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In re Polaroid Corp.

United States District Court, D. Minnesota

March 19, 2015

In re: Polaroid Corporation, Debtor.
v.
POLAROID CORPORATION, Appellee PNY TECHNOLOGIES INC., Appellant,

Page 336

BKY No. 08-46617.

For appellant: David J. Adler, MCCARTER & ENGLISH LLP, Newark, NJ; Robert T. Kugler, STINSON LEONARD STREET LLP, Minneapolis, MN.

For appellant: John R. Stoebner and Ralph V. Mitchell, Jr., LAPP LIBRA THOMSON STOEBNER & PUSCH, CHARTERED, Minneapolis, MN.

Page 337

MEMORANDUM OPINION AND ORDER VACATING THE ORDER OF THE BANKRUPTCY COURT

JOHN R. TUNHEIM, United States District Judge.

This matter arises out of the bankruptcy proceedings of Debtor Polaroid Corporation (" Polaroid" ). Appellant PNY Technologies, Inc. (" PNY" ) submitted a proof of claim in the amount of $686,837.57 in the bankruptcy proceeding seeking payments related to its prior business relationship with Polaroid. John R. Stoebner as trustee of the bankruptcy estates of Polaroid (" Trustee" ) objected to this claim. At an initial hearing on the Trustee's objections, PNY requested discovery related to documents it believed would prove its entitlement to the amounts claimed in its proof of claim. The Bankruptcy Court later concluded that discovery on the Trustee's objections was unnecessary and granted summary judgment in the Trustee's favor, disallowing $575,123.97 of PNY's claim. The Bankruptcy Court concluded that this amount of PNY's claim sought certain costs related to deductions, for which PNY bore sole responsibility pursuant to the business relationship between PNY and Polaroid, and therefore could not recover from Polaroid. The Bankruptcy Court concluded that discovery on the claims was unnecessary because any documentation demonstrating PNY's entitlement to the $575,123.97 should be in PNY's possession. PNY then brought a motion for reconsideration, which the court also denied.

The matter is now before this Court on PNY's appeal from the Bankruptcy Court's grant of summary judgment in the Trustee's favor with respect to the $575,123.97 of deductions sought in PNY's claim. PNY also appeals from the Bankruptcy Court's denial of its motion for reconsideration. Because the Court concludes that the Bankruptcy Court abused its discretion in refusing to allow PNY the opportunity to conduct discovery prior to the entry of summary judgment, the Court will vacate the Bankruptcy Court's summary judgment order and remand for further proceedings to allow PNY to conduct limited discovery to support its claim.

Page 338

BACKGROUND

I. PROOF OF CLAIM

On February 20, 2009, PNY filed a proof of claim against Polaroid in the bankruptcy proceeding in the amount of $686,837.57. (Appellant's Br., Exs. 1-2 (" App." ) at 7-14, Apr. 1, 2014, Docket No. 13.)[1] On October 5, 2009, PNY filed a duplicate proof of claim in the same amount, noting that the proof of claim was " already filed" but it was being resent due to the fact that the bankruptcy proceeding had changed from a Chapter 11 to a Chapter 7 proceeding. (App. at 15-21.) The Court will refer to the two proofs of claim collectively as PNY's proof of claim.

PNY's proof of claim is related to two contracts entered into between Polaroid and PNY. The first contract was a Brand License Agreement (" the BLA" ) entered into on July 18, 2006. (App. at 514-43.) Under the BLA, Polaroid agreed to allow PNY to utilize the brand name, trademarks, trade dress and logos of the Polaroid enterprise on certain consumer merchandise that was manufactured and/or sold by PNY. (App. at 514-15.) Polaroid and PNY entered into the second contract -- a Support Services Agreement (" the SSA" ) -- on April 6, 2007. (App. at 27-37.) Under the SSA, Polaroid agreed to use the Polaroid enterprise's established vendor-retailer relationship with the Target Corporation (" Target" ) to place PNY-produced goods with that retailer. Specifically, the SSA acknowledges that the parties are already signatories to the BLA, and that they " are desirous of entering into this Services Agreement to provide for the rights and responsibilities of each of them with regard to a specific sales opportunity involving certain PNY products bearing the Polaroid brand." (App. at 27.)

The SSA provides the following steps involving Polaroid's involvement: (1) Polaroid will accept purchase orders from Target for specific PNY products; (2) within two days of receipt of the purchase order, Polaroid is to create and transmit a corresponding purchase order to PNY; (3) Polaroid, upon receipt of confirmation that PNY has shipped the goods to Target, will invoice Target for the cost of those goods; and (4) upon receipt of payment from Target, Polaroid will remit the same, minus a service fee, to PNY. (App. at 28.)[2]

Under the SSA, PNY is " solely responsible for any situations, risks, liabilities, and claims relating to charge backs, price protections and discounts, marketing development fees, late or incomplete shipments, returns, recalls, consolidation fees and charges, and similar risks relating to or arising from the sale of the Products to [Target]" and " solely responsible for all return goods, shipping charges, shipping discrepancies, or goods that are returned for any reason." (App. at 29.)

