Monday, June 6, 2011
The Second Circuit describes Todd Oldham (pictured) as a "world famous artist, fashion and graphic designer, photographer, writer and television personality." Since 1989, he has operated through L-7 Designs, which manages his design services and intellectual property rights.
In 2007, L-7 approached Old Navy and proposed a strategic partnership. Old Navy eventually requested that Oldham become its Design Creative Director. The deal called for L-7 to design a Todd Oldham branded line of clothing in return for 5% of sales. Oldham would be paid an annual "fee" of $2 million for three years plus bonuses. The deal was announced and was supposed to begin in October 2008, but Old Navy dragged its corporate feet. On September 30, 2008, Old Navy informed L-7 that it wanted to postpone the signing of a license for the Oldham branded line indefinitely.
One week later, L-7 notified Old Navy that it was in material breach of the original agreement for failure to negotiate in good faith. Old Navy responded that it was not contractually obligated to do anything and regretted that it was simply unable to enter into the license agreement due to economic conditions. L-7 responded with a letter demanding lost royalties and reputational damages ($75 million) plus Mr. Oldham's fees for the second and third years the agreement ($4 million). Old Navy denied that it had breached the duty to negotiate in good faith, pointing out that the parties had genuine differences that made it impossible to move forward as initially planned. Negotiations to work out an alternative deal failed in early 2009. L-7 sued and Old Navy then terminated its deal with L-7, claiming that L-7 had materially breached the agreement by filing a lawsuit and not participating meaningfully in negotiations.
In January 2010, the district court dismissed L-7's complaint, specially finding implausible, based on the documentation of negotiations attached to Old Navy's answer, L-7's claim that Old Navy failed to negotiate in good faith. In the district court's view, L-7 made "extraordinarily high demands" and could not show failure to negotiation in good faith simply be arguing that Old Navy had insisted on terms to the point of impasse. The district court also dismissed L-7's claim for wrongful termination on the ground that, although Old Navy did not provide 30-days notice as required, such notice would have been futile as L-7 had already sued.
The Second Circuit reversed both of these dismissals, while upholding the district court's dismissal of L-7's remaining claims. The Second Circuit concluded that L-7 did state a claim alleging that Old Navy breached its duty to negotiate a license agreement in good faith because it failed to participate in negotiations between April and December 2008 and then ultimately proposed terms that it knew would be rejected. The Second Circuit found these allegations plausible for the purposes of a motion to dismiss.
The Second Circuit rejected the district court's dismissal of L-7's claim for wrongful termination because L-7 alleged that it had been terminated without notice and Old Navy has conceded as much. In so ruling, the Second Circuit made the obvious point that bringing suit seeking a declaration of the meaning of an agreement is not a breach of that agreement. The district court's conclusion that cure was impossible was speculative.
The Second Circuit opinion in L-7 Designs, Inc. v. Old Navy, LLC. can be found here.
Wednesday, June 1, 2011
Back in 1991, my parents attended a performance of the Israel Philharmonic in Jerusalem, featuring Isaac Stern (pictured) as the soloist. This was during the Persian Gulf War, and Israelis had been conditioned to bring their gas masks with them everywhere they went, in case Saddam Hussein launched a gas attack via missile. As recounted in this archived report from People Magazine, during the concert, the air raid siren went off. The orchestra left the stage, while the audience stayed seated and each audience member put on a gas mask. Stern came back on stage and played solo music, his gas mask at his feet, until the all clear sounded.
I remembered this event today as I read in today's New York Times that a number of opera stars have pulled out of the Metropolitan Opera's scheduled tour of Japan. According to the Times report, 350 members of the Opera company will be traveling to Nagoya and Tokyo for a scheduled two-week run. Two tenors and a soprano have withdrawn from the trip, apparently due to concerns over the dangers of radiation emanating from the the Fukushima Daiichi nuclear plant that was crippled in the aftermath of the earthquake and tsunami that hit Japan on March 11.
It appears that most of the company's members are obligated under their union contracts to proceed with the tour. However as the Met's general manager explained, "[s]tars are stars. They’re different than company members." One of those stars lived through the trauma of the Chernobyl disaster and did not want to re-visit the experience of radiation exposure. That's something Isaac Stern would no doubt have understood. After all, he was born in Ukraine.
The University of Michigan Law School is proud to announce its newest publication, the Michigan Journal of Private Equity and Venture Capital Law.
The Journal is published semi-annually by the students of the University of Michigan Law School in conjunction with the ABA Committee on Private Equity and Venture Capital.
The Journal addresses the regulatory, securities, corporate, tax intellectual property, and other legal issues involved with private equity and venture capital, including with respect to both investments by funds and the formation of funds.
The Journal is currently accepting scholarly papers and paper proposals for publication in our first issue. We anticipate publishing the issue in late fall 2011. Articles for this issue are generally between 25 and 40 pages long.
Please send drafts, proposals, or inquiries to Jeffrey Koh, Executive Article Editor, at firstname.lastname@example.org, or via ExpressO.