Archives for posts with tag: action figures

The following 2009 case is about the microwave ceramics industry but cites to the “ninja” of Hasbro v Child’s Play – see NinjaLaw #7.


John Chabria, et al., Plaintiffs,
-v-
EDO Western Corporation, Defendant.

UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF OHIO
EASTERN DIVISION
Case No. 2:06-CV-00543

Filed – March 30, 2009

Opinion by Magistrate Judge Abel and signed by District Court Judge George C. Smith

OPINION AND ORDER

Plaintiffs John Chabria (“Chabria”), Zenix, Inc. (“Zenix”), and Zenix Ltd. (collectively “Plaintiffs”), have brought this action seeking payment of approximately $ 1,164,000 in unpaid royalties. On February 20, 2007, this Court granted in part and denied in part EDO Western Corporation’s (“EDO”) Motion to Dismiss Plaintiffs’ Amended Complaint (Doc. 25). EDO now moves for summary judgment dismissing all remaining claims (Doc. 47). For the reasons that follow the Court GRANTS Defendant EDO’s Motion for Summary Judgment.

I. FACTUAL BACKGROUND

This litigation was commenced by Plaintiffs in 2006 to recover $ 1,164,000 of unpaid royalties Plaintiffs claim they are owed under the Asset Purchase Agreement (“APA”). On February 20, 2007, this Court granted in part and denied in part Defendant EDO’s Motion to Dismiss Plaintiffs’ Amended Complaint, holding, inter alia, that Plaintiffs had sufficiently alleged EDO’s failure to use its best efforts when performing under the APA, EDO’s breach of the implied covenant of good faith and fair dealing and EDO’s fraudulent inducement of Plaintiffs to enter into the APA (Doc. 25). EDO has now moved for summary judgment, contending that Plaintiffs’ claim for breach of an implied contractual obligation to reasonable efforts must fail because no such obligation should be implied in this case, and even if such an obligation is implied, EDO fulfilled the obligation by making extensive efforts to sell the Zenix line and by acting in good faith at all times in operation of the business. EDO further contends that it is entitled to summary judgment on Plaintiffs’ fraudulent inducement claim for the following reasons: (1) it is barred by the statute of limitations; (2) the alleged misrepresentations all relate to the performance of the APA and cannot give rise to a separate cause of action for fraud; (3) Plaintiffs’ reliance on the alleged misrepresentations were not reasonable; and (4) the alleged misrepresentations were all statements of future intent, which Plaintiffs cannot establish were false when made.

A. Plaintiff Chabria’s Background in the Microwave Ceramics Industry

In or around 1964, Plaintiff Chabria started Xtalonix, a microwave ceramics business, in Columbus, Ohio. He sold the business to Harshaw Chemical in 1966, but stayed on as manager. The business changed hands a number of times, and Chabria eventually repurchased it in the early 1980s. In April 1996, Xtalonix attempted to expand and moved its operations to Maryland, transferring most of the equipment previously located in Columbus. The attempted expansion failed because Xtalonix “racked up debt by spending money faster than it could bring it in . . . .” (Chabria Depo. at 200:3-19). To avoid bankruptcy, Xtalonix was forced to enter into receivership. Trak Ceramics purchased the assets of Xtalonix’s business in 1997 for $ 1,760,000.

and

The facts of Hasbro v. Child’s Play, supra, are analogous in that the defendant in Hasbro also failed to take all of the steps it had originally anticipated when it entered into the agreement at issue. Hasbro obtained an exclusive license to manufacture and sell Child’s Play’s line of ninja action figures. During negotiations, Hasbro represented that it anticipated spending $ 2-5 million on television advertising. 1991 U.S. Dist. LEXIS 10794, 1991 WL 156282 at *2. Notwithstanding Hasbro’s significant efforts, it was unable to sell the action figures at levels it had anticipated and ultimately determined that the number of action figures ordered by its customers did not warrant television advertising. Hasbro therefore abandoned its plan to launch a television advertising campaign. 1991 U.S. Dist. LEXIS 10794, [WL] at *3-4. Child’s Play sued and Hasbro moved for summary judgment. The Hasbro court, in its opinion granting summary judgment, took note of Hasbro’s description of its efforts to exploit the line, and observed that Child’s Play had failed to come forward in response with any evidence that such efforts were insufficient. 1991 U.S. Dist. LEXIS 10794, [WL] at *5. The Hasbro court also noted that if a best efforts duty were to be implied, “it, of course, would not have required Hasbro slavishly to devote its efforts to marketing the Line.” 1991 U.S. Dist. LEXIS 10794, [WL] at *6.

