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ClubCom, Inc. v. Captive Media

January 31, 2009

CLUBCOM, INC., PLAINTIFF,
v.
CAPTIVE MEDIA, INC., D/B/A HEALTH CLUB PANEL NETWORK, DEFENDANT.
CM SHAREHOLDER HOLDINGS, INC., F/K/A/ CAPTIVE MEDIA, INC., D/B/A HEALTH CLUB PANEL NETWORK, A CALIFORNIA CORPORATION, COUNTERCLAIM PLAINTIFF,
v.
CLUBCOM, INC.,A DELAWARE CORPORATION; PRECOR, INC., A DELAWARE CORPORATION; AMER SPORTS COMPANY, A DELAWARE CORPORATION; AND AMER SPORTS OYJ A/K/A AMER SPORTS CORPORATION, ORGANIZED UNDER THE LAWS OF FINLAND, COUNTERCLAIM DEFENDANTS.



MEMORANDUM OPINION AND ORDER January 31, 2009

Presently before the Court are the following motions:

* MOTION TO DISMISS COUNTS III THROUGH X OF CAPTIVE'S FIRST AMENDED COUNTERCLAIM, with brief in support, filed by Counterclaim Defendants ClubCom, Inc. ("ClubCom") and Precor, Inc. ("Precor) (Document Nos. 36 and 37),*fn1 the brief in opposition filed by CM Shareholder Holdings, Inc., f/k/a Captive Media, Inc. ("Captive Media) (Document No. 44), and the REPLY BRIEF filed by ClubCom and Precor (Document No. 52);

* MOTION TO DISMISS COUNTS THREE THROUGH TEN OF CM SHAREHOLDER HOLDINGS, INC.'S FIRST AMENDED COUNTERCLAIM, PURSUANT TO FEDERAL RULES OF CIVIL PROCEDURE 12(b)(2) AND 12(b)(5), OR, IN THE ALTERNATIVE, FEDERAL RULE OF CIVIL PROCEDURE 12(b)(6), with brief in support, filed by Amer Sports Oyj ("Amer Oyj") (Document Nos. 59 and 60), the brief in opposition filed by Captive Media (Document No. 68), and the REPLY BRIEF filed by Amer Oyj (Document No. 73); and

* MOTION TO DENY COUNTERDEFENDANT AMER SPORTS OYJ A/K/A AMER SPORT CORPORATION'S MOTION TO DISMISS, WITHOUT PREJUDICE, AND ENTER ORDER ALLOWING LIMITED DISCOVERY filed by Captive Media (Document No. 71) and Brief in Opposition filed by Amer Oyj (Document No. 74).

FACTUAL AND PROCEDURAL BACKGROUND*fn2

Captive Media is a California corporation with its principal place of business in Encino, California. (Id. at ¶ 11). Captive Media focuses on indoor billboards, including panels and electronic / digital signage, and marketing activities such as the placement of coupons, branded yoga mats, and other forms of advertisements shown within health clubs. (Id.)

Amer Sports Oyj a/k/a Amer Sports Corporation is a Finnish multinational corporation. (Id. at ¶ 12). Amer Oyj maintains manufacturing and distribution sites around the world, and markets its products in the United States, through various divisions and/or subsidiaries. (Id. at ¶ 12.)

Amer Sports Company ("Amer Sports Co.") is a Delaware corporation with its principal place of business in the State of Illinois. (Id. at ¶ 13.) Amer Sports Co. is a wholly-owned subsidiary of AmerOyj.

Precor is a Delaware corporation with its principal place of business in the State of Washington. (Id. at ¶ 14.) Precor is a wholly-owned subsidiary of Amer Oyj. Precor markets "high-end" home and commercial fitness equipment through a network of dealers throughout the Untied States and around the world. (Id.)

