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Palazzetti v Morson

Palazzetti v Morson

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Only the Westlaw citation is currently available.United States District Court, S.D. New York.PALAZZETTI IMPORT/EXPORT, INC., Plaintiff,v.Gregory P. MORSON and the Morson Group, d/b/a theMorson Collection, Defendants.
No. 98 CIV. 722(FM).
Dec. 6, 2001.Debra J. Guzov, Esq., Guzov, Steckman & Ofsink,LLC., New York.Dan L. Johnston, Esq., New York.MEMORANDUM OPINION AND ORDERMAAS, Magistrate J.I.
Introduction
*1
This breach of contract action arises out of a licens-ing agreement pursuant to which plaintiff Palazzetti Im-port/Export, Inc.FN1licensed defendant Gregory P.MorsonFN2to use the “Palazzetti” name in connectionwith a furniture store in Boston, Massachusetts. Thecase was tried before a jury over the course of threedays, commencing on July 16, 2001. Following severalhours of deliberations, the jury returned a verdict in fa-vor of Palazzetti in the amount of $1,661,981.FN1.Plaintiff Palazzetti Import/Export, Inc. ishereinafter referred to as “Palazzetti.”FN2.The defendants hereinafter are referred tocollectively as the “Defendants,” Gregory P.Morson as “Mr. Morson,” and The MorsonGroup, d/b/a “The Morson Collection,” as “TheMorson Group.”The Defendants have now moved for judgment as amatter of law (“JMOL”) under Rule 50(b), or, in the al-ternative, a new trial underRule 59, of the FederalRules of Civil Procedure. For the reasons set forth be-low, I have determined that both motions should bedenied. The Clerk of the Court is therefore directed toenter judgment against the Defendants consistent withthis Memorandum Opinion and Order and close thiscase.II.
Factual and Procedural History
A.
Palazzetti
Palazzetti is a corporation engaged in the business of importing furniture for sale to architects, decorators,and retail customers through furniture showrooms. (Tr.27-33).FN3The Palazzetti collection consists of high-end “modern classic” furniture created by “famous de-signers” during the period from 1900 through 1950. (
 Id.
at 28).FN3.“Tr.” refers to the uncertified draft tran-script of the trial furnished to the Court byPalazzetti as part of its opposition papers.Following the opening of its first showroom in NewYork City in 1982, Palazzetti has, at various times, op-erated showrooms in several cities, primarily in theNortheast, but also in Texas and California. (
 Id.
at30-48). By the time of the trial, the Palazzetti empirehad been reduced to one showroom in New York Cityand another in Manhassett, New York. Except for ashowroom operated by the Defendants in Boston, all of the Palazzetti showrooms in the United States wereeither wholly owned or controlled by Palazzetti's prin-cipal, Sergio Palazzetti.FN4FN4.Sergio Palazzetti is hereinafter referred toas “Mr. Palazzetti.”B.
The “Boutique” License
In the spring of 1994, Mr. Morson's then fiancé, Caro-lyn Hontoria, began working for Palazzetti as a sales-person in the New York showroom. (
 Id.
at 150, 253).She and Mr. Morson subsequently spoke with Mr.Not Reported in F.Supp.2d FOR EDUCATIONAL USE ONLY Page 1Not Reported in F.Supp.2d, 2001 WL 1568317 (S.D.N.Y.)
(Cite as: 2001 WL 1568317 (S.D.N.Y.))
© 2009 Thomson Reuters/West. No Claim to Orig. US Gov. Works.
 
