Whitaker v. On The Right Track Systems, Inc.

Background

Jennifer L. Whitaker invented a patented shower curtain design and assigned the patent to Curtain Cuts LLC, a limited liability company she wholly owned. Curtain Cuts and On The Right Track Systems, Inc. (OTRTS) entered into a Patent License Agreement under which OTRTS received an exclusive license and agreed to pay royalties, including specified minimum royalties for 2011 and each calendar year afterward during the agreement’s term.

Curtain Cuts was voluntarily cancelled as a limited liability company in May 2013. Whitaker alleged that OTRTS failed to pay the full minimum royalties for 2014 through 2020 and owed her $155,010.56. OTRTS moved to dismiss under Federal Rule of Civil Procedure 12(b)(6), which allows dismissal when a complaint does not allege enough facts to state a legally plausible claim.

Choice of Law

The court held that New York law governed the dispute. The License Agreement included a provision stating that it would be interpreted under New York’s substantive law, and the parties’ briefs also assumed that New York law applied.

Breach of Contract

The court concluded that Whitaker had not plausibly alleged an enforceable right under the License Agreement. She was not an original party to the agreement, which identified Curtain Cuts as the licensor.

The court rejected Whitaker’s argument that she became Curtain Cuts’ successor merely because she owned the company. A corporate successor obtains the earlier entity’s rights and duties through an amalgamation, consolidation, or another assumption of interests. Whitaker did not explain the legal basis for treating her as Curtain Cuts’ successor after its cancellation.

The court also rejected her assignment theory. The agreement prohibited either party from assigning the agreement without the other party’s prior written consent, subject to a provision concerning a successor entity that acquired substantially all of the assigning party’s assets and business activity and assumed its obligations. Whitaker had not plausibly alleged the required consent or that she qualified as such a successor. The court therefore concluded that any assignment contrary to the agreement was void and ineffective.

Whitaker also argued in her opposition brief that she was an assignee of claims arising from the agreement. The court did not consider that theory as a properly pleaded claim because she had raised it for the first time in her brief. The court additionally stated that the theory would fail on the merits because the agreement addressed who could bring claims related to it and restricted assignment of the agreement and related litigation rights.

Finally, the court rejected Whitaker’s argument that she was an intended third-party beneficiary. The agreement did not name her as a beneficiary or authorize her to enforce its obligations. Although she may have benefited financially from payments to Curtain Cuts, that benefit did not by itself give her enforcement rights.

Because Whitaker was not a party, successor, assignee, or intended third-party beneficiary, the court concluded that she had not plausibly alleged a breach-of-contract claim. It granted OTRTS’s motion to dismiss that claim.

Unjust Enrichment and Quantum Meruit

The court assumed without deciding that New York law might allow a nonsignatory to assert unjust-enrichment or quantum-meruit claims concerning an existing contract. It held that Whitaker had not plausibly stated either claim, making it unnecessary to resolve that broader legal question.

For unjust enrichment, the court noted that OTRTS had continued paying Whitaker for use of the patent even after Curtain Cuts dissolved. The court concluded that, under those circumstances, it would not be unfair to deny Whitaker the additional approximately $155,010.56 in minimum royalties she sought, which were no longer contractually owed to her. The court granted the motion to dismiss the unjust-enrichment claim.

For quantum meruit, a claim seeking the reasonable value of services, the court found that Whitaker had not adequately alleged that she performed services for OTRTS during 2014 through 2020. The complaint appeared to allege that she demanded additional royalty payments, but it did not identify other actions benefiting OTRTS after Curtain Cuts dissolved. She also did not adequately explain why the royalty payments OTRTS made to her did not represent the reasonable value of any services she provided. The court granted the motion to dismiss the quantum-meruit claim.

Disposition

The court granted OTRTS’s motion to dismiss the complaint. It directed the Clerk to enter final judgment in favor of OTRTS and close the case. The opinion does not state that the dismissal was with or without prejudice.