ClubCom is a Delaware corporation with its principal place of business in Pittsburgh, Pennsylvania. (Counterclaim, ¶ 15.) ClubCom is a wholly-owned subsidiary of Precor and, in turn, of Amer Oyj.*fn3 ClubCom owns and maintains a digital entertainment network which it broadcasts into health clubs through the United States and the world (the "ClubCom Network"). (Id.) ClubCom introduces the ClubCom Network into health clubs and bowling alleys and sells advertising space on the ClubCom Network to national advertisers. (Id., ¶¶ 1, 15, 19.)

In 2004, ClubCom and Captive Media began negotiating an agreement which would allow Captive Media to sell advertising on the ClubCom Network. (Id. at ¶ 19.)

ClubCom and Captive Media entered into an agreement on March 7, 2006 (the "License Agreement"). (Id.) Under the License Agreement, ClubCom granted Captive Media an exclusive license to sell advertising on the ClubCom Network for a term of ten and one-half years. (Id. at ¶¶ 19, 22.) It also granted Captive Media a non-exclusive licence to introduce and promote the ClubCom Network to health clubs. In return, Captive Media agreed to use its best efforts "to market, promote, commercialize and sell [advertisements] over the [ClubCom] Network" and "install, operate and commercialize the [ClubCom] Network" in new facilities and in facilities with which Captive Media had a pre-existing business relationship. (License Agreement, ¶ 2). Captive Media also agreed to "not directly or indirectly compete with ClubCom" in any health club and not to promote or recommend within the fitness industry and network operation products that are competitive with or similar to the ClubCom Network.

On March 8, 2006, ClubCom and Captive Media executed a Letter Agreement which pertained to the facilities of Captive Media. The Letter Agreement incorporated by reference the terms and conditions of the License Agreement and reflected "certain supplemental understandings" with regard to the relationship between ClubCom and Captive Media. (First Amended Counterclaim, at ¶ 27.)

Counterclaim-Defendants Amer Oyj, Amer Sports Co. and Precor are not parties to either the License Agreement or the Letter Agreement which was executed between ClubCom and Captive Media.

After the License Agreement was executed, Captive Media claims to have marketed, promoted and sold advertisements on the ClubCom Network. (First Amended Counterclaim, ¶¶ 34-37.) Captive Media alleges that in 2007, ClubCom and Captive Media discussed selling their assets in a combined sale, that the negotiations were not successful, and that Captive Media and ClubCom subsequently began to explore the possibility of selling their assets separately. (Id. at ¶¶ 46-49.) Captive Media further alleges that it was ultimately successful in selling all of its assets which were unrelated to the License Agreement. (Id. at ¶¶ 48, 53, 66.)

On November 14, 2007, ClubCom sent a letter to Captive Media in which it informed Captive Media that it considered the parties' relationship terminated because Captive Media was actively promoting a competing product and had failed to use its best efforts to promote the ClubCom Network. (Id. at ¶¶ 48-49.) Thereafter, ClubCom refused to allow Captive Media access to its website, declined to run new advertisements sold by Captive Media, and retained the Lump-Sum Payment which was paid by Captive Media pursuant to the License Agreement.

On November 14, 2007, ClubCom filed a four-count Complaint against Captive Media in which it alleges that Captive Media breached the long term License Agreement of the parties. On May 22, 2008, Captive Media answered the Complaint, and made a counterclaim against ClubCom, Precor, Inc.; and Amer Sports Oyj. On June 27, 2008, Captive Media filed a ten-count First Amended Counterclaim which named Amer Sports Co. as an additional counterclaim defendant.

Counts I and II of the First Amended Counterclaim are directed solely to ClubCom and are based on ClubCom's alleged breach of the License Agreement and Letter Agreement. These claims are not the subject of the pending motions to dismiss.

The remaining eight claims of the First Amended Counterclaim, brought against all of the Counterclaim Defendants, are as follows:

* Count III - Interference with Contractual Relations;

* Count IV - Interference with Prospective Economic Advantage;

* Count V - Conversion;

* Count VI - Violation of California Business and Professions Code Section 17200;

* Count VII - Unjust Enrichment;

* Count VIII - For An Accounting;

* Count IX - Declaratory Relief;

* Count X - Imposition of a Constructive Trust.

