Case 9:10-cv-80236-JIC Document 187 Entered on FLSD Docket 09/06/2011 Page 1 of 23
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`UNITED STATES DISTRICT COURT
`SOUTHERN DISTRICT OF FLORIDA
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`Case No. 10-80236-CIV-COHN/SELTZER
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`CAREY CHEN,
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` Plaintiff,
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`v.
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`CAYMAN ARTS, INC., a Florida corporation
`and SCOTT R. STEELE, an individual,
`
` Defendant.
`____________________________________/
`
`ORDER GRANTING IN PART AND DENYING IN PART
`PLAINTIFF’S RENEWED MOTION FOR PARTIAL SUMMARY JUDGMENT
`AND DENYING DEFENDANT/COUNTER-PLAINTIFF’S
`MOTION FOR PARTIAL SUMMARY JUDGMENT
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`THIS CAUSE is before the Court on Plaintiff Carey Chen’s Renewed Motion for
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`Partial Summary Judgment [DE 140] (“Chen’s Motion”) and Defendant/Counter-Plaintiff
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`Cayman Arts, Inc.’s (“Cayman’s”) Motion for Partial Summary Judgment [DE 144]
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`(“Cayman’s Motion”). The Court has considered Mr. Chen’s Motion, Cayman’s
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`Response [DE 152], Mr. Chen’s Reply [DE 155], Cayman’s Motion, Mr. Chen’s
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`Response [DE 151], Cayman’s Reply [DE 154], the parties’ related submissions, and
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`the record in this case, and is otherwise advised in the premises.
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`I. BACKGROUND
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`Plaintiff Carey Chen, a marine artist, filed this action on February 12, 2010.
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`Complaint [DE 1]. He brings a variety of claims relating to his employment with
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`Defendants Cayman Arts, Inc. (“Cayman”) and Cayman’s President and Chief
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`Executive Officer, Scott R. Steele. See Amended Complaint [DE 22].
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`The parties’ employment relationship began in 2004, when Mr. Steele purchased
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`Case 9:10-cv-80236-JIC Document 187 Entered on FLSD Docket 09/06/2011 Page 2 of 23
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`certain companies for which Mr. Chen had been working and changed the companies’
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`name to Cayman Arts, Inc. (“Cayman”). On May 31, 2005, to formalize the employment
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`arrangement, Mr. Chen and Cayman executed an Employment Agreement [DE 140-2
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`at 1-6], Addendum to Agreement [DE 140-2 at 7-10] (“Addendum”), and Trademark
`1
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`and Product License Agreement [DE 140-3] (“Trademark Agreement”), (collectively,
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`“Agreements”). Together, the Agreements describe Mr. Chen’s and Cayman’s duties,
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`obligations, and responsibilities in the course of the employment relationship. See
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`Agmts.
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`On September 11, 2009, Mr. Chen wrote a letter [DE 63-4] (“Chen Letter”),
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`explaining, “Cayman has not met its contractual and other obligations. Cayman is in
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`material breach and, as a consequence, my obligations under the Agreements are
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`relieved.” Chen Letter ¶ 1. The Chen Letter also stated, “In view of the foregoing and
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`other factors, the Agreements are terminated.” Id. ¶ 4. Thereafter, on March 25, 2010,
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`Cayman sent Mr. Chen a letter [DE 140-4] (“Cayman Letter”), notifying Mr. Chen that
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`“as of March 31, 2010, Cayman Arts, Inc. is abandoning its business as a going
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`concern. After that date, Cayman Arts, Inc. will only fulfill orders that it has taken prior
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`to March 31, 2010 and liquidate existing inventory that was created or purchased prior
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`to that date.” Cayman Letter at 1. In the same letter, Cayman demanded that Mr.
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` The Employment Agreement attached to Mr. Chen’s Motion appears to be
`1
`missing page 6. See Employment Agreement at 5-6. There is a page 6 included in the
`Employment Agreement attached as an exhibit to the Complaint [DE 1 at 40] and
`Amended Complaint [DE 22-2 at 6], but this version of the Agreement is unsigned and
`includes an edit changing the date from “5/18/2005” to “7/26/2009.” Otherwise, the
`unsigned Employment Agreement is identical to the signed Employment Agreement
`attached to Mr. Chen’s Motion.
