Motion for Leave in Clean Air Options, Llc, Eurus Air Design, Ab v. Humanscale Corporation| Trellis.Law

On December 31, 2012 a Motion-Secondary was filed involving a dispute between Clean Air Options, Llc, Eurus Air Design, Ab, and Humanscale Corporation, for Commercial Division in the District Court of New York County.

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FILED: NEW YORK COUNTY CLERK 05/16/2016 10:32 PM INDEX NO. 654595/2012
NYSCEF DOC. NO. 337 RECEIVED NYSCEF: 05/16/2016

SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF NEW YORK

Index No. 654595/2012
CLEAN AIR OPTIONS, LLC and EURUS AIR
DESIGN, AB,
IAS Part 48
Plaintiffs,

-against- Honorable Jeffrey K. Oing
HUMANSCALE CORPORATION,
Motion Seq: #011
Defendant.

Oral argument requested

HUMANSCALE’S MEMORANDUM OF LAW IN SUPPORT OF ITS MOTION FOR
LEAVE TO REARGUE PURSUANT TO CPLR § 2221(d)

COLE SCHOTZ P.C.
Counsel for Humanscale Corporation
Arianna Frankl
AFrankl@coleschotz.com
Tanya Rolo
TRolo@coleschotz.com
1325 Avenue of the Americas, 19th Floor
New York, New York 10019
(212) 752-8000

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TABLE OF CONTENTS

Page

TABLE OF AUTHORITIES .......................................................................................................... ii

PRELIMINARY STATEMENT .................................................................................................... 1

ARGUMENT .................................................................................................................................. 3

I. THE DECISION LEFT OPEN QUESTIONS OF LAW THAT MUST BE
DETERMINED BY THE COURT......................................................................... 3

A. The Court Must Dismiss Plaintiffs’ Lost Profits Claim As a Matter
of Law Because the Agreements Did Not Obligate Humanscale to
Provide Products to Plaintiffs ..................................................................... 4

B. The Court Must Issue a Legal Ruling on the “1.5%” Interest
Provision ..................................................................................................... 6

C. The Court’s Ruling that Humanscale’s Right to Terminate Was
Not Modified by the 2012 Email Exchange Required
Corresponding Contract Interpretation by the Court .................................. 8

D. The Decision Failed to Fully Construe the 2009 Amendment and
Malata Agreements ................................................................................... 10

E. The Decision Failed to Properly Consider Whether the 2011 Email
Constituted a Modification to the Parties’ Agreements ........................... 13

CONCLUSION ............................................................................................................................. 14

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TABLE OF AUTHORITIES

Page(s)

Cases

943 Lexington Ave. Inc. v. Niarchos,
373 N.Y.S.2d 787 (1st Dep’t 1975) ...........................................................................................7

Chumsky v. Chumsky,
64 A.D.3d 1156, 881 N.Y.S.2d 774 (4th Dep’t 2009) ...............................................................4

City of Rye v. Public Svc. Mutual Ins. Co.,
34 N.Y.2d 470 (1974) ................................................................................................................7

FCI Grp., Inc. v. City of New York,
54 A.D.3d 171, 862 N.Y.S.2d 352 (1st Dep’t 2008) .................................................................4

Goldman v. Metro. Life Ins. Co.,
5 N.Y.3d 561, 841 N.E.2d 742 (2005) .......................................................................................4

Koren Rogers Associates Inc. v. Standard Microsystems Corp.,
79 A.D.3d 607, 914 N.Y.S.2d 29 (1st Dep’t 2010) ...............................................................3, 6

Manufacturer’s & Trader’s Trust Co. v. Reliance Ins. Co.,
8 N.Y. 3d 583 (2007) .................................................................................................................7

R/S Associates v. New York Job Dev. Auth.,
98 N.Y.2d 29, 771 N.E.2d 240 (2002) .......................................................................................4

Refac Int’l, Ltd. v. Mastercard Int’l,
758 F.Supp. 152 (S.D.N.Y 1991).............................................................................................11

