1.MTV Network v. Curry,

867 F. Supp. 202 (S.D.N.Y. 1994)

Defendant Curry was a video disc jockey who worked for plaintiff MTV. He also engaged in activities not affiliated with MTV. While working for MTV he developed an Internet site, mtv.com. According to Curry, he discussed this with several officials of MTV and was told to go ahead with his development. Sometime later, MTV decided to set up an Internet site and brought this action against Curry on several grounds, including trademark claims based on the use of registered MTV marks and breach of Curry's employment contract. Curry counterclaimed for breach of oral contract, fraud/negligent misrepresentation, and unfair competition. MTV moved to dismiss the counterclaims, claiming that any agreement violated the Statute of Frauds (it could not be performed within one year), that the allegations of fraud are not sufficiently pleaded in the complaint, and that the allegation of unfair competition was not clearly stated. The court denied plaintiff's motions as to the first two counterclaims but granted a motion for a more definite statement as to the third counterclaim. Read the court's opinion and order.

Opinion: Memorandum and Order

Plaintiff, MTV Networks ("MTVN"), brought this action against Defendant, Adam Curry ("Curry"). Plaintiff now moves the Court to dismiss Curry's counterclaims, pursuant to Rules 9(b) and 12(b)(6) of the Federal Rules of Civil Procedure, or in the alternative, for a more definite statement of the counterclaims, pursuant to Rule 12(e). For the reasons stated below, Plaintiff's motion is granted in part and denied in part.

I.Legal Standard for 12(b)(6) Motion

In the course of resolving a motion to dismiss pursuant to Rule 12(b)(6), the Court reads the complaint generously, accepting the truth of, and drawing all reason-able inferences from, the well-pleaded factual allegations. When determining the sufficiency of plaintiff's claim for Rule 12(b)(6) purposes, consideration is limited to the factual allegations in the complaint, which are accepted as true, to documents attached to the com-plaint as an exhibit or incorporated in it by reference, to matters of which judicial notice may be taken, or to documents either in plaintiff's possession or of which plaintiff had knowledge and relied on in bringing suit.

The Court will only dismiss a complaint for failure to state a claim when the Court finds beyond a doubt that plaintiff "can prove no set of facts" to sup-port the claim that plaintiff is entitled to relief. The standards for dismissing claims under Rule 12(b)(6) are identical to the standards for dismissing counterclaims.

Where, as here, the parties have submitted material outside the pleadings, the Court must either exclude those materials from consideration, or convert the motion to one for summary judgment. Fed. R. Civ. P. 12(c). The Court, in its discretion, has chosen to exclude these materials, and Plaintiff's motion is considered one for dismissal for failure to state a claim.

II.

A.Facts

The facts alleged in Curry's Answer and Counterclaims are as follows. Curry served as a video disc jockey ("VJ") for MTVN under a written contract through May 1, 1992. He continued to serve as an MTVN VJ through April, 1994, under "informal" terms. Curry also engaged in activities in the contemporary music industry that were not directly related to his MTVN employment, such as hosting radio programs and live entertainment events.

In approximately June, 1993, Curry met with MTVN Vice President Matthew Farber ("Farber") and discussed, inter alia, an Internet service he was developing with the Internet site address "mtv.com." Curry alleges that while Farber disclaimed any interest by MTVN in entering a joint venture, he indicated that Curry was free to continue development of the Inter-net site at his own expense.

By approximately August, 1993, Curry had announced the mtv.com address on MTVN broadcasts. On the afternoon of one August taping, Curry claims to have had a conversation about mtv.com with Joel Stillerman ("Stillerman"), a senior MTVN executive. In this conversation Stillerman "made clear that MTVN had no objection to Curry's use and develop-ment of the mtv.com address.

"Curry alleges that between August, 1993, and April, 1994, he discussed the mtv.com site with other MTVN personnel on "numerous" occasions, receiving encouragement in his continuing development efforts. During the period August, 1993, to mid-January, 1994, Curry claims that MTVN programmers placed the graphic letters "mtv.com" on the television screen for viewers of the MTVN program "Top Twenty Count-down." In reliance on his discussions with MTVN executives and personnel, Curry continued to develop mtv.com at his own expense.