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`Case 9:10-cv-80236-JIC Document 187 Entered on FLSD Docket 09/06/2011 Page 3 of 23
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`Chen make the payments outlined in Section 6.5 of the Trademark Agreement. Id. at
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`1-2.
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`In connection with the above facts, Mr. Chen’s Amended Complaint brings the
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`following ten counts against Cayman and Mr. Steele: breach of contract (Count I); false
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`designation of origin under the Lanham Act, 15 U.S.C. § 1125(a)(1) (Count II);
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`misappropriation of name and likeness pursuant to Florida Statutes § 540.08 (Count
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`III); unfair competition (Count IV); recovery of overtime compensation (Count V); wages
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`(Count VI); breach of implied covenant of good faith and fair dealing (Count VII);
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`accounting (VIII); unjust enrichment (Count IX); and declaratory relief (Count X). See
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`Compl. Cayman’s Counterclaim [DE 51 at 1-15] brings claims against Mr. Chen for
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`various declaratory relief (Counts I–III) and breach of contract (Counts IV and V). See
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`Countercl. Along with the Counterclaim, Cayman also filed a Third-Party Complaint [DE
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`51 at 16-27] against Third-Party Defendants Fisher Blue Water Galleries, LLC
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`(“Fisher”), Monique Comfort, and Gray Ingram’s (collectively “Third-Party Defendants”).2
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`On November 5, 2010, Mr. Chen filed his first Motion for Partial Summary
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`Judgment [DE 63], requesting summary judgment on Amended Complaint Count X and
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`Counterclaim Counts II and III. On February 24, 2011, the Court entered summary
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`judgment in Mr. Chen’s favor with respect to Amended Complaint Count X(a) and
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`Counterclaim Count II, declaring, “Plaintiff Carey Chen resigned from his employment
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`with Cayman Arts pursuant to the terms and conditions of the Employment Agreement
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` The Third-Party Defendants also include “John and Jane Doe, unknown
`2
`entities.” Countercl. & Third-Party Compl. at 1. The pending Motions for Summary
`Judgment do not seek relief for any claims pending against the Third-Party Defendants.
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`and [] his employment ended on October 11, 2009. The Employment Agreement has
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`been effectively terminated but the Trademark Agreement remains in force.” Order
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`Granting in Part and Denying in Part Plaintiff’s Motion for Partial Summary Judgment
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`[DE 87] (“February 24th Order”) at 17. The Court denied Mr. Chen’s request with
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`respect to the remainder of Amended Complaint Count X and Counterclaim Count III,
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`but permitted him to “resubmit his summary judgment request as to the validity of the
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`Trademark Agreement and applicability of Florida state law or the federal Visual Rights
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`Act once the parties have completed discovery.” Id. at 18.
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`On June 24, 2011, Mr. Chen filed his Renewed Motion for Partial Summary
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`Judgment, and Cayman filed its Motion for Partial Summary Judgment. Mr. Chen
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`renews his request for summary judgment on the remainder of Amended Complaint
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`Count X and on Counterclaim Count III. Mr. Chen also requests summary judgment on
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`Amended Complaint Counts I, II, III, IV, and VII, and Counterclaim Counts IV and V.
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`Cayman’s Motion requests summary judgment on Counterclaim Count V. As explained
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`below, the Court finds that Section 6.5 of the Trademark Agreement is invalid and
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`unenforceable under Florida law. Accordingly, the Court will enter summary judgment
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`in Mr. Chen’s favor as to the applicable parts of Amended Complaint Count X and
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`Counterclaim Count III. In all other respects, the parties’ requests for summary
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`judgment will be denied at this time.
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`II. LEGAL STANDARD
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`Under Federal Rule of Civil Procedure 56(a), the Court may grant summary
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`judgment “if the movant shows that there is no genuine dispute as to any material fact
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`and the movant is entitled to a judgment as a matter of law.” Fed. R. Civ. P. 56(a).
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`The movant “bears the initial responsibility of informing the district court of the basis for
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`its motion, and identifying those portions of [the record] which it believes demonstrate
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`the absence of a genuine issue of material fact.” Celotex Corp. v. Catrett, 477 U.S.
