Everlast World's Boxing Headquarters Corp. v. Trident Brands Inc.

Background

The consolidated cases concerned a licensing agreement between Everlast World’s Boxing Headquarters Corp. ("Everlast") and International Brand Management Ltd. ("IBML"), on one side, and Sports Nutrition Products, Inc. ("SNPI-NY") and Manchester Capital Inc. ("Manchester"), on the other. The agreement authorized SNPI-NY to use certain Everlast trademarks on fitness-related products in exchange for quarterly royalty payments. Manchester agreed to act as guarantor, meaning it agreed to pay SNPI-NY’s debts upon request if SNPI-NY defaulted.

The agreement was scheduled to last until December 31, 2027, but allowed either party to terminate it effective December 31, 2017, by giving timely written notice. It also required any amendment or variation to be written, dated, and signed by authorized representatives of each party. In December 2013, SNPI-NY assigned its rights and obligations to Trident Brands Inc. ("Trident"). The assignment stated that Trident would perform its obligations through its wholly owned subsidiary, Sports Nutrition Products Inc. ("SNPI-NV"), and that Trident would remain responsible for SNPI-NV’s acts and omissions. SNPI-NV did not sign the assignment and was not a party to the license agreement or assignment.

Trident later sought more favorable royalty terms. Trident alleged that the chief executives of Trident and Everlast orally agreed to revise the royalty provisions after Trident paid its outstanding fourth-quarter 2016 royalty. The alleged amendment was never put in writing. Trident paid the fourth-quarter royalty and later gave written notice terminating the agreement effective December 31, 2017. Everlast demanded additional royalty payments from Trident and Manchester.

Motions and rulings

The court addressed three motions. SNPI-NV moved under Federal Rule of Civil Procedure 12(b)(6) to dismiss Everlast’s breach-of-contract claim against it. Rule 12(b)(6) permits dismissal when a complaint does not allege enough facts to state a legally plausible claim. Everlast and IBML moved under Rule 12(c) for judgment on the pleadings dismissing Trident’s complaint. Everlast separately moved under Rule 12(c) for judgment on the pleadings on its contract claims against Trident and Manchester. A Rule 12(c) motion uses the same standard as a Rule 12(b)(6) motion, except that it is brought after the pleadings are closed.

SNPI-NV’s motion

The court granted SNPI-NV’s motion and dismissed Everlast’s contract claim against SNPI-NV. The court explained that, as a general rule, only parties to a contract can be liable for its breach. SNPI-NV was not a party to either the license agreement or the assignment. The assignment’s reference to SNPI-NV did not make SNPI-NV liable; instead, the assignment expressly stated that Trident remained responsible to Everlast and IBML for SNPI-NV’s acts and omissions.

The court also rejected Everlast’s alternative theories. Everlast could not rely on the functional-equivalent-of-privity doctrine because it did not allege direct dealings or conduct linking Everlast and SNPI-NV. The court also rejected Everlast’s third-party-beneficiary theory because Everlast did not adequately allege the existence or terms of a contract between Trident and SNPI-NV, an intent to benefit Everlast, or a breach of that alleged contract.

Trident’s claims against Everlast and IBML

The court granted Everlast’s and IBML’s motion and dismissed Trident’s complaint in its entirety.

For the alleged oral agreement changing the royalty structure, the court held that the license agreement’s written-amendment provision controlled. Under New York law, a contract containing such a provision generally cannot be modified by an oral agreement. The court considered exceptions for partial performance or substantial reliance, but found neither applied because Trident’s royalty payment was already required by the written license agreement and therefore was not conduct incompatible with that agreement.

The court dismissed Trident’s claim for breach of the implied covenant of good faith and fair dealing. That covenant is an obligation implied in a contract, but it does not create separate contractual rights or provide an independent basis for recovery. Because the alleged oral royalty agreement was unenforceable, the court concluded that Trident could not maintain an implied-covenant claim based on that agreement. The court also stated that Everlast had no contractual duty to release Trident from the agreement’s terms before the permitted termination date.

The court dismissed Trident’s fraud and negligent-misrepresentation claims because Trident did not plausibly allege reasonable reliance or injury. The court found that reliance on oral assurances was unreasonable in light of the license agreement’s clear prohibition on oral modifications. It also found no injury from not terminating earlier because the agreement permitted valid early termination only effective December 31, 2017.

The court dismissed Trident’s declaratory-judgment claim. To the extent the claim depended on the alleged oral royalty agreement, the court found it moot after rejecting Trident’s contract claim. To the extent it concerned the license agreement itself, the court found it redundant and without merit.

Everlast’s contract claims against Trident and Manchester

The court granted Everlast’s Rule 12(c) motion as to liability on its contract claims against Trident and Manchester. The license agreement unambiguously required royalty payments and made Manchester liable as guarantor if there was a default. The parties did not dispute that Everlast had not received all payments due through December 31, 2017, although they disputed the precise amount owed.

The court rejected Trident’s and Manchester’s argument that the agreement’s early-termination language eliminated all liability. Reading the agreement as a whole, the court relied on provisions stating that all sums due would become immediately payable upon termination and that termination would not affect accrued rights or liabilities. It concluded that the early-termination provision did not eliminate royalty obligations accrued before termination. The court therefore entered judgment on liability for Everlast against Trident and Manchester, leaving the amount of damages to be determined.

Disposition

The conclusion states that all three motions were granted: SNPI-NV’s motion to dismiss was granted and the claim against SNPI-NV was dismissed; Everlast’s motion for judgment on the pleadings was granted as to the claims in Trident’s complaint; and Everlast’s motion was granted as to liability on its contract claims against Trident and Manchester, with damages still unresolved. The court declined to grant Everlast or Trident leave to amend the dismissed claims, finding that amendment would be futile. It directed the clerk to terminate IBML and SNPI-NV as parties and scheduled the remaining parties to address damages, discovery, settlement, and case management.