In the instant case, Defendant EDO purchased and operated the Zenix product line for 3.5 years, investing in excess of $ 3 million after purchasing. The evidence shows that the Zenix product line continued to lose money and sales were not as expected. As the Hasbro court noted, implication of a best efforts duty does not require slavish devotion to the marketing of the line, especially in light of the continued and unanticipated monetary losses and low sales. Reasonable efforts does not require every possible effort, to the detriment of one’s own interests or finances. See e.g., Scott-Macon Securities, Inc. v. Zoltek Companies, 2005 U.S. Dist. LEXIS 9034, 2005 WL 1138476, *14 (S.D.N.Y. 2005) (under a reasonable efforts clause “a party is entitled to give ‘reasonable consideration to its own interests’ in determining an appropriate course of action to reach the desired result”), aff’d in relevant part, vacated in part, and reversed in part, 2007 U.S. App. LEXIS 23356, 2007 WL 2914873 (2d Cir. 2007). See also Johns v. Rexam , 2005 WL 1308319, at *10 (M.D. Ga. 2005) (“[T]he implied covenant of good faith does not require a party to a contract to exert the maximum possible effort. Indeed, a party can in good faith exert no effort at all, if it can show that a business decision to exert no effort was reasonable under the circumstances.”). Accordingly, this Court, like the Hasbro court, holds that Defendant EDO’s failure to implement Phase III of its pre-acquisition plan does not constitute evidence creating a material question of fact with respect to the issue of whether Defendant EDO took reasonable efforts to market the Zenix product line.

Therefore

In conclusion, the Court finds that Defendant EDO has presented evidence that they used reasonable efforts to market the Zenix Product. Plaintiffs unsupported allegations and hindsight complaints about EDO’s operation of the Zenix business fail to raise triable issues of fact in response to EDO’s showing. Thus, the undisputed facts establish that the question of whether Defendant EDO used reasonable efforts is appropriately resolved in Defendant EDO’s favor on summary judgment.

And also, as regards “Fraud in the Inducement Claim (Count Four)”:

Accordingly, this Court finds that Plaintiffs’ fraud in the inducement claim is time-barred, and Plaintiffs have failed to meet their burden of proving that the alleged fraud was not discovered and could not have been discovered until within two years of the commencement of the lawsuit. Therefore, the Court grants Defendant EDO’s motion for summary judgment with respect to Plaintiffs’ Count Four Fraud in the Inducement claim.

As an alternative basis for summary judgment on Plaintiffs’ fraud in the inducement claim, Defendant EDO argues that the claim should be dismissed because it is duplicative of Plaintiffs’ breach of contract claim and because Plaintiffs have adduced no evidence from which a jury could reasonably find that EDO fraudulently induced Plaintiffs to enter into the APA. Having determined that Plaintiffs’ claims are barred by the applicable statute of limitations, however, the Court finds it unnecessary to address Defendant’s alternative arguments.

V. CONCLUSION

For all of the foregoing reasons, the Court GRANTS Defendant EDO’s Motion for Summary Judgment (Doc. 47).

The Clerk shall remove Document 47 from the Court’s pending motions list.

The Clerk shall remove this case from the Court’s pending cases list.

IT IS SO ORDERED.

/s/ George C. Smith
GEORGE C. SMITH, JUDGE

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There are 103 case opinions in Federal Courts with the word “ninja” according to a Lexis search. The first is actually a typo (explained below). So the true first is the 1988 decision in Hasbro Indus. v. United States, Court No. 84-1-00087, UNITED STATES COURT OF INTERNATIONAL TRADE, 12 C.I.T. 983; 703 F. Supp. 941, Decided, October 25, 1988

This case involves the import taxes (harmonized tariff) on G.I. Joe action figures and determines that they should be taxed at a higher rate because they are human dolls. This distinction between human and nonhuman figures has recently been reported in a variety of blogs because of a decision regarding X-men merchandise. (See Toy Biz v. US). For similar tax reasons as will be discussed below for Hasbro, Marvel lawyers argued in 2003 that certain X-men figures were nonhuman. This created hullabaloo amongst comic fans because a major plot line of the X-men comic is that these characters are humans who are persecuted for being mutant humans. Arguing that mutants are not human is good for taxes but goes counter to what the X-men fight for.