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`317, 323 (1986). To discharge this burden, the movant must show that “there is an
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`absence of evidence to support the non-moving party’s case.” Id. at 325.
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`After the movant has met its burden, the burden of production shifts to the non-
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`moving party, who “must do more than simply show that there is some metaphysical
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`doubt as to the material facts.” Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475
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`U.S. 574, 586 (1986). “If a party fails to properly support an assertion of fact or fails to
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`properly address another party’s assertion of fact [the Court may] grant summary
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`judgment if the motion and supporting materials—including the facts considered
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`undisputed—show that the movant is entitled to it.” Fed. R. Civ. P. 56(e)(3).
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`At the summary judgment stage, the Court’s function is not to “weigh the
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`evidence and determine the truth of the matter but to determine whether there is a
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`genuine issue for trial.” Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249 (1986). In
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`making this determination, the Court must decide which issues are material, and “[o]nly
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`disputes over facts that might affect the outcome of the suit under the governing law will
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`properly preclude the entry of summary judgment. Factual disputes that are irrelevant
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`or unnecessary will not be counted.” Id. at 248.
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`III. ANALYSIS
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`This dispute centers upon two provisions in the parties’ Trademark Agreement,
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`Section 6.5 and Section 7.1. The parties dispute the validity and enforceability of
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`Section 6.5, the provision describing a payment schedule to be implemented in the
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`Case 9:10-cv-80236-JIC Document 187 Entered on FLSD Docket 09/06/2011 Page 6 of 23
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`event of Cayman’s dissolution or abandonment. Mr. Chen argues that he is entitled to
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`summary judgment on Amended Complaint Count X and Counterclaim Count III
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`because Section 6.5 is unlawful under Florida Statutes § 542.335. Cayman contends,
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`however, that the federal Copyright Act preempts Florida law and that Section 6.5 is
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`valid and enforceable. Thus, Cayman seeks summary judgment on Count V of its
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`Counterclaim. Additionally, Mr. Chen seeks summary judgment on Counts I, II, III, IV,
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`and VII of the Amended Complaint and Counts IV and V of the Counterclaim on the
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`basis that Cayman failed to use its “best efforts” in connection with the distribution, sale,
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`and offering for sale of the Licensed Products in order to maximize sale of the License
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`Products, as required under Section 7.1 of the Trademark Agreement. First, the Court
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`addresses the arguments pertaining to the validity and enforceability of Section 6.5, and
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`second, the Court addresses Cayman’s compliance with the “best efforts” provision of
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`Section 7.1.
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`A. The Validity and Enforceability of Section 6.53
`(Counterclaim Counts III and V, Amended Complaint Count X)
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`Cayman asserts that Mr. Chen breached the Trademark Agreement when he
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`failed to make payments in compliance with Section 6.5 of the Trademark Agreement.
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`Mr. Chen does not dispute that he has not made any payments under Section 6.5, but
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`responds that Section 6.5 is invalid and unenforceable under Florida law.
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` The Court notes that on February 24, 2011, in ruling on Mr. Chen’s first Motion
`3
`for Partial Summary Judgment, the Court held that the Employment Agreement was
`terminated on October 11, 2009, but that this termination did not affect the Trademark
`Agreement. See Feb. 24th Order at 17. Cayman seemingly infers that the Court held
`the entire Trademark Agreement, including Section 6.5, to be valid and enforceable, but
`the Court did not make such a finding. As such, the Court addresses the validity and
`enforceability of Section 6.5 at this time.
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`Case 9:10-cv-80236-JIC Document 187 Entered on FLSD Docket 09/06/2011 Page 7 of 23
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`Section 6.5 provides as follows:
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`In such case as Licensee decides that it shall abandon or dissolve Cayman
`Arts, Inc., following such dissolution or abandonment and on the advisement
`by the Directors of Cayman Arts, Inc. that the Company is no longer a viable
`method of productivity, the Directors of Cayman Arts, Inc. shall release
`Licensor from the Trademark and License commitment in this Agreement so
`long as prior to the end of the Term Licensee receives from Licensor the
`following schedule of payments:
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`6.5.1. For the first three years from date of official/formal dissolution
`or Abandonment, the Directors of Licensee shall receive fifty (50)
`percent of all gross fees or income generated;
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`6.5.2. For the next three years the Directors of Licensee shall receive
`thirty-five (35) percent of all gross fees or income generated;
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`6.5.3. For the next three years the Directors of Licensee shall receive
`twenty-five (25) percent of all gross fees or income generated; and
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`6.5.4. For any remaining years prior to the end of the Term of this
`Agreement, the Directors of Licensee shall receive ten (10) percent
`of all gross fees or income generated.
