United States District Court, M.D. Tennessee, Nashville Division
WAVERLY D. CRENSHAW, JR. CHIEF UNITED STATES DISTRICT JUDGE.
University and Scholastic, Inc. entered into a License
Agreement in 1997 granting Scholastic the right to develop,
market, and sell the Read 180 literacy program developed at
Vanderbilt by Professor Ted Hasselbring. Years later,
Vanderbilt brought this action alleging that it had not been
properly compensated based upon sales of Read 180 and sales
of certain other products developed in violation of the
License Agreement. Defendants Hasselbring, Scholastic, and
Scholastic's successor-in-interest Harcourt Mifflin
Harcourt Publishing Company filed motions to dismiss, which
the Court granted in part and denied in part. (Doc. No. 113.)
Hasselbring and Scholastic subsequently filed
Counterclaims. Pending before the Court is
Vanderbilt's Motion to Dismiss Scholastic's
Counterclaim. (Doc. No. 137.) The motion will be granted in
part and denied in part.
survive a Rule 12(b)(6) motion, “‘a complaint
must contain sufficient factual matter, accepted as true, to
state a claim to relief that is plausible on its
face.'” Ashcroft v. Iqbal, 556 U.S. 662,
678 (2009) (quoting Bell Atl. Corp. v. Twombly, 550
U.S. 544, 570 (2007)). “If the plaintiffs do not nudge
their claims across the line from conceivable to plausible,
their complaint must be dismissed.” Lutz v.
Chesapeake Appalachia, L.L.C., 717 F.3d 459, 464 (6th
Cir. 2013) (citation and brackets omitted). Dismissal is
likewise appropriate where the complaint, however factually
detailed, fails to state a claim as a matter of law.
Mitchell v. McNeil, 487 F.3d 374, 379 (6th Cir.
2007). Here, the Court construes the Amended Counterclaim in
the light most favorable to the non-moving party, accepts its
allegations as true, and draws all reasonable inferences in
favor of the nonmoving party. Directv, Inc. v.
Treesh, 487 F.3d 471, 476 (6th Cir. 2007); Inge v.
Rock Fin. Corp., 281 F.3d 613, 619 (6th Cir. 2002).
However, the Court is not required to accept summary
allegations, legal conclusions, or unwarranted factual
inferences. Mixon v. Ohio, 193 F.3d 389, 400 (6th
Cir. 1999); Lillard v. Shelby Cty. Bd. of Educ., 76
F.3d 716, 726 (6th Cir. 1996).
alleges that under the License Agreement,  it agreed to pay
royalties on certain products derived from the Read 180
materials licensed by Vanderbilt. (Doc. No. 130 ¶ 6.)
Under Section 9.1(a) of the License Agreement, which
Scholastic alleges is “valid and enforceable, ”
Scholastic agreed to pay Vanderbilt royalties on the net
sales of certain products. (Id. ¶¶ 7, 15.)
Section 9.1(a) of the License Agreement requires that
Scholastic pay Vanderbilt “5% of Net Sales from such
sales or licenses until such time as cumulative Gross Sales
from such products total $15 million, after which time
Vanderbilt shall forever be paid 7% of Net Sales.”
(Id. ¶ 12.) “Net Sales” is defined
in Section 1.7 as “all income received by Scholastic
from the sale, licensing, or other use of the Materials or
Literacy Program, computed annually, less: (a) cash, trade,
or quantity discounts[, ] (b) shipping and handling costs,
taxes, including sales taxes and duties, (c) credits, returns
and replacements[, and] (d) a reasonable reserve for
returns.” (Id. ¶ 13.)
avers that it mistakenly paid royalties to Vanderbilt on
various products that were not subject to royalty payments.
(Id. ¶¶ 8, 16.) It claims that these
payments were based “on a mistake of fact, namely the
amount of royalties actually owed . . . under Sections 1.7
and 9.1(a) of the License Agreement.” (Id. at
¶ 17.) Scholastic alleges Vanderbilt improperly retained
those payments, and that it “has a right to recoup any
royalties it overpaid to Vanderbilt and to offset any damages
awarded in favor of Vanderbilt in this action by the amount
of such overpayments.” (Id. ¶¶ 9,
brings three alternative Counterclaims to recover royalty
overpayments: breach of Sections 1.7 and 9.1(a) of the
License Agreement (id. ¶ 19); breach of the
implied covenant of good faith and fair dealing (id.
¶¶ 23-26); unjust enrichment (id.
