The Kayo Corp. v. Fila U.S.A., Inc.

Background

Before trial, the court considered Fila’s motion to exclude evidence supporting three types of damages claimed by The Kayo Corp.: lost profits, lost commissions during a possible Renewal Term of the parties’ License Agreement, and interest. The court had previously declined to exclude either party’s damages expert report and had rejected Fila’s argument that Kayo’s lost profits could not be proven with reasonable certainty. The remaining issue for lost profits was whether the parties had contemplated those damages.

Lost Profits

Applying New York law, the court characterized Kayo’s claimed lost profits as consequential damages because they arose from sales to third parties rather than from a fixed payment Fila agreed to make under the License Agreement. Consequential damages are losses resulting from related business activities rather than the direct payment promised by a contract.

The court explained that consequential lost profits are recoverable only when the loss was caused by the breach, can be proven with reasonable certainty, and was fairly within the parties’ contemplation when they made the agreement. The License Agreement did not mention lost profits, and the court found insufficient evidence that either party accepted liability for the other’s lost profits. The agreement’s provisions for percentage-based commissions and renewal based on net sales did not show that the parties contemplated lost-profit damages. The court therefore granted Fila’s motion with respect to lost profits.

Renewal-Term Commissions

The License Agreement provided for an automatic Renewal Term, but that term never began because of the conduct underlying the lawsuit. Fila argued that evidence of damages from the Renewal Term should be excluded because the renewal and resulting sales were uncertain.

The court held that this challenge concerned the weight of the evidence—the importance or reliability the factfinder should give it—not its admissibility. Whether Fila would have approved Kayo’s proposals, whether Kayo could have marketed co-branded products, what efforts Kayo could have made with approved manufacturers, and when products would have reached the market were factual questions. The court concluded that these issues should be addressed through cross-examination and contrary evidence at the bench trial, rather than by excluding the evidence in advance. It denied Fila’s motion as to lost commissions during the potential Renewal Term.

Interest

Fila argued that Kayo could not recover interest because the License Agreement allowed interest for Fila but did not provide for interest payable to Kayo. The court disagreed. Under New York law, interest is recoverable on an amount awarded for breach of contract, and the statutory interest rate is 9% when the contract does not establish a rate. The court stated that, whether the applicable rate was 9% or 20%, Kayo would be entitled to interest if it prevailed on its claims. It denied Fila’s motion as to interest and left the applicable rate for determination during or after trial.

Disposition

Judge Alvin K. Hellerstein granted Fila’s motion with respect to lost profits and denied it with respect to lost commissions during the Renewal Term and interest. The clerk was directed to terminate the motion, oral argument scheduled for February 1, 2022, was canceled, and the parties were directed to attend a February 4, 2022 status conference to address further progress and set a trial date.