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`Trademark Agmt. § 6.5.
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`Mr. Chen argues that Florida Statutes § 542.335 prohibits Cayman from seeking
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`enforcement of Section 6.5 because the provision constitutes an unlawful restrictive
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`covenant, and that the Copyright Act does not preempt Florida law on this issue. 4
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`Cayman maintains that the Copyright Act does preempt Florida Statutes § 542.335, and
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`that even if § 542.335 did apply, Section 6.5 does not violate that statute. The key
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`questions before the Court are therefore: (1) whether the Copyright Act applies to the
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` Mr. Chen also argues that one section of the Copyright Act, the Visual Arts
`4
`Rights Act of 1990 (“VARA”), 17 U.S.C. § 106A, does not preempt Florida law on this
`issue, see Chen’s Mot., but Cayman agrees that VARA is not applicable, see Cayman’s
`Reply at 7 (“VARA has no bearing on the issues of royalties in the instant Motion.”);
`Cayman’s Resp. at 6 (“VARA clearly does not pertain to the economic issues that are at
`the heart of this case.”).
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`Case 9:10-cv-80236-JIC Document 187 Entered on FLSD Docket 09/06/2011 Page 8 of 23
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`Trademark Agreement; (2) if so, whether the Copyright Act preempts Mr. Chen’s state
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`law arguments as to Section 6.5; and (3) if the state law arguments are not preempted,
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`whether Section 6.5 is valid and enforceable under Florida law.
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`1. Application of the Copyright Act
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`The Copyright Act applies to certain “subject matter of copyright as specified by
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`sections 102 and 103.” 17 U.S.C. § 301(b)(1). Under these sections, the subject
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`matter of copyright encompasses pictorial and graphic works, see 17 U.S.C. § 201, and
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`derivative works, see 17 U.S.C. § 103. The parties’ Trademark Agreement governs Mr.
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`Chen’s pictorial and graphic artwork, so the contract falls within the subject matter of
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`copyright.
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`Mr. Chen’s only argument that his artwork does not fall within the subject matter
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`of copyright is that his work is not “fixed” within the meaning of the Copyright Act. See
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`Chen’s Resp. at 4-7. Section 102 provides, “Copyright protection subsists . . . in
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`original works of authorship fixed in any tangible medium of expression . . . .” 17 U.S.C.
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`§ 102(a) (emphasis added). The Copyright Act explains that a work becomes “fixed” for
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`purposes of triggering ownership under the Act “when its embodiment in a copy or
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`phonorecord, by or under the authority of the author, is sufficiently permanent or stable
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`to permit it to be perceived, reproduced, or otherwise communicated for a period of
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`more than transitory duration.” 17 U.S.C. § 101. “In no case does copyright protection
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`for an original work of authorship extend to any idea, procedure, process, system,
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`method of operation, concept, principle, or discovery, regardless of the form in which it
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`is described, explained, illustrated, or embodied in such work,” 17 U.S.C. § 102(a)(b),
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`copyright protection does extend to “pictorial, graphic, and sculptural works,” 17 U.S.C.
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`Case 9:10-cv-80236-JIC Document 187 Entered on FLSD Docket 09/06/2011 Page 9 of 23
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`§ 102(a)(5).