All Counterclaim Defendants have moved to dismiss Counts III through X. The motions have been fully briefed by all parties and are ripe for disposition. For the reasons that follow, the Motion to Dismiss filed by ClubCom and Precor, and joined by Amer Sports Co., will be granted in its entirety and the Motion to Dismiss filed by Amer Oyj will be granted in its entirety.

STANDARDS OF REVIEW

A. Federal Rule of Civil Procedure 12(b)(6)

ClubCom, Precor, and Amer Sports Co. have brought their motion to dismiss the First Amended Counterclaim under Federal Rule of Civil Procedure 12(b)(6) for failure to state a claim upon which relief can be granted. Amer Oyj has brought its motion to dismiss under Federal Rules of Civil Procedure 12(b)(2) and 12(b)(5), or, in the alternative, 12(b)(6).

Courts use the same standard in ruling on a motion to dismiss a counterclaim under Federal Rule of Civil Procedure 12(b)(6) as they do for a complaint. United States v. Union Gas Co., 743 F. Supp. 1144, 1150 (E. D. Pa. 1990). The United States Supreme Court's opinion in Bell Atlantic Corp. v. Twombly has altered the standard of review for a motion to dismiss pursuant to Fed. R. Civ. P. 12(b)(6). Phillips v. County of Allegheny, 515 F.3d 224, 230 (3d Cir. 2008). In construing the Rule 12(b)(6) standard generally, the Supreme Court requires the plaintiff to provide more than a formulaic recitation of a claim's elements that amount to mere labels and conclusions. Twombly, -- U.S. --, 127 S.Ct. 1955, 1964-65 (2007). Additionally, the complaint's "factual allegations must be enough to raise a right to relief above the speculative level." Id.

The Court of Appeals for the Third Circuit has held that the language in Twombly applies generally to all motions brought under Rule 12(b)(6). Phillips, 515 F.3d at 232. Despite the seemingly altered standard from Twombly, it is still true that "courts accept all factual allegations as true, construe the complaint in the light most favorable to the [non-moving party], and determine whether, under any reasonable reading of the complaint, the plaintiff may be entitled to relief." Id. (quoting Pinker v. Roche Holdings, Ltd., 292 F.3d 361, 374 n. 7 (3d Cir. 2002)).

B. Federal Rule of Civil Procedure 12(b)(2)

For the purpose of a 12(b)(2) motion, the Court must accept the counterclaim plaintiff's allegations as true and construe disputed facts in favor of the counterclaim plaintiff. Pinker v. Roche Holdings, Ltd., 292 F.3d 361, 368 (3d Cir. 2002); see also Carteret Savings Bank v. Shushan, 954 F.2d 141, 146 (3d Cir.), cert. denied, 506 U.S. 817 (1992). Nonetheless, a Rule 12(b)(2) motion "is inherently a matter which requires resolution of factual issues outside the pleadings." Time Share Vacation Club v. Atl. Resorts, Ltd., 735 F.2d 61, 66-67 n. 9 (3d Cir. 1984). Furthermore, once a defendant has raised a personal jurisdiction defense, the burden shifts to the plaintiff to prove that the relevant jurisdictional requirements are met. Grand Entertainment Group v. Star Media Sales, 988 F.2d 476, 482 (3d Cir. 1993). "[Counterclaim] Plaintiff must sustain its burden of proof in establishing jurisdictional facts through sworn affidavits or other competent evidence." Time Share, 735 F.2d at 67 n.9 (3rd Cir. 1984). The counterclaim plaintiff must offer evidence that establishes with reasonable particularity the existence of sufficient contacts between the counterclaim defendant and the forum state to support jurisdiction. See Carteret, 954 F.2d at 146; Provident Nat. Bank v. California Fed. Sav. & Loan Assoc., 819 F.2d 434 (3d Cir. 1987). Although the plaintiff cannot rely solely on the bare pleadings to meet this burden, whatever form of the submissions, the court must accept disputed facts in light most favorable to the plaintiff. See Carteret, 954 F.2d at 142 n.1.

