10 - motion to dismiss

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IN THE UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF VIRGINIA

ALEXANDRIA DIVISION

CURTIS A. EVANS, WHIPGOLF, LLC

Plaintiffs,

v.

PLUSONE SPORTS, LLC, ALEX VAN ALEN,

Defendants.

Civil Action No. 1:15-cv-683-CMH-TCB

MEMORANDUM OF LAW IN SUPPORT OF DEFENDANTS MOTION TO DISMISS PLAINTIFFS COMPLAINT

Plaintiffs bring this two-count diversity action for breach of contract but there is no

contract to enforce. The parties prepared a Term Sheet (filed under seal) generally outlining

the provisions of a license agreement they expected to negotiate. As the Term Sheet itself makes

clear, it is not intended as the parties license agreement; instead, it recites that after preparation

of the Term Sheet, the parties were to negotiate, memorialize, and execute a written binding

Non-Exclusive License Agreement. After preparation of the Term Sheet, however, as Plaintiffs

allege, the negotiations faltered and no license agreement was made and signed. Thus, there is

no contract to enforce in Count I, and no breach of the guaranty to enforce as alleged in Count II.

Moreover, Count II of this action must be dismissed for the additional reason that there is no

written guaranty, signed by the guarantor in his individual capacity, and thus no enforceable

guaranty obligation. Accordingly, this action must be dismissed, with prejudice.

Case 1:15-cv-00683-CMH-TCB Document 10 Filed 06/24/15 Page 1 of 14 PageID# 48

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STATEMENT OF THE CASE

By complaint filed May 29, 2015, Plaintiffs Curtis A. Evans (Evans) and WhipGolf,

LLC (WhipGolf) commenced this diversity action for breach of contract, alleging breach of a

licensing agreement (Count I) and breach of a guaranty (Count II). Plaintiffs allege that

Defendant PlusOne Sports, LLC (PlusOne) breached the Term Sheet, and that Defendant Alex

Van Alen (Mr. Van Alen) is liable under an alleged contract to guaranty PlusOnes payments.

ARGUMENT

No breach of contract claim may be asserted based on the Term Sheet. The Term Sheet

is an invalid agreement to agree. The Term Sheets last sentence reads, The undersigned

parties agree to work in good faith to record the terms of this Term Sheet in a binding Non-

Exclusive License Agreement. See Doc. 1, Ex. 1 (filed under seal). Under Virginia law, which

governs the parties dispute for reasons discussed herein, an agreement to engage in good faith

negotiations is precisely the type of agreement to agree that is invalid. Virginia Power

Energy Mktg., Inc. v. EQT Energy, LLC, 2012 WL 2905110, at *5 (E.D. Va. July 16, 2012). For

this reason, both of Plaintiffs causes of action must be dismissed.

Plaintiffs second cause of action, which alleges that Mr. Van Alen breached the Term

Sheet, should be dismissed for the added reason that Mr. Van Alen, individually, is not a party to

the Term Sheet. Mr. Van Alen executed the Term Sheet as a representative of PlusOne (a

limited liability company), and he did not personally guarantee PlusOnes performance.

The legal standards this Court applies in assessing a motion to dismiss pursuant to Rule

12(b)(6) are well-known and need not be repeated at length. In sum, the plausibility standard is

the touchstone by which a complaints adequacy is determined. Williams v. Prince William

Cnty., Va., 2015 WL 3490699, at *1 (E.D. Va. June 1, 2015) (citing Ashcroft v. Iqbal, 556 U.S.

662, 678 (2009); McCleary-Evans v. Md. Dept of Transp., State Highway Admin., 780 F.3d 582,


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587 (4th Cir. 2015)). As shown herein, the Complaint fails to state plausible claims for breach of

contract and breach of a guaranty. Accordingly, Defendants respectfully submit that the Court

must dismiss both Counts of the Complaint, with prejudice, for failure to state a claim.

I. VIRGINIA LAW APPLIES TO THE PARTIES DISPUTE

As shown below, Virginia law applies to the parties dispute.