Sachar v. Columbia Pictures Indus., Inc.,
129 A.D.3d 420, 11 N.Y.S.3d 35 (1st Dep’t 2015) ...................................................................3

Sandra’s Jewel Box Inc. v. 401 Hotel, L.P.,
273 A.D.2d 1 (1st Dep’t 2000) ..................................................................................................7

Szerdahelyi v. Harris,
67 N.Y.2d 42, 490 N.E.2d 517 (1986) .......................................................................................4

Wallace v. 600 Partners Co.,
86 N.Y.2d 543, 658 N.E.2d 715 (1995) .....................................................................................3

Statutes

Penal Law § 190.40..........................................................................................................................7

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Rule

CPLR § 2221(d) .........................................................................................................................3, 13

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PRELIMINARY STATEMENT

The Decision1 of the Court on the Parties’2 respective summary judgment motions

overlooked or misapprehended several important contract interpretation issues, which are or

could become outcome dispositive at trial, or as to which clarification is needed for proper

appellate review. For this reason, Humanscale respectfully requests that the Court grant

reargument to address these discrete issues.

First, the Court appears to have overlooked Humanscale’s legal argument requiring

dismissal of Plaintiffs’ claim for lost profits because there is no contractual obligation on which

such claim can be based. Plaintiffs contend they lost $10 million in profits due to Humanscale’s

“failure” to provide products for Plaintiffs to sell. The Decision refers to factual disputes

concerning product development, but fails to address the legal defect to Plaintiffs’ claim—i.e.,

the Agreements3 do not obligate Humanscale to provide product in the first instance. This issue

of contract interpretation should be decided by the Court.

Second, the Decision did not resolve the Parties’ dispute over the interpretation of the

1.5% interest provision in the 2006 and 2007 Agreements. Although Plaintiffs fail to say exactly

1
The Decision refers to the Orders on Motion Sequence Nos. 008 and 009, dated April 12, 2016
(see Doc. Nos. 322-323, respectively). Notice of entry was filed and served electronically on
April 15, 2016 (see Doc. No. 324). Reargument is sought with respect to Humanscale’s Motion
for Summary Judgment, which covers Doc. Nos. 195-238, 241, 310-315, 317.
2
“Parties” refers to Defendant Humanscale Corporation (“Humanscale”), and Plaintiffs Clean
Air Options, LLC (“CAO”) and Eurus Air Design, AB (CAO and Eurus Air Design, AB are
“Plaintiffs”).
3
“Agreements” refers to the Parties’ Distribution and License Agreements in 2006 (the “2006
Agreement”) and 2007 (the “2007 Agreement”), which were later amended in 2009 (the “2009
Amendment”) and 2011. See Doc. Nos. 246, 247, and 248, Exs. B-D attached to the Affirmation
of Anna Volftsun, Esq. in Support of Humanscale Corporation’s Motion for Summary Judgment
(“Volftsun Aff.”) for the 2006 Agreement, 2007 Agreement, and 2009 Amendment, respectively.

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what manner of calculation they are using, it is clear they are not interpreting the interest

provision as Humanscale asserts is appropriate (1.5% annual rate), and actually appear to be

advancing an interpretation that would result in an unlawful annual rate (1.5% weekly rate, 78%

annual rate). This is a matter of law and the Court’s ruling on the proper interpretation of

interest provision is needed, either agreeing that the provision is a 1.5% annual rate, compounded

weekly or, if not, finding the provision an unenforceable penalty void under law, which will then

require judicial reformation under the Agreements.

Third, the Decision failed to complete its interpretation of the 2012 Email Exchange.4

Although the Court correctly found as a matter of law that the 2012 Email Exchange did not alter

Humanscale’s right to terminate the Agreements, the Decision overlooked necessary corollaries

to that legal conclusion. The Court’s rulings on this issue will not only simplify the case at trial,

but are also necessary for jury instruction, and for consideration on appeal.

