Aubrey B. Harwell, Jr., Erik C. Lybeck, Thomas H. Dundon, Neal & Harwell, PLC, Nashville, TN, for Defendant Ted S. Hasselbring.

Benjamin E. Marks, David J. Lender, Pro Hac Vice, Jessica Falk, Weil, Gotshal & Manges, New York, NY, Michael G. Abelow, Sherrard Roe Voight & Harbison, PLC, Nashville, TN, Sara A. Lonks, Taylor B. Dougherty, for Defendant Houghton Mifflin Harcourt Publishing Company.

MEMORANDUM OPINION

WAVERLY D. CRENSHAW, JR., CHIEF UNITED STATES DISTRICT JUDGE

In the hit television series, Shark Tank, investor Kevin O'Leary, a.k.a. "Mr. Wonderful," is partial to deals structured with royalties.¹ Royalties are payments made over a period of time, sometimes in perpetuity, based on someone's licensure of intellectual property. Most entrepreneurs who appear on the show are wary of the potential headaches caused by such a deal. The parties’ deal in this case may be an example of why.

Vanderbilt University brought this action against one of its long-time professors, Ted S. Hasselbring, along with publishers Scholastic, Inc. and Houghton Mifflin Harcourt Publishing Company, alleging underpaid royalties for a special education technology product that Vanderbilt claims was its intellectual property.

Pending before the Court are three, fully briefed motions for summary judgment: (1) one by individual Defendant Hasselbring pertaining to Vanderbilt's remaining claims against him (Doc. Nos. 295, 297, 298, 333, 336, 340, 353, 354); (2) one by corporate defendants Scholastic and Houghton Mifflin Harcourt ("the Corporate Defendants") pertaining to Vanderbilt's remaining claims against them (Doc. Nos. 296, 304, 307, 337, 344, 345, 360, 362-1); and (3) one by Vanderbilt pertaining to Defendant Scholastic's two remaining counterclaims against it (Doc. Nos. 303, 305, 306, 326, 327, 355, 356). For the following reasons, Hasselbring's Motion for Summary Judgment, (Doc. No. 295), will be denied; Scholastic and Houghton Mifflin's Joint Motion for Summary Judgment, (Doc. No. 296), will be granted in part and denied in part; and Vanderbilt's Motion for Summary Judgment, (Doc. No. 303), will be granted in part and denied in part. The Court will dismiss Vanderbilt's claim for Declaratory Judgment (Count 2), Vanderbilt's claim for Tortious Interference (Count 7), and Scholastic's Counterclaim for Unjust Enrichment. The remaining claims will proceed to trial.

I. FACTUAL OVERVIEW²

Briefing on the pending motions exceeds 750 pages, including the various statements of facts and responses thereto. Exhibits appended to the briefings add another several hundred pages. Therefore, to provide an overview to the arguments addressed below, the Court will begin by summarizing the factual allegations. The Court will expand upon the allegations, where appropriate, to analyze the claims more fully below.

Dr. Hasselbring is Professor of Special Education, Emeritus at Vanderbilt University. He became one of the nation's foremost experts in the field of special education and gained a reputation for developing technology to assist students with learning disabilities. (Doc. No. 345 ¶ 1; see also Doc. No. 304 at 4). In 1984, Hasselbring became the Associate Director, and eventually co-director, of Vanderbilt's Learning Technology Center. (Doc. No. 345 ¶ 4). In that role, he played a crucial part in creating the Peabody Middle School Literacy Program along with consultant Laura Goin. The program was aimed at helping middle school students with reading difficulties. (Id. ¶ 8). Initial testing of the program showed promise, and it drew the attention of Scholastic, Inc., one of the world's leading providers of print and digital education programs. (Doc. No. 305 at 3; see also Doc. No. 116 at 3).

In 1997, Vanderbilt and Scholastic entered into a License Agreement ("the License"). (Doc. No. 345 ¶ 30). Under the License, Vanderbilt conveyed the rights to the Peabody Middle School Literacy Program software in exchange for royalties on certain products derived from that software. Scholastic then used the software as a prototype to develop a program it later branded as Read 180. (Doc. No.345 ¶ 32). Scholastic hired Hasselbring as a consultant to assist with the development of Read 180. (Doc. No. 345 at ¶ 57). Read 180 became wildly successful, and at one point in time was the most profitable license in the history of Vanderbilt University. (Doc. No. 345 ¶ 72).