Palazzetti about opening a Palazzetti store in Boston.(
 Id.
at 217-18, 254-56). Those discussions led to a July18, 1995 “Palazzetti Boutique License” agreementbetween Palazzetti and Mr. Morson (“License”), pursu-ant to which Mr. Morson (or a corporate assignee thathe controlled) was granted the right to use the Palazzettiname for a furniture store in the Boston metropolitanarea for a period of ten years, commencing with theopening of the store. (License §§ 2, 4, 5, 11). The Li-cense granted Mr. Morson exclusivity in that area. (
 Id.
§13).In exchange for the License, Mr. Morson agreed to payan initial fee of $100,000. (
 Id.
§ 3). Mr. Morson alsoagreed that the majority of the inventory on the show-room floor and no less than sixty percent of the Bostonstore's annual sales would be derived from Palazzetti'sproduct line, which was to be offered to Mr. Morson orhis assignee “at wholesale costs no greater than thoseamounts charged to all other retailestablishments.”(
 Id.
§§ 6, 10). As a consequence, in ad-dition to the $100,000 fee, the License afforded Palazz-etti the opportunity to realize substantial additional in-come based upon its sales of furniture to Mr. Morson orhis assignee.
*2
The License gave Mr. Morson or his assignee theright to renew for additional ten-year periods, with therenewal fee fixed as “an amount equal to one and onehalf percent (1.5%) of the total amount of sales, net of discounts, for the immediately preceding ten (10) yearperiod.”(
 Id.
§ 4).Pursuant to the License, any declaration of a default hadto be in writing, with the allegedly defaulting party hav-ing a thirty-day period to cure. (
 Id.
§ 16). The Licensestated that any “[u]ncured defaults of the License[e]may result in the revocation of the License.”(
 Id.
) Thevery next sentence of the License provided, however,that any “[u]ncured defaults of the Licensor shall en-titled [sic] Licensee to damages, equity orboth.”(
 Id.
).FN5FN5.The License is riddled with typographicaland grammatical errors. In context, it seemsclear that the reference to “defaults of the Li-censein the prior sentence must have been in-tended to address defaults of the “License[e].”Finally, the License provided that the law of the State of New York would control. (
 Id.
§ 18).C.
Subsequent Events
After Mr. Morson entered into the License Agreement,he and Carolyn moved to Boston, where they negotiateda ten-year lease for a store which was opened on June13, 1996. (Tr. 237, 256). Although the Morsons contin-ued to operate that Palazzetti store until late 1997, therelationship was not a happy one. In brief, the Defend-ants contend that Palazzetti breached the terms of theLicense by continually failing to supply furniture in atimely manner due to its cash flow problems. Palazzetti,on the other hand, maintains that the Defendantsbreached the License terms by purchasing furniture dir-ectly from Palazzetti's suppliers, soliciting business out-side their designated territory, and, most importantly,sending a December 17, 1997 letter to Mr. Palazzetti.(Pl.Ex. R). In that letter, Mr. Morson suggested that Mr.Palazzetti had defrauded him by failing to disclose be-fore the License was executed that Palazzetti's financialproblems would make it impossible to deliver furnitureon time. (Def.Ex. R). Mr. Morson also threatened legalaction unless, by December 22, 1997, Mr. Palazzetti ac-cepted one of the following two options:FIRST, WE WILL CONTINUE TO USE THEPALAZZETTI NAME BUT WE WILL ONLY BUYDIRECTLY FROM THE MANUFACTURERS. WEWILL IN EFFECT BE COMPLETELY INDEPEND-ENT, LIKE THE PALAZZETTI INCANADA.FN6WE WILL ONLY ACCEPT ORDERSFROM YOU WHICH YOU HAVE NOTIFIED U.S.ARE ALREADY IN THE WATER.FN7AND YOUWILL EITHER PROMPTLY REFUND THE LI-CENSE FEE OR PROVIDE A CREDIT AGAINSTOUTSTANDING INVOICES FOR AN AMOUNTNO LESS THAN $100,000.00.FN6.Apart from this reference, there was noevidence at trial concerning a Canadian branchNot Reported in F.Supp.2d FOR EDUCATIONAL USE ONLY Page 2Not Reported in F.Supp.2d, 2001 WL 1568317 (S.D.N.Y.)
(Cite as: 2001 WL 1568317 (S.D.N.Y.))
© 2009 Thomson Reuters/West. No Claim to Orig. US Gov. Works.
 