Fourth, the Decision left open contract interpretation issues regarding whether the terms

of the Malata Agreements5 satisfied the requirements of the 2009 Agreement. Although initially

finding that the Malata Agreements contained provisions sufficient to satisfy the 2009

Agreement, the Decision then improperly considers arguments by Plaintiffs as raising purported

fact issues. Plaintiffs’ assertions can be resolved as a matter of law based on contract

interpretation, and thus must be decided by the Court, and not left to a jury.

4
“2012 Email Exchange” refers to an e-mail correspondence that Plaintiffs allege to be a
modification of the Agreements. See Doc. No. 212, Ex. N to the Affirmation of Lauren M.
Manduke, Esq. in Support of Defendant’s Motion for Summary Judgment (“Manduke Aff.”).
5
“Malata Agreements” refers to agreements between Humanscale and its manufacturer
Zhangzhou Wanlida Photocatalysis Science & Technology Co., Ltd. (“Malata”). See Doc. Nos.
232, 233, and 234, Volftsun Aff. Exs. G-I.

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Finally, clarification and correction by the Court is needed concerning the incorrect

assertion that the 2011 Email6 reflected a change from the Parties’ Agreements. In the Decision,

the Court appears to have overlooked provisions of the Agreements that make very plain that

there was no modification of the Agreements by the 2011 Email. This aspect of the Decision

requires correction to ensure that the jury is not confused or misled in considering Plaintiffs’

arguments regarding alleged modifications to the Parties’ Agreements.

To address these issues, and further resolution of the case, Humanscale respectfully

requests leave to reargue pursuant to CPLR § 2221(d).

ARGUMENT

Under CPLR § 2221(d), motions for leave to reargue are “based upon matters of fact or

law allegedly overlooked or misapprehended by the court in determining the prior motion.”

CPLR § 2221(d). Whether to grant leave is at the sound discretion of the court. See Sachar v.

Columbia Pictures Indus., Inc., 129 A.D.3d 420, 421, 11 N.Y.S.3d 35, 36 (1st Dep’t 2015).

I. THE DECISION LEFT OPEN QUESTIONS OF LAW
THAT MUST BE DETERMINED BY THE COURT

Interpretation of unambiguous contracts is a question of law for the court. Koren Rogers

Associates Inc. v. Standard Microsystems Corp., 79 A.D.3d 607, 608, 914 N.Y.S.2d 29, 31 (1st

Dep’t 2010) (contract interpretation is a “question of law”; “circumstances extrinsic to the

agreement or varying interpretations of the contract provisions” should not be considered where

intent can be determined from contract) (internal quotations omitted).

Also within the purview of the court is the determination of whether a contract provision

is ambiguous. See Wallace v. 600 Partners Co., 86 N.Y.2d 543, 548, 658 N.E.2d 715, 717

6
“2011 Email” refers to an e-mail correspondence dated February 14 and 18, 2011. See Doc.
Nos. 214-215, Manduke Aff. Exs. P & Q.

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(1995). However, where the plain language of a contract is unambiguous, courts should not

consider extrinsic or parole evidence to vary its terms. See R/S Associates v. New York Job Dev.

Auth., 98 N.Y.2d 29, 33, 771 N.E.2d 240, 242 (2002). Notably, the “[m]ere assertion by one

[party] that contract language means something to him, where it is otherwise clear, unequivocal

and understandable when read in connection with the whole contract, is not in and of itself

enough to raise a triable issue of fact.” Goldman v. Metro. Life Ins. Co., 5 N.Y.3d 561, 571, 841

N.E.2d 742, 746 (2005) (quoting Bethlehem Steel Co. v. Turner Const. Co., 2 N.Y.2d 456, 460,

141 N.E.2d 590, 593 (1957)).

Finally, whether a contractual provision is unenforceable based on illegality or public

policy is also a question of law. See Szerdahelyi v. Harris, 67 N.Y.2d 42, 48, 490 N.E.2d 517,

521 (1986) (“illegal contracts, or those contrary to public policy, are unenforceable” and not to

be enforced); FCI Grp., Inc. v. City of New York, 54 A.D.3d 171, 178, 862 N.Y.S.2d 352, 357

(1st Dep’t 2008) (contracts “capable of being performed in a legal manner, which have

nonetheless been performed in an illegal manner, will not be enforced.”) (internal quotations

omitted). See also Chumsky v. Chumsky, 64 A.D.3d 1156, 881 N.Y.S.2d 774, 775 (4th Dep’t

2009) (whether a contract provision is “an enforceable liquidation of damages or an

unenforceable penalty is a question of law”) (internal quotation and citation omitted).