– Law and Multiverse – “Are the X-Men Human? A Federal Court Says No”
– RadioLab – “X-men vs Tariff Law”
– The Cardozo Jurist – “Courts Rules Marvel Action Figures Are Not Dolls”
– Escapist – “Federal Court Rules that the X-Men are Not Human”

But first the typo – In Office of Supply Govt. of the Republic of Korea v. M. V. Naftoporos, No. 81 Civ. 4507, UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK, 1985 U.S. Dist. LEXIS 15671, September 24, 1985, Decided – the Court cites a quotation to “M. Golodetz Export Corp. v. S/S Lake Ninja, 751 F.2d 1103, 1110 (2d Cir. 1985)” — except that is scrivener’s error – the correct party name of the defendant in that case was “S/S Lake Anja” = the name of a cargo vessel. So that is the first use of “ninja” in the Federal Court but it’s a typo. That said, even if it is complete error, it is somewhat ironic or coincidental that the first case with “ninja” has “the Republic of Korea” as the named plaintiff.

So, now back to the GI Joes case, Hasbro v US, Judge Watson for the Court writes:

This action involves the proper classification of plastic figures described as “G.I. Joe Action Figures” and imported from Hong Kong during 1982 and 1983. The merchandise was classified as “other dolls” under Item 737.24 of the Tariff Schedules of the United States (“TSUS”), at various duty rates, depending upon the date of entry. Plaintiff claims that the importations are properly classifiable as “toy figures of animate objects” under Item A737.40 of the TSUS, which, having met the requirements for duty free treatment under the Generalized System of Preferences, (“GSP”), should be free of duty pursuant to General Headnote 3(c) of the TSUS.

The Court then goes on to give thoroughly enjoyable descriptions of many action figures, particularly:

The third figure selected for description is designed “Counter Intelligence.” This is a white female with red hair, wearing what appears to be a beige, one-piece bathing suit, together with beige boots and gloves over black tights. Molded on the figure is a knife on the left thigh, what is possibly a small explosive device on the right thigh, a grenade on the left shoulder, a small pistol on the inside of the right forearm, and what appear to be two “throwing stars” (a type of weapon associated with Japanese “ninja“) on the exterior of the left glove. The figure comes with a “XK-1 Power Crossbow” accessory.

GI Joe fans will recognize this as a description of Counter Intelligence, Scarlett O’Hara.


The Court quotes the entirety of the back filecards for each character, as in the image above, quoting:

“Scarlett is confident and resilient * * * it’s remarkable that a person so deadly can still retain a sense of humor.”

The Court profiles the action figures and characters of Duke, Roadblock, Doc, Scarlett, Cobra Commander, and Baroness.

Hasbro’s arguments are GI Joe are “action figures” not “dolls” but the Court disagrees concluding:

The testimony offered at trial could not overcome the fundamental definition established by lexicographic common meaning and prior case law. Although it is clear that plaintiff does not use the word “doll” in the marketing of these figures, none of the plaintiff’s witnesses could persuade the Court that this was a matter of basic definition. On the contrary, the evidence as a whole supports the conclusion that the emphasis on the term “action figure” is a conscious avoidance of the definitionally correct term “doll” and that when these articles are described in general publications in this society such as newspapers or magazines, or in specialized publications devoted to collectors of dolls, they are frequently referred to as “dolls.”

In sum, the Court is of the opinion that these figures have been properly classified as “dolls” under Item 737.24 of the TSUS. Further, for what it is worth, the Court notes that this classification does not in any way detract from the respect which these figures deserve as representations of the human participants in the never-ending struggle between good and evil. Henceforth, each and every one of these figures must accept the fact that, for tariff purposes and by judicial decision, they must face the world as “real American dolls.” Hopefully, they will meet this decision as to their tariff classification with courage and pride.

It is my suspicion that this tariff classification for action figure toys is a major reason that Michael Bay’s TMNT will change the narrative to make the Teenage Mutant Ninja Turtle be aliens. Aliens are nonhuman and so they should be taxed at the lower rate. Bay has been quoted today by CNN saying in response to fan reaction about the alien-origin plot: “Relax .. We are just building a richer world”.

Yes, Richer because of tax savings.

Ok that’s enough for my first NinjaLaw post. There are more Teenage Mutant Ninja Turtles in other cases and we’ll get to them later – and you may also Shepardize this Hasbro case too, there is a follow-up case about other Joes in 1989 and the 1988 case is also cited in the Toy Biz opinions about X-Men in both 2001 and 2003 . This is just a first post – there will be more NinjaLaw.