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UNITED STATES DISTRICT COURT DISTRICT OF MAINE

KATE LIBBY, Plaintiff v. DANA HEACOCK and SAL SCAGLIONE, d/b/a ABACUS PUBLISHING, Defendants

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Civil No. 97-139-P-H

RECOMMENDED DECISION The plaintiff, Kate Libby, brought this action for damages against the defendants, Dana Heacock and Sal Scaglione, d/b/a Abacus Publishing (hereinafter "the defendants" or "Heacock and Scaglione"), alleging, inter alia, breach of contract as a result of an eleven-year course of business dealings between the parties. The defendants have raised a number of counter-claims. The parties have filed motions for summary judgments. After careful consideration of the motions, I recommend that the defendants' motion be denied except as to Count V of the plaintiff's complaint, and that the plaintiff's motion be denied. I. Summary Judgment A summary judgment is appropriate only "if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Fed. R. Civ. P. 56(c). An issue is genuine, for these purposes, if "the evidence is such that a reasonable jury could return a verdict for the nonmoving party." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). "A material fact is one which has the `potential to affect

the outcome of the suit under applicable law.'" FDIC v. Anchor Properties, 13 F.3d 27, 30 (1st Cir. 1994) (quoting Nereida-Gonzalez v. Tirado-Delgado, 990 F.2d 701, 703 (1st Cir. 1993)). The Court views the record in the light most favorable to the nonmovant. McCarthy v. Northwest Airlines, Inc., 56 F.3d 313, 315 (1st Cir. 1995). II. Background Considering the parties' respective motions, the undisputed facts of the case are set forth first, then, when appropriate, the parties' respective versions of the facts shall be examined. From 1986 through 1996, the defendants purchased pursuant to an agreement between the parties paintings from Libby for use in a calendar marketed by their business, Abacus Publishing. During this period, Libby received approximately $500,000 in compensation from the defendants. Although Libby contends that she still is owed some $400,000 by Heacock and Scaglione, the defendants claim that Libby ceased providing them with artwork for use in their business several years ago, and that Libby has begun working for another publisher to produce a similar calendar in violation of the parties' agreement. Defendants' Statement of Material Facts The defendants offer the following facts in support of their motion. On April 14, 1986, Heacock and Scaglione signed an agreement with Libby pursuant to which she would provide artwork to them for use in a 1987 calendar in return for royalty payments to Libby of 10% of gross wholesale revenues, with a minimum guaranteed royalty of $10,000. When the parties agreed to continue the working arrangement for a second calendar, a new business arrangement was entered into by them. According to the defendants, however, when they arrived at Libby's residence in February 1987 to pick up the artwork for the new calendar, Libby refused to give 2

them the paintings, allowing instead her then boyfriend, Doug Walker, to attempt to negotiate a new business contract between the parties. Walker is said to have insisted on more money for Libby, telling Heacock and Scaglione "you either sign it or you get no artwork, period." The new contract proposal would have required the defendants to pay Libby 25% of gross revenues as royalties, with a minimum guarantee of $48,000. The proposal also called for the defendants to pay Libby one-third of "net pretax profits" to the extent that such profits exceed the royalty amounts paid to Libby. The contract also would have required the defendants to make available to Libby, on a quarterly basis, all records kept by their businesses, Abacus Publishing and Abacus Gallery, necessary to determine pretax net profits, including a list of specific expense items. Heacock and Scaglione refused to sign a new contract that day, and left Libby's residence without the paintings. Although reluctant to enter into the new agreement, Heacock and Scaglione eventually agreed to sign it, stating that they felt they had no other choice. They owed their printer for thousands of dollars of paper stock they had ordered in anticipation of a new calendar, and had a limited amount of time to deliver the art to the printer. The two felt they had no time to find another artist with whom to work in producing a calendar for 1988, and generally felt under duress. Thus, in March of 1987, Heacock and Scaglione agreed to pay Libby royalties equal to 25% of gross wholesale revenues, with a minimum guaranteed royalty of $48,000. The two claim, however, that prior to and after signing the new contract, they made known to Walker that they objected to the provision requiring them to pay Libby one-third of the net pretax profits in excess of royalties. For the next four years, the parties worked together as business partners, and Libby 3