¶¶ 29-32). Scholastic seeks reimbursement of the
alleged amount of overpayment, regardless of the theory of
liability. (Id. (prayer for relief)).
argues that Scholastic's breach of contract counterclaim
must be dismissed because the License Agreement “places
obligations only on Scholastic, not Vanderbilt, ” and
the License Agreement does not require Vanderbilt to return
alleged overpayments. (Doc. No. 138 at 4-7.) Scholastic
relies on Sections 1.7 and 9.1(a) on royalty payments, and
argues that no express contractual language is required for
it to recover overpayments. (Doc. No. 148 at 6-9.) Vanderbilt
relies on the same argument for dismissal of Scholastic's
breach of the implied covenant of good faith and fair dealing
counterclaim. (Doc. No. 138 at 7-9.) Scholastic contends that
even if the License Agreement does not explicitly require
Vanderbilt to return mistaken overpayments, an implied duty
claim is viable because a reasonable person in
Scholastic's position would understand that Vanderbilt
would be required to repay any mistaken overpayments.
intertwined claims are governed by New York law and thus the
analogous case of Orange County Choppers, Inc. v. Olaes
Enterprises, Inc., 497 F.Supp.2d 541 (S.D.N.Y. 2007) is
instructive. There, as here, the defendant alleged mistaken
overpayment of over $1, 000, 000 in royalties under a
licensing agreement. Id. at 559. There, as here, the
defendant sought recovery of the overpayment based upon
breach of contract and breach of the implied covenant of good
faith and fair dealing claims. Id. The court
dismissed the breach of contract claim, but not the breach of
good faith and fair dealing claim and explained:
Although we agree that the [licensing a]greement does not
include any explicit provision that provides [defendant] the
right to reimbursement of overpaid royalties, “[u]nder
New York law, every contract contains an implied covenant of
good faith and fair dealing.” Carvel Corp. v.
Diversified Mgmt. Grp., Inc., 930 F.2d 228, 230 (2d Cir.
1991). “This covenant includes ‘an implied
undertaking on the part of each party that he will not
intentionally and purposely do anything to prevent the other
party from carrying out the agreement on his
part.'” Id. (quoting Grad v.
Roberts, 14 N.Y.2d 70, 75, (1964)). “In most
circumstances, claims for breach of contract and the covenant
of good faith and fair dealing are duplicative; however, in
some cases ‘a party may be in breach of its implied
duty of good faith and fair dealing even if it is not in
breach of its express contractual obligations.'”
Echostar DBS Corp. v. Gemstar-TV Guide Int'l,
Inc., No. 05 Civ. 8510, 2007 WL 438088, at *7 (S.D.N.Y.
Feb. 8, 2007) (quoting Chase Manhattan Bank v. Keystone
Distrib., Inc., 873 F.Supp. 808, 815 (S.D.N.Y. 1994)).
“The covenant ‘precludes each party from engaging
in conduct that will deprive the other party of the benefits
of their agreement.'” Id. (quoting
Leberman v. John Blair & Co., 880 F.2d 1555,
1560 (2d Cir. 1989)). “Hence, the covenant is violated
‘when a party to a contract acts in a manner that,
although not expressly forbidden by any contractual
provision, would deprive the other of the right to receive
the benefits under the agreement.” Id.
(quoting Don King Prods., Inc. v. Douglas, 742
F.Supp. 741, 767 (S.D.N.Y. 1990)). . . In the present case,
the [licensing a]greement obligates [defendant] to pay
[plaintiff] a certain amount of royalties in consideration
for a license to use its Property and does not expressly
prohibit [defendant] from recovering royalties mistakenly
overpaid. Thus, the [licensing a]greement's implied
covenant of good faith and fair dealing prohibits [plaintiff]
from retaining royalties that were provided to it by mistake
and to which it is not contractually entitled.
[Defendant's] claim for its alleged overpayments is thus
properly termed a breach of the covenant of good faith and
fair dealing, . . . and not a breach of any express provision
of the contract[.]
Id. at 559-60. Other courts have followed the
rationale in Orange County Choppers. See,
e.g., Wiseman v. ING Groep, N.V., 16-cv-07587
(AJN), 2017 WL 4712417, at *8 (S.D.N.Y. Sept. 28, 2017);
Dorset Indus., Inc. v. Unified Grocers, Inc., 893
F.Supp.2d 395, 407 (S.D.N.Y. 2012); 511W. 232nd