A. The Court Must Dismiss Plaintiffs’ Lost Profits Claim
As a Matter of Law Because the Agreements Did Not
Obligate Humanscale to Provide Products to Plaintiffs

The Decision accurately encapsulates Plaintiffs’ claim for lost profits as the alleged

“result of [D]efendant’s inability to bring products to market, making it impossible for

[P]laintiffs to properly make the sales.” Decision p. 15 of 39. However, the Decision fails to

address the legally dispositive argument that Humanscale had no contractual obligation to bring

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products to market for sale by CAO. In the absence of a contractual obligation, breach of

contract cannot be made out, and Plaintiffs’ lost profits claim must be dismissed with prejudice.

See Decision p. 33 of 39 (discussing fact matters instead of the legal issue).

Section 4(g) of the 2007 Agreement provided Humanscale with a right to sell products to

CAO, but not an obligation:

Clean Air grants to Humanscale (i) the non-exclusive right (except as limited
below) to manufacture Products for the Healthcare Market and to sell such
Products to Clean Air . . . and (ii) the exclusive right (except as limited below) to
manufacture Products for the Education Market and to sell such Products
exclusively to Clean Air for resale . . . In the event Clean Air requests that
Humanscale manufacture a specific Product . . .and Humanscale is unable to
provide Clean Air with a competitively priced, high quality Product in a timely
manner as requested, Clean Air shall have the right to buy such Product from
another manufacturer . . . ; provided, however, that once Clean Air receives the
best terms from another manufacturer, Clean Air will notify Humanscale of such
terms and Humanscale may agree . . . to manufacture the products on such
terms. If Humanscale does not agree to manufacture such Products on such
terms within such period, Clean Air may move forward with the third party
manufacturer and Humanscale will have no right to cure or otherwise undo such
arrangement without consent from Clean Air.

Doc. No. 247, Volftsun Aff. Ex. C, 2007 Agreement § 4(g) (emphasis added).

This Section makes clear that Humanscale received a right to provide products to CAO in

certain markets, and if the product met CAO pricing, quality, and timing conditions. If

Humanscale did not meet those conditions, CAO was free to find another source. Nothing in this

Section 4(g), or any other provision of the Agreements, requires Humanscale to provide product

to CAO.7 Moreover, the existence of Section 4(g) demonstrates that the Parties actually

contemplated a scenario under which Plaintiffs might be dissatisfied with Humanscale’s failure

7
It should be appreciated that Section 4(g) was not the primary license grant to Humanscale but
was an additional right in markets Humanscale had only a limited or no license. Compare Doc.
No. 246, Volftsun Aff. Ex. B, 2006 Agreement, § 4, and Doc. No. 247, Volftsun Aff. Ex. C,
2007 Agreement, §§ 4(a) and 4(b).

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to provide products, and set forth the remedy, i.e., Plaintiffs’ ability to purchase from a third-

party. Id.

With no contractual obligation to provide Plaintiffs with products, dismissal of Plaintiffs’

lost profits claim premised on the non-existent obligation was required, as a matter of law. See

Koren Rogers Associates Inc. v. Standard Microsystems Corp., 79 A.D.3d 607, 608, 914

N.Y.S.2d 29, 31 (1st Dep’t 2010) (contract interpretation is a question of law for the court).8

B. The Court Must Issue a Legal
Ruling on the “1.5%” Interest Provision

In this Court’s decision on summary judgment, it overlooked the parties’ dispute

regarding interpretation of the interest provision under the Agreements. Although the Court

noted that Plaintiffs “claim interest at the rate of 1.5% per week into the year 2014 and beyond”

and “seek damages in the form of interest at 1.5%, to be compounded weekly, as per the

agreements,” the Court did not construe the provision (i.e., does the provision mean a 1.5%

annual rate, compounded weekly, as Humanscale contends, or a 1.5% weekly rate, compounded

weekly). Decision pp. 14-15 of 39.

