4Kids Entertainment, Inc. (Pink Sheets: KIDEQ), the global children’s entertainment and merchandise licensing company, announced today that on December 29, 2011, the United States Bankruptcy Court for the Southern District of New York ruled in favor of 4Kids in the first phase of the trial of the lawsuit brought by the licensors of the Yu-Gi-Oh! property, Asatsu-DK Inc. (“ADK”) and TV Tokyo Corporation, (collectively, the “Plaintiffs”) against 4Kids.
In its 154 page decision, the Court ruled that the Yu-Gi-Oh! property license agreement (“Yu-Gi-Oh Agreement”) between the Plaintiffs and 4Kids was not effectively terminated by the Plaintiffs prior to the 4Kids’ bankruptcy filing on April 6, 2011; rather, the Yu-Gi-Oh! Agreement remains in full force and effect and is property of the 4Kids’ bankrupt estate. In addition, the Court’s opinion carefully considered each of the Plaintiffs’ nine audit findings totaling over $4.8 million and concluded that audit findings totaling approximately 99% of the amount claimed by the Plaintiffs were “meritless.” The remaining two audit claims totaling $47,825.17, which 4Kids does not dispute, were offset by the roughly $1.8 million credit balance in favor of 4Kids as of March 24, 2011, the date that the Plaintiffs sent 4Kids the notice of termination.
The decision also questioned the Plaintiffs’ “good faith” in purporting to terminate the Yu-Gi-Oh! Agreement on the basis of dubious audit claims and dismissed the Plaintiffs’ breach of trust allegation against 4Kids commenting that “if anyone is the victim of a breach of trust in this matter it is 4Kids.” The second phase of the trial to determine the damages payable to 4Kids arising from Plaintiffs’ purported termination of the Yu-Gi-Oh! Agreement has not been scheduled but is expected to commence as early as the first quarter of 2012.