A. Virginia Law Applies

As this action arises under the Courts diversity jurisdiction, the Court must apply the

choice of law rules of the state where the Court sits i.e., Virginia. Thomaz v. Its My Party,

Inc., 2013 WL 1450803, at *5 (E.D. Va. Apr. 9, 2013) affd, 548 F. Appx 893 (4th Cir. 2013).

Under generally applicable Virginia choice of law rules, the nature, validity, and

interpretation of a contract may be governed by the law of the place where made. Id. at *5.

However, settled Virginia law [also] holds that where a contract is made in one jurisdiction

but performed in another, the law of the place of performance governs the contract, and when a

putative contract would have been performed in Virginia, the Court may apply Virginia law to

determine the validity and enforceability of the contract. Id. Indeed, Virginia adheres to the

principle that the law of the place of performance governs questions arising in connection with

the performance of a contract, id. (quoting Equitable Trust Co. v. Bratwursthaus Management

Corp., 514 F.2d 565, 567 (4th Cir. 1975)); and [a] contract breach is a performance issue and

thus, is regulated by the law of the place of performance, id. (citing Sneed v. Am. Bank

Stationary Co., Div. of ABS Corp., 764 F. Supp. 65, 66-67 (W.D. Va. 1991)). Those rules apply

to this action.

Here, the place of performance that is, payment of alleged license fees would have

been Virginia, where Plaintiffs are located. See, e.g., Bizmark, Inc. v. Air Products, Inc., 427 F.

Supp. 2d 680, 688 (W.D. Va. 2006) ([T]he place of the payment of a note is determinative of


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the place of performance of the contract.); Wood v. Symantec Corp., 872 F. Supp. 2d 476, 481

(E.D. Va. 2012) (Because payment was to be performed in Virginia, Virginia law

governs.); FEI Co. v. Cambridge Global Services, Inc., 2010 WL 3009311, at *4 (E.D. Va. July

7, 2010) (The place of the payment on a contract is determinative of the place of performance)

(citing Bizmark), R&R adopted, 2010 WL 3009312, at *1 (E.D. Va. July 26, 2010); see also Doc.

1, Complaint at 4 (Plaintiffs are Virginia citizens). Accordingly, Virginia law governs whether

the Term Sheet is a valid and enforceable contract, or merely an unenforceable agreement to

agree. As shown in Section II, the Term Sheet is merely an unenforceable agreement to

agree.

B. Delaware Law Does Not Apply

The Term Sheet includes the following language:

This informally stated provision does not create a binding choice of law regarding the Term

Sheet. Instead, it merely states the parties expectation that were a license agreement

successfully negotiated, memorialized, and signed, that license would contain a choice of law

provision, a venue provision, and a standard severability provision. This provision does not

purport to apply to the Term Sheet, but remained to be negotiated as part of the licens.

Therefore, Delaware law should not be applied to any issue regarding the Term Sheet.

Indeed, to find that Delaware law applies and governs whether the Term Sheet is

enforceable, the Court would have to presuppose the Term Sheets enforceability. Such circular

reasoning is self-defeating. In fact, this is the exact conclusion this Court reached in Thomaz.

In Thomaz, the parties disputed whether a contract existed and what law applied to the

plaintiffs breach of contract claims. See Thomaz, 2013 WL 1450803 at *4. The alleged


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contract contain[ed] a choice-of-law provision that state[d] that [t]he validity, construction and

effect of this contract shall be governed by the laws of the State of New York, regardless of the

place of performance. Id. The plaintiff argued that New York law applied. Id. Defendants

argue[d] that such a position assume[d] the existence of a contract and that [D]efendants could

only be bound by that choice of law if the contract in which it was included were binding. Id.

The Court agreed with the Defendants, reasoning as follows:

The Court believes that [Plaintiffs] position presupposes the existence of an enforceable contract, thereby presuming an affirmative answer to the very question that is before this Court. This Court does not believe that the choice of law provision of the alleged contract mechanically binds to New York law the resolution of the instant dispute over the existence of the contract itself. In short, Plaintiffs choice of law analysis is inherently flawed in that it incorrectly assumes the existence of a contract.