Each of the 2006 and 2007 Agreements provide that “[p]ayments not received within ten

(10) business days shall be subject to late charges equal to 1.5% of the amount owed,

compounded weekly.” Doc. No. 246, Volftsun Aff. Ex. B, 2006 Agreement § 6(g); Doc. No.

247, Volftsun Aff. Ex. C, 2007 Agreement § 6(i). While Plaintiffs do not clearly state how they

are actually applying interest to their damages claim, it is clear that the Parties disagree about the

interpretation of the interest rate provision. On summary judgment, Humanscale pointed out

how Plaintiffs’ apparent assertion that the rate of 1.5% should be a weekly rate would yield an

8
This is a wholly independent basis for dismissal, separate from Plaintiffs’ failure to produce
evidence sufficient to demonstrate damages.

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annual rate of 78%. This is more than three times what the criminal usury law allows (interest

rates above 25% annual rate are prohibited). Doc. No. 196, Memorandum of Law in Support of

Humanscale Corporation’s Motion for Summary Judgment (“HS SJ Br.”) p. 21. Instead, the

provision should be interpreted as a 1.5% annual rate, compounded weekly.

Indeed, Plaintiffs’ interpretation of the interest rate provision would result in imposition

of a penalty that is grossly disproportionate to the harm, i.e., a late payment amount. This would

require the Court to rule as a matter of law that the provision is an unenforceable penalty. See

Doc. No. 315, HS SJ Reply pp. 11-12 (discussing Manufacturer’s & Trader’s Trust Co. v.

Reliance Ins. Co., 8 N.Y. 3d 583, 589 (2007) (interest is not a penalty) and City of Rye v. Public

Svc. Mutual Ins. Co., 34 N.Y.2d 470, 473 (1974) (if contract provision results a damages amount

that “is grossly disproportionate to the anticipated probable harm” the provision will not be

enforced); Sandra’s Jewel Box Inc. v. 401 Hotel, L.P., 273 A.D.2d 1, 3 (1st Dep’t 2000) (“late

charge” in lease “while not technically interest, is unreasonable and confiscatory in nature and

therefore unenforceable when examined in the light of the public policy expressed in Penal Law

§ 190.40, which makes an interest charge of more than 25% per annum a criminal offense.”);

943 Lexington Ave. Inc. v. Niarchos, 373 N.Y.S.2d 787, 788 (1st Dep’t 1975) (rent surcharge

“while not technically interest, is at the rate of 60% a year” and is “unreasonable and

confiscatory in nature and therefore unenforceable”).

Moreover, if the Court were to find the interest rate provision unenforceable, reformation

by the Court would be required by the Agreements. See Doc. No. 246, Volftsun Aff. Ex. B,

2006 Agreement § 17 (requiring reformation); Doc. No. 247, Volftsun Aff. Ex. C, 2007

Agreement § 19 (same). The only other possibility would be a ruling that the provision is

ambiguous, and in that case, at a minimum, the Court must identify precisely what issues should

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go to a jury, making clear that the jury is not be permitted to adopt the unlawful interpretation as

proposed by Plaintiffs.

In all events, judicial interpretation of the interest provisions is necessary and reargument

appropriate for this reason.