Page 339

In its proof of claim filed in the bankruptcy proceedings, PNY sought a total of $686,837.57, including $111,713.60 for unpaid invoices under the SSA and $575,123.97 in " deductions" for advertising, price protection, price variance, return difference, rebate, short shipment, violations, and miscellaneous expenses. (App. at 8.)

II. THE ADVERSARY PROCEEDING

In December 2010, after PNY had filed its proof of claim in the bankruptcy proceeding, the Trustee commenced an adversary proceeding against PNY. (Bankr. Transmittal II, Ex. 1, Mar. 18, 2014, Docket No. 7.) In the adversary proceeding, the Trustee alleged, among other things, a claim for breach of contract arguing that PNY had failed to pay Polaroid royalty payments due under the BLA, ( id., Ex. 1 ¶ ¶ 19-26), in the amount of $472,946.93 ( id., Ex. 8 at 5). The Trustee also sought to disallow PNY's claim in the bankruptcy proceeding until PNY satisfied its liability in the adversary proceeding. ( Id., Ex. 1 ¶ ¶ 27-29.)

On May 10, 2011, the Trustee and PNY filed cross motions for summary judgment on the breach of contract claim in the adversary proceeding. ( Id., Exs. 7-8.) On June 3, 2011, after filing its motion for summary judgment, PNY served discovery requests on the Trustee in the adversary proceeding. (App. at 166-94.) PNY requested, among other documents:

Any and all documents relating to communications and/or correspondence between Polaroid and Target regarding the purchase of products pursuant to the Support Services Agreement.
Any and all documents relating to communications and/or correspondence between Polaroid and Target regarding the payment for products purchased by Target pursuant to the Support Services Agreement.
Any and all documents relating to communications, correspondence, discussions and/or negotiations between Polaroid and Target regarding amounts due and owing for good[s] supplied to Target pursuant to the Support Services Agreement.

(App. at 180-81.) Answers to these requests were due July 5, 2011. (App. at 167.)[3] But the Trustee never responded to the requests. A hearing was held on the summary judgment motions on June 22, 2011. (Bankr. Transmittal II, Ex. 16 at 2; Bankr. Tr., Mar. 18, 2014, Docket No. 9.)

III. OBJECTIONS TO PROOFS OF CLAIM

On June 21, 2011, the day before the summary judgment hearing in the adversary proceeding, the Trustee brought a motion objecting to PNY's proof of claim in the bankruptcy proceeding. (Bankr. Transmittal I, Ex. 4, Mar. 18, 2014, Docket No. 4.) The Trustee objected to PNY's proof of claim on four grounds: (1) PNY filed duplicate claims; (2) PNY was not owed the amount requested in its claims; (3) if PNY had any claim it was against Debtor Polaroid Consumer Electronics, LLC not Polaroid; and (4) PNY's claims, if any, should not be allowed until PNY satisfied its liability for the amounts claimed in the adversary action. ( Id., Ex. 4 ¶ 8.) With respect to the second objection,

Page 340

 which is the one at issue on appeal, the Trustee explained:

The Support Services Agreement expressly provides that Polaroid . . . was obligated to forward only those payments actually received from Target, and that [PNY] would bear all responsibility for actions taken by, or disputes with Target. In other words, there was no obligation to pay [PNY] unless and until Target first paid. Yet, [PNY] includes in its filed claim $575,123.97 that expressly related to 'Deductions' for which [PNY] is not entitled to be paid. At most, only $111,713.60 of [PNY]'s claim relates to amounts paid by Target, which arguably could be due to [PNY], subject to [PNY]'s ability to prove its claim.

( Id., Ex. 4 ¶ 10 (citation omitted).)

PNY responded to the Trustee's objections in a written submission. (Bankr. Transmittal I, Ex. 6.) With respect to the Trustee's objection based on the amount of the claim, PNY stated that

PNY set forth the basis for the amount of the claim in its proofs of claim. The Trustee contests the amount that is due to Polaroid. This Objection will need to be resolved through discovery. As noted above, the parties contemplate taking discovery, and because factual issues are present, this objection will likely need to be determined through an evidentiary hearing.

( Id., Ex. 6 ¶ 9.)

The Bankruptcy Court scheduled a preliminary hearing on the Trustee's claim objections for October 2011, and the Counsel for the Trustee sent the following email to PNY's counsel:

[H]ere is what I learned from my call. First, Judge Kishel will not agree to cancel the preliminary hearing in favor of the ultimate evidentiary hearing, notwithstanding that both sides agree an evidentiary hearing is likely necessary. Rather, Judge Kishel will insist on holding the preliminary hearing and then making the determination that an evidentiary hearing is warranted. . . . Judge Kishel's calendar clerk did advise that the parties could appear at the preliminary hearing by telephone, so as to avoid the expense of you traveling to Minnesota for what likely will be a short hearing.

(App. at 211.)

IV. OCTOBER 2011 HEARING


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