Id. (citing Excel Laminates, Inc. v. Lear Corp., 2003 WL 22466192 (D. Kan. Oct. 28, 2003);

Mortgage Plus, Inc. v. DocMagic, Inc., 2004 WL 2331918 (D. Kan. Aug. 23, 2004); Capital

Assocs. Intl, Inc. v. Knoll Intl, Inc., 1991 WL 158959 (E.D. Pa. Aug. 14, 1991)). The same

reasoning applies here, and the Court should not apply the putative choice of law provision

recited in the Term Sheet.

II. THE TERM SHEET IS AN INVALID AGREEMENT TO AGREE

Under Virginia law, the Term Sheet is an invalid agreement to agree. Indeed, the last

sentence of the Term Sheet alone makes this clear. That sentence reads, The undersigned

parties agree to work in good faith to record the terms of this Term Sheet in a binding Non-

Exclusive License Agreement. See Doc. 1, Ex. 1 at 4 (emphasis added). Plainly, having stated

that they intended to negotiate, memorialize, and sign a binding license, they did not intend

the Term Sheet to be their binding contract.


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A. The Term Sheet is a Mere Framework

This Court has ruled that [a] letter of intent or any other writing in which the terms of a

future transaction or later, more formal agreement are set out is presumed to be an agreement to

agree rather than a binding contract, and that an agreement to negotiate open issues in good

faith to reach a contractual objective within [an] agreed framework will be construed as an

agreement to agree rather than a valid contract. Virginia Power, 2012 WL 2905110 at *4.

Simply put, the Term Sheet is precisely the type of agreement to agree that is invalid under

Virginia law. See id. at *5 (The Letter of Intent is an agreement to engage in good faith

negotiations, precisely the type of agreement to agree that is invalid under Virginia law.).

Indeed, it is well-settled that agreements to agree, like the Term Sheet, are

unenforceable. See, e.g., 77 Const. Co. v. UXB Intl, Inc., 2015 WL 926036, at *4 (W.D. Va.

Mar. 4, 2015) ([A]n agreement to negotiate open issues in good faith to reach a contractual

objective within [an] agreed framework will be construed as an agreement to agree rather than a

valid contract.); Global Hub Logistics v. Tamerlane Global Servs., Inc., 2013 WL 1332048, at

*4 (E.D. Va. Mar. 29, 2013) (Agreements to reach an agreement do not bind the parties by any

of the terms in the agreement.); id. at *5 (The term sheet before the Court is neither binding

nor enforceable. As with the Letter of Intent in Virginia Power, the term sheet here merely set

forth the provisions of a future agreement, not a binding contract.); Cyberlock Consulting, Inc.

v. Info. Experts, Inc., 939 F. Supp. 2d 572, 582 (E.D. Va. 2013) ([A]n agreement to negotiate in

good faith to enter into a future subcontract. is precisely the type of agreement to agree that

has consistently and uniformly been held unenforceable in Virginia. Cyberlocks breach of

contract claim, therefore, fails as a matter of law for lack of an enforceable contract.); see also

Cyberlock Consulting, Inc. v. Info. Experts, Inc., 549 F. Appx 211, 212 (4th Cir. 2014)


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(affirming the District Courts Cyberlock opinion: Virginia courts have uniformly refused to

enforce agreements to agree at a future date, and that is exactly what we have at hand in this

case); Beazer Homes Corp. v. VMIF/Anden Southbridge Venture, 235 F. Supp. 2d 485, 492-93

(E.D. Va. 2002) (The mere agreement to negotiate established by the Letter of Intent is

precisely the type of agreement to agree that has consistently and uniformly been held

unenforceable in Virginia.). The same reasoning applies here.

Plaintiffs claims for breach of the Term Sheet should be dismissed.

B. The Term Sheets Unenforceability is Reinforced by its Informality and Imprecision

While the last sentence of the Term Sheet alone is determinative, it bears noting that the

informality, imprecision, and provisional nature of the Term Sheets other language further

evidence the Term Sheets unenforceability.