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`Applying these definitions to this case, Mr. Chen’s ideas, thoughts, and concepts
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`are not subject to copyright protection because they are not “fixed.” But once Mr. Chen
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`creates a piece of artwork such as a painting or a sculpture, such work is subject to
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`copyright protection because it becomes “fixed” within the meaning of the Act. See 17
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`U.S.C. § 101; see also Hoopla Sports & Entm’t, Inc. v. Nike, Inc., 947 F. Supp. 347, 354
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`n.3 (N.D. Ill. 1996) (finding that a basketball game is not a fixed medium of expression,
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`but once the game is recorded and transmitted, the broadcast is subject to copyright
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`protection.). In other words, upon Mr. Chen’s creation of artwork, the fixed piece of art
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`is subject to copyright protection. As Cayman notes, “The subject matter of the
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`[Trademark] Agreement at issue is completed artwork.” Cayman’s Reply at 4.
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`Therefore, to the extent the Trademark Agreement applies to Mr. Chen’s artwork once
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`the artwork has been “fixed,” the subject matter of the agreement does fall within the
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`Copyright Act.
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`Nonetheless, the Copyright Act does not automatically preempt state law solely
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`because the Act applies to the general subject matter of the parties’ Trademark
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`Agreement. Accordingly, the Court goes on to address whether the Copyright Act
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`preempts the application of Florida law to Section 6.5 of the Trademark Agreement.
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`2. Preemption of Florida State Law
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`On the issue of preemption, the Copyright Act provides as follows:
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`[A]ll legal or equitable rights that are equivalent to any of the exclusive rights
`within the general scope of copyright as specified by section 106 in works of
`authorship that are fixed in a tangible medium of expression and come within
`the subject matter of copyright as specified by sections 102 and 103, . . .
`whether published or unpublished, are governed exclusively by this title.
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`Case 9:10-cv-80236-JIC Document 187 Entered on FLSD Docket 09/06/2011 Page 10 of 23
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`17 U.S.C. § 301(a) (emphasis added). Thus, “no person is entitled to any such right or
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`equivalent right in any such work under the common law or statutes of any State.” Id.
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`Yet, the Copyright Act does not affect state law rights regarding “subject matter that
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`does not come within the subject matter of copyright as specified by sections 102 and
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`103, including works of authorship not fixed in any tangible medium of expression.” 17
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`U.S.C. § 301(b)(1).
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`Preemption only occurs if the rights at issue “(1) fall within the subject matter of
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`copyright set forth in sections 102 and 103 and (2) are equivalent to the exclusive rights
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`of section 106.” Utopia Provider Sys., Inc. v. Pro-Med Clinical Sys., L.L.C., 596 F.3d
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`1313, 1325 (11th Cir. 2010) (quoting Crow v. Wainwright, 720 F.2d 1224, 1225-26 (11th
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`Cir. 1983)) (quotations omitted). Mr. Chen argues that the rights at issue in the parties’
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`claims pertaining to Section 6.5 are not equivalent to the exclusive rights of § 106.
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`The exclusive rights under § 106 include the right to reproduce the copyrighted
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`work, to prepare derivative works, to distribute copies to the public, and to display the
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`copyrighted work publicly. 17 U.S.C. § 106; Lipscher v. LRP Publ’ns, Inc., 266 F.3d
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`1305, 1311 (11th Cir. 2001) (citing § 106). “Unless the complaint asserts a remedy
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`expressly granted by the Copyright Act, such as damages for infringement, or requires
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`interpretation of the Copyright Act, there is no [Copyright Act] federal jurisdiction.”
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`Reinhardt v. Wal-mart Stores, Inc., 547 F. Supp. 2d 346, 351 (S.D.N.Y. 2008).
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`Cayman does not purport to bring a claim for copyright infringement or to enforce
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`any right to reproduce, distribute, or sell Mr. Chen’s artwork. Cayman has presented no
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`evidence that it has registered for or obtained a copyright for any of Mr. Chen’s artwork.
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`Rather, Cayman seeks to enforce a contractual provision as part of a breach of contract
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`Case 9:10-cv-80236-JIC Document 187 Entered on FLSD Docket 09/06/2011 Page 11 of 23
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`claim (Counterclaim Count V). The parties’ related declaratory judgment claims seek
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`declarations regarding the validity and enforceability of the same contractual provision
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`(Amended Complaint Count X, Counterclaim Count III).