When the district court does not " ' hold an evidentiary hearing . . ., the [counterclaim] plaintiff need only establish a prima facie case of personal jurisdiction and the [counterclaim] plaintiff is entitled to have its allegations taken as true and all factual disputes drawn in its favor'." O'Connor v. Sandy Lane Hotel Co., Ltd., No. 05-3288, -- F.3d ---, 2007 WL 2135274 at *2 (3d Cir. July 26, 2007) (quoting Miller Yacht Sales, Inc. v. Smith, 384 F.3d 93, 97 (3d Cir. 2004)).

C. Federal Rule of Civil Procedure 12(b)(5)

A counterclaim defendant may file a motion to dismiss pursuant to Rule 12(b) (5) of the Federal Rules of Civil Procedure when a counterclaim plaintiff fails to properly serve him or her with the summons and complaint. In a Rule 12(b)(5 ) motion, "the party making the service has the burden of demonstrating validity when an objection to the service is made." Suegart v. U.S. Customs Service, 180 F.R.D. 276, 278 (E. D. Pa. 1998).

CHOICE OF LAW

The resolution of the pending motions to dismiss requires a determination of which law applies to the various claims brought by Captive Media in its First Amended Counterclaim. In determining the applicable law, a court must apply the choice-of-law principles of the state in which the district court sits. Klaxon Co. v. Stentor Electric Mfg. Co., 313 U.S. 487, 496 (1941). Because this Court sits in Pennsylvania, the choice of law rules for Pennsylvania govern.

Pennsylvania follows a "flexible [choice of law] rule which permits analysis of the policies and interests underlying the particular issue before the court." Griffith v. United Air Lines, Inc., 203 A.2d 796, 805 (Pa .1964). Under this approach, the Court first must identify whether there are relevant differences between the laws of the states that would affect the disposition of the litigation. "If there is no conflict, then the district court sitting in diversity may refer interchangeably to the laws of the states whose laws potentially apply," Huber v. Taylor, 469 F.3d 67, 74 (3d Cir. 2006), and further analysis is not necessary. Hammersmith v. TIG Ins. Co., 480 F.3d 220, 230 (3d Cir. 2007) (citing Budtel Assoc., LP v. Continental Cas. Co., 915 A.2d 640, 641 (Pa. Super. Ct. 2006)).

If there is no substantive difference between the laws of the competing states, no real conflict exists and the forum law applies. Hammersmith, 480 F.3d at 230. Where a real conflict exists, the court moves to the second step and examines the governmental policies underlying each law in order to classify the conflict as true, false, or an unprovided for situation. Id. at 230. A false conflict occurs where only one state's interests would be impaired, and the law of the interested state applies. LeJeune v. Bliss-Salem Inc., 85 F.3d 1069, 1071 (3d Cir. 1996). If there is a false conflict, the court should apply the law of the only interested jurisdiction. Lacey v. Cessna Aircraft Co., 932 F.2d 170, 187 (3d Cir. 1991).

Where, on the other hand, each jurisdiction has a governmental policy or interest that would be impaired by the application of the other state's law, a true conflict exists. Id. In the case of a true conflict, the court turns to the third step to "determine which state has the 'greater interest in the application of its law.' " Hammersmith, 480 F.3d at 231 (quoting Cipolla v. Shaposka, 267 A.2d 854, 856 (1970)). If there is a true conflict, the court should apply the "law of the state having the most significant contacts or relationships with the particular issue." Garcia v. Plaza Oldsmobile, Ltd., 421 F.3d 216, 220 (3d Cir. 2005) (citation omitted). "This analysis requires more than a 'mere counting of contacts,' " as the court "must weigh the contacts on a qualitative scale according to their relation to the policies and interests underlying the particular issue." Hammersmith, 480 F.3d at 231 (citations and alteration omitted).

Finally, "there are unprovided-for cases in which neither jurisdiction's interests would be impaired if its laws are not applied." Garcia, 421 F.3d at 220. In that case, the court should apply "[t]he principle of lex loci delicti, the law of the place of the wrong." Id.