C. The Court’s Ruling that Humanscale’s
Right to Terminate Was Not Modified by the
2012 Email Exchange Required Corresponding
Contract Interpretation by the Court

Plaintiffs assert that the 2012 Email Exchange required Humanscale to make the listed

payments for all of 2012 and 2013. Humanscale, in turn, argued that even if the 2012 Email

Exchange was viewed as a modification, it would not require Humanscale to make payments

through 2013 because the Email Exchange expressly stated that all other terms of the Parties’

Agreements remained intact. See Doc. No. 196, HS SJ Br. pp. 13-14; Doc. No. 315, Reply

Memorandum of Law in Further Support of Humanscale Corporation’s Motion for Summary

Judgment (“SJ Reply”) pp. 8-9. Relying on this language of the 2012 Email Exchange, the Court

agreed that the “2011-2012 emails did not alter Humanscale’s rights under the 2006 and 2007

Agreements to terminate.” Decision p. 28 of 39.

However, the Court failed to address the corresponding contract issues, as to which the

Court should issue rulings as a matter of law. Specifically, given that Humanscale was permitted

to terminate the Agreements, the Court should also hold that (i) Humanscale did not have to

make all payments listed in the 2012 Email Exchange for all of 2012 and 2013, but only those

that continued after notice of termination; and (ii) Humanscale could not obtain exclusivity for

all of 2013 or 2014, and therefore could not have been required to pay for it.

With respect to (i) above, the Court should issue a ruling that Humanscale did not have to

make all payments listed in the 2012 Email Exchange for all of 2012 and 2013, but, at most, only

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those payment obligations which applied after notice of termination. Under the 2006

Agreement, Humanscale was required to provide notice of intent to terminate at least three

months before the end of any one-year renewal term. Doc. No. 246, Volftsun Aff. Ex. B, 2006

Agreement § 10(a). Humanscale gave notice in October 2012, and therefore the 2006

Agreement terminated June 30, 2013. Thus, at the latest, payments from the 2006 Agreement

only continued until the date of termination (i.e., actual sales royalties per Section 6(d) and

Secondary Advances less actual sales royalties (Section 6(b)). Under the 2007 Agreement,

Humanscale was required to provide two years’ notice of termination. Doc. No. 247, Volftsun

Aff. Ex. C, 2007 Agreement § 11(a). With notice in October 2012, the 2007 Agreement

terminated in October 2014, and only those payments applicable during the notice period could

possibly be required (i.e., actual sales royalties per Section 6(d), payments for services provided,

if any, per Section 6(f) and 6(g)).

With respect to (ii) above, the Court should issue a holding that under the notice

provisions of the 2007 Agreement, Humanscale could not obtain exclusivity for all of 2013, or

2014, and therefore could not have been required to pay for exclusivity for those time periods.

Under the 2007 Agreement, during the second year of the notice of termination period, the rights

under the 2007 Agreement became non-exclusive only (there is no provision for even an optional

royalty). Doc. No. 247, Volftsun Aff. Ex. C, 2007 Agreement § 11(d). In addition, under the

2007 Agreement, payment for exclusivity was made on an advance basis, at the beginning of the

year during which the exclusivity right would be granted (e.g., if the Minimum Sales level was

not met in the year 2011, Humanscale could (and did) pay the Optional Royalty by the end of

January 2012 to have exclusivity in 2012). As Humanscale gave notice of termination in

October 2012, the second year of the notice of termination period was October 2013 to October

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2014. Therefore, even if Humanscale had wanted to have exclusivity for the year 2013 or the

year 2014, Humanscale could not have obtained it under the 2007 Agreement, as a matter of law,

and thus could have no obligation to pay for exclusivity for those time periods.

These matters of contract interpretation flow from the Court’s ruling regarding

Humanscale’s right to terminate and should be addressed by the Court as questions of law on

reargument.

D. The Decision Failed to Fully Construe the
2009 Amendment and Malata Agreements

To assess whether a material breach of the 2009 Amendment occurred, it is first

necessary to interpret the 2009 Amendment to assess what it required with respect to

Humanscale’s contracts with its filter manufacturer. Then, it is necessary to interpret the

manufacturing contracts to assess whether those contracts met the requirements of the 2009

Amendment. These determinations cannot be made by a jury, as contract interpretation is a

matter of law to be decided by the court. Only after these legal conclusions are drawn can a jury

then assess whether an alleged breach was material.

