regarding why they may have preferred the Orion over the Emerson
brand. In the absence of contrary evidence, the Court must
presume that the amount of Emerson-branded Video Products
purchased prior to the License Agreement was a function of Wal
Mart's perception of the market power of the trademark, relative
price and other purchasing factors. The record would not support
a finding that these decisions were based on any good-will in the
Emerson/Wal Mart relationship. Nor does the record reflect that,
upon expiration of the license, the past activities of defendants
inhibited Emerson in its own efforts to sell products to Wal
Thus, even assuming the truth of Emerson's contention that the
Wal Mart's purchasing during the license term was affected by
defendants' bad-faith efforts to minimize sales of Emerson
branded products, it is not clear how this invaded any
expectation or reliance interest of Emerson's sufficiently grave
to justify implying a contrary obligation in the contract. Wal
Mart's purchasing decisions are ultimately the province of Wal
Mart. If, following the expiration of the license, Emerson's
products are competitive, Emerson has failed to produce evidence
that would support a finding that any act of defendants would
prevent Wal Mart from buying them.
Thus the Court finds that, having regard solely for the harm
allegedly suffered by Emerson, no claim of breach of the duty of
good faith and fair dealing can be maintained. The Court will
not, however, neglect to examine the conduct of defendants in
deciding this question. Here too, the Court is careful to draw
all reasonable inferences in favor of the non-movant plaintiff.
Taking the circumstances and history of the parties' relationship
as a whole, the Court finds that the record could not justify a
finding that defendants acted so unreasonably, deceitfully,
unfairly, or otherwise to amount to a breach of the duty of good
faith and fair dealing.
The Court must begin with the point that the License Agreement
permits defendants to sell its own Orion branded products to Wal
Mart. Defendants argue that this provision amounts to an express
grant of the right to sell as many of their own products and as
few of Emerson's as defendants wished. Defendants cite Karl's
Sales, 249 N.J. Super. 487, 592 A.2d 647, for the proposition
that the implied duty of good faith can never trump an express
term of the contract.
As noted above, under Sons of Thunder, defendants' argument
goes too far as a matter of New Jersey law, and even an express
right may not be exercised with "dishonest" intentions. 148 N.J.
at 423, 690 A.2d 575. On the other hand, evidence of the parties
express bargain in the allocation of risk and benefit obviously
will inform any assessment of whether one party has exhibited
"bad faith" when the other is harmed.
The analysis is further influenced by the nature of the parties
and their common history. Emerson is plainly a very sophisticated
party. Its expertise in licensing must be inferred from
plaintiff's own claims that its primary business is exploiting
the Emerson mark and the many decades it has been in business.
See United Jersey Bank v. Kensey, 306 N.J. Super. 540 561,
704 A.2d 38 (App. Div. 1997) (declining to impose obligation based
upon implied duty of good faith and fair dealing where plaintiffs
were "not neophytes" and there was no disparity of bargaining
power or access to information), certif. denied, 153 N.J. 402,
709 A.2d 795 (1998). In addition, it is no hyperbole to state
that the parties have been at "daggers drawn" since at least the
disputes in 1994, and perhaps as long as Shigemasa Otake's
attempt to seize control of Emerson. Indeed, $10.2 million of
payments called for in the Supply Agreement was in settlement of
Here Emerson licensed its trademark to its competitor and
adversary for goods to be sold to an important, common customer.
Meanwhile, the license permitted that competitor to sell as many
of its own, directly competing goods to that customer as it
wished. If, as is argued, Emerson's underlying assumption was
that defendants would consider themselves obligated vigorously to
market Emerson products at the expense of their own, this
arrangement was ill-conceived at best. Indeed, it violates basic
licensing strategy and even common sense. In the context of the
contentious history of the parties', to infer that Emerson
entertained any such supposed assumption is patently
On the contrary, the facts lead inescapably to a contrary
conclusion. Emerson itself cites the testimony of defendant Bond
that the minimum royalty that was supposed to "keep [defendants]
honest." Emerson Brief at 5-6 (quoting Bond Dep. at 138:2-3).
Alternatively, the minimum royalty may be seen as pre-paid,
liquidated damages in the event defendants failed to exploit the
license. Clearly, Emerson did not rely on any good faith duty to
exploit their mark, and they operated under no assumption that
defendants would do so. Instead, they negotiated their remedy for
non-exploitation, and they have already received it.
The choice lies between implying a promise to
correct an apparent injustice in the contract, as
against holding the parties to the bargain which they
have made. The latter alternative has especial force
where the bargain is the result of elaborate
negotiations in which the parties are aided by
counsel, and in such circumstances it is easier to
assume that a failure to make provision in the
agreement resulted not from ignorance of the problem,
but from an agreement not to require it.
HML Corp. v. General Foods Corp., 365 F.2d 77, 81 (3d Cir.
1966) (N.Y.law). Although the Court has previously relied upon
the existence of the minimum royalty to reject Emerson's implied
best-efforts claim, the same fact is capable of guiding the
disposition of the distinct issue of good faith and fair dealing.
Other signs of bad faith prominent in the jurisprudence of the
New Jersey Supreme Court are conspicuously absent here. Certainly
there is no plausible claim of special vulnerability on Emerson's
part. Giving Emerson's claims the benefit of every possible
inference, it is clear that Emerson was at all times free to buy
video products elsewhere. In fact, Emerson did buy video products
elsewhere, for less that defendants were selling them, within a
year of the contract's effective date.
To the extent Emerson may be relying upon the past course of
dealing between the parties to show that a deviation from this
past practice would constitute a breach of the implied covenant,
Emerson's own evidence undercuts this claim. The Supply Agreement
was signed in February 1995. Emerson complains that in November
1994 delays by the Otake Companies in quoting prices violated the
past course of dealing between the parties. Emerson's Supp. Brief
at 6-7 (citing Raab Decl.Ex. A) (letter dated Nov. 16, 1994).
Thus, under Emerson's own argument, the past practices of the
parties had already been disrupted. Any claim of a violation of
the implied covenant due to deviation from this alleged past
practice is thus severely attenuated.
Nor is the Court swayed by Emerson's proffer of defendants'
internal communications, which plaintiffs argue show nefarious
intent. For example, that Shigemasa Otake may have referred to
the Supply Agreement as a "mere scrap of paper," in 1996,
Carvelli Decl.Exh. 25, is of limited significance when Emerson
had ceased to place orders with defendants by that time. More
basically, in the absence of a showing that plaintiffs were
deprived of the "fruits of the contract" as broadly defined by
the New Jersey Supreme Court, the several expressions of ill-will
cited by Emerson do not adequately support its case.
The Court will not exalt the literal terms of the contract over
all other considerations, nor contrary to the emphatic
endorsement of the New Jersey Supreme Court of the implied duty
of good faith and fair dealing. However, the Court is convinced
of the wisdom of Learned Hand's observation that "[I]n commercial
transactions it does not in the end promote justice to seek
strained interpretations in aid of those who do not protect
themselves." James Baird Co. v. Gimbel Bros., Inc.,
64 F.2d 344, 346 (2d Cir. 1933). In light of the express terms of the
parties' agreements, the history of the parties' relationship,
the character and sophistication of the parties, the lack of any
fundamental frustration of the purpose of the contract or
destruction of a substantial reliance interest, the Court holds
that no reasonable finder of fact could hold that defendants
breached the duty of good faith and fair dealing implied in
contracts under New Jersey law.
For the reasons set forth above, defendants' motion for partial
summary judgment is granted and Count Two of the complaint
alleging a breach of the implied duty of good faith and fair
dealing will be dismissed with prejudice.