On January 19, 1994, MTVN formally requested that Curry cease use of the mtv.com address. However, Curry alleges not only that MTVN programming continued to make on-air references to the address, but that Stillerman asked him, sometime in February, to include certain materials at the mtv.com site.

By the spring of 1994, Curry's mtv.com address had been accessed by millions of Internet users. Curry credits this success, in part, to a computer bulletin board that facilitates communication between performers and other music professionalsa service he claims to have discussed with MTVN personnel since August, 1993.Curry argues that MTVN was exploiting his development efforts to "test the waters" for their own interactive service. During the second half of 1993, he alleges that MTVN and Viacom explored their options for developing online services. These efforts culminated in an agreement between MTVN and America Online ("AOL") to provide a computer link to MTVN for a fee. The AOL/MTVN service will include a per-former-music professional bulletin board similar to the one Curry developed at mtv.com.

MTVN brought this action on several grounds, including trademark claims based on Curry's use of registered MTV marks and breach of Curry's employment contracts. Curry has counterclaimed for breach of oral contract, fraud/negligent misrepresentation, and unfair competition. The Court now considers MTVN's motion to dismiss these counterclaims.

B.Breach of Contract Counterclaim

Curry's breach of contract claim is grounded in his con-versations with Farber, Stillerman and others, in which he was allegedly promised that MTVN would not inter-fere with his development of mtv.com. MTVN argues that the purported contract is void as it violates the relevant statute of frauds. The statute provides in relevant part: "(a) Every agreement, promise or undertaking is void, unless it or some note or memorandum thereof be in writing, and subscribed by the party to be charged therewith, or by his lawful agent, if such agreement, promise or undertaking: By its terms is not to be per-formed within one year from the making thereof."

In New York, oral agreements violate the statute of frauds only if by their very terms they have absolutely no possibility in fact and law of full performance within one year. The question is not what the probable, or expected, or actual performance of the contract was; but whether the contract, according to the reasonable interpretation of its terms, required that it should not be performed within the year.

MTVN urges the following interpretation of the agreement outlined by Curry's pleadings: Curry would be free to terminate the development of his Internet site at will, but MTVN would forever be obliged not to interfere with Curry's use of the site name mtv.com. Under this view of the contract, Curry's obligations would be susceptible of completion within a year, but MTVN's obligations would continue indefinitely.

The more straightforward reading of Curry's pleadings suggest two performances that are susceptible of completion within one year: Curry's development of the Internet site terminable by him at any time; and MTVN's forbearance to assert any rights it might have in the sitefor so long as the site continued. Under this interpretation the performances are of equal duration, each terminating upon Curry's unilateral decision to discontinue operation of the site.

The statute of frauds, "designed to guard against fraudulent claims supported by perjured testimony, was never meant to be used as 'a means of evading just obligations' based on contracts 'fairly, and admittedly, made.'" Manhattan Fuel Co. v. New England Petroleum Corp., 422 F. Supp. 797, 801 (S.D.N.Y. 1976). Assuming, arguendo, that this contract involved one-sided obligations of indefinite duration, the Court is not convinced by the arguments submitted that the statute of frauds will bar Curry's claim. Development of the record to a fuller degree than what is presented on the present motion is warranted. In June or August 1993, MTVN may simply have failed to appreciate the commercial potential of an Internet music site, and improvidently (in retrospect) granted Curry all the rights he has alleged. MTVN now argues that Curry's purported agreement involves a "major property right" which would ordinarily be embodied in a writing, but this characterization may derive from the 20-20 vision of hindsight.