Although Pennsylvania courts have not explicitly addressed it, the Court of Appeals for the Third Circuit has assumed that Pennsylvania's choice of law analysis employs "depecage," the principle whereby "different states' laws may apply to different issues in a single case." Berg Chilling Systems, Inc. v. Hull Corp., 435 F.3d 455, 462 (3d Cir. 2006) (assuming that Pennsylvania's choice of law analysis employs depecage); see also Broome v. Antlers' Hunting Club, 595 F.2d 921, 924 (3d Cir. 1979) (predicting that "a Pennsylvania court . . . would consider applying the law of different states to the separate issues of liability and damages"). This assumption is based on the pronouncement in Griffith that Pennsylvania's choice of law analysis focuses on "the policies and interests underlying the particular issue before the court." Griffith, 203 A.2d at 805. By suggesting that the court must analyze each issue separately, Griffith implies that the laws of different states could apply to different issues.

In the instant matter, all parties agree that Delaware law applies to Counterclaims I, II, and IX, as these claims arise either directly from the written contract between ClubCom and Captive Media (Counts I and II) or are ancillary to the written contract (Count IX). The contract between ClubCom and Captive Media contains a valid Delaware choice of law provision.

However, with respect to the remaining Counterclaims, the Counterclaim Defendants argue that Pennsylvania law applies to each, while Captive Media responds that California law applies. Accordingly, as an initial matter, the Court must undertake an independent choice of law analysis to determine the substantive law that applies to Counts III through VII.*fn4

A. Count III - Interference with Contractual Relations

Both California and Pennsylvania treat claims for tortious interference with contractual relations as actionable and each state similarly defines the tort elements. Under California law, the elements of a claim for tortious interference with contractual relations are:

(i) a valid contract between plaintiff and a third party; (ii) defendant's knowledge of this contract; (iii) defendant's intentional acts designed to induce a breach or disruption of the contractual relationship; (iv) actual breach or disruption of the contractual relationship; and (v) resulting damage. Quelimane Co. v. Stewart Title Guaranty Co., 960 P.2d 513 (Ca. 1998).

Under Pennsylvania law, the elements of a claim for tortious interference with contractual relations are: (i) there is an existing contractual relationship between the plaintiff and a third party; (ii) the defendant interfered with the performance of that contract by inducing a breach or otherwise causing the third party not to perform; (iii) the defendant was not privileged to act in this manner; and (iv) the plaintiff suffered pecuniary loss as a result of the breach of contract. Al Hamilton Contracting Co. v. Cowder, 644 A.2d 199 (Pa. Super. Ct. 1994).

The Court finds that there is no real conflict as there is no substantive difference between the laws of California and Pennsylvania in regard to claims for interference with contractual relations and, therefore, further analysis is not necessary. Hammersmith, 480 F.3d at 230.

B. Count IV - Interference with Prospective Economic Advantage

Under California law, a plaintiff must establish the following the elements for a claim of intentional interference with prospective advantage,: (i) an economic relationship between plaintiff and a third party containing a probable future economic benefit or advantage to plaintiff; (ii) defendant's knowledge of the relationship; (iii) that the defendant engaged in wrongful conduct designed to interfere with or disrupt this relationship; (iv) that the defendant did so with the intent to interfere with or disrupt this relationship; (v) that the economic relationship was actually interfered with or disrupted; and (vi) that the wrongful conduct of the defendant which was designed to interfere with or disrupt this relationship caused damage to the plaintiff. Korea Supply Co. v. Lockheed Martin Corp., 63 P.3d 937 (Ca. 2003).

Pennsylvania does not recognize a tort for "intentional interference with prospective economic advantage," but does apply its "intentional interference with contractual relations" tort to prospective contracts. Thus, to plead a claim for intentional interference with prospective contractual relations, a plaintiff must plead the following: "(i) a prospective contractual relation; (ii) the purpose or intent to harm the plaintiff by preventing the relation from occurring; (iii) the absence of privilege or justification on the part of the defendant; and ...


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