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`To determine whether the rights asserted in a party’s claims are equivalent to the
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`exclusive rights under § 106 and therefore preempted under the Copyright Act, courts
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`“employ an ‘extra element’ test such that ‘if an extra element is required instead of or in
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`addition to the acts of reproduction, performance, distribution or display, in order to
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`constitute a state-created case [sic] of action, then the right does not lie within the
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`general scope of copyright and there is no preemption.’” Utopia, 596 F.3d at 1326
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`(quoting Lipscher, 266 F.3d at 1311-12). Under Eleventh Circuit precedent, a breach of
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`contract claim meets the extra element test by virtue of the need to show the existence
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`of a valid contract between the parties. See Lipscher, 266 F.3d at 1318-19 (adopting
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`the Seventh Circuit’s reasoning in ProCD, Inc. v. Zeidenberg, 86 F.3d 1447, 1454-55
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`(7th Cir. 1996), that “claims involving two-party contracts are not preempted because
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`contracts do not create exclusive rights, but rather affect only their parties.”). “If the
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`promise [in a contract] amounts only to a promise to refrain from reproducing,
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`performing, distributing or displaying the work, then the contract claim is preempted,”
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`Wrench LLC v. Taco Bell Corp., 256 F.3d 446, 457 (6th Cir. 2001), as such claims
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`amount to exclusive rights under § 106. But a dispute as to the validity of a license
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`agreement, such as the instant dispute, amounts to an “extra element” under Lipscher
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`and Utopia.
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`Further, Cayman fails to identify any provision of the Copyright Act that governs
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`the rights it seeks to enforce against Mr. Chen pursuant to Section 6.5. These rights
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`Case 9:10-cv-80236-JIC Document 187 Entered on FLSD Docket 09/06/2011 Page 12 of 23
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`are created solely by the parties’ Trademark Agreement. As such, the rights Cayman
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`and Mr. Chen seek to enforce in the breach of contract claim and declaratory action
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`claims regarding the validity and enforceability of Section 6.5 are not equivalent to §
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`106’s exclusive rights, and are therefore not preempted under the Copyright Act.
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`Accordingly, the Court goes on to evaluate Mr. Chen’s defenses based on Florida
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`Statutes § 542.335.
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`3. State Law Defenses to the Enforceability
`and Validity of Section 6.5
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`Mr. Chen argues that Section 6.5 is an unreasonable, illegal, and invalid restraint
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`on trade in violation of Florida law. Pursuant to Florida Statutes § 542.335, Florida law
`5
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`allows “enforcement of contracts that restrict or prohibit competition during or after the
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`term of restrictive covenants, so long as such contracts are reasonable in time, area,
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`and line of business.” Fla. Stat. § 542.335(1). The statute also provides that “[a]
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`person seeking enforcement of a restrictive covenant [] shall plead and prove that the
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`contractually specified restraint is reasonably necessary to protect the legitimate
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`business interest or interests justifying the restriction.” Fla. Stat. § 542.335(1)(c).
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`Section 6.5 restricts Mr. Chen’s work because it requires him to pay Cayman
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`certain percentages of his income for the remainder of the 20-year license term if he
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`elects to continue working as an artist after Cayman’s dissolution. Accordingly, to
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` The Trademark Agreement provides that Florida Law governs the contract.
`5
`Trademark Agmt. § 8.4. Neither party contends otherwise.
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` The Court is not persuaded by Cayman’s argument that § 542.335 does not
`6
`apply to Section 6.5. Cayman suggests that Section 6.5 is not a restrictive covenant
`because the section “was intended to serve as a reimbursement of Defendants’
`staggering investment of more than $1 Million to promote and sell Chen’s work in the
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`Case 9:10-cv-80236-JIC Document 187 Entered on FLSD Docket 09/06/2011 Page 13 of 23
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`enforce Section 6.5, Cayman bears the burden of demonstrating that the restrictions
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`contained in the provision are reasonable in time, area, and line of business, and are
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`justified by and reasonably necessary to protect a legitimate business interest. See Fla.
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`Stat. § 542.335(1). Mr. Chen argues that Cayman has not met its burden to
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`demonstrate (1) that the restrictions are justified by and reasonably necessary to
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`protect a legitimate business interest or (2) that the restrictions are reasonable in time.