As the Decision correctly notes, Humanscale’s position is that the requirements of the

2009 Agreement were complied with in all material respects through Humanscale’s execution of

the Malata Agreements. The only open question is whether, as Humanscale contends, the failure

to show the Malata Agreements to Plaintiffs in advance was not material. Based on the

Decision, the Court appears to have reached the same conclusions. Decision pp. 22-23 of 39.9

Notwithstanding, the Decision then improperly considered Plaintiffs’ assertions that the Malata

9
Specifically, the Court points out how the Malata Agreements contained confidentiality
restrictions and a prohibition against manufacturing Humanscale’s products for any other entity.
Decision p. 22 of 39.

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Agreements did not contain “ample protection” and indicated the issue should go to a jury.

Decision p. 23 of 39. The problem with this result is that all of Plaintiffs’ arguments are capable

of and indeed require resolution by the Court as a matter of law, and not by a jury. Each of the

Plaintiffs’ arguments, and why they should be resolved by the Court, are addressed in turn

below.

First, the Decision refers to Plaintiffs’ assertion that the manufacturing contracts were

inadequate because Plaintiffs have no relationship with the Eastlink or Malata. Decision p. 23.

However, the 2009 Amendment does not contain any requirement that the Plaintiffs have a

relationship with the manufacturer. In fact, the Amendment contains language indicating that

such an interpretation would be incorrect. Doc. No. 248, Volftsun Aff. Ex. D, 2009 Amendment,

§ 12 (refers to the possibility of Humanscale assigning its rights under manufacturing agreement

to Plaintiffs).

Next, the Decision refers to Plaintiffs’ assertion that Humanscale and Eastlink have no

“ownership” in each other. Yet again, the 2009 Amendment does not contain such a

requirement.10

The Decision then mentions Plaintiffs’ assertions that a purported requirement of the

2009 Amendment was for Plaintiffs “to approve the sale of products to third parties.” Decision

p. 23. Again, no such requirement exists in the 2009 Amendment.11

10
Although not necessary for the Court’s ruling, the undisputed fact is that Eastlink was the
agent of Humanscale in dealing with Malata.
11
The 2009 Amendment required that Humanscale’s manufacturer be prohibited from
manufacturing “filters” for a third party other than Humanscale. As the Court recognized, this
requirement was met. Decision pp. 21-23 of 39 (for accuracy, the Decision refers to prohibiting
production of “substantially similar” products, but the 2009 Amendment only refers to “filters”
because that was the Plaintiffs’ patented technology; Humanscale’s Malata Agreements also
went further to protect Humanscale’s technology).

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The Decision also refers to Plaintiffs’ assertion that one of the manufacturing contracts—

the June 2010 agreement—is a “manufacturing agreement” and does not contain “licensing

restrictions required in the 2009 Amendment.” Decision p. 23 of 39. Here too, no actual

contract requirements apply. Moreover, whether the agreement was called a manufacturing

agreement or a license agreement is irrelevant. What matters is the substance of the contract, not

what it is called. See, e.g., Refac Int’l, Ltd. v. Mastercard Int’l, 758 F.Supp. 152, 154 (S.D.N.Y

1991) (the nature of an agreement “is governed by its substance, not its label.”).

The Decision further refers to Plaintiffs’ assertion that the August 2011 Malata agreement

is insufficient because its date was allegedly too late to protect Plaintiffs’ purported proprietary

confidential information. However, even without this agreement, as evidenced by the Decision’s

summary of Humanscale’s manufacturing contracts, the contracts prior to 2011 were sufficient

without consideration of the later agreement.