For example, the Term Sheets Royalty section outlines a royalty payment schedule

based on gross sales, see Doc. 1, Ex. 1 at 1; however, it is unclear whether gross sales is

(a) a measure of overall sales calculated by adding all sales without certain offsets (e.g., for

discounts, returns, or allowances) or (b) a measure based on money or non-cash compensation

actually received.

As a second example, language in the Term Sheets Royalty Payments section

provides, Access to records Reasonable access, inspection and reporting, including gross

sales, purchase information (date, purchaser, location, sale price, contact information, etc.), see

id. at 1; however, that language lacks essential details concerning the ultimate bounds of the

contemplated access, inspection, and reporting obligations. Indeed, in any binding non-exclusive

license, PlusOne would have conditioned access to detailed proprietary information on the


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existence of appropriate confidentiality provisions and defined consequences for a breach of such

provisions.

As a third example, the Term Sheet contains language relating to Third-party

infringement and PlusOnes agreement to cooperate with Evans in an infringement suit, see id.

at 4; however, such language is silent with regard to which party bears the expense of any such

cooperation or suit. One might infer that Evans would bear such expense (as is customary), or

one might contend that a duty to cooperate includes a duty to bear the expense of a lawsuit.

As a fourth example, the Term Sheet language providing that payments were to be

personally guaranteed by Alex Van Alen, or other substitute guarantee or collateralization

acceptable by PlusOne and Licensor is unmistakably provisional, see id. at 1 (emphasis

added); however, the identity of the guarantor was not agreed upon, the specifics of a guarantee

obligation are not delineated, and the language clearly contemplates continued negotiations

before an enforceable, mutually agreed upon guaranty would be made.

As a fifth example, the bounds of the have made rights contemplated by the Term

Sheet in the License grant exclusion section are ambiguous, see id. at 2; however, it is unclear

whether the Term Sheet precludes or permits PlusOnes employment of multiple manufacturers

services. One might infer that multiple manufacturers services could be employed, or one might

contend that the Term Sheet precludes the use of more than one third party manufacturer.

As a sixth example, the Term Sheets Covenant not to sue language is exceedingly

vague, ambiguous, and informal, see id. at 2; however, in a binding agreement, the licensee

(PlusOne) never would have granted the licensor (Evans) a covenant not to sue of potentially

unlimited scope. Such a covenant would only invite bad acts. For example, under a covenant of

unlimited scope, Evans might, with purported impunity, request that a PlusOne product be sent


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to him in Virginia and then, subsequent to receipt, file a design patent application claiming that

he invented the design used in PlusOnes product. Or he might file a trademark application for

PlusOnes trademarks and submit to the United States Patent and Trademark Office (PTO) a

false declaration in support of that application, claiming that he (and not PlusOne) was the owner

those marks.1 Again, PlusOne never would have formalized a limitless covenant not to sue

precluding it from protecting its intellectual property from theft.

As a seventh example, the Term Sheet is internally inconsistent with regards to when

payment is due. The language immediately following the Term Sheets Royalty heading

reads, 7.5% of gross sales includes all sales Nov. 1, 2014 to Nov. 1, 2016. See Doc. 1, Ex. 1

at 1 (emphasis added). Under the heading Patent Prosecution and Technical Assistance (a

heading that notably bears no relation to the language that follows), however, the first sentence

reads, PlusOne to guarantee annual minimum royalty payment of $10,000 each year, for term of

issued patent, where earned royalties are deducted from the royalty pre-payment then paid

after the pre-payment amount is exhausted. Id. at 2 (emphasis added). The Licensed Patents

under the Term Sheet are Patent(s) issuing on US Patent Application 13/779,676 and

continuation of any type, and no allegation in the Complaint indicates that a patent has issued

on U.S. Pat. App. No. 13/779,676. Indeed, no allegation could, as no such patent has issued.2