produced paintings for four more calendars in 1989, 1990, 1991, and 1992. According to Libby's estimate, she received over $200,000 during this period. According to the defendants, Libby never asked for or received one-third of the net pretax profits that exceeded the royalties. Since 1987, Heacock and Scaglione have paid Libby compensation equal to 25% of the gross wholesale revenues from the sale of the calendars. The guaranteed minimum royalty of $48,000 was paid in monthly installments of $4,000. Ultimately, in the summer of 1991, Doug Walker approached the defendants about paying Libby one-third of the pretax net profits that exceeded the royalties. Walker apparently had been in contact with another publisher, David Betses, who was interested in publishing a calendar using Libby's paintings. Walker informed the two that unless they paid Libby the net pretax profits, she would cease supplying paintings to them. The defendants worked with their accountant and determined that the business had no net pretax profits for the years 1989 and 1990. Scaglione told the accountant to prepare some schedules that would, however, produce some payment to Libby. In July 1991, the defendants paid Libby $6,034 as a result of Walker's insistence that Libby be paid more money. In the fall of 1991, Libby ended her relationship with Walker and continued to work with the defendants under the previous arrangement for the next five years. Libby continued to produce paintings for the defendants to use in calendars from 1993-1997, and she continued to receive 25% of gross wholesale revenues, with a guaranteed minimum royalty of $48,000. Libby received payments approximating $250,000 during this five-year period. According to Heacock and Scaglione, at no time after their 1991 meeting with Walker did Libby ever request payments representing a portion of the net pretax profits.

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In 1995, the parties agreed to produce t-shirts and prints using Libby's paintings from the calendars produced by Abacus Publishing. Although the parties discussed royalty payments to Libby in the range of 5-15% of the gross profits, Libby is said to have left it to the defendants' discretion to set an exact figure. The defendants calculated the royalties to Libby at 5% for the tshirts, and at 10% for sales of the prints. Libby signed many prints prior to their sale, and never asked the defendants to cease selling the products. The defendants state that throughout their business relationship, Libby often failed to timely deliver paintings to them in contravention of their business arrangement. In February of 1996, the defendants received a letter from Libby's father-in-law, Tom Cornell, stating that he would from then on be serving as an intermediary between the parties, and that all direct communications by the defendants with Libby should cease. As a result of the late delivery of some paintings by Libby, as well as the disruption of direct communications with her, Heacock and Scaglione were forced to delay the printing and production of the calendar that year. In light of the new working arrangement, the defendants determined that relations had deteriorated to the point that business between the parties was unworkable. On May 1, 1996, Heacock and Scaglione informed Libby that their business relationship was terminated. Plaintiff's Statement of Material Facts The plaintiff offers the following relevant facts in support of her motion for a summary judgment. On April 14, 1986, Heacock and Scaglione entered into a written contract, prepared by Heacock, with Libby whereby Libby would produce and deliver paintings to the defendants for use in producing "The Kate Libby Calendar" for sale by Abacus Publishing. The agreement called for Libby to receive royalties based on wholesale calendar sales, with a minimum 5

payment. The contract covered a two-year term and placed no restrictions on Libby's right to compete upon completion or termination of the contract. On March 6, 1987, the parties signed a second written agreement entitled "Contract" for the same business purpose as the previous agreement. The new agreement provided that Libby would receive a $48,000 minimum fee, a royalty of 25% on calendar sales over and above $48,000, and one-third of the net pretax profits of Abacus Publishing. Libby's share of the net pretax profits was to be determined by subtracting from the company's income all of its publishing expenses, as well as all royalties paid her. Libby was to receive one-third of the net result on July 15 of each year. The contract further provided that Abacus Publishing was to take "extreme care" in maintaining accurate and detailed expense records in order to permit a determination and verification of the net pretax profits of the company. The contract also required that the artwork provided by Libby to the company could not, without her written consent, be used for any purpose other than publication of the calendar. The contract also provided that Abacus Publishing would maintain and make available each year to Libby wholesale customer lists, and that such lists would be the "joint property" of the defendants and Libby. Finally, the contract provided that the parties agreed to be "bound by its terms," and that any amendments thereto would need to be in writing. Between 1987 and 1996, Abacus Publishing produced a poster calendar featuring Libby's artwork. No other written agreements governing their business relationship were entered into by the parties during this period. Although Heacock and Scaglione claim that the parties operated under a series of oral agreements from November 1991 through May 1, 1996, and not pursuant to the written contract, there are no writings that evidence these supposed oral agreements. On May 6

1, 1996, the defendants notified Libby that they were terminating the "existing contract." In October 1996, Libby entered into a written contract with Willard Publishing for production of a 1998 calendar featuring her artwork. In addition to the calendars produced by Abacus Publishing and Willard Publishing, there are between five and nine other poster calendars on the market using a portfolio format with 11" x 14" posters of reproduced paintings. By her complaint, Libby seeks damages and equitable relief for breach of contract; unfair competition in violation of the Lanham Act, 15 U.S.C.

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