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Samick Musical Instruments Co., Ltd. v. QRS Music Technologies, Inc.

United States District Court, D. Nevada

August 17, 2017

SAMICK MUSICAL INSTRUMENTS CO., LTD., a Korean limited company, Plaintiff,
QRS MUSIC TECHNOLOGIES, INC., a Delaware corporation; THOMAS DOLAN, an individual, Defendants. QRS MUSIC TECHNOLOGIES, INC., a Delaware corporation, Counterclaimant,
SAMICK MUSICAL INSTRUMENTS CO., LTD., a Korean limited company, Counterdefendant.



         I. SUMMARY

         This case centers on a contract dispute between two musical instrument and technology manufacturers. The parties disagree about the meaning and application of contract governing the production and sale of pianos. Plaintiff/counter-defendant SMK argues that it was in harmony with the terms of the agreement. Defendant/ counterclaimant argues that manufacturer of the pianos here could not keep up with the tempo and must now face the music.

         Before the Court is a Motion for Partial Summary Judgment (“Motion”) filed by defendant/counterclaimant QRS Music Technologies, Inc. (“QRS”). (ECF Nos. 57, 58.)[1]The Court has reviewed the Motion as well as plaintiff/counterdefendant Samick Musical Instruments Co. Ltd.'s (“SMK”) response (ECF No. 73) and QRS's reply (ECF No. 81). For the reasons discussed below, QRS's Motion is granted in part and denied in part.


         A. The Parties

         QRS is a Delaware corporation that got its start at the turn of the 20th century designing and manufacturing player pianos. SMK is a South Korean musical instrument manufacturer and, importantly in this case, a major producer of pianos. The two companies entered into an agreement in 2007 that led to a legal dispute, which in turn was eventually settled through a 2010 agreement (“Agreement” (ECF No. 58-3)) - the subject of the current litigation. The Agreement includes a promissory note, a guaranty, and a production schedule. (ECF Nos. 58-5, 58-6, and 58-7 respectively.)

         B. The Agreement

         The Agreement requires QRS to make monthly payments of $40, 000 on a promissory note in the principal amount of $1, 000, 000, subject to the conditions discussed below. (ECF No. 58-5.) The Agreement also requires SMK to maintain certain inventory levels, as defined in a spreadsheet attached to the Agreement as “Exhibit D.” (ECF No. 58-7.) Specifically, the Agreement states:

SMK agrees at all times during the term of this Agreement to maintain an inventory in its warehouse in Gallatin, TN Pianos of the type and in the quantity set out in Exhibit D (the “Required SMK Inventories.”). Exhibit D shall specify a quantity of Pianos which shall not exceed the following during the following periods: (a) January 1, 2010 through June 30, 2010 - 250 units of the specified mix; and (b) July 1, 2010 through December 31, 2010 -320 units of the specified mix. The Parties shall on a quarterly basis discuss the requirements set out in Exhibit D and if QRS has not purchased at least 150 units during the most recent quarter and there is mutual written agreement, the Parties shall amend Exhibit D.

(ECF No. 58-3 at 4 (referring to “Exhibit D” (ECF No. 58-7).) The parties intended for the schedule in Exhibit D to be based on the parties' past manufacturing and purchasing history. (ECF No. 58-15 at 4, 8, 9.) QRS created Exhibit D and did not actually produce Exhibit D for SMK until after the Agreement was executed. (ECF No. 73-8 at 6.)

         The Agreement defines two types of default in relation to the inventory levels set out in Exhibit D - “Required Inventory Default” and “Continuing Required Inventory Default”:

If (a) as of the first business day of any calendar month SMK fails to have in its Gallatin warehouse the number of units specified in Exhibit D as to 25% of SKUs specified in Exhibit D (with an allowed variance of plus or minus 20% of the required number of units of any particular SKU) or (b) on every day during any calendar month, SMK shall fail to have at least one of each SKU listed in Exhibit D, THEN it shall be deemed to be in “Required Inventory Default.” If SMK is in Required Inventory Default for three succeeding calendar month, it shall be deemed to be in “Continuing Required Inventory Default.” The remedies for such Required Inventory Default and Continuing Required Inventory Default are set forth in the Promissory Note and incorporated here by reference.

(Id.) The remedies contained in the Promissory Note are as follows:

Notwithstanding any provision herein to the contrary, Maker [QRS] shall have no obligations to make any payment hereunder until Payee [SMK] has met for three succeeding months the Required SMK Inventories requirement as defined in the Agreement (as defined below). All obligations of Maker to make monthly payments shall be suspended during any period that Holder is in default pursuant to the terms of that certain agreement by and between Maker and Holder a copy of which is attached hereto as Exhibit A (the “Agreement”). Without limiting the generality of the preceding sentence, payments shall be suspended during any period that Holder is not in compliance with paragraph seven (7) of the Agreement. During any such period that payments are suspended, no late charge shall be imposed and no guarantor of this note shall have any obligation to make any payment to Holder. If SMK is in Continuing Required Inventory Default as that term is defined in the Agreement and which definition is incorporated by this reference, payments for the particular 3 month period are forgiven and forever discharged.

(ECF No. 58-5 at 3.)

         The Agreement also states that QRS will provide technology called PNOScan units to SMK to be incorporated into pianos that QRS intended to purchase. (Id. at 4.)

         C. Performance

         The parties never amended the Agreement or Exhibit D. (ECF No. 58-12 at 3; ECF No. 58-15 at 5.) SMK did not meet the inventory requirements in the Agreement during February, March, and April of 2010. (ECF No. 58-13 at 1.) SMK sought to amend Exhibit D, but QRS refused. (ECF No. 58-15 at 5.)

         In what seems to be the central misunderstanding in this case, the two parties understood QRS's obligation to make monthly $40, 000 payments differently. SMK believed that QRS was required to make monthly payments regardless of any other conditions. (ECF No. 58-12 at 2.) QRS believed it was only required to make payments if SMK complied with the inventory requirements in Exhibit D. (ECF No. 58-15 at 6.) Nonetheless, QRS made ten $40, 000 payments (for a total of $400, 000) over the course of 2010, which it claims were in response to SMK's demand for payment before it would ship any pianos. (Id.) QRS purchased a total of 436 pianos from SMK in 2010. (Id. at 10.)

         QRS agreed to send SMK 2000 PNOScan units to SMK at a rate of $210 per unit. (ECF No. 58-19 at 3.) However, QRS ended up sending only 1792 units, 208 units short of the agreed upon amount. (Id.) QRS also sent SMK technology called PNOmation kits with adapters to be incorporated into pianos which it intended to purchase. (ECF No. 58 at 13.)

         SMK filed suit in December 2014 asserting a number of contract and contract related claims. (ECF No. 3.) QRS asserted five counterclaims based on breach of contract and related legal theories. (ECF No. 23 at 23-27.) QRS now asks the Court to grant summary judgment, in one form or another, on SMK's first, second, third, fourth, fifth, sixth, seventh, eighth, ninth, eleventh, and twelfth causes of action, reserving for trial only the determination of the value of 44 consignment pianos and QRS's counterclaims. QRS also seeks summary judgment on two of its counterclaims. (ECF No. 58 at 25-27.)

         III. ...

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