Capitalizing on the success of Read 180, Scholastic developed additional products, including FASTT Math, System 44, iRead, and Math 180 ("the Other Scholastic Products"). (Doc. No. 245 at ¶ 62). Scholastic retained Hasselbring to assist with these ventures as well. In 2014, Scholastic sold its educational technology business, and assigned the License, along with Hasselbring's consulting agreements, to Defendant Houghton Mifflin Harcourt Publishing Company. (Doc. No. 345 at ¶¶ 124–26).

In January 2016, Vanderbilt exercised its contractual right under the License to an audit. (Doc. No. 345 at ¶ 150). Vanderbilt claims that the audit uncovered several License breaches by Hasselbring and the Corporate Defendants, including an underpayment in royalties for: (1) the Read 180 program; and (2) the Other Scholastic Products that Hasselbring helped develop, and, as a result, incorporated Vanderbilt's intellectual property. The parties signed a tolling agreement on July 28, 2017, (Doc. No. 345 at ¶ 152), and on January 16, 2018, Vanderbilt commenced this action. (See Doc. No. 1). On July 15, 2019, the Court dismissed several claims brought by Vanderbilt (See Doc. No. 106). Accordingly, the following claims remain: (1) breach of contract in violation of New York law as to the Corporate Defendants (Count 1); (2) a claim for a declaratory judgment of ownership interest in the "Other Scholastic Products" (Count 2); (3) infringement of federally-registered trademarks by the Corporate Defendants (Count 3); (4) breach of contract in violation of Tennessee law as to Hasselbring (Count 5); (5) breach of duty of loyalty in violation of Tennessee law as to Hasselbring (Count 6); (6) tortious interference with contract in violation of Tennessee law as to the Corporate Defendants (Count 7); and (7) fraud as to Hasselbring (Count 9). (See id. ).

Scholastic also brought a counterclaim against Vanderbilt, the remaining claims of which include: (1) breach of the implied duty of good faith and fair dealing; and (2) unjust enrichment because of Scholastic's alleged overpayment of royalties for Read 180 from 2011-2015. (Doc. No. 305 at 1; see also Doc. No. 178).

II. LEGAL STANDARD

Summary judgment is appropriate only where there is "no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(a). "A genuine dispute of material fact exists ‘if the evidence is such that a reasonable jury could return a verdict for the nonmoving party.’ " Griffith v. Franklin Cty., 975 F.3d 554, 566 (6th Cir. 2020) (citing Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986) ). "The party bringing the summary judgment motion has the initial burden of informing the Court of the basis for its motion and identifying portions of the record that demonstrate the absence of a genuine dispute over material facts." Rodgers v. Banks, 344 F.3d 587, 595 (6th Cir. 2003) (citation omitted). "The moving party may satisfy this burden by presenting affirmative evidence that negates an element of the non-moving party's claim or by demonstrating an absence of evidence to support the non-moving party's case." Id. (citation and internal quotation marks omitted).

In deciding a motion for summary judgment, the Court must review all the evidence, facts, and inferences in the light most favorable to the party opposing the motion. Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986) (citation omitted). The Court does not, however, weigh the evidence, judge the credibility of witnesses, or determine the truth of the matter. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). The mere existence of a scintilla of evidence in support of the non-moving party's position will be insufficient to survive summary judgment; rather, there must be evidence on which a trier of fact could reasonably find for the non-moving party. Rodgers, 344 F.3d at 595.

III. HASSELBRING'S MOTION FOR SUMMARY JUDGMENT

Hasselbring argues that summary judgment should be granted in his favor on the three remaining claims against him: (1) breach of contract in violation of Tennessee law (Count 5); (2) breach of duty of loyalty in violation of Tennessee law (Count 6); and (3) fraud (Count 9). (See Doc. No. 106).

By way of additional background, Hasselbring notes that Vanderbilt's remaining claims all rely on the same factual presuppositions: 1) Hasselbring created certain intellectual property while a Vanderbilt professor; 2) that intellectual property belonged to Vanderbilt under the terms of the respective Technology policies; 3) Hasselbring conveyed that intellectual property to Scholastic; 4) Scholastic incorporated that...