Celebrating 10 years! 2007-2017

Could use a little help brainstorming with this odd UCC contract / license contract fact pattern

I have been practicing litigation for ten years doing commer nycatt05/03/18
"Company A sues company B saying they were not paid for paym jeffm05/03/18
Sorry Company B pays to use the license to make knives br nycatt05/03/18
In Texas, we have a statute which deals with counterclaims w jeffm05/03/18
GREAT THOUGHT! THANKS! nycatt05/03/18
Many states permit offsetting defenses even where the claims orgdonor05/03/18
Jeffm and orgdonor - You were right - this is a federal ariz nycatt05/03/18
Hopefully, the statute you found did not provide for a time jeffm05/03/18
I am good because the claim is for set off. Thanks! ("Unde nycatt05/03/18
good! jeffm05/03/18
nycatt (May 3, 2018 - 11:40 am)

I have been practicing litigation for ten years doing commercial law (mainly real estate) and for some reason this one is tricky - I need to tap the brain trust.

I changed the fact pattern a bit here because the real one is so absurd its distracting and dont want to violate pesky ethics rules.

Let's say company A owns IP for a famous chef. Company B makes knives. Company B licenses the chef's likeness from A to put on some of its knives (and it sell knives with its own IP and many other chef's IP). So pretend it makes Chef Gordon Batalli knives. Under the license agreement, Company A gets $1 per knife sold. At the same time, Company A buys knives from company b and sells them to fans of the chef. The knives cost $20 each.
Company A sues company B saying they were not paid for license fee payments due between 2010 and 2015.

I represent company B. I spoke with my client and he said that he didn't make full payments because the knife purchase costs offset the license fee payments by a lot - like on average 90%. This is supported by their accounting, which treated the balances due each year as closed, and by emails I have read between the CEOs of each company where our client says "we sent you a check for 10k which makes our balances even" and attaches a spreadsheet of the accounts.

we plead defenses of payment and offset. we also did a counterclaim for account stated. Based on the new emails I read, I may amend the answer to add defenses for accord and satisfaction and a defense of account stated (can still amend as of right; just filed last week)

That seems like a clear account stated to me, and that the evidence can come in to show the offset, but the attorney on the other side (who is an IP attorney and not a general commercial guy) maintains that my client blew the SOL on the knives because it is more than 3 years ago (UCC SOL is 3 years, while the IP contract has a 6 year SOL).

I told opp counsel that his client doesn't get the knives for free - that is ridiculous. They offset each other. He says we are barred by SOL for recovering for the knives. It seems to me like the defenses of "offset" and "payment" should let in all the older correspondence about the balances offsetting each other (with no objections thereto).

Is that correct? If so, I need to find a case, but it is rare to see two companies that sell each other things.

With respect to an account stated claim, I have ten emails enclosing spreadsheets of the dueling accounts over the years I would consider account stated. (this is in addition to the email saying that a specific check is in full satisfaction of a balance) An action on account stated under the UCC has a 3 year SOL, but there was no balance here to recover. We are using the doctrine as a defense. Does it make sense there is no SOL when one is using account stated as a shield?

Any thoughts on where to find cases with dueling balances would be helpful; in most cases one company sells to the other and that is it.

Thanks for any help and reading this far

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jeffm (May 3, 2018 - 12:01 pm)

"Company A sues company B saying they were not paid for payments due between 2010 and 2015." Payments for what? $1 per knife which A purchased from B?

"... we also did a counterclaim for account stated." B has a claim against A for money owed? For the knives A bought from B?

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nycatt (May 3, 2018 - 12:29 pm)

Sorry

Company B pays to use the license to make knives branded as "Chef Ramsay Batali knives"/ Company A (which is run by the checf) buys some of the knives and sells them.

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jeffm (May 3, 2018 - 12:06 pm)

In Texas, we have a statute which deals with counterclaims which are barred. See if your jx has something similar.

Sec. 16.069. COUNTERCLAIM OR CROSS CLAIM. (a) If a counterclaim or cross claim arises out of the same transaction or occurrence that is the basis of an action, a party to the action may file the counterclaim or cross claim even though as a separate action it would be barred by limitation on the date the party's answer is required.

(b) The counterclaim or cross claim must be filed not later than the 30th day after the date on which the party's answer is required.

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nycatt (May 3, 2018 - 12:30 pm)

GREAT THOUGHT! THANKS!

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orgdonor (May 3, 2018 - 12:31 pm)

Many states permit offsetting defenses even where the claims would be time barred if filed as affirmative claims.

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nycatt (May 3, 2018 - 1:15 pm)

Jeffm and orgdonor - You were right - this is a federal arizona case and their is an analogous statute in Az. THANKS!!!!

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jeffm (May 3, 2018 - 3:01 pm)

Hopefully, the statute you found did not provide for a time period that has passed. Our statute in Texas (above) is one of those little-known statutes that can be very scary. If you wait too long to counter-claim, it is barred anyway. It's dangerous for defense attorneys whose clients have counter-claims simply because the window of time is so narrow.

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nycatt (May 3, 2018 - 3:12 pm)

I am good because the claim is for set off. Thanks! ("Under both federal and Arizona law, a statute of limitations is not a bar to a recoupment defense.... A recoupment defense survives as long as plaintiff's claim can be asserted, even though defendant's claim would be barred by the statute of limitations if brought as an affirmative action.") Aetna Finance Co. v. Pasquali, 128 Ariz. 471, 626 P.2d 1103 (App.1981).

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jeffm (May 3, 2018 - 8:07 pm)

good!

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