Category Archives: Federal Court

Can An Agreement Be Fully Integrated If the Parties Also Agree To Execute A Long Form Agreement In the Future?

The Federal District Court for the Southern District of New York recently decided that a licensing agreement between a television broadcast company and the owner of an animated children’s television series was fully integrated, despite a provision in the agreement which stated that the parties would execute a more detailed long form agreement in the future. 4Kids Entm’t, Inc. v. Upper Deck Co., 2011 U.S. Dist. LEXIS 58669 (S.D.N.Y. May 31, 2011).

The plaintiff in the suit, 4Kids Entertainment (“4Kids”), sued the Upper Deck Company and Upper Deck Entertainment, LLC (collectively “Upper Deck”) for breach of contract. In 2008, the two parties entered into a two-year licensing and broadcasting agreement for an animated children’s television series called the Huntik Series (“Huntik”). The Term Sheet for this agreement was executed by Upper Deck on February 26, 2008 and by 4Kids on March 4, 2008.

The Term Sheet licensed to 4Kids the right to broadcast Huntik within the United States, requiring it to air 26 episodes. It also granted 4Kids an exclusive option to license the television rights to any additional episode during the contract period, with the contract term being automatically extended by one year each time this option was exercised. The Term Sheet also included details regarding payment that would be owed to 4Kids.

A particularly crucial provision included in the Term Sheet was that both parties agreed to be bound by it until a long form agreement could be reached. The relevant provision read that “[t]he parties agree to execute a long form agreement on or before April 15, 2008… [and until such time], this Deal Memo shall serve as the binding agreement of the parties.” Id. at 9. However, the two parties never executed a long form agreement.

The Term Sheet required Upper Deck to pay an advance of $30,000 in two installments. They made the first installment, but failed to pay the second when it was due. 4Kids sought summary judgment in their favor for the amount owed, claiming Upper Deck breached its contract with the plaintiffs. Upper Deck argued the Term Sheet was ambiguous and offered parol evidence to support its argument.      

The parol evidence rule is a common law rule that prevents parties from introducing additional evidence that seems to contradict or add to terms agreed to in a contract. In order to determine if the parole evidence rule applies, courts must determine if an agreement is integrated. Id. at 14. An agreement is integrated if its represents the entire understanding of the parties to the transaction. Id. Under New York law, a contract that appears complete on its face is an integrated agreement as a matter of law. Id.

In 4Kids, the Court found the Term Sheet to be fully integrated, holding that the agreement sets forth every material contract term. Id. at 16-17. Additionally, the Court found that nothing in the contract suggested that the defendants’ failure to pay any specific amount prior to the due date for the second payment would excuse the making of that payment. The Court also held that “the fact that the Term Sheet contemplates the possibility of a longer and more detailed agreement,” containing the terms set forth herein in more detail as well as such terms as may be agreed to in writing by the parties after good faith negotiation . . . does not call this conclusion into question.” Id. at 17-18.


© 2012 Nissenbaum Law Group, LLC

When Someone is Charged with Tax Evasion, Can the Jury Consider the Defendant’s Previous Noncompliance with the IRS?

The answer is yes. Defendant’s prior non-compliance with federal tax laws can be used to prove the defendant’s intent to commit the crime charged.

This was addressed in a case heard in the United States Court of Appeals for the Third Circuit. US v. Daraio, 445 F. 3d 253 (C.A. 3 (N.J.), 2006). In that case, the grand jury returned an indictment charging Daraio, the Defendant, with one count of tax evasion for violating 26 U.S.C. §7201 and 18 U.S.C. §2. Specifically, the indictment charged Daraio with the following:

knowingly and willfully attempt[ing] to evade and defeat the payment of a substantial part of the payroll taxes due and owing by Eagle Security, Inc. to the United States for the quarterly period that included April 1994 through April 1998, in the amount of approximately $222,607.40, by directing clients of Eagle Security, Inc. to pay their unpaid balances that they owed to Eagle Security, Inc. to E.S.S. Co. Id.

The indictment charged that Daraio directed the clients of Eagle Security, Inc. to pay their unpaid balances to E.S.S. Co. around the same time IRS issued levies on ten clients of Eagle Security, Inc. Those levies required them to pay the IRS the balances that would otherwise be owing to Eagle Security. Id. The government introduced this evidence to prove Daraio’s willingness or intent based on her ‘general feelings or general attitude towards the IRS’. Id. The evidence included the following items:

(1) Payroll tax records for Joseph Daraio, Daraio’s husband, trading as ESS–Co. and Quest Investigators, pertaining to tax periods from 1989–1993 including the records themselves, as well as, for certain tax periods, certifications of a “lack of records” indicating the failure to file tax returns;

(2) Certifications by the IRS that Eagle Security did not file payroll tax returns in 1990–1993 and 1999–2004;

(3) Payroll tax records, again including certifications of lack of records, for ESS–Co., beginning in the third quarter of 1998 through the first quarter of 2004;

(4) Certifications of lack of records for ESS–Co. from 1992–1998 and 2000–2004;

(5) Corporate tax records for Eagle Security from 1990–2003,that showed that it had not filed forms with the IRS in 1999, 2001, and 2002;

(6) Corporate tax records for ESS–Co. from 1998–2003; and

(7) Joint personal income tax returns for Joseph Daraio and Daraio from 1984 and 1989–2003.

Id. at 256.

Before presenting this evidence at trial, the prosecutor filed and served a notice of its intent to introduce the evidence at trial. At trial, the lower court gave the following limiting instructions to the jury:

Ladies and gentlemen of the jury, you will soon, and at various other times during the trial, hear evidence of acts the defendant—of acts of the defendant that may be similar to those charged in the indictment, but which were committed on other occasions.

 You must not consider any of this evidence in deciding if the defendant committed the acts charged in this indictment. However, you may consider this evidence for other very limited purposes.

 If you find beyond a reasonable doubt from other evidence in this case, that the defendant did commit the acts charged in the indictment, then you may consider the evidence of similar acts allegedly committed on other occasions, to determine, one, whether the defendant had the intent necessary to commit the crime charged in the indictment; two, whether the defendant had the motive to commit the act charged in the indictment; or, three, whether the defendant willfully committed the acts for which she is on trial, or rather committed them by accident, negligence, or mistake.

Id. at 257.

After the jury returned a guilty verdict, Daraio appealed. The Court of Appeals rejected Daraio’s arguments and affirmed her conviction. In determining the admissibility of the evidence at issue, the Court applied the following four-part test:

(1) The evidence must have a proper purpose; Id. at 264.

(2) It must be relevant; Id.

(3) Its probative value must outweigh its potential for unfair prejudice; and Id.

(4) The court must charge the jury to consider the evidence only for the limited purposes for which it is admitted. Id.

The Court held that the evidence of Daraio’s “history of non-compliance with the IRS” was relevant to prove willfulness and the lower court’s limiting instructions were adequate to prevent any unfair prejudice. Id. at 265. The Court also relied on precedent which held that ‘a defendant’s past taxpaying record is admissible to prove willfulness circumstantially because such evidence is indicative of intent to evade the tax system.’ Id.

Thus, the Court allowed the admission of evidence of defendant’s prior taxpaying records to prove the defendant’s intent to evade taxes.


© 2012 Nissenbaum Law Group, LLC