of Palazzetti.FN7.The reference to goods “in the water”relates to furniture ordered by the Defendantswhich had been shipped to Palazzetti in NewYork by its suppliers but which had not yet ar-rived.SECOND, WE WILL CHANGE OUR STORENAME AND SET UP OUR OWN FURNITURELINES TO CARRY. IN ADDITION, WE WILLSEEK FULL LEGAL RECOURSE FOR OUR LI-CENSE FEE AND ALL OTHER DAMAGES IN-CURRED OFFSET INITIALLY BY OUTSTAND-ING ACCOUNTS PAYABLE. FURTHER, ALLOPEN PURCHASE ORDERS WILL BE CAN-CELLED EFFECTIVE IMMEDIATELY.(
 Id.
). At trial, during his cross examination of Mr.Palazzetti, the Defendants' counsel conceded that atleast the first of these options was “outside of the[L]icense ....” (Tr. 104).
*3
Rather than accepting one of the proposed alternat-ives, Palazzetti directed its counsel, Debra Guzov, Esq.,to send Mr. Morson a letter dated December 19, 1997.Pursuant to that letter, Palazzetti terminated the Li-cense, contending that Mr. Morson was “in breach of the [License]” as a consequence of “the facts set forth in[Mr. Morson's December 17th letter].” (Tr. 288; Def.Ex. R).FN8FN8.The letter also contended that Defendantsbreached the License by advertising outside itsassigned territory and purchasing furniture dir-ectly from Palazzetti's suppliers. However, be-cause Palazzetti failed to provide the Defend-ants with written notice of default, and a thirty-day period to cure, it cannot recover damageson these grounds. (License § 16).Within a matter of weeks after receiving the Guzov let-ter, the Defendants changed the name of the Bostonstore to “The Morson Collection” and began sellingtheir own lines of furniture comparable to the furniturethat they previously had purchasedfromPalazzetti.FN9(Tr. 288-89). After a period of transition,the store became profitable. (
 Id.
at 304-05). It remaineda successful enterprise at the time of trial. (
 Id.
).FN9.When the License was terminated, theDefendants had $174,000 in orders for Palazz-etti furniture still outstanding. (Tr. 289). TheDefendants filled some of these orders by ob-taining the merchandise directly from Palazz-etti's manufacturer. (
 Id.
). Consequently, therewas a brief period of time in which the Defend-ants distributed both lines of furniture.D.
Evidence of Morson's Intent 
In determining whether Mr. Morson's letter constitutedan anticipatory repudiation of the License, as Ms.Guzov in effect alleged, the jury was afforded an unusu-al insight into his thinking. Prior to trial, the Defend-ants' counsel inadvertently turned over to his adversarytwo privileged letters that Mr. Morson had sent to EricDavis, Esq., an attorney who represented the Defend-ants during the course of their dealings with Mr. Palazz-etti. When Mr. Morson was confronted with those docu-ments at his deposition, counsel permitted him to an-swer many questions about them without interposing anobjection or directing him not to answer. As a con-sequence, former Magistrate Judge Grubin held that theattorney-client privilege was waived as to both docu-ments.
No. 98 Civ. 0722, 2000 WL 1015921, at * 1 (S.D.N.Y.July 21, 2001).At trial, the Court therefore received into evidence aNovember 13, 1997 letter from Mr. Morson to Mr. Dav-is, which was one of the two documents as to whichMorson's attorney-client privilege was waived. (Tr. 70;Pl.Ex. 12). In that letter, Mr. Morson complained aboutPalazzetti's late deliveries, which he attributed to its fin-ancial problems, and suggested that a lawsuit could dealMr. Palazzetti “a crippling blow which he may not beable to recover from.”(Tr. 242-44). Mr. Morson alsooutlined the options that later were set forth in hisDecember 17, 1997 letter to Mr. Palazzetti. (
 Id.
at244-45).FN10Not Reported in F.Supp.2d FOR EDUCATIONAL USE ONLY Page 3Not Reported in F.Supp.2d, 2001 WL 1568317 (S.D.N.Y.)
(Cite as: 2001 WL 1568317 (S.D.N.Y.))
© 2009 Thomson Reuters/West. No Claim to Orig. US Gov. Works.

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