That's What She Said, Inc. v. Gutter Games, Inc.

Background

That’s What She Said, Inc. sued Gutter Games Ltd. and Perch UK 1 Ltd. over a Brand/Product License Agreement. The agreement gave the plaintiff exclusive rights to manufacture, sell, distribute, promote, and market certain Gutter Games products in the United States and Canada. It required Gutter Games to pay the plaintiff an eight-percent royalty on gross revenues from sales in those markets. The agreement included New York choice-of-law and mandatory court-selection provisions requiring covered legal proceedings to be brought in courts located in New York City.

The plaintiff alleged that it invested approximately $10 million in the project after Gutter Games reassured it that the parties would continue working under the agreement. The plaintiff later learned that Gutter Games had been acquired by Perch. Gutter Games eventually sent a termination notice on Perch letterhead, stating that the agreement was being terminated under provisions concerning a change in control and the plaintiff’s failure to meet sales targets. The plaintiff alleged claims for breach of contract, anticipatory breach of contract, and breach of the duty of good faith and fair dealing.

Gutter Games did not move to dismiss, and the claims between the plaintiff and Gutter Games were proceeding separately. Perch moved to dismiss the claims against it for lack of personal jurisdiction—the court’s authority over that defendant—and for failure to state a legally sufficient claim. The plaintiff asked for jurisdictional discovery, meaning limited information-gathering about whether the court had authority over Perch.

Perch’s jurisdictional challenge

Perch argued that it was not bound by the agreement’s court-selection clause because it was not a signatory. The plaintiff responded that Perch was a successor in interest to Gutter Games and was closely related to the agreement and dispute. Under the court’s analysis, a non-signatory can sometimes be bound by a court-selection clause when it is sufficiently closely related to the agreement or dispute, including when it is a successor in interest.

The plaintiff identified facts suggesting that Perch might have succeeded to Gutter Games’s business and obligations. Those allegations included that Gutter Games had little ongoing operation after the acquisition, Perch’s chief executive officer was Gutter Games’s only current officer, communications with the plaintiff occurred through Perch personnel, Perch personnel handled marketing, customer communications directed people to Perch email accounts, and Perch sent the termination notice. The plaintiff also alleged that the acquisition was designed to escape Gutter Games’s contractual obligations.

The court explained that a company purchasing another company’s assets generally does not assume the seller’s debts and liabilities. It identified four exceptions relevant to successor liability: the purchaser expressly assumed the predecessor’s liabilities; the transaction amounted to a consolidation or merger; the purchaser was merely a continuation of the seller; or the transaction was fraudulent and intended to escape the seller’s obligations. The court noted that the acquisition agreement could help determine whether Perch acquired Gutter Games’s liabilities and contractual rights and obligations.

Court’s reasoning

The court found that the plaintiff’s allegations, supporting declarations, and other materials raised genuine questions about Perch’s possible status as Gutter Games’s successor. Although the court agreed that the complaint itself provided limited jurisdictional facts and that Perch had raised doubts about some of the plaintiff’s theories, it concluded that the plaintiff had made a sufficient start toward showing that jurisdiction might exist. Limited jurisdictional discovery was therefore warranted.

Perch also argued that applying the closely related test would violate constitutional limits on personal jurisdiction because Perch lacked sufficient contacts with New York. The court found that argument inapplicable at this stage because the plaintiff’s theory was that Perch became Gutter Games’s successor. The court stated that, if a company is found to be a successor to an entity subject to the court’s personal jurisdiction, jurisdiction over the successor follows from that successor status without requiring separate minimum contacts with the state.

Ruling and next steps

The court granted the plaintiff’s request for jurisdictional discovery and denied Perch’s motion to dismiss without prejudice to renewal. The court declined to reach Perch’s failure-to-state-a-claim argument until it was assured that it had personal jurisdiction over Perch. The parties were ordered to meet and confer about the discovery process and then file a joint letter addressing what the discovery showed about Perch’s successor status and how they wished to proceed.