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`Mr. Chen also contends (3) that Section 6.5 amounts to an impermissible penalty in
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`violation of Florida’s public policy. The Court addresses each argument in turn.
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`a. Business Interest
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`Mr. Chen argues that Cayman has not shown that Section 6.5 is justified by or
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`reasonably necessary to protect a legitimate business interest. Section 542.335
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`provides that “[t]he term ‘legitimate business interest’ includes, but is not limited to” to
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`the following:
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`1.
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`2.
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`3.
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`4.
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`Trade secrets, as defined in § 688.002(4).
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`Valuable confidential business or professional information that
`otherwise does not qualify as trade secrets.
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`Substantial relationships with specific prospective or existing
`customers, patients, or clients.
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`Customer, patient, or client goodwill associated with: (a) An ongoing
`business or professional practice, by way of trade name, trademark,
`service mark, or “trade dress”; (b) A specific geographic location; or
`(c) A specific marketing or trade area.
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`event that Cayman Arts dissolved or was abandoned.” Cayman’s Resp. at 11.
`However, the Trademark Agreement contains a merger clause, see Trademark Agmt. §
`8.2, and Cayman has pointed to no language in the Trademark Agreement stating that
`Mr. Chen was obligated to repay any of Mr. Steele’s investment.
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`Case 9:10-cv-80236-JIC Document 187 Entered on FLSD Docket 09/06/2011 Page 14 of 23
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`5.
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`Extraordinary or specialized training.
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`Fla. Stat. § 542.335(1)(b). In its Response to Mr. Chen’s Motion, Cayman invokes
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`category 1, stating “Cayman has a legitimate business interest in enforcing the
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`restrictive covenant due to the existence of trade secrets such as confidential client lists
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`and pricing information.” Cayman’s Resp. at 13. Mr. Chen suggests that Cayman
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`cannot have any legitimate business interest in trade secrets because “the company
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`notified Mr. Chen that, as of March 31, 2010, the company was abandoning its
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`business and liquidating its existing inventory of Mr. Chen’s works.” Chen’s Mot. at 11.
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`“In determining the enforceability of a restrictive covenant, a court . . . [m]ay consider as
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`a defense the fact that the person seeking enforcement no longer continues in business
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`in the area or line of business that is the subject of the action to enforce the restrictive
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`covenant only if such discontinuance of business is not the result of a violation of the
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`restriction.” Fla. Stat. § 542.335(1)(g)(2). Cayman argues that this defense is
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`unavailable here because Cayman “ceased operations as the result of Plaintiff’s breach
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`of the restriction,” Cayman’s Resp. at 13, but Mr. Chen could not possibly have
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`breached Section 6.5 before Cayman ceased operations because the provision only
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`comes into force “[i]n such case as Licensee decides that it shall abandon or dissolve
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`Cayman Arts, Inc.,” Trademark Agmt. § 6.5. Cayman has not suggested any reason
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`that its purported trade secrets remain a legitimate business interest following
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`Cayman’s dissolution, nor has it provided any other reason to enforce Section 6.5.
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`Accordingly, as Cayman has not met its burden to show that Section 6.5 is justified by
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`or reasonably necessary to protect a legitimate business interest, the Court finds that
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`Section 6.5 is invalid and unenforceable under Florida Statutes § 542.335.
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`b. Time
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`Even if Cayman had demonstrated a legitimate business interest, Cayman also
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`has not demonstrated that the 20-year term for the license is a reasonable amount of
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`time. Section 542.335 describes certain rebuttable presumptions as guidance for
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`courts seeking to determine the reasonableness in time of a restrictive covenant.
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`According to the statute, “In the case of a restrictive covenant sought to be enforced
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`against a former employee . . . a court shall presume reasonable in time any restraint 6
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`months or less in duration and shall presume unreasonable in time any restraint more
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`than 2 years in duration.” Fla. Stat. § 542.335(1)(d)(1). Mr. Chen therefore argues that
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`the 20-year license term is unreasonable because any term over 2 years is
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`presumptively unreasonable. The Court agrees.