Finally, the Decision mentions the fact that Humanscale’s manufacturing agreements

were not submitted to Plaintiffs for their approval. However, as stated above, this is a separate

issue from whether the content of the Malata Agreements resulted in providing what was

necessary under the 2009 Amendment. The distinction is significant because, while a jury may

determine whether a breach was “material,” the jury requires the Court’s interpretation of the

contracts to be able to assess against the materiality standard. Thus, the arguments by Plaintiffs

must be resolved by the Court so that the jury can then properly consider Humanscale’s defense

that the failure to show the Malata Agreements to Plaintiffs was not material.12

12
This issue is distinct from the ground for dismissal based on Plaintiffs’ complete failure to
present evidence demonstrating any damages.

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E. The Decision Failed to Properly Consider
Whether the 2011 Email Constituted a
Modification to the Parties’ Agreements

In connection with the question of whether the 2012 Email Exchange constituted a

modification to the Parties’ Agreements, Plaintiffs have tried to support their position by

pointing to the 2011 Email as an alleged example of the Parties making changes by email. The

Decision appears to either have overlooked this issue or incorrectly accepted this assertion,

without any discussion of what the terms of the 2011 Email were relative to the existing

Agreements. Decision p. 25 of 39. In fact, there were no changes expressed in the 2011 Email,

and Humanscale requests the Court grant leave to reargue to correctly resolve the issue.

The 2011 Email did not modify the Parties’ Agreements, it simply explained that

Humanscale had made overpayments, and would recover the same by applying the funds toward

the Optional Royalty payment permitted to Humanscale in the 2007 Agreement. See Doc. Nos.

214-215, Manduke Aff. Exs. P & Q. The Court appears to have been led to the incorrect

conclusion that changes were reflected in the 2011 Email based on Plaintiffs’ assertion that so-

called “pre-production payments” were required to continue, and therefore the 2011 Email

identifies a change in so far as pre-production payments would no longer be paid. Decision p. 8

of 39. However, a careful review of the Parties’ Agreements demonstrates that pre-production

payments were not required to continue beyond 2009 because there was no provision for any

pre-production payments after that year. Doc. No. 247, Volftsun Aff. Ex. C, 2007 Agreement §

6(b) (pre-production payments in 2008) and § 6(c) (pre-production payments in 2009). Thus,

cessation of pre-production payments was not a change to the Agreements, it was a correction of

prior overpayments.

17 of 18
Clean Air Options, LLC et al. v. Humanscale Corporation
Index 654595/2012
Motion No. 11

It is important that this issue of contract interpretation be clarified to avoid any incorrect

conclusions being drawn by the jury at trial.

CONCLUSION

Based on the foregoing, Humanscale respectfully requests that the Court grant

Humanscale’s Motion for Leave to Reargue Pursuant to CPLR § 2221(d).

Dated: New York, New York COLE SCHOTZ P.C.
May 16, 2016 Attorneys for Defendant,
Humanscale Corporation

By:
Arianna Frankl
AFrankl@coleschotz.com
Tanya Rolo
TRolo@coleschotz.com
Counsel for Defendant
1325 Avenue of the Americas
19th Floor
New York, New York 10019
(212) 752-8000

18 of 18

Case Info

Judge

Andrea Masley Track Judge’s New Case

Case No.

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Document Filed Date

May 16, 2016

Case Filing Date

December 31, 2012

County

Parties

Agoglia Holland and Agoglia PC Non Party
CARBONE, ELIZABETH ANN Attorney for the Defendants
Clean Air Options, LLC Plaintiff
Eurus Air Design, AB Plaintiff
FRANKL, ARIANNA Attorney for the Defendants
HIGGINS, TODD A Attorney for the Plaintiff
Humanscale Corporation Defendant
MANDUKE, LAUREN MICHELLE Attorney for the Defendants
CRAIG HOLLAND Attorney
JASON MELZER Attorneys for Defendants
STEVEN KLEIN Attorney
LAUREN MACK Attorneys for Defendants
ANNA VOLFTSUN Attorney
RAIMUNDO GUERRA Attorneys for Defendants
MICHAEL YE Attorney

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Motion-Secondary: Clean Air Options, Llc, Eurus Air Design, Ab v. Humanscale Corporation

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Case Info

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