1 Defendants acknowledge that the following information is unessential to the Courts assessment of Defendants instant motion, however, it bears noting that should this case proceed, the evidence will show that the acts posited above relating to PlusOnes trademarks and the copying of PlusOnes products design are, in fact, bad acts Evans performed during post-Term Sheet negotiations. These bad acts contributed to the failure of the parties negotiations, and they show the bad faith Evans demonstrated during same. 2 The prosecution history for U.S. Pat. App. No. 13/779,676 is publicly available on the PTOs website, via the Patent Application Information Retrieval service, which is available here http://portal.uspto.gov/pair/PublicPair. No patent has issued on that application, and the Court may take judicial notice of this fact. See Sanyal v. Toyota Motor N. Am., Inc., 2015 WL 236649,


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Hence, the Term Sheet is internally inconsistent: The first sentence under the Royalty heading

appears to contemplate payments between November 2014 and November 2016, but annual

minimum royalty payments are due only after a patent issues on U.S. Pat. App. No.

13/779,676and no patent has issued yet.

As an eighth example, under the License grant exclusion heading, the Term Sheet

reads, Licensee agrees that it will not manufacture Licensed Product outside of the US for

purposes of avoiding payments under the Agreement, see id. at 2; however, the Term Sheet

provides no delineation regarding when a product manufactured outside the United States would

or would not be for the purpose of avoiding payments. Rational parties negotiating a binding

license, of course, would have considered and agreed upon such specifics in order that

enforceable rights and obligations be included in the license.

As a final example, under the heading Arbitration, the Term Sheet provides,

Arbitration clause, attorneys fees and costs to party prevailing in event of breach. Doc. 1,

Ex. 1 (emphasis added). This language envisions continued negotiations concerning the bounds

of the contemplated arbitration. The words [a]rbitration clause are an obvious placeholder.

They provide no arbitration-related details at all, let alone necessary details regarding, for

example, the nature of the breach for which arbitration could be invoked or the rules for any

arbitration the parties might enter.

Importantly, the Court need not undertake an exhaustive analysis of whether the Term

Sheets provisions are fatally informal or imprecise. As discussed above, the Term Sheet is, on

its face, an invalid agreement to agree. Nevertheless, the Term Sheets informal nature

at *3 (E.D. Va. Jan. 15, 2015). (Courts may properly take judicial notice of matters of public record.).


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reinforces the Term Sheets unenforceability, and it vindicates Virginia laws rejection of such

agreements to agree.3 Defendants should not be held bound to the Term Sheets informal and

imprecise terms.

III. PLAINTIFFS COUNT II SHOULD BE DISMISSED FOR THE ADDED REASON THAT MR. VAN ALEN IS NOT A PARTY TO THE TERM SHEET

For the reasons discussed above, both of Plaintiffs causes of action should be dismissed.

The Term Sheet is an invalid and unenforceable agreement to agree.

Plaintiffs second cause of action (Count II), in which Plaintiffs allege that Mr. Van Alen

breached the Term Sheet Guaranty, should be dismissed for the added reason that Mr. Van

Alen, in his individual capacity, is not a party to the Term Sheet.

The parties to the Term Sheet are Evans and PlusOne Sports, LLC (a limited liability

corporation), and the Term Sheet was executed by Curtis A. Evans and by Alex Van Alen,

for PlusOne Sports/FlingGolf. See Doc. 1, Ex. 1 (emphasis added). Mr. Van Alen did not sign

the Term Sheet in his personal capacity, and where an individual signs a contract as a

representative of a corporation and not in his or her personal capacity, that individual is not a

party to the contract. See RESTATEMENT (THIRD) OF AGENCY 6.01 (2006) (When an agent

acting with actual or apparent authority makes a contract on behalf of a disclosed principal, (1)

the principal and the third party are parties to the contract; and (2) the agent is not a party to the

contract unless the agent and third party agree otherwise.); see also Kentwood Ltd. v. U.S., 930

F. Supp. 227, 232 (E.D. Va. 1996). That rule applies here.

3 Indeed, should this case proceed, the evidence will show that Evanss refusal to work with PlusOne to resolve the ambiguities discussed above and the bad acts noted supra note 1 are what ultimately led to termination of negotiations toward a binding non-exclusive license.


