Scores Holding Company Inc. v. SCMD LLC
- Debra Freeman
- 1:18-cv-11364
- U.S. District Court · Southern District of New York
- 13
In Scores Holding v. SCMD, Judge Gardephe denied dismissal of a royalty dispute and denied the plaintiff’s amendment request as moot.
Scores Holding Company, Inc.’s breach-of-contract case against SCMD LLC was allowed to continue past the motion-to-dismiss stage; the court also denied Scores’s amendment request as moot.
What happened
Scores Holding Company, Inc. sued SCMD LLC over unpaid royalties for use of the SCORES name. The written sublicense lasted ten years, but the parties allegedly continued operating under its terms after it expired, and SCMD allegedly stopped paying royalties in July 2017 while using the name until September 2018.
SCMD asked the court to dismiss the case because Scores had not followed the agreement’s notice-and-cure process and because the written agreement had expired. SCMD also argued that Scores had failed to pursue the case. Scores opposed dismissal and asked for permission to amend if the court found its contract claim deficient.
Judge Paul G. Gardephe denied SCMD’s motion to dismiss, finding that the delay did not justify dismissal and that Scores plausibly alleged a continuing contract based on the parties’ conduct. The judge denied Scores’s request to amend as moot.
The detailed version
- Scores Holding Company Inc. v. SCMD LLC · No. 1:18-cv-11364
- Debra Freeman
- Aug. 14, 2020
Background
Scores Holding Company, Inc. brought a diversity action against SCMD LLC for breach of contract. The complaint also named Scores Licensing Corp., but the amended complaint did not refer to that entity.
The dispute concerned the SCORES trademark. In 2003, Scores’s predecessor entered a master license agreement with Entertainment Management Services, Inc. In 2004, Club 2000 Eastern Avenue, Inc. entered a sublicense agreement with Entertainment Management Services to use the SCORES name at an adult-entertainment club in Baltimore. Later that year, SCMD LLC received Club 2000’s rights under the sublicense.
The sublicense provided for royalty payments based on weekly gross revenue, a ten-year term, and a notice-and-cure process for breaches. The term began on February 27, 2004, and therefore expired in 2014. Scores alleged that although the parties did not renew the agreement in writing, they continued following its terms. SCMD allegedly paid royalties through July 2017, stopped paying thereafter, and continued using the SCORES name until September 2018. Scores estimated that at least $160,000 in royalties remained unpaid.
Motions and arguments
SCMD moved to dismiss the amended complaint under Federal Rule of Civil Procedure 41(b) for failure to prosecute and under Rule 12(b)(6) for failure to state a claim. SCMD argued that Scores failed to prosecute because it did not respond to SCMD’s pre-motion letter. SCMD also argued that Scores had not complied with the sublicense’s notice-and-cure and certified-mail requirements before filing suit, and that the contract had expired before the alleged breach.
Scores cross-moved for leave to amend if the court concluded that its breach-of-contract claim should be dismissed.
Failure to prosecute
Rule 41(b) permits involuntary dismissal when a plaintiff fails to prosecute an action or comply with the federal rules or a court order. The court considered the duration of the delay, notice that dismissal could result, prejudice to SCMD, the court’s interest in managing its docket, Scores’s interest in being heard, and whether a less severe sanction would be appropriate.
The court concluded that these factors weighed against dismissal. Scores’s failure to respond to the pre-motion letter caused some delay, but SCMD did not alert the court that its application remained pending, and eight months passed before the court issued a briefing schedule. Scores had not received notice that the case might be dismissed. SCMD’s statements that it was defunct, had to preserve records, and might not have available employees were too general to establish prejudice. The court also found that deadlines and other case-management measures could prevent further delay, and that Scores resumed prosecuting the case after SCMD filed its motion.
The court therefore denied the motion to dismiss for failure to prosecute.
Failure to state a claim
Under Rule 12(b)(6), the court had to decide whether the amended complaint alleged enough facts to make a breach-of-contract claim plausible, accepting the complaint’s factual allegations as true and drawing reasonable inferences for Scores. The court could consider the sublicense because it was attached to or integral to the complaint.
The court rejected SCMD’s argument that the notice-and-cure provision barred the lawsuit. Under New York law, a contract provision is a condition precedent to filing suit only when the agreement clearly says so. The court read Section 10 as allowing a party to terminate the agreement after giving notice of a breach and an opportunity to cure. It did not read the provision as requiring that process before a party could sue.
The court also rejected SCMD’s argument that no contract could exist after the written sublicense expired in 2014. The amended complaint alleged that SCMD continued using the SCORES mark and paying royalties under the sublicense after expiration. Under New York law, the parties’ conduct after a written contract expires can support a contract implied from the facts, with substantially the same terms as the expired agreement. Accepting Scores’s allegations as true, the court found it plausible that the parties mutually agreed to continue under the prior terms.
The court therefore denied SCMD’s motion to dismiss for failure to state a claim.
Disposition
Judge Paul G. Gardephe denied SCMD’s motion to dismiss. The court denied Scores’s cross-motion for leave to amend as moot and directed the clerk to terminate the motions. The court scheduled a case-management conference for September 3, 2020.
Read the full 13-page opinion on CourtListener, the free public archive maintained by the Free Law Project.