Finally, the Court notes that the statute of frauds does not present a bar to an agreement that may be characterized as a "joint venture." A joint venture is a "special combination of two or more persons where in some specific venture a profit is jointly sought without any actual partnership or corporate designation." For-man v. Lumm, 214 A.D. 579, 212 N.Y.S. 487, 490 (A.D. 1st Dept. 1925). It is widely recognized that the statute of frauds is generally inapplicable to joint ventures, be-cause these agreements are terminable at will.

Although Farber expressly disclaimed MTVN's interest in a joint venture during the June meeting, he may have intended only to convey MTVN's lack of interest in funding the project. A joint venture does not, however, require financial support from the coventurers. Curry has alleged MTVN contributions of various sorts, including advertising of the mtv.com address on MTVN broadcasts and permission (or at least a re-quest by Stillerman) to place certain MTVN materials on Curry's Internet site.

As New York General Obligations Law 5-701 presents no bar to this cause of action, defendant's breach of contract counterclaim survives plaintiff's motion to dismiss.

C.Fraud/Negligent MisrepresentationCounterclaim

Curry's second counterclaim is labeled "Fraud/Negligent Misrepresentation." Under Federal Rule of Civil Procedure 9(b), "in all averments of fraud or mistake, the circumstances constituting fraud or mistake shall be stated with particularity." A claim for fraud must be dismissed under Rule 12(b)(6) if it does not satisfy the Requirements of Rule 9(b). MTVN argues for dismissal of the fraud claim on the ground that Curry has merely set forth conclusory allegations of fraud "without clearly stating who said what and when." The Court finds that the details of the Farber and Stillerman conversations are sufficiently set forth in paragraphs 9-11 of Curry's Answer and Counterclaims to meet the Rule 9(b) standard.

MTVN next argues that Curry has failed to set forth a sufficient factual basis to establish fraudulent intent (scienter) when MTVN executives encouraged Curry to develop his computer service under the mtv.com name. While Rule 9(b) permits scienter to be demonstrated by inference, this "must not be mistaken for license to base claims of fraud on speculation and conclusory allegations." Wexner v. First Manhattan Co., 902 F.2d 169, 172 (2d Cir. 1990).

Curry's fraud claim requires that MTVN personnel had fraudulent intent at the time that they made the statements at issue. MTVN argues that Curry's pleadings are deficient in this regard, as there is no suggestion that Farber or Stillerman intended, at the time of the June and August conversations, to break the promises they allegedly made.

The Court finds Curry's pleadings sufficient in this regard. Curry's August conversation with Stillerman was critical to his reliance and resulting damages. Curry alleges that "during the second half of 1993, MTVN and Viacom explored various options for development of interactive television or on-line computer services," resulting in an agreement with America On-line to provide a computer link to MTVN. Since the "second half of 1993" encompasses August, 1993, the Court only need infer that Stillerman, a "senior executive" at MTVN, would be aware of MTVN's plans to develop a computer-based information service to find a sufficient basis for scienter in Curry's pleadings.

Questions of the reasonableness of reliance raise issues of fact that must be resolved at trial. The Court notes only that Curry's pleadings allege a period of services rendered to MTVN, from May, 1992, through April, 1994, that were not based upon a written con-tract. This oral employment contract may have set the stage for the oral agreement that Curry now asserts. The Court also takes judicial notice of the explosive growth in public and corporate awareness of the commercial potential of the Internet.

The Court therefore finds that Curry's fraud al-legations are sufficient to withstand this motion to dismiss. The Court is similarly unpersuaded by the similar arguments that MTVN raises in opposition to Curry's negligent misrepresentation counterclaim.

D.Unfair Competition Claim

Curry's third counterclaim alleges the New York com-mon law tort of unfair competition, which "bans 'any form of commercial immorality.' A cause of action for un-fair competition requires unfairness and an unjustifiable attempt to profit from another's expenditure of time, labor and talent." Coors Brewing Co. v. Anheuser-Busch Co., 802 F. Supp. 965, 975 (S.D.N.Y. 1992). This claim is grounded in Curry's theory that MTVN was using his Internet site as a no risk "test bed" for its own on-line service.