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Further, as noted above, the language in the Term Sheet relating to a payment guarantee

is provisional: Delinquent payments to be personally guaranteed by Alex Van Alen, or

other substitute guarantee or collateralization acceptable to PlusOne and Licensor. That

language plainly contemplates a further negotiations about the identity of the guarantor, as well

as the terms of the guaranty, mutually agreed upon by PlusOne and Evans. The Term Sheet

language falls far short of an express agreement by Mr. Van Alen to personally guarantee

payment. Accordingly, neither this language, nor Mr. Van Alens execution of the Term Sheet

as a representative of PlusOne, makes Mr. Van Alen a party to, or a guarantor under, the Term

Sheet.

For the above reasons, Mr. Van Alen cannot be held liable for any alleged breach of the

Evans-PlusOne Term Sheet. See Terry Phillips Sales, Inc. v. SunTrust Bank, 2014 WL 670838,

at *7 (E.D. Va. Feb. 20, 2014) (Plaintiffs allege a breach of contract claim against Witthoefft.

[A]s an agent of SunTrust, Witthoefft cannot be held liable for any alleged contract between

Plaintiffs and SunTrust because SunTrust is a disclosed principal.); Evans v. GEICO General

Ins. Co., 2015 WL 137269, at *7 (E.D. Va. Jan. 9, 2015) (As an agent of GEICO, the

Defendants cannot be held liable for any alleged contract between Evans and GEICO because

GEICO is a disclosed principal.).4 Accordingly, Count II of Plaintiffs Complaint should be

dismissed.

4 See also Terminal Road Associates v. Hall, 1993 WL 946234, at *1 (Va. Cir. Ct. Sept. 15, 1993) ([A]n agent with authority to contract for a disclosed principal is not liable on a written contract absent express agreement in the contract to be personally bound.) (citing Richmond Union Passenger Ry. Co. v. New York & Sea Beach Ry. Co., 95 Va. 386 (1897)); Richmond Union, 28 S.E. 573, 576 (Va. 1897) (Where an agent makes a full disclosure of the fact of his agency and the name of his principal, and contracts only as the agent of the named principal, he incurs no personal responsibility.).


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CONCLUSION

For the foregoing reasons, the Complaint should be dismissed with prejudice.

Respectfully submitted,

Dated: June 24, 2015 By: /s/ Craig C. Reilly Craig C. Reilly (VSB # 20942) The Law Office of Craig C. Reilly 111 Oronoco Street Alexandria, VA 22314 Telephone No.: (703) 549-5354 Facsimile No.: (703) 549-5355 [email protected] Allen S. Rugg (VSB # 15481) Christopher W. Henry (pro hac vice motion pending) WOLF, GREENFIELD & SACKS, P.C. 600 Atlantic Avenue Boston, Massachusetts 02210-2206 Telephone No.: (617) 646-8000 Facsimile No.: (617) 646-8646 [email protected] [email protected]

Attorneys for Defendants


CERTIFICATE OF SERVICE

I hereby certify that on June 24, 2015, this document was filed using the CM/ECF

system, which serves counsel for other parties who are registered participants as identified on the

Notice of Electronic Filing (NEF).

/s/ Craig C. Reilly Craig C. Reilly (VSB # 20942) The Law Office of Craig C. Reilly 111 Oronoco Street Alexandria, VA 22314 Telephone No.: (703) 549-5354 Facsimile No.: (703) 549-5355 [email protected]

Allen S. Rugg (VSB # 15481) Christopher W. Henry (pro hac vice motion pending) WOLF, GREENFIELD & SACKS, P.C. 600 Atlantic Avenue Boston, Massachusetts 02210-2206 Telephone No.: (617) 646-8000 Facsimile No.: (617) 646-8646 [email protected] [email protected]

Attorneys for Defendants


10 - motion to dismiss

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