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`In support of the 20-year term, Cayman argues that the Copyright Act presumes
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`that even a 35-year term is permissible. See 17 U.S.C. § 204(a)(3) (“Termination of the
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`grant may be effected at any time during a period of five years beginning at the end of
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`thirty-five years from the date of execution of the grant.”). But as discussed above, the
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`Court has already found the Copyright Act inapplicable to the issue of Section 6.5’s
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`validity and enforceability. Regardless, the 20-year term applied to Section 6.5 does
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`not relate to the termination of any copyright grant, but rather to the amount of time for
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`which Mr. Chen must pay a percentage of his future income to Cayman. Accordingly,
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`Cayman has not met its burden to prove that the restrictions contained in Section 6.5
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`are reasonable in time.
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`Normally when a party fails to demonstrate that a restriction is reasonable in
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`time, an appropriate remedy is for the Court to adjust the length of the restriction to a
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`Case 9:10-cv-80236-JIC Document 187 Entered on FLSD Docket 09/06/2011 Page 16 of 23
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`reasonable time. See, e.g., Fla. Stat. § 542.335(1)(c) (“If a contractually specified
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`restraint is overbroad, overlong, or otherwise not reasonably necessary to protect the
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`legitimate business interest or interests, a court shall modify the restraint and grant only
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`the relief reasonably necessary to protect such interest or interests.”). However, as
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`discussed above, Cayman has failed to demonstrate a legitimate business interest
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`justifying a restriction for any length of time, so the Court will not modify the length of
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`the restraint.
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`c. Public Policy
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`Mr. Chen argues that Section 6.5 amounts to an impermissible penalty in
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`violation of Florida’s public policy. Florida law does “not allow one party to hold a
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`penalty provision over the head of the other party ‘in terrorem’ to deter that party from
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`breaching a promise,” Burzee v. Park Avenue Ins. Agency, Inc., 946 So. 2d 1200, 1202
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`(Fla. Dist. Ct. App. 2006) (citations omitted), but this is not such a case. Whereas the
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`Burzee Court found that a liquidated damages clause for $10,000 plus all commissions
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`for accounts from the last 24 months of employment was an invalid penalty provision,
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`id. at 1201-02, the Trademark Agreement does not require Mr. Chen to pay any flat fee,
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`and only requires him to pay a percentage of future income generated, see Trademark
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`Agmt. § 6.5. Further, distinct from the Florida cases that Mr. Chen cites to show that
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`restrictive covenants where invalid when they required a former employee to pay 200%
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`of fees or revenues, Coleman v. B.R. Chamberlain & Sons, Inc., 766 So. 2d 427 (Fla.
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`Dist. Ct. App. 2000); Cherry, Bakaert & Holland v. LaSalle, 413 So. 2d 436 (Fla. Dist.
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`Ct. App. 1982), Section 6.5 of the Trademark Agreement does not prohibit Mr. Chen
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`from working with any previous client, nor does it require such an excessive payment
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`Case 9:10-cv-80236-JIC Document 187 Entered on FLSD Docket 09/06/2011 Page 17 of 23
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`amount; rather Mr. Chen need only pay an amount starting at 50% of revenue and
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`declining to 10% of revenue. Finally, Section 6.5 is not disguised as a liquidated
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`damages clause like the penalty provision in Burzee, 946 So. 2d at 1202-03; Section
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`6.5 is a provision designed to release Mr. Chen from the Trademark Agreement. See
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`Trademark Agmt. § 6.5 (Cayman “shall release [Mr. Chen] from the Trademark and
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`License commitment . . . so long as prior to the end of the Term [Cayman] receives
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`from [Mr. Chen] the following schedule of payments . . .”). Thus, the Court does not
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`find that Section 6.5 rises to the level of an unenforceable penalty provision under
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`Florida’s public policy. Regardless, as described above, Section 6.5 is invalid and
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`unenforceable under Florida law for Cayman’s failure to demonstrate a legitimate
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`business interest.
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`Accordingly, Cayman’s request for summary judgment on Counterclaim Count V
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`based on Mr. Chen’s breach of Section 6.5 is denied. Mr. Chen’s request for summary
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`judgment in his favor on Cayman’s Counterclaim Count III, which seeks a permanent
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`injunction and a declaration “that the License is exclusive, worldwide, and applicable to
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`all of Chen’s past works, current w