MTVN argues that it cannot determine how to interpret Curry's third counterclaim, which in paragraph 33 of his Answer and Counterclaims charges MTVN with "misappropriating the fruits of Curry's labors and expenditures." The Court agrees that Curry has failed to specify what it is that MTVN has allegedly misappropriated.

Unfair competition is an imprecisely defined cause of action in New York. There appear to be "few limits on this evolving tort." Demetriades v. Kaufmann, 698 F. Supp. 521, 525 (S.D.N.Y. 1988).

Rule 12(e) of the Federal Rules of Civil Procedure states in part: "If a pleading to which a responsive plead-ing is permitted is so vague or ambiguous that a party cannot reasonably be required to frame a responsive pleading, the party may move for a more definite state-ment. . . ." There is a tension between Rule 12(e) and Fed. R. Civ. P. 8, which requires only "a short and plain statement of the claim showing that the pleader is entitled to relief." While motions for more definite pleadings are generally disfavored, the opposing party must be given sufficient notice to frame a responsive pleading.

Applying this standard to the amorphous tort of unfair competition, the Court concludes that MTVN is entitled to clarification of Curry's third counterclaim. In particular, MTVN deserves amplification of the phrase in paragraph 33 that charges MTVN with misappropriation of "the fruits of Curry's labors and expenditures." These fruits might involve trademark issues, such as the use of the Internet address "mtv.com," or theft of Curry's idea, or perhaps theft of Curry's mtv.com audience. Given the broad range of defenses involved in opposing these claims, and the potential for unexpected claims at trial, MTVN is entitled to a clarification of Curry's pleadings. Recognizing that MTVN has not been provided with fair notice of Curry's third counterclaim, the Court grants MTVN's motion for a more definite statement.

II.Conclusion

For the foregoing reasons, plaintiff's motion with regard to counterclaims I and II is denied. As to counter-claim III, plaintiff's motion for a more definite statement is granted. Defendant shall have thirty (30) days from the date of this Order to file an amended third counterclaim. Plaintiff shall have thirty (30) days from the date of the filing of the amended counterclaim in which to file an answer or other appropriate response to the amended counterclaim.

So ordered.

The Court provided the following two informative footnotes:

1. The Internet is the world's largest computer network (a network consisting of two or more computers linked together to share electronic mail and files). The Internet is actually a network of thousands of in-dependent networks, containing several million "host" computers that provide information services. TheInternet Unleashed 22-23 (Sams Publishing, 1994).An estimated 25 million individuals have some form of Internet access, and this audience is doubling each year. Philip Elmer-Dewitt, "Battle for the Soul of the Inter-net," Time, July 25, 1994, at 50. The Internet is a cooperative venture, owned by no one, but regulated by several volunteer agencies.

2. Each host computer providing Internet ser-vices ("site") has a unique Internet address. Users seek-ing to exchange digital information (electronic mail ["e-mail"], computer programs, images, music) with a particular Internet host require the host's address in order to establish a connection.

Hosts actually possess two fungible addresses: a numeric "IP" address such as 123.456.123.12, and an alphanumeric "domain name" such as microsoft.com, with greater mnemonic potential. See The Internet Un-leashed, footnote 1. Internet domain names are simi-lar to telephone number mnemonics, but they are of greater importance, since there is no satisfactory Inter-net equivalent to a telephone company white pages or directory assistance, and domain names can often be guessed. A domain name mirroring a corporate name may be a valuable corporate asset, as it facilitates communication with a customer base.

The uniqueness of Internet addresses is ensured by the registration services of the Internet Network Information Center ("Internic"), a collaborative project established by the National Science Foundation. Id. at 460. Internic "hands out the names for free under a very simple rule: First come, first served. Trademark violations are the requestor's responsibility." Joshua Quittner, "Making a Name on the Internet," Newsday, October 7, 1994 (discussing speculation in Internet addresses such as mcdonalds.com).

Case Analysis

1. Elaborate the motions that were made at trial.

2. What is the legal issue in the MTV case?

3. List and express the various pleadings discussed in this case.